Orders of the Day — Restrictive Trades Practices (Stock Exchange) Bill

Part of the debate – in the House of Commons at 7:11 pm on 22 November 1983.

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Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East 7:11, 22 November 1983

I accept that point and I am grateful for my hon. Friend's clarification.

I declare an interest as a member of the stock exchange and I emphasise, because it is easily misunderstood, that any comments that I make are entirely personal. I am also associated with a firm that is connected at a senior level with the stock exchange council. Anything that I say tonight will be the thoughts of someone who has, over the years, been able to become to some extent a more detached outside observer while remaining part of the industry, if that is not a contradiction in terms.

I am entitled to complain about the obscurity of the speeches from the Opposition Benches in this debate. Hon. Members seemed to be trying to get the best of both worlds. First, they castigated the Government for doing a sensible and practical thing to avoid all the complications of excessive time, the freezing of decisions and the vast expense already incurred, let alone that which is to flow afterwards. Doing all those things and taking a pragmatic and sensible decision, as has been borne out by my right hon. Friend the Secretary of State, will lead to a considerable opening up and liberation of an industry in which the rules and regulations have been too great in certain aspects, while at the same time protecting the outside investor, particularly the small investor — the man or woman in the street. That must remain a priority for anybody concerned with running, reforming and modernising this industry in the future, and that includes the Government.

There are other aspects, as would become clear in any examination, including that by the Department of Trade and Industry, that have, over the years, ceased to be useful in changing circumstances. The previous Secretary of State for Trade and Industry, my right hon. Friend the Member for Hertsmere (Mr. Parkinson), who has contributed to the debate, got it right in his announcement on 27 July. He spoke of the changes, and highlighted the most important, the dismantling of fixed minimum scales for commission. He then said: I believe that these changes are to be welcomed, and would enable the Stock Exchange to continue to adapt in an evolutionary manner to changing circumstances while maintaining proper regard for the needs and protection of investors. The next step will be for the membership to approve the necessary changes to the Stock Exchange deed of settlement."—[Official Report, 27 July 1983; Vol. 46, c. 1195.] That process has already occured.

Anxieties of one kind or another have been expressed from both sides of the House from hon. Members representing all parts of the country and many different views. The chairman, in his circular to members of the stock exchange dated 30 September, referred particularly to the anxieties of members. I quote this circular as well because it is relevant in this context to the changes which, as another hon. Member has already pointed out, are accelerating in an interesting and constructive fashion. He said: Most of the worries have, as expected, centred around the effects of the dismantling of minimum commissions. I told you in my first letter"— also to members of the stock exchange— that I had made it clear to the Government that there are substantial risks to the structure of the securities industry which this change might provoke. Members are rightly concerned about the possible effects on the single capacity trading system, on the Compensation Fund and on other measures which we enforce in order to ensure the continuous liquidity of the market and the protection of investors. Members appear to be concerned, and rightly so, that the Council should maintain control over the speed and direction of change and are also inevitably concerned that the Council have been unable to publish details of their intentions before the E.G.M. Those changes, with further clarification and elucidation at the meeting of members, were overwhelmingly approved, although a very small proportion voted against. Naturally there are still anxieties, because by definition the future is unascertainable and nobody knows how these things will develop precisely.

I am convinced that these changes, subject to all the complicated details that will flow, the main one being the dismantling of the minimum commissions, will be good for investors, good for the public, good for the stock exchange and the security industry as a whole, with the new elements coming into it, and will, on balance, be a major step of reform in this country. The changes are constructive and modern and show that this financial industry — we are proud of our financial sector in general, in the City and elsewhere—can internationalise itself and defend itself, the public and investors, while being competitive and showing that it is a developing world organism and not just an internal organism.

We shall be interested to look back on this period and on the sagacity of the Government's decision to intervene, which was not a light decision but one taken after extremely careful thought, and which has interrupted a process that had all the makings of a cumbersome, extremely expensive process that was unsuitable for the business of examining this particular and fairly esoteric industry. We could not at this stage or even then have anticipated the results of such an examination. Who knows but that the Restrictive Practices Court may have decided that the main elements in the stock exchange rules were justifiable and in the public interest.

It is a general opinion, in all parts of our society and transcending political parties, that the industry needs to modernise itself and that the dismantling of fixed minimum commission would be on balance a good thing for the public, subject to all the necessary protection and framework of protection for the investors and so on.

Solicitors should be careful about condemning future developments since they are unwilling to subject themselves and their activities to a similar process. Despite the initial anxiety, there is growing enthusiasm among members of the stock exchange, stockbrokers and representatives of member firms when they see the potential of those developments to serve the public interest more realistically.

The other part of the great debate is connected with fixed commissions. The right hon. Member for Bethnal Green and Stepney (Mr. Shore) asked what will happen to single capacity. The Government have opened up sweeping changes, but they say that the stock exchange was right to allow time for the process to be carried out so that profound thought could be given to each stage. Although we do not know what will be the future of single or double capacity, it seems that the Government, the securities industry and other observers of the scene have reached the conclusion that single capacity will also end.

I would welcome the ending of the single capacity system, for the reasons specified by my hon. Friend the Member for Chichester (Mr. Nelson), who said that we must open up those activities and bring in the firms involved in the securities market that are not yet formal members of the stock exchange, provided that the small investor does not suffer from such a development. The entire process will give the public a better service—I am talking not only about the giant institutions but about ordinary investors—and it will help, notwithstanding the complexities of any future EC directives, to create the essential development of a Community securities industry and a Community stock exchange. It is crazy in 1983 to consider that the stock exchanges of the member states are completely separate, endowed only with their own traditions and nothing else, and that there can be no modernisation or agreements made between them for the good of the European investing public, because with the end of exchange control we can now invest in other European countries.

A complicated terrain is unfolding for the future of the stock exchange, and we should dwell on that with some open-ended enthusiasm, although we may not be sure of its detailed future structure. In 10 years time, the stock exchange will be very different from what it is now.

Many people will welcome the fact that in future jobbers and brokers will develop joint firms, and the House should also look forward with interest and enthusiasm to the fact that foreign interests may come in. The more people who enter the industry from outside, even if they come from abroad, to take stakes in member firms —with essential protections always being maintained—the better and stronger the industry will be. As my right hon. Friend the Member for Hertsmere said, the idea that all the banks and great corporations in the United States and in Japan are giants, but that all British financial corporations are puny and cannot have the same interest in this area, is absurd.

I welcome wholeheartedly the Government's bold and significant step to open this area to an era of modern, 1990-style competition which will serve the public well and which will show once and for all that we could have saved the millions of pounds that have already been spent on the Restrictive Practices Court exercise, which included much Government money — I doubt whether the £500,000 that we have heard about will be the full amount of Government money saved — and the vast amount of money spent every day by the stock exchange. We have saved part of the enormous sums that would have been wasted had the absurd exercise with the Restrictive Practices Court gone ahead. Now we can begin an exciting new era of competition, liberation and justice for the investor.