Outlook: LSE failure

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ANOTHER big-picture financial story in the news this week was venture capital. This has become a bit of a hobby horse for Tony Blair and his Chancellor, Gordon Brown. They want the City to do more for start-up businesses and they've been active this week in promoting a number of initiatives aimed at tackling the perceived nature of the problem.

What better opportunity, you might have thought, for the Stock Exchange to come forward with a raft of ideas for encouraging risk-taking investors? Lamentably there has been nothing but a deafening silence.

There is growing concern in the City at the Stock Exchange's slowness in responding to demand for a new market specifically tailored to the needs for growth companies and their investors. Ministers like to look to the United States for the model of how to run a dynamic creative capitalist economy. But maybe they should try a more unlikely place - Frankfurt, right at the heart of corporatist Germany. Its own version of Nasdaq, the Neuer Markt, has been a rip-roaring success.

Unlike AIM, which has become a repository for companies that cannot get a full listing, or those desperate to get on to the main market at the first opportunity, the Neuer Markt has from the start targeted hi-tech Internet and computer software stocks who wanted something racier than the main board. Now it has a momentum of its own.

A Neuer Markt float is the nearest thing this side of the Atlantic to a .com label in the United States. Some of its perceived success is marketing hype. Werner Seifert, who runs the Deutsche Borse, is an ex-McKinsey man who understands the virtues of salesmanship and presentation. But he also seems to have grasped better than his British counterparts that unless stock exchanges find new reasons to exist, they will soon be superseded by commercially driven quotation systems and the Internet.

The Stock Exchange is as aware as any of the Neuer Markt's success, but perhaps for reasons of pride, it seems to recoil from copying it. In any case there are bigger fish to fry, seems to be the attitude. Gavin Casey, the chief executive is devoting most of his time to the grand scheme of creating a pan-European big cap stock market.

Such a trading platform may be what the big investors want, but the most basic reason for a stock exchange is to bring investors together with businesses that need capital. Mr Casey loses sight of that at his peril.