|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
Lord Saatchi: My Lords, many noble Lords have illuminated this subject with their contributions, perhaps none more so than the noble Lord, Lord Layard. I congratulate him on a marvellous maiden speech. The noble Lord is a great addition to your Lordships' House, and I hope that he will play a full part in its deliberations. The noble Lord exhibited great judgment in making one point very clear. As proof of that, it is precisely on that point that I wish to concentrate my remarks. The noble Lord spoke of the logic of globalisation which underlay the merger. He also spoke of the "related logic" of the merger of currencies. It is on the historic inevitability of the merger described by the noble Lord that I concentrate my observations. The same material determinism was reflected in the remarks of the noble Lord, Lord Haskel, who said that mergers and consolidations were inevitable.
What are those who have Britain's interests at heart, including all noble Lords present this afternoon, to make of this merger? Is it true, as the noble Lord, Lord Haskel, suggested, that this merger is nothing to do with Parliament or the Government; or is it true, as my noble friend Lord Blackwell said, that the merger has wider implications for the economy; or is it the case, as the noble Viscount, Lord Chandos, said, that there is a vital national interest at stake? Why has the merger struck such a chord in the minds of so many people? This is a dress rehearsal for what promises to be the most contentious debate of modern times about Britain's place in Europe and whether or not it should join the euro. When the time comes for that great national debate, the proponents of integration will put forward the very arguments that we hear in relation to this issue.
The noble Lord, Lord Layard, made the link explicit, for which I am grateful. This debate is a potent symbol of things to come. The financial services industry is a modern miracle. To my knowledge, it is the only UK industry in which Britain leads a global market. Yet the chairman of the London Stock Exchange, the jewel in the crown of British industry, tells us that Britain cannot make it on its own. He says that,
I have no doubt that what the chairman of the Stock Exchange says is true. He explains to us that mergers of stock exchanges follow in the train of mergers of companies. Those mergers are a response to the dominant feature of our age--globalisation--to which the noble Lord, Lord Layard, referred.
It was in 1982 that the term "globalisation" first appeared in the pages of the Harvard Business Review. There it was famously said that companies which adopted this new approach would "literally pave over" companies still trapped in the old national ways of doing things. At the time that was a controversial notion, but today it is a truism. Twenty years later this merger of exchanges is the result.
It has been said today by my noble friend Lord Lamont and the noble Lord, Lord Newby, and by many outside this House, that American companies may have been behind the merger. That may well be true. Consider the view of Europe from the 67th floor of a US corporate headquarters building in Manhattan, Cincinnati or Washington. I believe that it would be to the following effect, "In Europe there are different countries with people having different habits, practices and customs. How tedious. If only those people were more similar. Then, instead of having six factories in 10 countries, with four research and development facilities, producing 32 products in 62 package sizes, we could have two plants, one R&D facility, and produce three standardised products for the whole of Europe. Think of the cost savings". That demonstrates the economic power of globalisation to which the noble Lord, Lord Layard, referred. That is quintessentially the American perspective.
That is the power of the economic and philosophical logic behind this merger which so many noble Lords today either welcome or regard as inevitable. However irresistible may be this logic, we can still ask certain basic questions of our Government before they give their blessing to this marriage. Such questions are especially appropriate in the light of the revelation in the evidence given to the Treasury Select Committee that the London Stock Exchange received "no representations" from the Treasury, the Bank of England or the FSA about the merger before it was announced. Mr Cruickshank was asked:
However, the question is whether the resulting system will bear any resemblance to the regime under the Financial Services and Markets Bill over which Parliament has toiled for the past two years. The Government, extraordinarily in my view, say that the outcome of those talks between the regulators is "not a responsibility of the Government". But who will be responsible for ensuring a level playing field of regulation for all the participants in a merged exchanged? How can the FSA be the regulator for the exchanges of several countries and, at the same time, have the duty to look after the competitive position of the United Kingdom which is about to be given to it by Parliament under Clause 2(3)(e) of the Financial Services and Markets Bill? I hope that the Government will take a little more time, perhaps while the Bill is in the Commons, to think about the regulatory implications of these great proposed changes.
As to tax, my noble friends Lord Lamont and Lord Northbrook and the most distinguished former Chief Secretary to the Treasury, the noble Lord, Lord Barnett, have sought to deal with the anomaly that the UK imposes stamp duty on share transactions at the rate of 0.5 per cent whereas the German rate is nil. Is our tax regime to be harmonised? How can it not be?
I conclude on currency. I do not think that it is wise to go over this sensitive ground. It has been addressed by many noble Lords. However, perhaps I may say how nice it would be for all those who are deeply interested in this merger if the Minister would state from the Dispatch Box in a clear strong voice--I hope that his cold is now much better--in terms as unequivocal as those of the noble Lord, Lord Barnett,
Lord McIntosh of Haringey: My Lords, I have to start with an apology. The Takeover Panel stole my vocal chords last week and it has not had the grace to give them back again. If I have difficulty in communicating, noble Lords must blame the Takeover Panel and not me.
It has been a remarkable debate. The noble Lord, Lord Blackwell, said that up to his speech we had achieved consensus. We achieved consensus virtually all the way through the debate and without being boring. That is quite an achievement. We did so without repeating ourselves and while providing an opportunity for my noble friend Lord Layard to make a quite outstanding speech which contributed not just to this debate but to my thinking about the basic economic issues lying behind the subject matter of this debate. We must all be grateful to the noble Lord, Lord Lamont, for making this possible.
First, I shall set out the Government's stance on the merger and then talk about some of the regulatory issues and matters related to trading in euros and pension funds. I shall give some thoughts about the blue-chip markets and growth markets. If I have time, I shall then respond to points raised in the debate.
As many noble Lords have said, this merger is clearly part of the consolidation process in European and global equity markets. The noble Lord, Lord Lamont, went so far as to say that that development may make good sense. It is no surprise that the London Stock Exchange, as one of the world's leading equity exchanges, is involved in this process. As the noble Lord, Lord Blackwell, said, if we are moving to global exchanges we are doing so because we have to reflect the creation of international trading portfolios. The exchanges are simply a reflection of the markets in which they operate.
If one has broader and deeper equity markets, one has advantages for companies and investors. Companies have a larger and deeper pool of investors to tap. Investors have a wider range of investment opportunities. All sides benefit from the lower trading costs which should result. Many noble Lords have said that this may not be the end of the game. It is highly likely that in five or ten years' time there will almost certainly have been moves in the direction of greater concentration in exchanges as well as markets.
The terms of the deal to create the iX are a commercial matter for the parties concerned, subject to their obtaining the clearances from the relevant regulatory authorities. Our interest as a nation, as a society--if I may be so bold as to agree again with the noble Lord, Lord Blackwell--is to look for an optimum market outcome rather than more temporary issues.
I was interested to hear the noble Lord, Lord Saatchi, in his interventionist mode suggesting that it was a responsibility of government to become involved in the process of the merger. I find it difficult to see how we should do so.
I turn to the regulatory issues. It has been made clear--the noble Lord, Lord Saatchi, did so when quoting from the FSA--that the regulatory authorities in Britain and Germany are working together. They are considering the practical implications. They will both have to be satisfied with the regulatory arrangements if the merger is to proceed. However, the broad outlines are already clear. The blue chip market will operate out of the United Kingdom; it will be subject to UK regulation. It will be a recognised investment exchange in the UK. The noble Lord, Lord Blackwell, wanted reassurance on that point. He can have it.
The noble Lords, Lord Northbrook and Lord Newby, raised this issue. It is not proposed that the FSA should perform a single regulator function for both the UK and Germany. There is some need for movement in the German regulatory regime. But it is clear that that is already happening. Werner Seifert is quoted in today's Wall Street Journal as saying that the Deutsche Bo rse is moving in that direction. He says that, beginning next year, German companies must report results quarterly rather than twice a year if they want to qualify for the Xetra tax index of 30 bluechip companies. I do not think that it needs heavy-handed intervention from the Government or the Treasury. The impetus towards harmonisation of regulatory regimes will happen on its own.
It is not that there is difficulty about operating as they are. I made it clear during debates on the Financial Services and Markets Bill that that already happens with the OM group, which owns the OM Stockholm exchange, under Swedish regulation and the OM London Exchange, which is a recognised investment exchange in the UK. It works perfectly well there. I repeat what I said when we considered amendments to the Financial Services and Markets Bill. We have no doubt that the provisions of the Bill relating to the recognition of exchanges are able to cope with structures such as the proposed international exchange.
The details of which companies will be listed have not yet been sorted out, but no companies will be forced to move their listing from one company to another. German companies listed in Germany will be traded in the same market as UK companies listed in the UK. People in the UK can already trade German shares. They are aware that the listing regime is slightly different. The fact that shares are traded on the same market does not necessarily mean that investors will automatically assume that the same listing regime applies.
I turn to the issue of trading in euros. To some extent, the fears that were expressed in the wording of the Motion when the noble Lord, Lord Lamont, first tabled it have been allayed by the clarity we now have from the London Stock Exchange that it will be for the market to lead. After all, the stock market is there to serve its customers. It will follow what its customers want to do in relation to the currency used for trading shares. Even if the majority of share trading moves to euros, the Exchange will continue to provide prices of UK stocks in sterling.
My noble friend Lord Lea of Crondall is sceptical about that. I can say only that on that issue we shall have to wait and see. While not in any way diminishing the authority with which my noble friend Lord Layard spoke, I do not believe that issues for the UK's entry into the euro arise from the merger. The position is unchanged. It is as set out by the Chancellor of the Exchequer in October 1997 and confirmed by the Prime Minister in February 1999.
I turn to pension funds, which were a proper concern of my noble friend Lord Lea. If the trading currency for a particular stock changed from sterling to euros, we would not expect that to impose a significantly greater amount of currency risk to most investment funds. Already 40 per cent of UK investment fund assets are in non-sterling securities. Approximately 10 to 15 per cent of those are in eurozone currencies. My noble friend Lord Lea made a good point about the need for a new series in financial statistics and I am sure that the Office for National Statistics will pay attention to what he said.
The review of the minimum finding requirement will be wide-ranging and take into account several important developments since the original test was formulated. That will provide an opportunity for issues such as this to be addressed. Short-term volatility in the stock markets may be an issue. To the extent that the quoting of stocks in euros has any effect on this, it will be carefully considered.
I turn to the issues raised in the debate particularly by the noble Lord, Lord Lamont, who was kind enough to give me notice of the questions he raised. However, some of his points were also raised by other noble Lords. He asked, first, about medium cap stocks, which are not quoted on the London bluechip exchange or the Frankfurt high growth companies market. I understand that the iX will continue to run national markets in addition to the pan-European markets. Therefore, British companies which do not
The noble Lord asked about the effect on London's IPO business. I believe that he answered his own question because I am sure he was right in saying that it will be market driven. There cannot be a guarantee that when growth companies become large companies they will return to London. However, the intention is to retain national markets as well as the pan-European markets. IPO's will continue to take place in London. While the pan-European growth company market will be operated in Frankfurt, it is not necessarily axiomatic that all such IOP business will be conducted out of Frankfurt rather than London.
I return to UK regulatory requirements and the Code of Corporate Governance, to which the noble Lord, Lord Lamont, referred. We do not yet know the details of the standards which will be applied in the various markets. However, the current position is that foreign companies with a listing on the London Stock Exchange are not required to comply with all the provisions of the UK listing rules. Therefore, there is not absolute uniformity and any changes which might take place may be a difference in degree rather than in kind. As I have said, the European blue-chip companies based in London will be a UK-recognised investment exchange under the Financial Services Authority.
The noble Lord asked whether small technology companies will be able to side-step UK standards of reporting and accounts by having their quotation in Germany. Again, that question answers itself. Clearly, UK registered companies must follow the requirements of UK company law, regardless of where they are quoted and traded. As he said, the customers of exchanges take the standards of regulation into account when deciding where to do business. Such companies will have to take account of what the market wants and whether by departing from accepted practice they lost their attraction to pension funds.
The noble Lord raised an important point about transparency. I agree that there are differences in transparency between regulatory requirements in Britain and Germany. I do not know--I do not believe that anyone yet knows--whether the proposed merger will lead to more block trades. However, the intention is for the London Stock Exchange to continue to follow the existing requirements whereby members doing bilateral trades off the order book would need to report the trade to the Exchange.
That brings me on to the important issue of clearing and settlement, where there are potentially huge advantages and savings if existing practices can be extended. The noble Lord, Lord Northbrook, properly referred to the need for a central counterpart. My noble friend Lord Barnett made a similar point. The proposed merger does not cover clearing and settlement, but the boards have said that they consider that settlement should be delivered ultimately on a consolidated pan-European basis. They will be consulting users for their views on the management, ownership and structure of potential settlement infrastructure. However, in the
I was asked whether this meant the end of stamp duty. We always keep the position under review, but stamp duty is chargeable on trade in the shares of UK registered companies regardless of where those shares are traded, unless the season ticket charge has been paid. Therefore, one cannot avoid stamp duty simply by moving trading from London to Frankfurt. My noble friend Lord Haskel referred to the ADR loophole. That is supposed to be dealt with by the season ticket provision, so I do not believe that the noble Lords, Lord Barnett and Lord Saatchi, have reason to believe that stamp duty will somehow become unviable as a result of the merger.
We come now to the more technical issue of the trading platforms. I am not sufficiently expert to know whether Xetra is better or worse than SETS. The noble Lords, Lord Lamont and Lord Northbrook, asked who would pay the costs of any compulsory transfer from SETS to Xetra. I am sure that the Stock Exchange must tackle that issue if it is to convince small brokers that the merger is in their interest.
The noble Lord, Lord Lamont, asked whether there was a remit for competition authorities in Brussels. Strictly speaking and literally, the merger falls below both the asset and turnover thresholds for consideration by the Commission in competition terms. Therefore, there is no power for them to intervene. As regards whether the UK or German authorities will feel it necessary to intervene, that is another matter and it is one for them to determine.
Perhaps the central question for most outsiders--noble Lords were notably impartial in their comments today--is: what does this mean for the financial community in London? Are we selling our birthright for a mess of pottage by keeping the bluechip market and allowing the growth market to be located in Frankfurt? At the moment, of course, blue-chip shares form by far the bulk of the market. The FTSE 100 stocks and the top 40 stocks on the Deutsche Bo rse form approximately three-quarters of the combined market or capitalisation of the two exchanges. The Euro top 300 index of blue-chip companies represents a similar share of total European stock market capitalisation. Blue-chip shares also represent the great bulk of trading in equities. The share of the market of technology stocks is about 40 per cent, although it is difficult to find definitions which are precise in this area.
The noble Viscount, Lord Chandos, referred to the success over the years of the Neu Markt in growth stocks, against which must be set the losses that have been suffered recently with the decline both in Techmark and in the NASDAQ industries. Clearly, that has a knock-on effect on initial public offerings. However, even if the Frankfurt growth market is likely to see the bulk of IPOs, even though it is true that their
The debate this afternoon has been conducted notably with an absence of ideology and in a genuine spirit of inquiry and of genuine intention to contribute to the well-being of our financial markets and of our economy. The Government are grateful for that. I believe that the cautious welcome extended to the merger by noble Lords will be welcomed by those who are taking part in the negotiation. It is well known that the Government do not take a formal position on a merger between two private organisations. However, I am sure that both the Stock Exchange and the Deutsche Bo rse will be grateful for the views that have been expressed this afternoon.
I believe that I should accept the rebuke of the noble Lord, Lord Barnett, who said that there was a remarkable resemblance between an article that appeared in the Financial Times and the speech that I made in this debate. I had been feeling rather guilty about that and I had thought of apologising for it at the beginning of the debate. However, the truth is that I have become so used to bad behaviour on the part of the Government on matters such as this that my own standards have slipped and I have adopted those of the spin meisters who govern us these days.
I join with everyone who has congratulated the noble Lord, Lord Layard, on his remarkable maiden speech, which we all enjoyed. Unlike almost everyone who has spoken in this debate, I have not been a pupil of the noble Lord and have not heard any lectures by him. However, almost as good, I have read a number of his works and, indeed, (dare I tell him) one of the measures in one of my Budgets was based closely on an idea about which he had written. I very much enjoyed what he said about Canada, although I believe that the logic of the argument about comparing the geography of different Canadian states to the neighbouring American states and comparing distances eventually would be limited by the theory of optimal currency areas. However, perhaps we could debate that further on another occasion. We look forward very much to hearing the noble Lord speak again in future.
I thank the Minister for his detailed replies, which I am sure will be studied carefully, certainly by me and, I am sure, by others. I was very interested in the speech made by the noble Lord, Lord Desai, and in his scepticism about mergers in general and not only about this merger. On the whole, he believed that this merger might bring some benefits. It always surprises me that generally people are not more sceptical about mergers. Indeed, I believe that a great weakness is that we do not, post hoc, go back and examine mergers to find out what happened. That is a matter on which I have always intended to question the noble Lord, Lord Borrie, but have never had the opportunity to do so.
A number of speeches, such as those of my noble friends Lord Northbrook, Lord Blackwell and Lord Chandos, were based on their own detailed knowledge of the City, and we are much indebted to them. I particularly enjoyed what my noble friend Lord Chandos said with regard to the conservatism of the City of London and of the financial services industry in the past and about his memories of bankers who did not want to reveal their true reserves. Of course, he might have added that it was a Conservative government who introduced Big Bang. I believe that my noble friends Lady Thatcher and Lord Parkinson deserve enormous thanks for their far-sighted decision in taking on the very conservatism that my noble friend Lord Chandos rightly criticised.
My noble friend Lord Blackwell said that there had been a great and surprising outbreak of unanimity in this debate, and the noble Lord, Lord McIntosh, referred to the absence of ideology--which made me feel profoundly uncomfortable. None the less, I was delighted to find myself in agreement with much that was said by the noble Lords, Lord Lea, Lord Haskel and Lord Newby. My very good friend, the noble Lord, Lord Barnett, as always made an extremist speech at the centre of extreme moderation. As ever, he could not resist lashing out about xenophobia and Euro-scepticism, although for once I was exempted from that. If he is looking for xenophobia and Euro-scepticism, perhaps he should read the joint letter of Giscard D'Estaing and Helmut Schmidt, published a few days ago. What it said about Turkey and the United States vis-a-vis Europe is almost unrepeatable and would deeply shock your Lordships.
The noble Lord, Lord Barnett, and, I believe, the noble Lord, Lord Newby, tried to suggest that some principle was being betrayed by the fact that a number of noble Lords on this side of the House favoured the abolition of stamp duty on shares in order that it should be brought in line with Germany, were we not supporting harmonisation. We believe in harmonisation by the market. We believe that it is good that taxes should converge in response to competitive pressures. However, we are against political decisions taken at the centre to bring about an unnecessary bureaucratic harmonisation.
I should like to reply to one point made by the noble Lord, Lord Barnett. He said that he was rather puzzled by the wording of the Motion. We are saying that everyone is agreed that it is a matter for the markets to decide whether shares are quoted in euros. Of course it is, and we all agree about that. However, it seemed to have escaped the noble Lord's notice that at the beginning it appeared very definitely that it was being proposed that all shares would be quoted in euros. As a number of newspapers pointed out, that was stated quite explicitly and it caused much anxiety. However, the London Stock Exchange and Mr Seifert have withdrawn very clearly from that position.
I also very much enjoyed the description by my noble friend Lord Saatchi of a conversation on the 167th floor of an American corporation. I believed that he was going to say that it was Saatchi & Saatchi,