13 episodes

I’m Dr Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast, stripping down finance to reveal it as you have never thought of it before. I’ll be asking: What makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns? We will see that stock markets have places, and histories and politics, and come to understand just how influential stock-markets are in our everyday lives. Can we fashion a finance that's fit for purpose and can contribute to a world worth living in? Let's find out together.

How to Build a Stock Exchange Dr Philip Roscoe

    • Society & Culture

I’m Dr Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast, stripping down finance to reveal it as you have never thought of it before. I’ll be asking: What makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns? We will see that stock markets have places, and histories and politics, and come to understand just how influential stock-markets are in our everyday lives. Can we fashion a finance that's fit for purpose and can contribute to a world worth living in? Let's find out together.

    Episode 13. Other people’s money

    Episode 13. Other people’s money

    This episode returns to 1999, the year of dotcom mania to explore how rivers of cash from private investors – other people’s money – changed the shape of finance forever. OPM paid for new infrastructure, made finance mainstream in the media, and helped establish a stock exchange for small company stocks. Fortunes were made – even the Queen got involved – but not by these everyman punters. We start thinking about why these ‘other people’ invest at all, especially as they are so bad at it.

    Transcript

    The summer of 1999 found me, aged 25, an inexperienced young reporter at the newly founded Shares Magazine. We occupied a scruffy, overheated office in Southwark, just opposite where the heroes hung out in Guy Richie’s classic film, Lock Stock, just round the corner form where Colin Firth and Hugh Grant crashed through a restaurant window, battling over Bridget Jones. Borough Market, around the other corner, still sold fruit and vegetables to London’s cooks and costermongers. Yes, it was a very long time ago.

    We lived then – as now – in interesting times. In 1999 the world really started to get excited about the internet. Stock markets, booming since the mid-1990s, lost all semblance of control. We looked forward to the internet freeing us all and at the same time making us all rich. Ha! See how that one turned out. But the money pouring into these internet stocks changed the way the world of finance worked for good, and that’s the subject of this episode. For anyone that looked, there were also plenty of signs that we would never manage to democratize the profits of the internet and use it to rebuild our institutions. We were, as always, just too mean and greedy. Too quick to dine out on other people’s money, or OPM as the spivvier boys called it. Of course, I never looked. I had parachuted straight into this world of paid-for lunches and the world jostling for my attention or hanging on my every pronouncement. A fellow scribe had landed the precious small companies correspondent job at a prestigious news outlet. In this, his first job after university, he would find himself speaking to one chief executive on one line, with a stream of callers trying to get him on another, his mobile ringing, thrown in a drawer. On one occasion he tipped a small firm and saw the shares rise 50%, adding £11m to its market cap. ‘At the age of 24’, he said, ‘that was a big deal’. Imposter syndrome? We were so far off the pace that we didn’t even know we were.

    Once or twice, I did begin to feel that everything was not quite as it should have been. On one occasion I received a telephone call from a television investment channel, asking me to go to the studio and offer some share tips. I didn’t think that any of the shares on my beat were worth tipping that week, so I picked up the magazine and looked up the house recommendations, took them down to the studio and sang their virtues on air.

    That should have been that, but a couple of days later, working late, the phone on my desk rang. The caller carefully explained that he had lost £10,000 on one of the stocks I had tipped. He wondered whether I knew of anything that had gone wrong with the stock, anything that might have moved the market so rapidly against him. I didn’t, and the newswires showed nothing. Had there been, the caller wondered, any heavy selling that I was aware of? There was none, as far as I knew, I replied. But, he said, someone must have been selling or the price would not have moved. A weighty silence, and the caller rang off. I told myself that anyone who staked ten grand, or rather, staked enough to lose ten grand on the recommendations of someone so obviously green behind the ears as me, got what was coming to them. Still a sense of disquiet, and perhaps even a gnawing sense of responsibility, persisted. I checked out a few more of the

    • 33 min
    Episode 12. ‘The High Temple of Capitalism’

    Episode 12. ‘The High Temple of Capitalism’

    Some stories incarcerate, others emancipate. This episode explores the founding of the London Stock Exchange’s junior market, AIM. It follows the narrative of UK plc, exploring how it shapes the Exchange’s actions. We hear how the story slowly changes into something different, a vision of the market as the high temple of capitalism. We find out how the market makers and advisors lobbied successfully to maintain their advantages in the market. Despite all this, I suggests that we might find in the AIM story some germ of emancipation: a new way of understanding how a financial market could look.

    Transcription

    ‘Some stories,’ says philosopher Richard Kearney, ‘congeal and incarcerate, others loosen and emancipate.’[1] But what does what? The task confronting the critically-minded citizen is precisely this, discovering which stories fall into which category; coming to know, as Kearney more colourfully puts it, whether ‘the voice I hear in my tent is that of the love of God or of some monster’. Perhaps we needn’t go that far, but Kearney has a point: stories are powerful and power-filled. They have a life of their own. They break free of their originators and travel, enrolling networks of support through which they might confront and dispatch lesser adversaries. It’s too much of a stretch, perhaps, to claim that stories have agency, but they certainly do things. Just look at the stories circulating in contemporary British politics: narratives of heroism, plucky Britain, a nation defined by a pugnacious smallness, continually punching above its weight. Every time you see someone dressed as Richard the Lionheart, stood outside Parliament and clutching a placard, you recognize the story at play. Does it incarcerate or emancipate? I’ll leave that up to you…

    For a professional social scientist, this is just part of the job. Setting out to collect oral histories is setting out to deal with such a problem. As Kearney says, it’s hard to tell, and perhaps it’s best not to try. One cannot hope to provide an absolutely objective history: better to give the voices space to speak, and guide the listener through the result. We must look beyond the surface, catch hints and glimpses. When I investigated the 1995 formation of London’s junior market, AIM, I encountered the same story over and over: how European regulations forced the closure of London’s Unlisted securities market, pointing a knife at the beating heart of UK plc; how a plucky band of campaigners forced the Exchange to the negotiating table and demanded a replacement; how AIM arrived and has been the champion of British business ever since. This story is a fairy tale, as I showed in the last episode. The LSE was provoked by innovations from elsewhere, moving to shut down a rival market that was taking hold in the shelter of its own regulatory umbrella. The received story made no mention of this rival, dismissing its founder as a peripheral player, too small a fry for the big fish to worry about.

    Some stories congeal and incarcerate, others loosen and emancipate; a story might provide access and shelter for some, yet slam the door against others. We must be alert not only to the facticity of a story, but also to its consequences.  When I probed further, I found in the accounts given by these men the faint traces of a woman. Named Theresa Wallis, she had been at the centre of things, she had got matters sorted, and then slipped quietly away out of the narrative. I’m sure she won’t mind me saying that she had something I suspect the men didn’t. She had faith: she believed in UK plc, she believed in the story, and that belief allowed her, in the words of one interviewee, ‘to walk through walls’. For Theresa Wallis did manage to start a stock exchange, and her design has become the model for a generation of imitators worldwide.

    Hello, and we

    • 28 min
    Episode 11. UK plc

    Episode 11. UK plc

    In 1995 the London Stock exchange set up its junior market, AIM, an engine for UK plc. This episode explores how the narrative of entrepreneurial Britain brought this new market into being. That’s how the story goes, at least. The history turns out to be a little more complicated. This episode looks back to London of the mid 1990s, as a the country found itself transformed by the new dynamism of globalization. There’s a little bit of social theory, and in coming episodes we’ll be seeing stories through the eyes of a much younger me, so I get an introduction too. [Warning: some market vulgarity in this episode.]

    Transcription

    In August 1999 I was twenty-five years old and didn’t have a clue what I was doing. I like to think that makes me one of the good guys, an innocent swept up in the maelstrom of dotcom speculation, but in truth it made me into kind of collaborator, happy to be wined and dined and to repeat the lines that I was spun by the less scrupulous as they promoted their wares to a credulous and excited public. I was naive enough not to realise that regular lunches at London’s finest restaurants do not come free; that there is always a reason, and that someone is always paying. Besides, I wasn’t long out of university and in my sheltered life no one had really lied to me before. Not the barefaced lies of the kind I was to encounter as a journalist. No one had ever sat there, leaned back, puffed on a cigar, looked me in the eye and told me a barefaced, million-dollar lie.

    I was a young reporter at the newly formed Shares Magazine. I liked the job.  I liked the deal it came with even more: being handed the first gin and tonic as the hour hand crept towards one pm; riding across London in the back of a black Mercedes, on the way to air my views in a television studio at Bloomberg or the Money Channel; the buzz of young colleagues and new technology and the sense that the world was changing for the better. I liked the fact that a mysterious woman called Bella, whom I never met, used to telephone me regularly for syndicated radio news bulletins that I was never up early enough to hear. Most of all, I liked the smell of money being made and believed that somehow, in a small way, some of it could be mine. When one is twenty-something and impoverished student days are a very real memory, it is a fine thing indeed to be a stocks and shares hack in the middle of a boom.

    Those who only know London now can’t begin to imagine how different it was just twenty years ago. There was no Gherkin towering over the London skyline, no Shard on the south bank. The tallest building in the city was the Tower 42: most people still thought of it as the NatWest Tower and could remember the plume of smoke trailing from the top after the IRA bombed it in 1993. There was no Facebook, no YouTube. Alta Vista was the go-to web search engine, and the smartphone remained a developer’s dream. If you wanted to ‘go on the Internet’ at home you plugged a cable from your computer into the phone socket and listened to beeps and wheezes as the connection dials up. No one had ever heard of al-Qaeda.

    But times were changing.

    Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. If you’ve been following this podcast – and if so thank you – you’ll know that I’ve been talking about how financial markets really work, and how they became so important. I’ve been deconstructing markets: the wires, and screens, the buildings, the politics, the relationships, the historical entanglements that make them go, all in the hope of helping you understand how and why finance wor

    • 29 min
    Episode 10. Where real men make real money

    Episode 10. Where real men make real money

    Stories shape our world, and stock markets are no exception. This episode explores the entanglements of fiction and finance, from Robinson Crusoe to American Psycho. We discover how Tom Wolfe cut a deal with Wall Street, making finance male, rich and white, and see how the concept of ‘smartness’ perpetuates elitism and discrimination in Wall Street recruitment. A better stock exchange is going to need a better story; in this second half of my podcast series we’ll be discovering just that.

     

    Transcription

    Imagine the financier. What does he look like? It’s going to be him, for reasons I’ll come to shortly. He’s white, of course. I wouldn’t be surprised if he has a striped shirt and braces – suspenders if you prefer – a perma-tanned face and slicked back hair. He opens his mouth, and you know what’s coming. Yes, greed is good…

    It’s Gordon Gekko, a face and a speech burned into our collective imaginings of finance by Michael Douglas’ spellbinding performance. It’s not even a very good film, but it hit the cinemas just a few weeks after the crash of 1987 – where I wound up the last episode at the beginning of the summer – and captured the popular imagination. Gekko, Master of the Universe. We all know that phrase. It comes from Tom Wolfe and his Bonfire of the Vanities. You remember Wolfe’s description of the trading room at Pierce & Pierce, behind the faux English fireplace and club armchairs:

    ‘a vast space… an oppressive space with a ferocious glare, writhing silhouettes, and the roar. The glare came from a wall of plate glass that faced south, looking out over New York Harbor, the Statue of Liberty, Staten Island, and the Brooklyn and New Jersey shores. The writhing silhouettes were the arms and torsos of young men, few of them older than forty. They had their suit jackets off. They were moving about in an agitated manner and sweating early in the morning and shouting, which created the roar. It was the sound of well-educated young white men baying for money on the bond market.’

    This is where men made money, where real men made real money, a supercharged, 1980s version of the heavy industry that had defined a previous generation of masculinity: blue collars and half-moons of perspiration seeping through the shirt, but the shirts are Brooks Brothers, and the rivers in the background run with money, not molten steel. The trading room Wolfe visited for his research was none other than that of Salomon Brothers, where the biggest of all ‘big swinging dicks’ hung out. That phrase is from Michael Lewis’s celebrated Liar’s Poker, his first person account of the buccaneering heyday of Salomon trading in the decade of greed.

    These icons of finance are fixed in our collective narrative imagination.

    Ironically, true greed doesn’t seem nearly as glamorous as Douglas, Wolfe and Lewis make out. A more fitting exemplar of contemporary elite finance would be the lovable, Latin-quoting everyman Jacob Rees Mogg (described by my friend, an actual classicist, as a ‘faux aristocratic, xenophobic, hedge fund… well, I’ll let you guess the last word), a walking self-parody seen lounging on the front bench of the House of Commons as if it were his private sofa.

    Or Martin Shkreli, the former fund manager, self-styled bad boy ‘Pharma Bro’, and capitalist provocateur, who shot to notoriety for buying the rights to an essential HIV medicine and putting the price up by 5000%. Shkreli disgraced himself further by refusing to answer questions in a Congressional hearing and instead leering like a teenager given detention at school but determined not to lose face.[1]

    Here he is, interviewed by Forbes, explaining what he would have done differently next time.

    ——

    Shkreli voice [2]

    ——

    That’s right. He would have put the prices up more.

    • 27 min
    Episode 9. Finding prices, making prices

    Episode 9. Finding prices, making prices

    What’s in a price? This episode sets out to answer that question, via Joseph Wright’s Experiment on a Bird in a Pump, the construction of the London interbank lending rate, and some ruminations on the nature of fact. As for why it matters, we visit 80’s London for a tale of greed, sausages and a salmon pink Bentley. This is the end of the first part of the podcast. Episodes will restart in September.

    Transcription

    There’s a picture hanging in London’s National Gallery called An Experiment on a Bird in a Pump. Painted by Joseph Wright of Derby in 1768, it’s extraordinary. It shines. I try to creep up on it, so as to take its figures by surprise. They are not bothered about me, for they are watching the experiment. Near the centre of the canvass there is a glass jar. It contains a parakeet, whose life is being brought to a premature and unpleasant end by the extraction of air from the chamber. Light spills out of the painting, catching the faces of the onlookers in movement; you can’t quite see the source for it is obscured by what appears to be a brain in a jar of liquid. Two young men watch the experiment earnestly. A young couple to the left of the painting have little interest in the wretched bird. A man, an enthusiast, wild haired, wrapped in a red dressing gown and a shirt open at the neck, is pointing to the jar and declaiming to the watching boys. His right hand hovers above the brass mechanism and winding handle of the air pump, a precision instrument of its time, set in a heavy, carved, wooden frame. Two young girls are visibly upset by the suffering. One covers her eyes with her hand, while the other clutches her sister’s gown for support. Another man comforts the girls. He is speaking and pointing to the bird. You can imagine him saying: ‘Come now, this is science. Put away your childish sorrow and take heed of our remarkable demonstration.’ Another boy, his face a mixture of malice and sorrow is shutting up the birdcage hanging from the ceiling, while, to the far right of the picture an older man rests his chin on his walking stick and stares at the apparatus with an unfocused, pensive gaze. Stepping back from the painting one can see the trappings of wealth: the rich finery of the clothes, the polished wood furniture and expensive apparatus, the heavy fresco plasterwork of a doorway in the background. The moon shines pale through a large sash window. It is a country house spectacle. These details are hidden in the half-darkness, away from the extraordinary chiaroscuro Wright achieves with the lamplight.

    Compare this to another of Wright’s masterpieces, the Alchemist in Search of the Philosopher’s Stone. Again, the canvas is lit by light emanating from a glass vessel and the light catches faces in movement. But the setting is utterly different. The light, much hotter and brighter than the gentle lamp of the country house, boils out of a glass vessel held on a tripod, its stem bound tightly into a metal pipe running into a peeling brickwork chimney. It illuminates a room that resembles a church with Gothic arches built with plain stone; in the background the moon shines this time through a mullioned Gothic window. A man kneels by the vessel. He is old, grey haired, with a thick long beard, dressed like a hermit. His gaze is directed at the ceiling, so that his face, illuminated from below appears in an attitude of prayer. He is surrounded by the junk of alchemy, pots, vases, scrolls and a globe. Behind him there is some kind of writing table and two surly faced boys are chatting and pointing at the kneeling man. The sole, incongruent trace of modernity is a clock shown clearly in the middle of the picture.

    Wright may well have seen these paintings as reflections of the same activity, the advance of science and progress, literally illuminating and metaphorically enlightening. But his two v

    • 37 min
    Episode 8. Wires!

    Episode 8. Wires!

    Modern stock exchanges couldn’t exist without wires. They are virtual, global, infinitely expanding. Their trading floors are humming servers. But no one ever planned this transformation, and it took many by surprise. This episode explores the long processes of automation throughout the second half of the twentieth century. We hear about engineers, screens, and how technology created a new stock exchange almost by accident.

    Transcription

    Let’s take a walk through a stock exchange. In the 1980s, it would have sounded like this…

    —– trading pit —–[1]

    That’s a trading pit, with the bell sounding, bodies crammed together, pushing, shouting. We have heard it a few times by now. In the late 1980s, when Tom Wolfe visited the trading room of Pierce & Pierce, he still found a terrible noise, ‘an ungodly roar, like the roar of a mob…an oppressive space with a ferocious glare, writhing silhouettes…moving about in an agitated manner and sweating early in the morning and shouting, which created the roar. It was’, he writes, ‘the sound of well-educated young white men baying for money on the bond market.’ But the market is only partly in this trading room, it is outside, absent, on the screens. And if you walk through a stock exchange today, it would sound like this…

    ——– ‘singing servers’—–[2]

    Isn’t that eerie? The sound of servers in a data centre, chattering to one another. A beautiful recording, too. These changing sounds are the background to the story in today’s episode, that of automation, the transformation from spoken markets to those of near instantaneous speed, a transformation that has made possible an increase in the volume and scale of financial transactions to a level that would have been simply inconceivable 30 years ago. Economists delight in pointing out how technological improvements in financial markets lead to socially beneficial outcomes through facilitating liquidity and choice. That argument, however, supposes that changing the medium of trade has no consequences other than making it easier. By now, we know this cannot be the case: throughout the first part of this podcast we have seen how the shape, function and purpose of financial markets are every bit as dependent upon their material structures as on regulatory regimes and global political-economic conditions. Through the 1980s and 1990s, automation turned stock exchanges inside out. That is today’s story – even if we don’t make it all the way into the cloud in one episode.

    Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast. I’ll be asking: what makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns?

    The last two episodes have focused on the upheavals felt in the world of finance during the 1980s, the decade when greed became good. We saw, in episode six, how shifts in the tectonic plates of global economic governance and the intellectual fashions around ownership and collective versus individual responsibility had led to the birth of a new kind of social contract, the individualism of Thatcherism and Reaganomics. We saw how – in the UK at least – that manifested itself in a new kind of investor, Sid, the archetypal blue-collar worker turned property owner who bought into the newly privatised industries and could consider himself a member of the rentier classes.

    • 31 min

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