A Stock Exchange for Scotland: Early Background Research November 2018

A Stock Exchange for Scotland: Early background research November 2018

Roger Mullin, John Millar, Michelle Thomson © Roger Mullin, John Millar and Michelle Thomson 2018

The authors have asserted their rights to be identified as the authors of this work.

ISBN 978-1-68454-770-8

Published by Momentous Change Ltd

Design by Saltire Graphics MOMENTOUS CHANGE LTD

Authors 4 Exit strategies – trade sales 19 IPOs – the less favoured path 20 Foreword 5 Outlook 20

Chapter 1: Chapter 5: Introduction 6 Reviewing selected Advantages of having stock stock exchanges 21 exchanges 7 A modern context 21 The proposition 9 Scotland’s future 21 Sustainable Growth Commission 22 Chapter 2: A brief history Key data on exchanges 23 of Scotland’s Impact for Ireland 24 stock exchanges 10 Motivation factors for listing 25 Early share trading and the first Stock Exchanges 10 Chapter 6: The growing importance of Key Sectors 27 the Scottish Stock Exchanges, Global trends and indices 28 1840-1900 10 Maturing markets 28 The Scottish stock exchanges in the 20th Century 12 Entrepreneurship 29 A lasting legacy 14 Scotland 30 Financial services 30 Chapter 3: Energy 30 Investment management in Scotland – a global Life Sciences 31 success story 15 Food and drink 31 The origins of Scottish fund Tourism 32 management 15 Creative Industries 32 A distinctively Scottish approach National Policy Priorities 32 – long-term, responsible and engaged 16 New National Performance Framework 32 Impact investing – the next opportunity 17 In summary 33 Aligned values 17 References 34 Chapter 4: Private Equity in Scotland – Investments and Exits 18

Private equity in Scotland –

CONTENTS a large and growing presence 18

3 4 AUTHORS workstream. and iscurrently leading ontheirContracts Parliamentary Group for Fair Business Banking been appointed as Ambassador for theAllParty stepping down from parliamentin2017 shehas which achieved nationalprominence. Since Committee, leading ona range ofinquiries Business, Energy &IndustrialStrategy Select was akey memberofparliamentservingonthe breadth ofexperience inprivate business. She IT, property andthecreative sector as well as a Michelle has abackground infinancialservices, Michelle Thomson based inEdinburgh. manager for two investment management firms Prior to thisheworked for 24 years as aportfolio to theScottish asset managementindustry. is lookingatanumberofstrategic topics relating Edinburgh Business Schoolwhere hisresearch John isadoctoral researcher attheUniversity of John Millar Explosive Threats. supports theAllParty Parliamentary Group for of theBoard for Revive Campaign Ltd which parliament in2017 hehas beenappointed Chair and AsianDevelopment Bank.Since leaving assignments for UNagencies,theWorld Bank parliament, heundertook 27 international vastly experienced researcher. Before entering of theSustainable Growth Commission, anda Stirling’s ManagementSchool,aformer member Roger isHonorary Professor attheUniversity of Roger Mullin his foreword andinternational insight. With thanksto DrJimWalker, ChiefEconomist ofAletheia Capital Ltd for MOMENTOUS CHANGE LTD

When I moved to Hong Kong for opportunities to invest in 28 years ago it was my first step their start-up and established into the world of stockbroking. companies. Of course, I knew a bit about the ‘Dark Side’ – investment Not all are particularly successful banking and broking – from my but they all understand the three years working at a large advantage of broadening capital commercial bank in Edinburgh but, markets. By so doing they increase truth be told, I had no clue how the sources of funds for their stockbrokers operated or what domestic companies, they attract they actually did. attention and they attract foreign money. Twenty-eight years later and some parts of the broking world still Unlike these emerging markets remain a mystery to me but from Scotland is already rich and has a an economics perspective the fully functioning economy and, in benefits of functioning capital all fairness, there are a number of markets are quite obvious. rather large stock exchanges only 400 miles south. Countries with an undue reliance on the banking system – and by But that is the point. There are that I mean the companies that stock exchanges in London that operate within these countries compete with each other in the – as a source of capital find capital-raising business. Some that the entrepreneurial spirit is have specialist niches, others are suppressed and economic growth global in reach. is curtailed. From nothing in 1990 China The establishment of a stock now has three functioning stock exchange unleashes a dynamism markets all serving different that can scarcely be imagined by purposes. The Stock Exchange for the layman. Scotland need not compete with London; it can complement it and, As the authors of this report to at the same time, serve Scottish establish a Stock Exchange for companies directly. Scotland point out in Chapter 5, the economic benefits flowing from In this time of global capital flows a stock market activity are many and new Stock Exchange for Scotland well-established.It is also a chance is a golden opportunity for to put Scotland firmly on the world Scottish enterprises to make their map. mark and broaden their appeal internationally. Good luck to the Countries like Indonesia, Malaysia, venture. the Philippines, Thailand and Vietnam (my areas of expertise) Dr Jim Walker are visited by thousands of Chief Economist fund managers from around Aletheia Capital Ltd

FOREWORD the world each year searching Hong Kong

5 “I would welcome the return of a Stock Exchange to Scotland especially if it returns with the highest possible emphasis on its core functions of: - raising capital, - enabling companies to buy productive assets and grow in Scotland and - ensuring liquidity... and commits itself to helping Scotland retain much more of the wealth that it generates.

Jim Mather

Former Minister for Enterprise Energy and Tourism Visiting Professor at Strathclyde and“ Heriot Watt universities

This is the report of an initial piece School, Roger Mullin of of research commissioned by Momentous Change Ltd and Kirkman Ltd. The research for this Michelle Thomson of Momentous report was conducted in the period Change Ltd. Roger Mullin was the 9 – 20 November 2018. overall lead and editor in charge of this report. Momentous Change Ltd was invited to undertake this study An overarching aim was to explore and they recruited the assistance areas which may be followed up by of Edinburgh University Business more substantial research at a later School. Those conducting date. The expectation was this may the study were John Millar of involve the following:

CHAPTER 1: INTRODUCTION Edinburgh University Business

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n The dates of foundation and Scotland would not be able to host the securities lists of each of an effective and sustainable stock the Scottish exchanges in 1971 exchange. showing the big old names but also the sectors of industry that were publicly capitalized. Advantages of having stock exchanges n Analysis of the size and frequency of trade sales and It is probably not fully understood exits to private equity and the by the general public what the dominant role they play in the advantages are of having a stock economy of Scotland. exchange. Stock exchanges are associated with wealth creation n Evidence of entrepreneurship in and investment, but they are much globally relevant sectors. more than that. In addition to the n Evidence of leadership in buying and selling of shares in asset management and impact listed companies, stock exchanges investing - Baillie Gifford, enable businesses to access Standard Life and Alliance Trust. capital and the opportunity to enhance their public presence. n Academic support of the growth Where there is intelligent economy by leading business leadership, businesses can use schools, ICAS, Law Society of the opportunities stock exchanges Scotland. bring, to grow and enhance their n Reference to Ireland and others companies. The financial and such as Portugal. regulatory costs involved can be seen as a good investment in While this report cannot claim to creating successful businesses of provide the last word on any of scale. these and related areas of interest, this short study has already begun Blissett1 has argued, for example, to highlight why reintroducing a that six of the main benefits to stock exchange, built on modern a business of a stock exchange lines, with a keen interest on listing are: impact investing, will be an n Access to capital important initiative for Scotland. It is interesting to note the range of n Enhanced profile supporting quotes we are able to cite in this report, as testimony to n Ability to attract better the goodwill that exists towards employees this initiative. n Increased visibility Some areas of research, such n Ability to maintain control as the views of a range of professional bodies, will require in n Reduction of the cost of other depth interviewing at a later stage. capital Others, such as performance issues in other exchanges will As we note shortly, the proposed require much greater data analysis. new stock exchange for Scotland, However, we believe this short will also have the additional drivers report already provides much of being able to invest in ethical, evidence that should dispel sustainable investments with any thought that, given good good corporate governance. This, leadership and management, arguably, is of growing relevance

7 8 CHAPTER 1: INTRODUCTION “ outside ofLondon. – thelargest UK financial centre be headquartered inEdinburgh delighted to seetheplansfor itto this announcement andam and thelegalservices. Iwelcome in theform ofcorporate financing also lostthelocal infrastructure ability to raise fundslocally –we organisations notonlylostthe Stock Markets. Whenthey closed historically hadquite anumberof Across thecountry Scotland Lord Provost of Edinburgh Frank Ross “ MOMENTOUS CHANGE LTD

in an increasingly discriminating Independent research undertaken market place. in a feasibility study showed clear, and to date unsatisfied demand for issuers and investors The proposition based in Scotland who want to The proposition is to create an invest in pro-social companies international stock exchange based and operating in their local based in Scotland offering a communities. There is cross party channel for international and political support in Holyrood and domestic investors into the Westminster with a strong view Scottish economy. Trading will be that the exchange is “necessary”. in debt, equities and investment The exchange will offer investors trusts. the ability to invest in Ethical, The exchange, based in Edinburgh Social and Good Corporate will provide a secure investment Governance (ESG) investments. route in the form of a sophisticated This too brings benefits to and market ready regulated trading corporations, investment funds platform. Plans are already in and local authorities to become place for representative offices in certified for ESG investments. Glasgow and Aberdeen. The demand for ESG investments is growing and companies that The technical infrastructure uses a seek to list must provide an initial proven European model to provide impact assessment as part of the standard functions such as the admissions process. This listing, price dissemination, order- is also required to be updated, entry and execution, clearing resubmitted and published and settlement. The platform annually. offers access at better value than competitors by utilising the latest Over time, further localisation will cloud-based technology. be strengthened as the concept of municipal bond issuance The exchange will attract and build is developed to support local a renewed ecosystem of advisor initiatives and services. expertise for Scotland. Benefits will flow to issuers, intermediaries, The core launch team have corporates, investment trusts, retail proven expertise in this arena and investors, local authorities and evidence of previous successful other organisations. market launches. In addition to a conventional stock Scotland has set ambitious targets, exchange, additional services and particularly in the promotion support will be provided to bridge of a clean circular economy, the gap between companies clean energy sources and in and their shareholders. This will ambitious emission reduction connect companies with their targets. The Scottish Government community of stakeholders: has made a commitment to be employees, suppliers, customers aligned with the United Nation’s and investors, so that the business Sustainable Development knows who its owners are. Long- Goals by 2030 and the Scottish term holdings and the promotion Government has already backed of mechanisms to lock in capital the plan for an exchange as part will reward those with patient of its wider financial infrastructure capital to invest. development.

9 10 CHAPTER 2: A BRIEF OF SCOTLAND’S STOCK EXCHANGES There was asignificant increase situation hadstarted to change. By thenineteenth century the the fees charged were large. public record ofshare prices and of such transactions, there was no and seller. Dueto theadhocnature by anegotiationbetween buyer handled by lawyers withprices set transactions were typically insurance andshipping in activitiessuch as banking, joint-stock companies operating shares inthelimited number of opportunities to buy andsell century onwards, there existed From thelate seventeenth country more formal structures across the beginnings to theestablishmentof in Scotland, from itsinformal development ofshare trading This sectiontraces thehistorical for theirlong-term expansion. areas, providing thecapital needed companies operating intheirlocal needs oftheinvestors andofthe a valuable role inservingthe operating inmajorcitiesplayed almost 130 years. Stock exchanges until theearly 1970s, aperiodof exchanges from the1840s up Scotland hadanetwork ofstock and economic growth. supported entrepreneurial activity exchanges isahistory ofhow they The history ofScotland’s stock first Stock Exchanges Early share trading andthe 1973. London Stock Exchange inMarch absorption ofthelatter into the in 1971 before thesubsequent single Scottish Stock Exchange of theregional exchanges into a then examinestheconsolidation industrial base. Thediscussion the expansionofScotland’s these exchanges played infunding 2 . Itshows thecentral role 3 . Such one such boom Scotland in1824, atthetailendof first stock brokers appeared in share transfers. Soitwas thatthe specialise inthehandlingof the incentive for individualsto demand for shares andincreased of speculative boomsincreased private investors. Asuccession of opportunitiesonoffer to companies, increasing therange in thenumberofjoint-stock and commercial companies issued increasing numberofindustrial companies. Alongsidethis,an rate offormation ofnew limited was adramatic increase inthe introduction ofthe 1856 Act there and publicutilities banking, insurance, transport in service activitiessuch as in nature butinstead operated Scotland were notindustrial Scotland, mostcompanies in limited liabilitycompanies to Act of1856 whichintroduced Prior to theJoint Stock Companies Exchanges, 1840-1900 of theScottish Stock The growing importance 1879 andGreenock in1888. exchanges followed, inDundee and Aberdeen in1845 in Glasgow andEdinburgh in1844 the first Scottish stock exchanges This ledto theestablishmentof hours andunderestablishedrules. could becarried outduringset meeting places where transactions the establishmentofmore formal arrangements andresulted in strain ontheexistinginformal activity placed considerable railway network. Thisincreased fund therapid expansionofthe substantial fundswere raised to late 1830s, aperiodduringwhich railway boomwhichstarted inthe trading was furtherboosted by the The growing interest inshare 4 . 6 . Following the 5 . Two further MOMENTOUS CHANGE LTD

“Scotland had a network of

stock exchanges from the

1840s up until the early 1970s, a period of 130 years. “

transferable securities with the aim As Table 1 overleaf shows, railways of raising new funds for investment retained the dominant role in the or releasing the capital of existing Scottish stock exchanges, but owners. there was aggressive capital- raising in other areas; industrial The result was a huge increase in sectors such as brewing, distilling, the amount of capital raised on the engineering, textiles, iron and Scottish stock exchanges. In 1840 steel, and coal all raised significant there were 106 publicly listed joint- amounts of money from the capital stock companies in Scotland with market. a total paid-up capital of £18.6m. By 1900 these numbers had risen As an example, the family-owned to 520 publicly listed joint-stock Paisley thread manufacturer J & P companies in Scotland with a Coats took the opportunity to list total paid-up capital of £408.1m, their company in 1890 as a means increases of 390 per cent and of expanding their business and 2,094 per cent respectively over soon became established as a that 60-year period7. Scottish ‘blue chip’ firm10; by 1907 they had 17,000 shareholders11. One catalyst for these increases was the growing level of activity Beyond national borders, on the exchanges; membership substantial amounts of capital of the Glasgow Stock Exchange were also raised from Scottish rose from 49 in 1845 to 188 in 1900, investors to fund overseas while in Edinburgh membership ventures such as tea plantations, rose from 26 to 618. This reflected cattle ranches and mining the increasing public demand for operations. A large number of new company stock issued as private investment trusts was created firm or joint-stock companies which had a similar outward became aware of the benefits of orientation, making substantial public issuance as a means of investments in the North American raising capital which was cheaper railroads. and more flexible than other forms of finance9.

11 12 CHAPTER 2: A BRIEF OF SCOTLAND’S STOCK EXCHANGES Transport Table 1:Scottish Joint-Stock Companies, 1900 remained aneedfor aseparate based concerns meant thatthere moves towards large British- company formation andthelimited the vigourofScottish joint-stock Michie describes:“[u]pto 1900, lose theirdistinctive identity. As stock exchanges started to From 1900 onwards Scottish Century exchanges inthe20th The Scottish stock

Financial

Industrial Agriculture

Area ofOperation (Raw numbers) Commercial & Mining Urban Facilities Total

Railways Tramways Shipping Banking Insurance Investment Commercial Food &Drink Metal &Engineering Textiles Paper &Printing Building Materials Chemicals Gas &Water Services Property Municipal Securities regional expertisewas diluted: of local companies fell and drift to London” expanded, markets “tended to grew andinvestors’ horizons As thescale ofScottish companies world perspective” alone butgradually adopted a confined operations to Scotland enterprise northeScottish investor neither Scottish joint-stock Scottish stock exchange. However, Percentage 12 18% 5% 19% 7% 12% 3% 11% 73% 37% 11% 13%

11% 520 £408.1m 5% 2% 4% 6% 6% 4% 6% 6% 9% 3% 3% 2% 2% 3% 2% 2% 1% 14 . Theweighting Paid-up Capital 13 . 72% 4% 5% 3% 3% 2% 2% 1% 1% 1% 1% 1% 1% - - - - MOMENTOUS CHANGE LTD

over the course of the 1920s and Exchange did not join and closed 1930s Edinburgh lost its leading in 1965). The Scottish Stock positions in insurance shares and Exchange came into force in bank shares15. January 1964 with a membership of 200. Each of the exchanges Nonetheless the Scottish operated as before – a full merger exchanges continued to play an took place in April 1971 when all important capital-raising role. In share dealings were centralised in the 1926-29 boom there were over Glasgow. 200 new issues, 165 of them by Glasgow brokers. On either side of By June 1971 the membership of World War 2 there were on average this Scottish Stock Exchange stood 20-25 new issues a year, this figure at 34 firms; 20 from Glasgow, 8 rising to 60 in the 1960s16. from Edinburgh, 3 from Aberdeen, 2 from Dundee and 1 from Stirling17. Over time the need for the Scottish The exchange traded a relatively exchanges to merge became small number of bonds issued increasingly apparent. Following by British and Commonwealth the Jenkins report of 1962 the governments and primarily decision was taken to create a Scottish city corporations, county single Scottish Stock Exchange councils and public boards. The formed from the Glasgow, volume of stocks traded was much Edinburgh, Dundee and Aberdeen larger; the sector breakdown is exchanges (the Greenock Stock shown in Table 2 below.

Table 2: Sector distribution of the Scottish Stock Exchange, June 197118

Number of companies % of total Banks 9 1.6 Scottish Banks 2 Other Banks 7 Breweries, Distilleries, Etc. 21 3.8 Canals Docks and Harbours 2 0.4 Commercial, Industrial, Etc. 310 56.3 Financial Trusts, Lands and Property 21 3.8 Insurance 19 3.4 Investment Trusts 90 16.3 Unit Trusts 5 0.9 Iron, Coal and Steel 17 3.1 Mines 13 2.4 Oil 9 1.6 Shipping 9 1.6 Teas, Coffee and Rubber 24 4.4 Telegraphs and Telephones 1 0.2 Tramways and Omnibus 1 0.2 Total 551 100.0%

13 14 CHAPTER 2: A BRIEF OF SCOTLAND’S STOCK EXCHANGES of theFTSE 100index. Mortgage whichisnow amember trusts, mostnotablyScottish sizeable contingent ofinvestment is particularlyhighamongthe Weir Group. Thelevel ofsurvival Menzies, Scottish Television and These includeA.G. Barr, John retain astock market listingtoday. A numberofthe1971 names Rolls Royce. Imperial Chemical Industriesand alongside large Britishfirmslike brewers anddistillers. Thesesat Bonar, andasignificant numberof like Coats Patons andLow and James Howden, textiles firms Brown, Yarrow andCompany and and shipbuildingfirmslike John represented through engineering Scotland’s industrialbase was well sizes andlarge Britishconcerns. between Scottish firmsof various 1971 was somethingofahybrid composition oftheexchange in had happenedsince 1900, the Reflecting thechangeswhich membership of200. in January 1964 witha Exchange came into force The Scottish Stock “ the nation. contribution to theprosperity of they madealarge andlasting and furtherafield. By doingso of theiroperations inScotland innovate andto expandthescope businesses, enablingthemto of cheap andflexible capital to exchanges provided large volumes issuance ofnew stocks onthese investments onoffer. Secondly, the greatly increasing thevariety of expanded significantly over time, for aninvestor base which a growing range ofopportunities vital roles. Firstly, they provided and Greenock hadplayed two Edinburgh, Aberdeen, Dundee the stock exchanges ofGlasgow, years ofindependentexistence, Exchange in1973. Duringtheir130 merged into theLondon Stock The Scottish Stock Exchange A lasting legacy “ MOMENTOUS CHANGE LTD

Scotland has long been sector’s development: during this recognised worldwide as a centre period “the Scottish investment of excellence in investment companies significantly improved management. Figures from the the initial proposition and Investment Association (IA), the professionalised the process industry’s main membership body, based on fundamental analysis show that at the end of 2017 the and thoughtful, team-based assets managed in Scotland by investment decision-making”22. IA members amounted to £615bn, representing 8% of the UK total19. Pioneering investment trusts like This percentage rises sharply the First Scottish (established when measured by headquarters by Robert Fleming in Dundee in location: almost a quarter (23%) 1873) and the Scottish American of the assets managed by UK- Investment Company (launched headquartered asset managers in Edinburgh in the same year) are run by firms with headquarters adopted a long-term approach, in Scotland20. With clients located enabling local investors to invest worldwide, Scottish investment in opportunities which would managers have a substantial otherwise have been inaccessible. global footprint. The most notable examples were the North American railroads The scale and economic to which these and other trusts importance of these firms is provided significant capital. reflected in employment statistics. Figures from the same Investment The second group of formative Association report show total asset institutions was the Edinburgh- management industry employment based life insurance companies, of 13,100 in Scotland, 13% of the most notably Standard Life. In UK total21. This figure breaks down 1911 Standard Life established as 7,600 direct employees, and the new role of ‘investment 5,500 working in indirect activities superintendent’23, the first of such as fund administration several measures which saw them services. placing a far greater emphasis on their investing activities. This was The Scottish reputation for reflected by a shift in their asset excellence in fund management allocation away from Government derives from two distinct sources: bonds into the stocks and shares the historical lineage of today’s issued by a growing number firms, and their ability to adapt of listed companies. Again, the and to align themselves to provision of investment capital to the changing needs of their these companies was instrumental customers. to the latter’s subsequent growth.

The origins of Scottish fund The Scottish investment trusts management and life insurance companies of the past established a tradition Looking first to the past, two which can still be seen in the DNA groups of institutions laid the of today’s successful Scottish foundations for today’s Scottish investment firms: a long-term investment industry. The first was approach to investment, a sharp the investment trusts established analytical focus, an openness in Dundee and Edinburgh in to new opportunities, and, the 1870s. As Nigel Morecroft crucially, a responsible attitude

CHAPTER 3: INVESTMENT MANAGEMENT CHAPTER 3: INVESTMENT STORY SUCCESS – A GLOBAL IN SCOTLAND writes in his history of the to governance. The latter is

15 “Scotland has long been

recognised worldwide as

a centre of excellence in investment management.“

exemplified in the description of This ethos is the ‘golden thread’ the Edinburgh financial sector which connects today’s leading as “honest, competent, stable Scottish investors: firms like and conservative”24, though Walter Scott, Stewart Investors this description underplays the and Baillie Gifford have all entrepreneurial drive displayed by achieved significant growth in both the early industry pioneers their businesses by placing these and today’s leading firms. principles at the very core of their investment identities.

A distinctively Scottish Walter Scott defines its investment approach – long-term, philosophy as follows: “It is to responsible and engaged align our clients’ interests with companies that are capable of Particularly important in generating wealth over long differentiating Scottish investors periods of time”26. Central to this is from their rivals elsewhere has a commitment to “upholding the been their focus on long-term highest governance standards, investing and the responsible both at the firm and at the stewardship of their clients’ capital. companies in which it invests”27. In combining a long-term investment approach with Stewart Investors similarly principles of stewardship and describes its investment approach engagement, these firms can all as the management of “long-term be seen to have pre-empted one portfolios on behalf of [their] of the recommendations made clients”. In so doing the firm by Professor John Kay in his 2012 places a huge emphasis on “the Review of Equity Markets; for Kay principle of stewardship – careful, “[a]ny positive impact on company considered and responsible performance and overall returns management of our clients’ to savers must come through funds”28. All members of the investment research which aims firm’s investment team sign a to understand the activities of Hippocratic Oath which underpins the company and their long-term their individual and collective consequences, and from direct commitment to, among others, engagement with the company recognising that “our role within 25 CHAPTER 3: INVESTMENT MANAGEMENT CHAPTER 3: INVESTMENT STORY SUCCESS – A GLOBAL IN SCOTLAND itself” . society is to allocate capital where

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it can be used most productively Impact investing35 is defined by for the future benefit of all”29. ASI as “investing in companies and investment portfolios that With total funds under have the intention of generating management of close to £200bn30, positive social and environmental Baillie Gifford ranks among the impacts alongside financial largest managers of equities in the returns”36. As such it goes beyond UK. The firm has consistently been the environmental, social and a proponent of long-term investing, governance (ESG) analysis that as their “Shared Beliefs” document has become a common feature makes clear: “Successful active of investment decision-making; management is not easy; it requires rather than screening negatively dedication, independent thought and a long-term perspective”31. (to avoid companies falling More recently, the firm has coined short in specified areas), impact a new term to encapsulate what investing screens positively they do, that of ‘actual’ investment. for those companies which are This concept of actual investing making a positive contribution marks a reiteration of the same to society. In so doing there is a principles which motivated the first clear alignment with the emerging Scottish investment trusts, acting needs of investors, be they large “on behalf of clients to identify pension funds or socially-engaged and back fundamental investment individuals, and with the United ideas, not just try to outsmart other Nation’s Sustainable Development investors”32. Goals. As with the Scottish American Investment Trust and the American Aligned values railroads of the 1870s, the stated The Scottish companies named aim is to “develop great companies here and many others have that provide for the needs remained true to the traditions of and wants of people, thereby their ancestors while developing benefitting society as a whole”33. and refining their propositions to reflect their clients’ changing Impact investing – the next needs. By doing so they have opportunity built world-class investment businesses. The industry Another way in which the continues to evolve, and the Scottish investment industry of emergence of impact investing as today echoes its 19th century an increasingly mainstream activity predecessors is by developing offers firms new opportunities to new products which meet the build on their well-established changing needs of investors. resources and capabilities. A prime example of this is the growing market in impact Importantly, there is a clear investing. Aberdeen Standard alignment between investment Investments (ASI) has established institutions which recognise their itself as a leading player in this responsibilities as stewards of their area, a status confirmed by the clients’ assets and consistently recent decision of the directors demonstrate their commitment to of the Global Sustainability Trust long-term investing and the aims to appoint ASI as investment and values of the Scottish Stock manager of its new £200m Exchange. The opportunities for investment trust34. future partnership are clear.

17 18 CHAPTER 4: PRIVATE EQUITY IN SCOTLAND – INVESTMENTS AND EXITS strong supply ofrisk equitycapital recognised thataccess to a equity investors: “Itisnow widely important role played by private and colleagues describe the Professor Richard Harrison presence – alarge andgrowing Private equityinScotland listings ismuchlower. Importantly, thenumberofIPO are thepreferred methodofexit. positions, findingthattrade sales by whichinvestors exittheir years andexplores themeans equity investment inrecent demonstrates thescale ofprivate in Scotland. Thischapter of fundingfor young businesses Private equityisamajorsource “ Scotland. bring jobs andinvestment to Scottish Stock Exchange will have seriouslyconsidered. A been somethingthat we would Exchange, thenthat would have option ofaScottish Stock last year. Hadthere beenan on theLondon Stock Exchange We floated our family company Chairman, Springfield Properties entrepreneurial process” the catalytic role thatitplays inthe regional economies because of is importantfor nationaland played by private equityinfunding (BVCA) show theimportantrole Venture Capital Association Figures produced by theBritish reduced chances ofsuccess are greatly capital of expertise,know-how andsocial they are alsoinvaluable sources capital supply financial resources; Not onlydotheproviders ofrisk proportion ofintangibleassets. to lendto companies with ahigh capital as banksare often reluctant particularly reliant onthistypeof new forms oftechnology are growth companies developing Sandy Adam 38 withoutwhichfirms’ 39 . 37 “ . High- MOMENTOUS CHANGE LTD

businesses in Scotland. BVCA The table shows a steady members have invested in a total increase in the number of deals of 129 Scottish companies, which completed. The figures for total between them have aggregate amount invested are distorted by turnover of £4.04bn and 18,921 larger deals such as the £176m employees40. The revenue of these invested in FanDuel and £88m businesses equates to 2.6% of invested in TauRx in 2015 and the Scottish GDP41. £128m invested in Skyscanner in 201645. Excluding these, there is a As Harrison and colleagues significant step up in the amount make clear, the venture capital invested in 2014, with the £189m institutions which make up invested in 2016 representing a the BVCA are the most likely to new high.

Table 3: Aggregate risk capital investments, 2005-201644 Number Amount Amount invested of deals invested (omitting deals (£m) >£10m) (£m) 2005 177 82 82 2006 154 113 113 2007 144 114 114 2008 185 119 119 2009 166 106 106 2010 201 128 128 2011 140 90 90 2012 149 141 123 2013 149 215 128 2014 224 264 182 2015 214 472 176 2016 285 336 189 participate in larger transactions, Exit strategies – trade sales defined as those over £10m in size. Such deals rely primarily on capital Among those companies which have obtained external equity from outside Scotland42. However investment, market data show other investor groups are active a clear preference for sales to in the Scottish risk capital market; trade buyers or private equity as these include angel investors, the favoured means of exit. The founders and those hybrid frequency of IPOs is much lower. investors who combine financial criteria with policy returns43. It is not possible to show aggregate trade sales data as Table 3 above shows the total the value of such deals is often scale of risk capital investments in not disclosed. However Table 4 Scotland between 2005 and 2016, overleaf uses published figures to aggregating the figures for all show some of the most significant investor groups. sales over the last five years.

19 20 CHAPTER 4: PRIVATE EQUITY IN SCOTLAND – INVESTMENTS AND EXITS £655m. Miller Homesto Bridgepointfor was thesaleinOctober 2017 of such transaction inrecent times investor to another. Thelargest is asalefrom oneprivate equity alternative exitstrategy which These figures exclude an Table 4:Significant sales to trade buyers, 2013-2018 Exchange’s international market to list isAIM,theLondon Stock The simplestmarket onwhich an exitviaIPOismuchsmaller. companies offering investors By contrast, thenumber ofScottish path IPOs –theless favoured a whole growth businesses thantheUKas smaller buthigherqualitypoolof colleagues thatScotland has a the assertion by Harrisonand economy andonewhichsupports amount inproportion to Scotland’s deals aloneis£4.5bn,alarge the aggregate value ofthese value was announced. Even so, a smallerscale orwhere nodeal large numberoftransactions of largest deals; behindthere isa 2018. Thelistfocuses onthe buyers over theperiod2013- total numberofsalesto trade This isasmallselectionofthe FNZ Name Reservoir Group Ferguson Group Optos Iomet Pharma Company BenRiach Distillery Skyscanner FanDuel 49 . Activity Financial technology Oil andgas services Shipping containers Retinal imagingtechnology Biotechnology Whisky distillerandbottler Travel search technology Fantasy sports listed there Scottish-based firms are currently search ofAIMshows thatonly25 for smallergrowing companies. A bought by RBSinMarch 2018. on AIMinNovember 2016 andwas such as FreeAgent, whichlisted (There are examples ofotherfirms, listed since 2013 andremain listed. and Springfield Properties) have Holdings, NucleusFinancial,Quiz, (Beeks FinancialCloud,IDEGroup entity. rather than sellingoutto alarger retain theirmanagerial autonomy greater numberofbusinesses to option whichwould encourage a Exchange would offer anadditional a differentiated Scottish Stock there are grounds to believe that of stock market listingsislarge; of trade salesandthenumber recently seenbetween thenumber buyers. However, theimbalance these willalways besoldto trade exit stage.Acertain proportion of pipeline ofcompanies reaching an is likely to result inagrowing support given to such businesses last ten years andtheincreased capital investments over the The consistent growth ofrisk Outlook 50 . Ofthese,onlyfive Oct 2018 Aug 2013 Sep 2014 May 2015 Jan 2016 Jun 2016 Nov 2016 July 2018 46 46 Date Proceeds £1.6bn £353m £320m £259m £280m £285m £1.4bn $465m 47 47 48 MOMENTOUS CHANGE LTD

“Few things are more important to the economic well-being of any area than that local businesses should flourish. All too frequently they have difficulty in raising sufficient capital. So a proposal to set up a recognised and regulated stock exchange in Scotland

with local representation is very

much to be welcomed. David Simpson “

Professor David Simpson founded the Fraser of Allander Institute in 1975. From 1988 to 2001 he was Economic Adviser to Standard Life. From 2005 to 2012 he was Vice-Chairman of the Water Industry Commission for Scotland. CHAPTER 5: REVIEWING EXCHANGES STOCK SELECTED

21 22 CHAPTER 5: REVIEWING SELECTED STOCK EXCHANGES corner oftheworld, withfull Clearing) of allsizes, from every and CCPs (Central Counterpart represents over 200 exchanges the timeofwritingWfE now only 10European exchanges. At membership oftheWfEinvolved Common Market. Theoriginal creation in1957 oftheEuropean Europe hadbeenspurred onby the when international cooperation in October 1961, itwas atatime (WfE hereafter) was formed in Exchange. cannot betraversed by aScottish should notbeseenas abarrierthat the scale ofScotland’s economy does allow usto conclude that Scottish Exchange. However, it the future scale ofactivitiesa be inferred thisallows usto predict other countries, butitshouldnot some examplesofexchanges in data. Inthischapter we explore when considering comparative It isalways wiseto becautious Federation ofExchanges When whatisnow theWorld economies. degree, theadvantages ofmarket to embrace, atleast to some the moves ofRussia andothers collapse oftheSoviet Unionand independent nations,andthe and growth inthenumberofnew collapse oftraditional empires European Common Market; the such as theformation ofthe been fuelledby political changes, internationally. Thishas, inpart, of thenumberexchanges has been,overall, anexpansion In more moderntimesthere of Scotland’s stock exchanges. chapter we describedthehistory modern context. Inourearlier Let usstartby considering the A moderncontext 51

as inNamibia further 31. From smallexchanges and affiliated membership from a membership from 71exchanges countries report used12 comparator some ofthe data onaselection Exchange. We present shortly was thepresence ofaStock commented uponinthereport) 12 countries (although not infrastructure ofeach ofthe A notablefeature ofthefinancial sustainable growth inScotland. aimed atsecuringhigherlevels of lessons to spurpolicy actions from whichitsoughtto learn size andstageofdevelopment, business development. forward thecause ofeconomic and exchange inpursuit ofdriving advantages ofoperating an WfE istestimony to theperceived public in2013) thegrowth ofthe country. economic development andsize of countries ofsimilarstages reflect ontheexperience ofother years from now. However, we can Scotland willlooklike in,say, 10 cannot predict precisely what change inScotland. We therefore possibility offurtherconstitutional with uncertainty over Brexit andthe turbulence inthepolitical world As we write, there ismuch Scotland’s future was published Sustainable Growth Commission In May 2018, thereport ofthe Commission Sustainable Growth Moscow Exchange independence) to thelarge in 1992 two years after gaining 55 ofsimilarpopulation 52 54 (established . Thislengthy 53 (whichwent MOMENTOUS CHANGE LTD

of 9 of these exchanges. The reflecting historic developments three not selected are all part of and specialist expertise. the Nasdaq Nordic grouping, for which comparable data is not Belgium, Ireland, The Netherlands currently published under World and Portugal are all now part of Development Indicators. the Euronext family. The value of trades for the Euronext group is not currently available by country Key data on exchanges with the exception of Ireland which was still a stand-alone The table which follows company in 2017. illustrates some basic data on the activity levels in 2017 of 9 of the It is noted in the table below that comparative countries, plus that of the scale of all the exchanges is Portugal, which has been added measured in billions of dollars in as it is part of the Euronext group. terms of market capitalization. The intention is for the Scottish There is very considerable Stock Exchange to partner with variation in scale including in Euronext. market capitalization to GDP It is noted that there is a huge ratios. It would be extremely variation in scale and activity levels unwise therefore to use any of across the listed stock exchanges, this data to make a prediction

Table 5: Data on Exchanges56 for year 2017 in US$ Country Market Market Number Value of Capitalisation of Cap to of listed trades (as listed domestic GDP domestic percentage companies ratio companies of GDP) Austria $150.6billion 36.2% 67 $40billion (9.6% of GDP) Belgium $437.8billion 88.9% 116 Hong Kong $4,350.5billion 1,274.1% 1987 $1,953.1billion (572%) Ireland $146.6billion 43.9% 41 $28.9billion (8.7% of GDP) The Netherlands $1,100.1billion 133.2% 102 New Zealand $94.7billion 46.0% 164 $11.9billion (5.8% of GDP) Norway $287.2billion 72.0% 180 $117.8billion (29.5% of GDP) Portugal $75.6billion 34.7% 43 Singapore $787.3billion 243.0% 483 $219.6billion (67.8%) Switzerland $1,686.5billion 248.4% 228 $948.3billion (139.7%)

23 24 CHAPTER 5: REVIEWING SELECTED STOCK EXCHANGES There isgrowing interest impact. fairly traditional measures of having astock exchange, using in 2014 In Ireland, astudywas published Table 6:ImpactofIrishStock Exchange onaspects ofecosystem In 2017, Scotland’s GDP in terms ofmarket capitalization. that would have meant for Scotland Portugal –we can calculate what the lowest country ratio –34.7% for to GDPratio (hereafter “ratio”) of attained themarket capitalization exchange hadexisted in2017 and For example,iftheScottish illustrative figures. it isinstructive to lookatsome initial development. However, may endupafter a few years of of where aScottish Exchange Impact for Ireland order of$19.2billion. rate, itwould have beenofthe trading turnover matched Ireland’s $96.9billion. Furthermore, ifits capitalization would have been Ireland’s ratio of43.9% itsmarket been $76.6billion. Ifitmatched based ontheabove would have capitalization figure for Scotland to the£.Therefore themarket the timeofcalculating, of$1.31 based onanexchange rate, at equivalent to US$220.735billion estimated at£168.5billion. Thisis full-time equivalents Irish employment supported – GVA/GDP contribution Irish non-labourbusiness expenditure

Irish employment incomes supported Tax contribution (includingstampduty) Output/sales revenues from Irishoperations ISE related ecosystem 58 into thewiderimpactof 57 was was significant impacts. figures, theIrishstudy revealed Based onananalysis of2012 4.Delivers macroeconomic

identified. overarching benefits were In terms oflocal impact4 impacts priorto 2014. the following describesimportant Amidst muchusefulinformation, ambitions. the Scottish Stock Exchange beautifully sum upaspects of name from Irishto Scottish would Global Reach withachangeof Stock Exchange: Local Support The Ireland studyentitledIrish Scottish Stock Exchange. they willbeofinterest to the excluded theseareas, although study inIreland backin2014 environmental impact in measuring socialand 3. 2. 1. investment levels offoreign direct R&D intensity andhigher benefits includinggreater specialization Creates local knowledge and domestic firms Lowers thecost ofcapital for enterprise Source ofequityfor (Euros €) Direct 2,101 2,977 €230 €130 €207 €377 €177 Economy wide 59 (Euros €) , butthe €704 €325 €242 €314 N/A MOMENTOUS CHANGE LTD

“More challenging for a new stock exchange is it may have to consider carefully how to overcome the lack of a track

record to demonstrate it has

the expertise and experience to enable trust to be gathered. “

Put simply, a successful stock produced some valuable insights exchange has significant benefits in this regard60. for local economies in terms of wider impacts on the financial None of the below factors are ecosystem. particularly surprising and all, with good management and leadership, could equally well Motivation factors for be proposed as objectives for a listing Scottish Stock Exchange. Of particular interest when looking Perhaps of even more interest are to start up a new Stock Exchange the factors which appear to have are the factors motivating influenced investors. key groups to engage with the exchange. The Irish study

Table 7: Top 6 most significant factors in company’s decision to list with Irish Stock Exchange Motivation Factor Percent Companies Access to Irish Investors 88.4% Access to International Investors 80.8% Achieving the best valuation for company 77.0% Ability to maintain or grow liquid market for shareholders 72.0% Profile of company raised with investors, customers, 69.2% suppliers, other finance providers and employees Access to option of dual listing with certain 68.0% international markets.

25 26 CHAPTER 5: REVIEWING SELECTED STOCK EXCHANGES Stock Exchange Table 9:Top 6mostsignificant factors indecisionofdebtissuers Irish desirable given theimportance from theoutsetseemshighly a clear communication strategy important to note. Establishing communication withclientsis The importance ofeffective partner withEuronext. respect theproject team isto It isencouraging to note inthis to enabletrustto begathered. the expertiseandexperience record to demonstrate ithas to overcome thelackofatrack have to consider carefully how a new stock exchange isitmay process. More challengingfor is theefficiencyoflisting respondents agreed akey factor table above andbelow, all It istelling thatfor boththe managers to listinvestment fundswiththeIrishStock Exchange Table 8:Top 5mostsignificant factors indecisionsofglobalinvestment Motivation Factor Expertise andtechnical knowledge Irish Stock Exchange competitive listingfees Open Communication andwillingness to engage and Central Bank Experience and reputation oftheIrishStock Exchange Efficiency oflisting process Choice ofmarkets Irish Stock Exchange competitive listingfees Communication andwillingness to engage Expertise andtechnical knowledge and Central Bank Experience andreputation oftheIrishStock Exchange Efficiency oflisting process Motivation Factor business. of operations thathelpattract useful insightsinto thoseaspects economy. Ireland alsoprovides benefits thatthey bring to alocal useful insightsinto thewider example ofIreland provides some of capital markets, and the contributions to thedevelopment They are makingsignificant of development to Scotland. countries ofsimilarsize andstage successfully operate inmany In summary, stock exchanges usefully focus upon. where aScottish exchange may The above tablessuggest areas these two tables. of communication suggested in Percent ofdebt Fund Sponsors listing agents Percent ISE 66.6% 88.9% 88.9% 62.5% 75.0% 75.0% 100% 100% 100% 100% 87.5% MOMENTOUS CHANGE LTD

“A new Stock Exchange for Scotland, while having international ambitions, will inevitably be highly dependent upon serving

the domestic economy for

its own sustainability and development. “

“We are strongly of the view that the time is right for a new stock

exchange for Scotland to

be launched and add to the abilities of Scotland to “ address her future. CHAPTER 6: KEY FACTORS

27 28 CHAPTER 6: KEY SECTORS wide spread ofsectors involved. simply observed thatthere isavery companies inIreland in2014. Itis the profile by sector oflisted The chartbelow describes a new Scottish Stock Exchange. sectoral profile likely to emerge for An unknown atpresent isthe greatest growth willcome in is considerable evidence that In terms ofglobaltrends, there Global trends andindices know ofsuch trends? domestically. What thendowe the market place bothgloballyand it willbeinfluenced by trends in However, as withallstock markets can be offered atthisjuncture. requiring deeperresearch than is adifficultquestionat present, a Scottish Stock Exchange? This the sectors thatmay engagewith economy. Whatcan we say about activity withintheIrishdomestic The above reflects, in part, sector 7 6 8 4 4 17 2 2 2 19 29 One report by PWC so-called maturingmarkets. n expected to lead are: The globalsectors thatare Maturing markets almost two timestheabsolute markets are predicted to enjoy Furthermore, thesegrowth share inglobalgrowth by 2021. expected to account for a65% that maturingmarkets are activity. benefits for stock exchange for businesses, withknock-on provide significant opportunities to developed markets. Thiswill growth inworld GDPas compared Financial Services; withthis be touched insome manner. but alldeveloping societieswill Thailand, IndiaandBangladesh, opportunities inChina, of markets. There are particular overall economy across arange sector growing faster thanthe Other Manufacturing Retail/Wholesale Business Services Life Sciences ICT Transport Media/Leisure Construction Agri/Food/Drink Financial Services Exploration 61 predicts MOMENTOUS CHANGE LTD

n Transport & Communications framework establishing the African which includes connectivity Continental Free Trade Area, the infrastructure across both largest free trade agreement since transport and communication. the creation of the World Trade Mobile and internet penetration Organization. is vital in both rural and urban areas. China, Brazil, India, The free trade area aims to create Russia and Turkey are quoted a single market for both goods and as the five largest markets by services in Africa. If the remaining sector size. 10 African countries sign up, by 2030 the market size is expected to n Health & Education - includes include 1.7 billion people with over the adoption of technology $6.7 trillion of cumulative consumer driven solutions (where and business spending62. Scotland has considerable expertise). Household It is of course notoriously difficult spending on education has to predict with any significant grown significantly in China, degree of accuracy the future Bangladesh and Egypt. pattern of business and trade in general, and emerging and n Retail & Consumer Goods are developing markets in particular. being sought by the emerging Nonetheless there is a consensus middle classes and the way they that growth is likely to be strongest consume has a different profile in maturing markets for some when compared to developed years to come, and that it will markets. Key products include occur in diverse sectors and not clothing, entertainment, leisure be confined to traditional sectors and cars. such as agriculture. n Manufacturing, supported by new production technologies Entrepreneurship will lead to new competition in manufacturing. It is anticipated Entrepreneurship, across all Thailand, Indonesia and Mexico sectors, is an important feature will become regional hubs for of dynamic markets. The cars, Bangladesh in textiles and Global Entrepreneurship and Poland in food and drink. Development Institute have developed a set of indices63 build n Agriculture – there is clearly around 14 mainly qualitative pillars a continued and sustained that support entrepreneurial need for this but the real activity. The pillars are: Opportunity opportunities are “to produce Perception; Start-Up Skills; Risk more food better – by improving Acceptance; Networking; Cultural integrity, transparency and trust Support; Opportunity Start-Up; throughout the supply chain”. Technology Absorption; Human Capital; Competition; Product Globally too, there are an Innovation; Process Innovation; increasing number of new High Growth; Internationalization, initiatives aimed at boosting and Risk Capital64. Rating the trade. For example, on 21 majority of countries in the March 2018 at the close of the world has produced the Global “Creating One African Market” Entrepreneurship Index65. The conference in Kigali, Rwanda, following table lists the top 15 most African leaders signed a countries (out of 137) by this index.

29 30 CHAPTER 6: KEY SECTORS by otherinitiatives such as the a sustainable fashion fuelled grow Scotland’s economy in will complement thedrive to new Stock Exchange for Scotland and development. Furthermore, a economy for itsown sustainability upon servingthedomestic inevitably be highlydependent having international ambitions,will Exchange for Scotland, while What ofScotland? Anew Stock Scotland Table 10:GlobalEntrepreneurship Index Rankings against theabove list. to benchmarkherperformance have datafor Scotland withwhich Unfortunately however, we donot Scotland feature strongly inthelist. and economic development to countries ofcomparable scale countries. Inotherwords, report as 8ofthe12 comparator Sustainable Growth Commission top 15 countries feature inthe We note first ofallthat8the Global Rank 15 14 13 12 11 10 9 8 7 6 4 5 3 2 1 Belgium Austria France Germany Finland The Netherlands Ireland United Kingdom Australia Iceland Sweden Denmark Canada Switzerland United States ofAmerica Country National Investment Bank establishment ofaScottish producing country for centuries. In Scotland has beenanenergy Energy the benefitsthatpresents. established market place, with all will belaunchedinto avery well areas. Thisproject therefore services, particularlyinhighvalue a globalreputation in financial She has alonghistory, andindeed management sector inScotland. the strengths ofthe asset This report has already reviewed Financial services strengths are thefollowing. stock exchange. Amongstthese opportunities for anew Scottish that willprovide significant economic potential andstrengths Scotland has considerable Score (max100) 63.0 64.9 66.9 63.5 83.4 78.0 75.6 64.1 75.5 73.5 72.5 71.0 71.3 67.8 74.1 66 . MOMENTOUS CHANGE LTD

times past this was based on the expertise and resources, Scottish deep mining of coal, but over the businesses in this area are well last 40 years and more it has been placed to further expand. a leading oil and gas producer. It has in addition to exploration, Life Sciences developed global businesses in energy services. It has been The life sciences sector is another claimed67 that international activity of Scotland’s great strengths with now accounts for more than half huge potential. This has most of total sales of Scotland’s oil and recently been confirmed on 12 gas supply chain companies, with November 201870, by the release a value in excess of £11billion in by the Scottish Government of the 2015. latest figures showing that turnover stood at £5.2billion in 2016 and on Of particular interest however, trend for achieving the strategic is the growing emphasis on target of £8billion by 2025. renewable sources of energy, as the global economy tries to find ways of meeting the challenge of Food and drink climate change. Scotland has a competitive advantage in this area. Scotland has an international For example, in 2016, Scotland reputation for its food and drink. generated 54% of its electricity Its most famous export products include whisky, salmon, and needs from renewable sources – shortbread, but other drinks mainly hydro and wind power68. (such as gin), fish (including Scotland has most of the UK on crustaceans and other foods (such shore wind resources and up to as cereals and meat) also make 25% of Europe’s tidal power, 10% of significant contributions. In 2017 its wave power and approximately Scotland exported approximately 25% of the European off shore £6billion worth of food and wind potential69. drink71. Furthermore, its growth is With world-wide demand growing exceptional, with a £570 million rise apace for renewable energy since 2016.

We“ need to tackle the underlying challenges in our economy and labour market, increase the competitiveness

and sustainability of the Scottish

economy and reduce inequality. Nicola Sturgeon“ First Minister

31 32 CHAPTER 6: KEY SECTORS tourism sector Scotland alsohas agrowing Tourism n n n n n n are: key competitive advantage. These focus andwhichgives Scotland the sectors whichare itsprime Scotland’s economic strategy lists National Policy Priorities Scottish Government data plus large numbers offreelancers. employing over 70,000 people comprise over 15,000 businesses Scotland’s creative industries Creative Industries successful country, with “has beento create amore central purpose: £5billion annually. reports thesector as worth around £11.2billion inexpenditure.” trips) taken generating over overnight, anddomesticday (International, domestic saw 166million tourism trips “Tourism inScotland in2017 report for 2017 that: example, state intheirsummary figures from VisitScotland, for performance isstrong. Latest the words oftheFirst Minister Scottish Government addthat,in briefly above. However the Precisely the areas we discussed

Life Sciences Financial &Business Services Energy (includingrenewables) Sustainable Tourism digital) Creative Industries(including agriculture &fisheries) Food &Drink(including 72 whose 73 , 74 , the quote theFirst Minister government statements. Again we a frequently recurring themeof Sustainable economic growth is sustainable economic growth.” to flourish,through increasing opportunities forallofScotland such ambition. Exchange are entirely intunewith aims ofthenew Scottish Stock widely. We would argue thatthe and thesharingofbenefitsmore by advancements intechnology carbon age,characterised too agenda isto move to alow part oftheeconomic sustainability We note here therecognition that shared by everyone.” benefits ofeconomic success are change andensure thatthe globalisation andtechnological the opportunitiespresented by carbon age,take advantage of support themove to thelow paid jobopportunitiesavailable, are sufficiently skilledand well- We needto ensure thatthere economy andreduce inequality. sustainability oftheScottish the competitiveness and and labourmarket, increase challenges inoureconomy “We needto tackletheunderlying in thefollowing diagram. 11 highlevel aimsas summarised The NationalFramework setsout government activity” commitment to embedtheminall “fulfilling theFirst Minister’s Development Goals, incorporates theUNSustainable Performance Framework. It Scottish Government’s National the First Minister re-launched the sustainability andon11 June 2018; Going even furtheristhepursuit of Framework New National Performance 76 75 , MOMENTOUS CHANGE LTD

This National Framework presents In summary a view of a future Scotland that the Given the above discussions, proposed new stock exchange we are strongly of the view that for Scotland will be entirely the time is right for a new stock compatible with, and indeed will exchange for Scotland to be make a contribution towards launched and add to the abilities of fulfilling a number of the aims. Scotland to address her future.

33 34 REFERENCES (London 1900). The Stock Exchange OfficialIntelligence Scottish Stock Exchange Association. June 1971. Glasgow: TheCouncil ofthe [Accessed 12 November 2018] benefits-stock-exchange-6013.html York. Huddersfield, Hull,Newcastle, Bristol and exchanges openedinSheffield, Leeds, period startinginOctober 1844 stock nationwide trend: over thesix-month Scotland) inlocations outsideScotland. Investments (a company headquartered in working for Aberdeen Standard of assets overseen by fund managers most partexplainedby thelarge volume 1 References 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 20 19 18 Exchange Association Records). Stock Exchange Minutes: Glasgow Stock pdf. Accessed 12 November 2018. research/2018/20180913-fullsummary.pdf. theinvestmentassociation.org/assets/files/ Annual Survey, p.17. https://www. 2017-2018: TheInvestment Association Century Scotland. Edinburgh: John Donald. and theStock Exchange inNineteenth- Markets: Investment, Company Formation Michie, R.(1981). Money, Maniaand Cass. The Provincial Stock Exchanges. London: and Michie(1981): Thomas, W.A. (1973). discussion are thebooksby Thomas (1973) Scottish Stock Exchange Association. June 1971. Glasgow: TheCouncil ofthe Michie (1981), p.141. Blissett, Lhttps://finance.zacks.com/ The two core references for this Michie (1981), p.266. These openingswere partofabroader Thomas (1973), p.287. Originalsource: Michie (1981), p.153. Thomas (1973), p.301. Michie (1981), p.267. Scottish Stock Exchange OfficialList, 30 Michie (1981), p.159. Michie (1981), p.160. Originalsource: Michie (1981), p.160. Thomas (1973), p.317. Source: Asset ManagementintheUK Thomas (1973), p.318 Scottish Stock Exchange OfficialList, 30 Thomas (1973), p.317. Thomas (1973), p.314. Ibid., p.17. Thediscrepancy isfor the Edinburgh: Kokoro. M. (2007). Edinburgh: CityofFunds. International. SeealsoFransman, Towering Investors, p.103. Cham:Springer Asset Managementfrom 1700 to 1960: November 2018. beliefs/our-shared-beliefs/ Accessed 12 about-us/literature-library/our-shared- November 2018. uk/about-us/our-story/. Accessed 15 November 2018. markets-final-report.pdf. Accessed 12 docs/K/12-917-kay-review-of-equity- gov.uk/assets/BISCore/business-law/ gov.uk/20121204143307/http://www.bis. p.42. http://webarchive.nationalarchives. 2103823044.1542038093&_ ga=2.213159700.1408720422.1542038093- cd-wp_impact_investing-feb18.pdf#_ 4d6a-a40d-e4c082e0bf8c/2/58538- static_files/documents/667ba016-9ad6- November 2018. CnRr4Az6xoCsYkQAvD_BwE. Accessed 12 NeeqbRsudoEIqyfYe1xvwlcvDJVfH1k6Vq_ CjwKCAiA5qTfBRAoEiwAwQy-6de7y7d4YR gac=1.146973125.1542038093. 2103823044.1542038093&_ ga=2.254151560.1408720422.1542038093- docs?documentId=GB-101018-74449-1#_ 12 November 2018. 27 26 25 24 23 22 21 36 35 34 33 32 31 30 29 28 12 November 2018. stewardship/hippocratic-oath/. Accessed 2018. gb/stewardship/. Accessed 12 November p.17. Accessed 12 November 2018. investing/lets-talk-about-actual-investing, uk/about-us/literature-library/actual- 12 November 2018. November 2018. about-us/actual-investors/. Accessed 12 Funds. Edinburgh: Kokoro. Fransman, M.(2007). Edinburgh: Cityof https://www.walterscott.com. Accessed Ibid., p.86. https://www.bailliegifford.com/en/uk/ Morecroft, N.(2017). TheOriginsof https://www.bailliegifford.com/en/ Ibid., p.171. Burns, R.(2007). Foreword, p.xi. In https://www.bailliegifford.com/en/uk/ https://www.stewartinvestors.com/en-gb/ https://www.stewartinvestors.com/en- Kay, J.(2012). Review ofEquity Markets, https://www.walterscott.com. Accessed https://www.aberdeenstandard.com/ Also known as sustainable investing. http://www.aberdeen-asset.co/ https://www.bailliegifford.com/en/ MOMENTOUS CHANGE LTD

gac=1.146959173.1542038093. ctorId=&nominatedAdviserId=&br PWC/DocumentAssets/460443.pdf CjwKCAiA5qTfBRAoEiwAwQy- okerId=&search=search&page=2. [Accessed 15 November 2017] 6de7y7d4YRNeeqbRsudo Accessed 18 November 2018. EIqyfYe1xvwlcvDJVfH1k6 62From an as yet unpublished paper Vq_CnRr4Az6xoCsYkQAvD_BwE . 51 prepared by Momentous Change Accessed 12 November 2018. See https://www.world- exchanges.org/about [Accessed 18 Ltd. 37Harrison, R.T., Don, G., Glancey November 2018] Johnston, K. and Greig, M. (2010). 63https://www.researchgate. The early-stage risk capital market 52See http://nsx.com.na/?page_ net/profile/Laszlo_Szerb2/ in Scotland since 2000: issues of id=276 [Accessed 14 November publication/316595971_Global_ scale, characteristics and market 2018] Entrepreneurship_Index_2017/ efficiency. Venture Capital, 12(3), links/5906107ba6fdccd580d37ba1/ p.211. 53 Global-Entrepreneurship- See https://www.moex.com/s348 Index-2017.pdf [Accessed 14 38Ibid., p.211. [Accessed 17 November 2018] November 2018]

39 Ibid., p.212. Bygraves, W.D., and 54 The Sustainable Growth 64 Timmons, J.A. (1992). Venture GEDI, 2017 Global Capital at the Crossroads. Boston, Commission, 2018. Scotland Entrepreneurship Index, 2017. P7 MA: Harvard Business School – The New Case For Optimism, Available at https://www. Press. 65 sustainablegrowthcommission. Ibid, P34 40Source: BVCA. http:// scot/report/ [Accessed 14 www.privateequitymap. November, 2018] 66See, for example, the SNIB co.uk/#?&coll=%7B%22uk_ implementation plan here: https:// region%22%3A%5B%22nuts_1__ 55Austria, Belgium, Denmark, www.gov.scot/publications/ UKM%22%5D%7D. Accessed 18 Finland, Hong Kong, Ireland, The scottish-national-investment-bank- November 2018. Netherlands, New Zealand, Norway, implementation-plan/ [Accessed 17 Singapore, Sweden, Switzerland. November 2018] 41Source: Quarterly National Accounts Scotland, 2018 Quarter 67 56 Aberdeen Chamber of Commerce, 1. https://www2.gov.scot/Topics/ Data in this table derived from 2017, Survey of International Activity Statistics/Browse/Economy/ World Development Indicators in the Oil and Gas Sector 2015-2016 QNAS2018Q1. Accessed 18 (WDI) as published by Knoema. See November 2018. https://knoema.com/atlas/topics/ Economy/Financial-Sector-Capital- 68Scottish Government, 2017, Energy 42Harrison et al. (2010), p.221. markets/Market-capitalization- Statistics Summary. percent-of-GDP [Accessed 15 43Ibid., p.220. November, 2018] 69https://www2.gov.scot/Topics/ 44Source: The Risk Capital Market in marine/marineenergy [Accessed 18 Scotland 2016. Edinburgh: Scottish 57Scottish Government, 2018. November 2018) Enterprise and Young Company GDP Quarterly National Accounts, Finance, p.7. https://lincscot.co.uk/ Scotland 2018 Q2: Annual Results. 70See https://www. wp-content/uploads/2017/10/The- Available at https://www2.gov. lifesciencesscotland.com/news/ Risk-Capital-Market-in-Scotland- scot/Resource/0054/00542646.pdf scotlands-life-sciences-sector- Annual-Report-2016.pdf [Accessed 15 November, 2018] is-on-track-to-meet-8bn-target- by-2025 [Accessed 20 November, 45Ibid., p.8. 58Irish Stock Exchange, 2014. Irish 2018] 46Source (unless stated otherwise): Stock Exchange: Local Support Scottish Deals and Dealmakers. Global Reach. Available at http:// 71See https://news.gov.scot/news/ Glasgow: Scottish Business Insider. www.ise.ie/Media/News-and- exports-hit-record-gbp-6-billion Events/2014/Facts-and-statistics- [Accessed 19 November 2018] 47Source: Business Wire, 9 about-the-Irish-Stock-Exchange- its-listed-companies-and-related- October 2018. https://www. 72 businesswire.com/news/ securities-industry-October-2014. Visit Scotland, 2018, Scotland’s home/20181009005562/en/H.I.G.- pdf?v=3122015 [Accessed 12 Tourism Performance, 2017. Capital-Announces-Sale-FNZ November 2018]. 73See https://www.gov.scot/ 48https://www.thetimes.co.uk/ 59As an example, see https:// policies/creative-industries/ article/how-fanduel-founders- [Accessed 18 November 2018] and-staff-lost-out-to-wall-street- www.sopact.com [Accessed 14 q2j0v3npl November 2018] 74See her foreword at https://www. 49 Harrison et al. (2010), p.214. 60Note however that for the three gov.scot/publications/scotlands- economic-strategy/ [Accessed 19 50 tables presented, we do not know https://www. the total number of respondents. November, 2018] londonstockexchange.com/ Cautious interpretation is therefore exchange/companies-and- advised. 75Ibid advisors/aim/for-companies/ information-search/aim-company- search-resulthtml?codeName=&a 61PWC, 2017. Winning in Maturing 76See https://www.gov.scot/news/a- dmissionInLast=&ukRegionId=Sco Markets. Available at http://preview. vision-for-national-wellbeing/ tland&internationalRegionId=&se thenewsmarket.com/Previews/ [Accessed 18 November, 2018]

35 www.momentouschangeltd.co.uk