SPEECH BY CHIEF SECRETARY ANDREW SMITH
WORLD'S STOCK EXCHANGES CONFERENCE
7 FEBRUARY 2000
1. Thank you for inviting me to join you today, to discuss the strategic
challenges facing the worlds' stock exchanges.
2. This morning, I want to talk about the new economic realities
of the global market place, what opportunities these hold for us,
and how we need to embrace these opportunities through economic reforms
both in our own countries and throughout Europe if we are to meet
the challenges ahead.
3. To say the world economy is changing rapidly is somewhat of an
understatement. Some people now talk of the speed of change not in
terms of hyper-speed but at 'Internet speed'.
4. We all have our own favourite examples. $1.6 trillion traded
every day on the foreign exchanges. US software companies who e-mail
their problems overnight to firms in Bangalore, and get a solution
by breakfast time. Over 10 per cent of world trade projected (by some)
to be carried out over the Internet by 2005.
5. National economies used to be relatively sheltered, with barriers
behind which governments and businesses could hide their mistakes.
Today the world economy has been transformed to a global market place
where funds the size of the output of small countries are whizzed
around the financial system at the click of a mouse - or even now
a mobile telephone button.
6. These new realities are bringing exciting new opportunities for
7. Firstly, there are great new opportunities for countries to provide
broader, deeper and more efficient capital markets across the global
economy. And in turn, this offers:
- better and cheaper access to capital for established firms looking
to invest and grow;
- it means better access to capital for start-ups and growing firms,
particularly in high-technology sectors;
- and it means more security and diversity for savers and investors.
8. Secondly, there are new opportunities for exchanges. The costs
of entry for new exchanges are now much lower. We now have innovative
ways of trading, such as through Electronic Communication Networks
and Alternative Trading Systems. It is estimated that already 5 per
cent of European equity trading is carried out through new electronic
share trading organisations.
9. Thirdly, there are new opportunities for individual and business
investors. The massive growth in the use of the Internet has provided
investors with access to vast amounts of information, including realtime
data and direct access to markets
10. Here, I want to endorse the Financial Services Authority message
to investors that everyone needs to think carefully about the risks
as well as the benefits involved before deciding what shares to buy
and how many.
11. As a famous communications consultant once said, "An idiot with
a computer is a faster, better idiot."
12. But apart from providing opportunities, these new realities also
create new responsibilities and rights for everyone.
13. Governments have a responsibility to ensure the right kind of
regulatory environment for the capital markets. Regulation must allow
for the free play of competition and innovation, ensuring the market
is in a position to provide what the consumer wants. The regulatory
regime must be transparent. And above all it must command the confidence
of the industry and its customers.
14. Here in the UK, we are very proud of the fact that the City of
London is one of the largest and most technologically advanced financial
centres in the world. The City is a great asset not only to the British
economy but to Europe and the global economy too.
15. Indeed, London remains the major market for international equities,
with 497 listings from 60 countries, more than any other stock exchange
in the world. Late last year, NASDAQ confirmed the City's pre-eminence
when it announced that its European exchange is to be based in London.
16. When we came into Government two and a half years ago, we were
determined that the City and indeed all financial services across
the UK should have a world class regulator for our modern world class
17. We wanted to create a modern regulatory framework for the industry
both today and for the years ahead. We are all aware of the dynamic
pace of change and old boundaries blurring between traditional sectoral
divisions in financial services, as well as IT and the Internet.
But reform was necessary not just because of the domestic needs of
industry. The need for international cooperation and a regulatory
system that can deal with complex international dealings had also
become increasingly urgent.
19. Previously, we had no fewer than nine separate financial regulators.
It wasn't uncommon for large institutions to find that they were regulated
by many or most of them, usually requiring several different systems
to cope with their demands. That distinction between regulators, especially
for consumers had become confusing. And the costs escalated.
20. The case for a single regulator was clear. And that is why we
have brought all the different regulators under the one roof of the
Financial Services Authority.
21. Our watchwords are light touch regulation where possible, consumer
protection where necessary.
22. Our single regulator, the FSA, will also operate under a single
body of legislation. The extent and nature of regulatory intervention
will be judged - and any such intervention will be proportionate -
according to the nature of activity undertaken by market participants.
For example, different regulatory institutions or different legislation
won't any more tilt the playing field between banks, securities firms
and insurance companies all operating in the same savings markets.
23. There is interest in the reforms from all over the world, and
a number of countries have already followed our lead, including Ireland,
Korea and Japan.
Other related UK reforms
24. Outside the financial sphere, Governments now need to focus on
equipping individuals and businesses for the new economy in which
we'll be living and working.
25. And that means improving education; broadening access to the
new technologies; stimulating competition; and encouraging innovation
26. In the next few years the rate of innovation will continue to
accelerate. The rewards for exploiting good ideas will be even greater.
Of course, the corollary is that the penalty for not doing so will
also be greater.
27. Countries will need to be able to make use of inventions and
innovations faster and faster.
28. That is why we are committed to higher levels of entrepreneurship,
investment and risk capital - particularly for our small high-growth
29. Because new businesses are by far the strongest source of job
creation in the new economy. We must ensure they have access to the
capital they need to continue their vital role in the economy.
30. So to encourage investment in new smaller businesses, we have
cut small business tax from 23p to 20p, and introduced a new starting
rate for small companies of 10 pence in the pound.
31. We now also have the lowest rate of corporation tax in British
history - the lowest rate of any major industrialised country anywhere
- including Japan and the US.
32. And to encourage managers who already have a successful track
record to play a leading role in building up small high-risk companies,
we are introducing a special Enterprise Management Incentive plan
- which allows up to 10 key employees in growing companies to be given
options up to £100,000 of shares, free of income tax - a one
million pound tax incentive to help those businesses grow.
33. On top of that, we are introducing the most generous 'new all-employee
shares plan' a British government has ever introduced - one that offers
significant tax benefits to both employees and companies.
34. Our target is to double the number of companies offering all-employee
share ownership schemes. We want widespread and long term shareholding,
and to encourage the new enterprise culture of team work where everyone
contributes and everyone benefits from success.
35. These measures will help small companies flourish, encouraging
investors to provide the equity investment and risk capital those
companies need. The reforms compliment the market-led innovations
such as the successful introduction of Techmark by the London Stock
European capital markets
36. Turning to Europe, capital markets are already converging and
integrating. But there is still much more scope for further innovation,
and to extend the benefits of novel financial products and delivery
channels to a much wider range of EU consumers.
37. We have an historic opportunity to reach out for meaningful capital
market reform at the Special Summit in Lisbon in March .
38. European countries now need to focus their attention, we believe,
on three fronts:
- First, we must set out sights firmly on developing an efficient
pan-European capital market by 2003. In particular:
- Second, we must push for completion of a competitive EU retail
financial services market to maximise consumer choice;
- And third, we need to take positive action to develop a fully integrated
pan-European high risk and venture capital market, removing the remaining
obstacles to the creation of a wider and deeper venture capital market
39. With those reforms, Europe will be ready and able to go beyond
its current global standing to move ahead in the new economy of the
future. Without them, Europe will find it increasingly difficult even
to stand still.
40. The new economic realities and changes are really quite profound.
No one can claim to know what the future might hold.
41. But one thing is sure. The ones who will win from the new realities
will be those who see them as opportunities and not threats.
42. That goes for individuals, businesses, exchanges and governments.
43. There will always be those who resist change. Who prefer to maintain
the status quo whatever the outcome. We must overcome such resistance,
reforming our financial and capital markets with zeal and embrace
the future with confidence.