Platform: Separate listed index for Scots businesses has its plus points

Published on Monday 6 April 2009 21:42

FINANCIAL recipes for disaster are two-a-penny at the moment, but for those looking to cook up a brighter future for Scottish businesses there are a number of interesting ideas that could help.

One that has been bandied about over recent months and years, but which has so far failed to come to fruition, is the creation of a Scottish index for the nation's listed firms. While certain publications run a breakdown of Scottish companies and their weekly or monthly performance, there is no formal index that tracks them in any detail.

The idea has been mooted by PLUS Markets, which is a small and mid-cap stock exchange that is trying to create a significant pool of liquidity in such stocks. However, PLUS Markets has put the idea on the back burner for the moment, believing that the current environment is not perhaps the best in which to launch such an index.

But just what could a Scottish index do for businesses, why would it be so welcome and why should we be trying to persuade PLUS Markets to reappraise its current standpoint?

In the first instance, a national index would help generate interest in Scottish firms and create an increased amount of publicity around their ongoing activities and annual performance.

Flagship firms like Royal Bank of Scotland and HBOS have been lost in the current financial storms and the disappearance of such corporate figureheads draws attention away from the Scottish market and the other individual firms that remain.

Certainly the Scottish media would find it a lot easier to publicise and follow Scottish businesses if their performance was brought to their attention by inclusion in a dedicated index.

The upshot of increased interest and publicity would potentially be an increase in the amount of money that was invested in Scottish businesses as their stocks became more frequently traded.

The creation of a Scottish index would also bring with it interest from brokers and analysts who would follow the companies listed, make information more readily available and so further encourage trade.

For many of Scotland's listed companies, and their names do not trip off the tongue in any real numbers, a lack of investor interest has seen many of their shares historically trade in very low volumes. This lack of liquidity does nothing for the businesses in question and makes it difficult to attract further investment when required. Indeed it is ironic that when Edinburgh operates as a leading European financial centre, the huge sums of money controlled by the city's fund managers rarely find their way into Scottish businesses.

As a small country, many of Scotland's businesses do not play on the biggest commercial stages. Some shy away from the cost of listing on the bigger exchanges and eschew the opportunities it could potentially provide.

When a listing on the London Stock Exchange could run to millions of pounds and being including on AIM will set firms back up to 500,000, it is not surprising that many are not that interested.

However a listing on PLUS Markets would cost significantly less and carry significantly fewer administrative, commercial and regulatory requirements. Most firms would be able to get a listing for less than 100,000 and at this sort of entry level the idea of going public would surely be a lot more appealing.

Putting the focus back on Scotland would not only help firms in these difficult commercial times, but also help to set them apart for the future.

&#149 Jeff Meek is Edinburgh managing partner of French Duncan LLP, chartered accountants.