“We are using legal and regulatory reform, going alongside the shift in cultural mindset and market practice, to make sure that we increase investment in British business, we increase wealth for ordinary retail investors and we increase the size of the economy.”
The reforms have been welcomed by the industry, who say it is a step in the right direction. Citi’s Lee says: “If we want to attract and keep growth companies in the UK we have to provide the right type of domestic demand.” But she adds: “This is not going to be fixed in a year.”
Charles Hall, head of research at Peel Hunt, said last month: “Traditionally there’s been a view that you just let equity markets get on with it and they just reflect what’s going on elsewhere.
“Increasingly, there’s a view that you need to nurture your equity market. We are operating in a global capital market and if we don’t nurture our equity market, it will be somewhere else.” The so-called British ISA is an example of one of the initiatives underway to try and spur buying of UK shares.
By making it more attractive for ordinary investors to buy British stocks, the hope is it will help drive up prices, increase demand and create a virtuous cycle to take London back to the top.
Prime Minister Rishi Sunak, who formerly worked at Goldman Sachs and hedge fund TCI, has done his best to give momentum to the proposals. Earlier this year he hired former Morgan Stanley banker Franck Petitgas, who was present at Tuesday’s meeting, as business and investment adviser.
French-born Petitgas worked for the Wall Street bank for more than three decades, giving him credibility in the world of global finance.
The London Stock Exchange itself is also ramping up efforts to improve its standing, with chief executive Julia Hoggett constantly working the City circuit banging the drum for the benefits of listing in Britain. While listings were down, the total capital raised in London, which includes new listings and money raised from existing companies, was up 30pc last year.
“The London Stock Exchange remains the leading capital raising venue in Europe by pretty much any measure – that has been the case for decades and remains true today,” she says.
“Markets globally have been subdued for the past couple of years, impacted by a number of factors including rising interest rates, inflation and geopolitical uncertainty.”
More at stake
The London Stock Exchange is the poster child for Britain’s financial markets and has become a barometer for its success or otherwise.
However, there is another Brexit-hit industry facing bigger concerns. Interest rate swaps represent the world’s largest financial asset and London has been a regional hub for their trade for decades.
But London may lose its important role as Brussels seeks to wrestle control of the lucrative market. The UK is set to lose the right to clear swaps priced euros from June 2025, with EU officials keen to repatriate the €735 trillion market.
The US has been offered a special status which allows euro swaps to be executed in America, meaning Europe’s swaps could move to New York.
The loss of such an important market because of Brexit could hurt the UK much more than the stock market, says Rolet. “All that attention is given to equities because they’re a symbol but they are microscopic compared to interest rate swaps,” he says.
“The G20 basically clears in London. It’s a quadrillion dollars a year of notional risk. That is the big prize and the big winners could be the US investment banks.”
Afolami says the Government was “ready to work” with the EU to make sure clearing is “regulated and supervised sensibly”.
“Equivalence is a unilateral decision by the EU. It’s a global norm to allow market infrastructures from other jurisdictions and to not do that would inhibit the global financial system.”
Talks between Afolami and his EU counterparts continue but Brussels has so far not signalled it is willing to grant equivalence.
As the bankers trooped out of the Treasury on Tuesday, there was optimism in the air. For London’s sake, it needs to work.
