THE JOBBING SYSTEM OF THE LONDON STOCK EXCHANGE: AN ORAL HISTORY

Interview No. 31: Sir Nigel Althaus

Interviewer:  Bernard Attard

Home: 20 June 1990

(corrected and edited by Sir Nigel Althaus and checked by the Bank of England)

Tape 1, side 1

BA: Could you first tell me, Sir Nigel Althaus, where and when you were born?

NA: I was born in London on 28th September, 1929.

BA: What were the names of your parents?

NA: My father was called Frederick Rudolph Althaus, CBE.  He was a deputy chairman of the Stock Exchange, in - oh, I can't remember - about 1960, or thereabouts - 1964, I think it was.  And he afterwards became president of the Federation Internationale des Bourses de Valeur, which is what he got his CBE for.

BA: Which Stock Exchange firm had he been associated with?

NA: He was Pember & Boyle.

BA: Had any of your grandparents been in the City?

NA: My grandfather was senior partner of Pember & Boyle.  He started off tutoring one of the Rothschilds.  His father was a German emigre who became Professor of German at University College London, as it then was. My grandfather had this tutoring job with Rothschilds and my great grandmother who must have been a fairly formidable woman, went off to see the first Lord Rothschild, who had an enormous black beard, and said, 'My son has had a chance to better himself and he's been offered a job as a master at Wellington, and I'd like to have your assurance that if he stays with you he won't suffer for it.'  Lord Rothschild chuckled into his beard, and said, 'I think we can probably arrange that.'  And when the tutoring came to an end he sent him to Pember & Boyle with some Rothschild business to go with it.

BA: Did you have any brothers or sisters?

NA: I've got a brother who is, unfortunately, in Kitcat.  So he found himself out of a job the other day.  I've got a sister as well.  

BA: Did the Stock Exchange impinge terribly much on your up-bringing, in the sense that you were aware of it?

NA: I was certainly aware of it, yes.  And as far as I was concerned I knew that my father would like me to go into the business, and I didn't really know what I wanted to do when I came down from Oxford, but I thought I ought to try it because I knew my father would be disappointed if I didn't.  And I got hooked after about three days, and I stayed there for the rest of my working life.  

BA: Can you tell me, briefly, where you were educated?

NA: I was at Eton, then I did National Service in what was then the 60th Rifles - it was a green jacket regiment.  And then I read Greats at Magdalen.  

BA: Now I know that, given that your father's firm was a broking firm, there was no question of you becoming a jobber but would that side of the Stock Exchange have ever held any appeal to you - would you have contemplated going into jobbing?

NA: Well, I don't know.  I'm not sure that I've got the right sort of risk-taking mind for being a jobber, but I suppose one might have done.  Brian Peppiatt, he was one of two, and his brother - you've probably got all this - his brother went into Mullens and Brian went into Akroyd - his elder brother went into Mullens.

BA: What do you think the attitude to the jobbers would have been among your father's generation of stockbrokers?  It's been said to me, for example, that certainly in the earlier days that jobbers and the brokers were seen to come from completely different social backgrounds.

NA: I don't think that's entirely true. The great path to being a partner for people who didn't have the upper class or middle class background, was through being a dealer. And it was almost always the case, I suppose, that there were more people required to deal in a jobbing firm than there were in a broking firm.  There were, if you like, wider variations of up-bringing so to speak, among jobbers than there were among brokers - probably - but in a lot of cases people at the top of jobbing firms were much the same as people at the top of broking firms.  

BA: When did you actually start with Pember & Boyle?

NA: 1954.  

BA: How would you describe the firm at that time?

NA: Well at that time it was very much a gilt-edged firm.  We didn't do much in the way of equity business.  The equity business came later.  We had a very strong local authority connection, and the local authorities started setting up their own pension funds and this was obviously going to be a very useful business to have.  So, by the end of my time, the business was still predominantly gilts where we had a much larger market share than we did in the equities.  But there was a very useful fund management business which was almost entirely local authority pension funds - some of which were quite big.  Most of which we did in conjunction with another broker.  There were very few pension funds that we ran exclusively but there were a good many that we were part of two or three running the various funds.

BA: Was it a big firm, how did it compare with firms like Cazenove, or Hoare & Co?

NA: No, it was always a small firm. I suppose the biggest we got to was about 120, something like that. 

BA: Did you have much in the way of research staff at the time?

NA: What, when I joined?

BA: Yes, during the mid-fifties.

NA: When I joined we had a lot of gilt-edged research.  Before the days of computers, we had probably a rather better statistical service than I should think anybody else.  That was really the work of my father who did a great deal of work on that.  We had an extremely good statistician by the name of Prater, who did a lot of work on gilt-edged research, and there was a lot of switching business in those days, and we had better historical records of what were good switching terms than other people did, on the whole.  But with the advent of computers - before it was the most horrendously time-consuming thing for anybody to start off; you had to go back and work out charts and God knows what - but once you had the computers then anybody could do it.  And I think the firm probably was at its height of influence in the years after the War, when we had a very large slice of the bank business.  The bank business in those days was very big, and we had a big slice of it.  We had quite a lot of insurance company business as well.  By the time I'd joined, the banks had began to run down their gilt-edged holdings which they progressively did all the way through, but we had a lot of insurance company business, a certain amount of pension fund business. But the pension funds in those days, when I started at any rate were still comparatively new, I mean they'd been going but they weren't of the same sort of scale as the insurance companies were.  But after the War, I think Francis & Praed were the biggest jobbers in those days and we had this very large bank business which by and large was taken to Dick Wilkins, and Dick always used to say that this enabled Wedd really to take off in the gilt market.  

BA: Does that mean that a firm like Pember & Boyle would have had particular firms that they liked to do most of their business with?

NA: Yes, I think that's probably true.  And certainly most of our business went to Wedd, I suppose - to start with anyway.  As time went on it tended to vary a bit more.  There was a very good relationship between our main dealers and Dick Wilkins and Jimmy Priestley.  

BA: Would that have been true of most broking firms specialising in gilts?

NA: I don't know.  I would think that probably most people had a favourite jobber to some extent.  But there were times obviously when you'd take the business somewhere else because the other chap would give you better term.

BA: What were the first jobs that they had you doing in the firm?

NA: Well, I really just went round the office.  I started off in the transfer department and then I worked on the contracts and ledgers and things like that.  I didn't do it all that long, because I became a partner quite quickly.  It may have had something to do with the fact that my father was senior partner!  

BA: Was there a point when you started to go down to the Stock Exchange?

NA: Yes, I worked in the box, where one took the orders, took them into the dealers and so on.

BA: Do you have any early impressions of the Stock Exchange as a trading floor, as a place?

NA: I suppose there a great air of bustle about it.  One of the things that the dealers always used to say, and I think it was true, [was] that you could just get a feel of the market just by standing there.  There were times when it was obviously very quiet and there were times when it was very active and one could sense the degree of activity.  You could obviously see it, you could see people scurrying around or people just hanging around doing nothing very much.  They used to set light to newspapers and things like that.

BA: Do you have any recollections of how active the gilt-market may have been during this period, late fifties?

NA: I suppose in the gilt-market there was nearly always something going on, because a large proportion of the business was switching.  So that even if the market wasn't going in any particular direction there were usually opportunities for doing swaps.  So there was nearly always something to do.   Sometimes more active than others, obviously.

BA: Did the 7% bank-rate and the bank-rate tribunal in 1957 figure in any way in the firm's experience?

NA: Yes it did, because we'd actually done quite a lot of the business. I as it happened was in America at the time but we sold stock for the Royal Exchange, we sold stock for Lazards and we sold stock for the Swiss Bank, I think.  And I remember when the tribunal started I was just watching the tape machine and Paul Barewe - I think he's still alive - was one of the first witnesses and he was being asked where he'd heard that there was comment about it all and he said, 'Do I have to answer that?'  And they said, 'Yes, you do.'  And he said, 'I heard it from Mr Althaus, Pember & Boyle.'  So I went scooting into my father and said, 'You'd better have a look at this.'  And he was one of the witnesses.  

BA: Can you briefly describe the stages in one's career in Pember & Boyle?  Did you, for example, ever work as a dealing partner?

NA: No, if you were a member you were entitled to deal and I suppose I did little tuppenny ha'penny branch bank deals and that kind of thing but I never did serious dealing at all.  If somebody wanted to buy a hundred ICI or something like that, I would go round and ask a couple of jobbers and deal with it.  But it was a specialist business being a dealer and I never dealt seriously at all as a dealer.

BA: Had this always been the case with Pember & Boyle that there'd been a bifurcation in the sense that some partners didn't, by and large, go onto the floor and deal and there were specialists? 

NA: Yes, yes, I would guess that probably in the earlier days, perhaps in the 'twenties or something, the partners used to do their own dealing.  But certainly not in my time.

BA: So what were your main functions within the firm?

NA: I was what would now be called a salesman.  I dealt with a lot of the insurance companies.  I dealt mainly with insurance companies in fact.  We had a very good Scottish connection. In those days everything was colossally leisurely - the board of the Scottish companies would meet on Tuesday or Wednesday and you would ring up the investment manager Tuesday or Wednesday morning, talk about the market and then probably the next day they would come back with an order, that sort of thing because the board had decided to do something.  

BA: How long did that last for?  

NA: I should think it had started to change by the 'sixties.  

BA: And in what ways did that show itself?  Did life become just a bit more busier?

NA: Life became more active, yes.  The competition in the gilt edged market hotted up a good deal. Greenwells really only became a force, I suppose, towards the end of the 'fifties.  Before that they had very little gilt edged business but there was a chap called Tremlett, who went there from Grieveson Grant.  Of course, there was Pepper and there was a chap called Charles Frappell who was really the dealer and that began to build up quite a lot.  There was a lot more theoretical stuff about the gilt market - a lot more model making and things of that kind.  The work just became quicker; when I started it was pretty slow. If you wanted to do a switch - we had all the charts - and you would send the charts off.  You would ring up and say, 'Here is this switch and I will send you off the chart.' We got an early photocopier - this was very advanced.  Before that you just told it to the chap over the 'phone and either he believed you or he didn't. But then you could send him the photocopied charts and things of that kind.

BA: Was broking in the gilt market competitive?

NA: It became extremely competitive as time went on.

BA: Now did the jobbers in any way impinge upon your work as a salesman?  Did they ever impinge as a factor?

NA: Yes, sometimes the jobbers had got some position they wanted to undo and they would come up to the dealer and say, 'Have you got anybody who wants to do this?'  And then you would have a look and see whether you thought it was a good thing to do or not.  And if it did seem to be a good thing then you'd try and get somebody to do it.

BA: Were jobbers ever important as a source of information on a stock, the volume of buying?

NA:  Yes.  But you tended to take what jobbers told you with a pinch of salt.  There was always marvellous stuff about the tap and 'this is the last half million before the price goes up' and things like that.  There was a splendid chap called 'Woody'.  I don't know if anybody's mentioned Woody at Wedd.  And he was a great man for saying, 'Last half million here, come and get it quickly.  64th cheaper offered'  He was a short man.  Obviously you did get a certain amount of information from jobbers, but you also relied a good deal on what you were hearing from the clients and what you could actually see yourself.  There was a fairly healthy mistrust of what jobbers would tell you. My dealing partner always said, 'Never trust a jobber!'  

BA: Did you ever have much personal contact with the jobbers?

NA: Yes, they used to come and have lunch in the office and things like that and I used to go down into the market and talk there as well.  So yes, one had a fair amount of personal contact with them, nothing like as much as the dealers did, of course.

BA: When did you actually become senior partner of the firm?

NA: When my father died which was in '75.  

BA: In what ways did your responsibilities in the firm change?

NA: Well, I'd been sort of de facto senior partner for some time of course.  My father was nearly 80 when he died and he had given up a lot of his active running of the firm.  It was more what you might call the policy and administration, really: what we should be trying to do; hiring people. For umpteen years we never had a partners' meeting.  I remember we had one partners' meeting where the only thing that came up was that we needed some new hairbrushes for the partners' loo and I was supposed to go out and get them.  As time went on we did try to plan things rather more strategically, rather than just going on from day to day.  

BA: Did you have any ambitions for the firm?

NA: Well, we thought the mix that we had at the time was actually quite a good one.  And we were always aiming to try and expand the gilt coverage because that was where we were best; we had a lot of merger approaches at one time or another, but we always turned them down because the people who were coming to us were usually in some form of difficulty or another.  And the gilt business was a very good steady business from the broking angle.  The equity market tended to have its ups and downs a lot.

BA: Had the gilt market gone relatively quiet during the '60s when you had what they called the 'cult of the equity' raging away?

NA: Well, there was always something going on, that was the thing about it.  As we said before, there was nearly always switching going on in the gilt market and people tended to forget about that.  But it was still a very nice steady earner, that was the great thing about it.

BA: One of the things that has been said about the gilts broking in the late '70s early '80s, particularly in the years immediately preceding Big Bang, was that it did become very lucrative for the firms involved in it.

NA: Well, that really dated to 1976, when the IMF came in and things like that, and there was this business of controlling Sterling M3 and it did mean the government was a forced seller all the time and that stock had to be taken up some way or another and so yes it was lucrative.

BA: Well let's return to the jobbers.  As we mentioned earlier, during the '60s and early '70s there was quite a marked contraction in the number of firms and very long-established firms like Francis & Praed ceased trading in 1973. Was this something that broking firms dealing in gilts were aware of or talked about, or really was that something taking place in the market that wasn't impinging terribly much on business for them - they were still able to deal, they were able to do what they wanted to do in terms of size of bargains and so on?

NA: Well, it was a source of worry.  Francis & Praed never recovered from the bank rate really.  After the War, Francis & Praed were the biggest gilt-edged jobber.  But the people at the top of it - the quality wasn't all that hot - and it ran down steadily. And then they did lose a certain amount of money over the bank rate.  They got really a death wish in the end, I think. That was the biggest casualty really. On the other hand at that time Akroyd & Smithers were beginning to build their business up.  The rise of Akroyd & Smithers really was principally the work of Brian Peppiatt and Tim Jones, I think.  By the end of it Akroyd were certainly on a par with Wedd and for some time they were ahead of it too - having been really pretty small fry when I first started.  

BA: What would you say had been the qualities that had distinguished Akroyd at that time, did they just have particularly canny dealers?

NA: Yes, I think that's right.  They slowly built up the size of position they were prepared to deal in.  In their early days, if you had a large order you probably wouldn't take it to them because they were not likely to make you the price in the size you wanted.   But that sort of steadily increased and so by the end of it it was Wedd and Akroyd for all practical purposes.

BA: Did you ever worry, in that case, that it might possibly not be a competitive market in that you only in the end had two jobbers to deal with.  If they together decided they weren't going to do something, you really had no recourse.  

NA: On the whole they didn't do that, they would make you a price.  There were times when they were more or less co-operative, but you could always deal at a price.  You wouldn't necessarily like the price but you could always deal.  

BA: Did you as brokers ever feel restricted by this separation of capacities, were you ever tempted to do, well in a sense, to job stocks yourselves?

NA: We never did.  It was always thought that some people did do that.  There were one or two grey areas and so on, but basically it was against the rules for a broker to take a position, though we always suspected that some people did, but we never did.  What you did do to some extent was to build up your own market, in a way.  There was an awful lot of tax loss switching which was a very important sector of the market because of the way the capital gains tax rules worked and you would try and get hold of two or three or four people even who had business that all fitted together, and then you would actually present it to the jobbers.  And quite a lot of it was done on what was called a 'net', which meant that only one side paid the commission; the two principals dealt with each other.  And again there were Stock Exchange rules about that, about how you could do it.  But that became a very interesting exercise and we got in on that pretty early, right on the start of it.  I remember we had one month where we did 20% of the long gilt turnover.  We never got any where near it again, but when it first started we almost cornered that market.

BA: Would you describe that as a put-through of a fashion?

NA: Yes, it was put-through business really.

BA: How did the jobbers feel about this?  I believe put-throughs were one bone of contention with them in that they felt a certain amount of business was being taken out of their hands.

NA: Yes, well if you were sensible about it, you tried to present it in such a way that they got something out of it.  They didn't make as much that way as if you hadn't got it, but the business was very competitive and if you could put up the right basket to the clients you could get a lot of business and that was the way it was done - jobbers made something out of it but they didn't make as much as they would have done.

BA: How did your clients feel about the Stock Exchange single capacity system? You had in the '70s their attempt to set up Ariel, to bypass the Stock Exchange altogether.  Were you conscious of this as a broker dealing with your clients that they felt restricted by having to put through business through the Stock Exchange and through the jobbers?

NA: Well, I think they just thought that they were paying us much too much commission.

Tape 1, side 2

NA: Ariel would have been superbly adapted to doing all this tax loss business but this was effectively stopped by the Bank who wouldn't accept dealings going through Ariel - the legislation was framed in such a way that unless business was done through the Stock Exchange there were frightful restrictions on what you did next.  The Bank was always very concerned to preserve the jobbers and so Ariel never got into that business.  If it had it would have made an enormous difference actually.  But the bank was very keen to preserve the jobbing system and so it didn't happen.  

BA: Did you ever feel, generally, that institutions or clients were dealing directly with themselves and business was not going through the Stock Exchange?  

NA: Not a great deal, I think.  There were supposed to have been various deals - there was a lot of stuff about preference shares at one time which were particularly attractive to certain classes of investor and not very attractive to other classes because preference shares were franked incomes and this made the yield on them very good to certain funds; pushed the yield down to somebody who didn't pay tax to a level where he didn't want to hold them.  And it was said there was quite a lot of business went on outside in that kind of thing.  There was always talk of business by passing the Stock Exchange.  Ariel never got very far even in the equity market.  I think that clients were rather chary about exposing a position on Ariel and so it never really took off even in the equity market.  

BA: Did you ever suspect jobbers going outside of the Stock Exchange and breaking the rules and having contact with clients?

NA: There was one very notorious chap who used to do that.  He was the investment manager of a large pension fund.  He used to just turn up in a jobber's box and the jobber used to deal with him and it was then booked through a broker.  And that may have happened in other cases too.  One of the discount houses which subsequently was forced into a merger where they used to let one of the smaller jobbers have the sort of put and call of their business.  

BA: Now while you were still at Pember & Boyle, did you ever feel that there were strains on the single capacity system, or did you feel that it was providing an orderly market and an efficient mechanism for trading?

NA: It did work astonishingly well, and we were talking earlier about this enormous expansion of government debt and the government's need to sell hitherto unprecedented quantities of stock.  But the system seemed to work quite astonishingly well really.  I mean it had its hiccups - there were what were referred to as 'Buyers' strikes' and things like that.  But that wasn't anything to do with the jobbing system as such: that was because the government of the day were not prepared to let interest rates rise to the level which would have cleared the market and in fact it did work astonishingly well.  

BA: Did it ever strike you as slightly incongruous that the whole secondary market for the United Kingdom government debt was, about four-fifths of it, basically concentrated in the hands of two jobbing firms one a listed company and one a private partnership?

NA: Well it was, there were an awful lot of odd things went on.  The stock answer on all these things is, 'did it work?'  And the answer was by and large, yes it did.  It's one of those things which if you started with a clean sheet of paper you probably wouldn't have done it that way.  You were left with that.  No, I think it did work astonishingly well, really, at that time.  

BA: Did you ever feel at that time that you'd prefer that there were more jobbers?

NA: Oh, yes, one would have always have liked to have had a wider choice because it kept the main participants on their toes.  Smith Brothers started up at one time, but they couldn't really break into that market - they tried.  Smith Brothers were a very competitive firm - byword for competitiveness - but they just couldn't really break into it.  They didn't actually have the right people for it.  They were trying to run it in the way they ran their equity book.  And the gilt-edge stuff, which again, I suppose because so much of it was switching, did require a slightly different approach from running an equity book.

BA: Could you elaborate on that a little bit? What was the difference in approach?

NA: Well, between gilts and equities or between Smith Brothers and others?

BA: Gilts and equities - the kind of approach one needed?

NA: I think, gilts were a sort of homogeneous market; any one gilt is substitutable for another, more or less, but you can't substitute ICI for RTZ or something of that kind, they are different animals.  And therefore you tend to concentrate on what's actually happening in that share, in that industry.  With the gilt market you were looking at a large number of factors which were affecting a homogeneous class, and so it wasn't any good saying, 'Well, this particular gilt is cheap.  I'd like to buy some', because if the whole of the gilt market was going to fall it wouldn't do you any good.  If you bought the cheapest one you might have lost a bit less but you would still lose money. Whereas you could take a rather different view on what was happening at ICI, something like that.  

BA: You mentioned in the earlier days that Wedd would see a lot of Pember & Boyle's business, did that change?

NA: Yes, it did.  The relationship went on for a long time because our senior dealing partner, until I suppose about the late '70s had been very much involved with the Wedd people.  And there was a relationship  between him and Dick Wilkins, Jimmy Priestley.  He retired, Dick went off to do more supervisory stuff.  Jimmy retired.  And the younger dealers who came on didn't have, on either side - there was a sort of mutual respect and admiration and so on - they didn't have the same thing and the business spread round much more as time went on - had to too because as Akroyd became more competitive it was no good in just saying, 'We can give it to Wedd', because the competition would be going to Akroyd and getting better prices.  So you had to make sure you weren't caught that way.

BA: Did you feel even when there was a much closer relationship with Wedd that you were still doing the best for your clients?

NA: Well..., yes, I think so, yes.  Well, if you weren't getting the best for your clients you weren't doing your job properly.  

BA: Did you ever have cases of clients coming back to you and grumbling about the price you might have got?

NA: Yes, oh yes, you did get that sometimes.  I had one frightful day when a client kept on saying, 'Well I've had better terms', people leave the business open for quite a long time, 'I've had better terms put up by somebody else.'  I said, 'What on earth is this thing coming out?'  It turned out in the end that two people in Wedd had been making different prices [laughs heartily!].  Yes, you got that and that was a question of the dealing skill of your dealers really.  But it depended an awful lot on whether you had other business which would impinge on it.  If you just went in cold with a switch, you'd get made a price, if you had other business that would undo it you could obviously get very much closer prices.  And that was a lot of the art of being a broker.  A broker's job really was to find the matching business as far as he could.  

BA: Did you have much contact with the government broker during the course of your business?

NA: Well, we had a certain amount of contact with the government broker.  In the days when there were a lot of local authority issues, there was the new issue queue and so you were ringing up the government broker to book a place in the queue and then be told whether you could go or not, and things like that.  We had one or two other things.  At one stage we became brokers to the government of Ghana and Ghana was the first colony to go independent. And the colonialist oppressors had actually left them with a large portfolio and we had to reorganise that. So we told the government broker what we were doing, and on the strength of that we presented what was for those days a very large restructuring order - Jimmy Priestley did it - and Jimmy then came along and said, 'These are the prices that the government have put up to me.'  And we said, ' Right well, if we give you...' - I think we gave him a 32nd on all the business.  He told us what he was going to get and we told him what he could have.  He was quite happy - there was no risk for him.  And yes, we did talk to the government broker about that.  There were social contacts, of course.  A lot of people in Mullens were old friends of mine which was one of the great advantages from my point of view when I moved over.

BA: Can you describe the circumstances in which you did move over to Mullens?

NA: Well, the government broker of the time, was a man called David Cromwell - Lord Cromwell - he was a very old friend of mine, we were at school together and we were in the army together and we used to do a certain amount of stuff together really, general Stock Exchange stuff.  He fell off a horse and killed himself.  There was then the question of who should be the government broker.  There was a deputy government broker called Roger Daniell.  David had only been a government broker for about 18 months, I suppose.  Roger was about 10 years younger than David, with the idea that David would be government broker for ten years or so and then Roger would take on.  But, at the time, they thought that he was a bit young to take it on.  I don't know how anecdotal you want to get with all this.  I was down in Cornwall on my holiday and I went to the local church bazaar and a man I knew there who had retired from the Stock Exchange said, 'What's all this I see about your going to Mullens?'  So I said, 'What is all this?'  He said, 'Oh, it was in the Telegraph yesterday.'  So I went off and got hold of the previous day's Telegraph and there'd been some article about who the next government broker was going to be. And I imagined they'd just been throwing a fly around and there'd be a list of possible names or something.  Well, there was only one name on it - me.  So 'help', I thought.  Nothing happened and then a few days later I'd been out playing golf and when I got back, there was my wife and my daughter and they said, 'The Governor of the Bank of England has been on asking for you.'  I said, 'Go on, pull the other one.' 'No, no, it's true, he has.'  And that night, Gordon Richardson, the Governor, rang up and said, 'I'd like you to come and see me when you get back.'  I went round and saw him, and he offered me the job.  I said, 'I can't do anything like that without talking to my partners first.'  I went to talk to my partners and my partners said, 'OK'. So I went back the next day and accepted.  The qualifications that were needed I suppose were that the government broker should be somebody of what you might call senior partner status with a good knowledge of the gilt market, and to some extent I suppose someone with whom the people in Mullens could get on because they were actually having a senior partner dumped on them really and somebody who the Bank could work with.  I knew some of the people in the Bank - Eddie George who was the director in charge, I knew, and we had always got on very well, and that was it.  

BA: Had the Bank been the initiator?

NA: Oh, yes, it was the Bank.  The official title is Senior Broker to the Commissioners for the Reduction of the National Debt.  And the appointment was in theory made by the Commissioners.  The Commissioners were set up by Pitt in 1786 and they are: the Chancellor, the Governor and the Deputy Governor, the Speaker, Master of the Rolls, the Lord Chief Justice, somebody called the Accountant General of the Supreme Court.  I think that was it. But their last meeting, I think, had been in 1961 when they had a dinner at the Bank of England to celebrate the fact that it was 100 years since they had last met, and the only time they met when I was broker was in 1986 to celebrate the bi-centenary of their establishment.  It has to be said that they didn't know they were commissioners.

BA: Had there been any precedent of someone from outside of Mullens coming in?

NA: Nobody had ever come straight in as government broker.  There had been a number of times in the past where it was felt that the people in Mullens at the time were not suitable for one reason or another, and people had been brought in be deputy government broker.  In fact Jimmy Priestley's father was brought in to do that but died before he could actually take the job up.  And there were various other people who had come in from outside.

BA: How would you define the duties of government broker?

NA: Well, they were to make sure that the government's funding and economic objectives were carried out as cheaply as possible.  That was really the overall objective - that was your strategy if you like.  And part of the strategy was to make sure that that was a healthy secondary market for government debt.  You had to try and produce stocks when there were new issues to be made which people would want to buy.  But you didn't actually give the stuff away.  At one time when the M3 control first started, there was a lot of rather ill-informed comment in the press saying that if the government broker can't sell enormous quantities of stock regardless of price, he's not up to the job.  That was far too simplistic because the world being what it is if you know that something is going to be a pound cheaper tomorrow you don't buy it today.  So the management of the market was very important and just throwing stock at the market regardless would eventually kill it.  Luckily there appeared to be a more or less endless supply of [eager investors] who were prepared to buy the stock, but even they would jib in the end if the dog never saw the rabbit, if they never saw a profit on what they bought.  So the management of the market was very important.  

BA: Was it a difficult time to become the government broker, the early '80s, when the economy was a bit rocky?

NA: To begin with my first few months were not difficult.  The market was actually going up like a rocket at the time, and the day I became government broker it went up a couple of points, I think.  And my baptism of fire: I think I was offered the job in September - early September - and the date fixed for me to take on was the 11 October...

BA: This was 1982?

NA: '82.  And before I went in there I was kept away from all sort of contact so there shouldn't be any problems with my position at P & B.  And I did know that we were going to do what was called a 'Bulldog issue' - a Sterling issue for a foreign borrower which was the European Investment Bank.  And the Bank of England were going to be the issuing house: Mullens only acted in new issues where the Bank of England was the issuing house. The Bank of England didn't do very much in that sort of line really, but they did this one.  And I was told that that was coming and that came out on the morning of the 11th October, we launched that.  And the day's routine was that you began by giving the chap in the Bank who was called Ian Plenderleith - he was the one under Eddie George, Ian was head of the gilt-edged division - you began by giving him the first morning round up, and then if there was anything interesting you kept him up to date. If we were selling stock or something, we would let him know how you were getting on.  And then you went down to the market at half past ten and you went and talked to the jobbers and they told you what was going on and the general feel of the market. And then you went over to the bank at 10.45 where you saw Eddie and Ian and various other people.  I walked into the Bank at 10.45 and I said, 'The  market's going like a rocket,' and so on.  And they said, 'Right well we're going to have a new gilt-edged issue this afternoon - what's it going to be?'  So I had to think on my feet pretty sharply.  So we fixed on an issue.  At that time the policy was we weren't issuing long-dated stocks at all because the Government felt, rightly, that the level of interest rates would be coming down - they didn't want to saddle the country with too much long-dated debt.  In the sort of interregnum between David's death and my taking up the job, Roger had brought out an issue.  Do you want to go into the detail of it, or not?

BA: Could you actually describe what went on?

NA: Well, Roger brought out an issue of 10 1/2s 1988.  I was told that we wanted to do it in that sort of maturity again and I remembered that there had been a time when there had been a 6 1/2 '76 issue which ran out and that afternoon the government produced another 6 1/2 '76 issue which was generally considered to be extremely unsporting and actually knocked the market.  So I said, 'Well we don't want to do that again, but we could actually make it a lower coupon issue, 9 1/2 '88.  Because of the tax arrangements at that time, we needed to sell stock to building societies and a 9 1/2 1988 issue would have been very much more attractive to them than 10 1/2 '88 issue because bigger discount and better net yield and so on.  And so that's what we fixed on and that went pretty well.  We sold it all within three days, I think.  That was issued direct to the Bank, that was another complication.

BA: Could you describe the actual processes by which one issued stock to the market and where the jobber might fit into that?

NA: Well, there were various ways of doing that - the old fashioned way really was something which was an offer for sale, which was advertised in the paper.  Typically they were announced on a Friday evening at 3.30 when the Stock Exchange was closing and they would be for subscription on the following Thursday, I think at that time.  So that left you rather open to what the market might do over the period.  Funding was very complicated then because you worked on banking months which were in the middle of the month rather than the calendar month, and there was still a lot of interest attached to the M3 figures - Sterling M3 figures - and if we seemed to be falling behind with funding, then the market would tend to back off because that would mean we were under more pressure to sell stock.  The whole thing was to try and keep right up with the game or preferably ahead of it.  One of the innovations that came in was having partly paid stocks, so that you could spread the calls through various banking months in the future so that you'd got some under your belt for the future.  And it was fairly typical for an offer for sale to be partly paid.  It was easier to get away because people didn't have to put up so much money to begin with.  Some of the more active investors liked it because you'd got a gearing effect on it.  You only had to put up #25 for #100 stock.  That was the offer for sale.  Then there were issues direct to the Bank and that was what this particular one was because we needed to catch this tide of enthusiasm that was flowing.  And that meant that you didn't deal in it the next day, but you dealt in it the day after - the next day you advertised it, but it was difficult to get the advertisement in in time.  The Stock Exchange required it to be advertised.  The dealings would start - this was Monday - so dealings would have started on the Wednesday,  and that was all sold out through the jobbers - the public couldn't apply for it.  The public could apply for an offer for sale. So you had to go through a jobber and through a broker.  New issues had a reduced commission and that again helped to get the stock distributed.  It was cheaper to switch into it and so on.  Then there were what were called tranchettes which were invented by David Cromwell and Eddie George, really, about a year before and they were....

Tape 2, side 1

NA: And they would be fairly small bits and those were the sort of things that we resorted to when the market was a bit tender - wouldn't necessarily take a full-scale issue but might take three or four hundred million stock and they kept the pot boiling.  I ought to go back to the Offer for Sale because those were tenders, the offers for sale.  They were originally at a fixed price and some of them got left behind in a rising market and there were vast applications at too low a price.  There was a famous thing called 'The Battle of Watling Street' which really sparked off the change for that.  So the minimum price tender meant that if the market did go up between the time you announced it and when it actually went, the government got the higher price for it.  After Big Bang there were auctions, but auctions didn't come in until after Big Bang, largely I think because of the feeling that an auction would bypass the jobbing system, and it was always while the jobbing system was there, it was thought important to keep the jobbing system healthy.  But as I say that came in after Big Bang.

BA: How often would you be visiting the floor of the Stock Exchange?

NA: I used to visit at 10.30, 12.30 and 3.30.  

BA: And what would you actually be doing when you were there?

NA: Just going around talking.  Talking principally to the jobbers, but also to other people who I knew down there and just getting the smell of it.

BA: Did you find that you were often in a situation where you were dealing with jobbers to help them undo a position or get their book right?

NA: Well we helped where we could.  Our book tended to be fairly small but there were the funds held by the National Debt office, who looked after principally things like the National Health Fund and the National Insurance Fund, and there were various other funds they looked after; there was a Savings Bank Fund which has slowly withered away, and various other funds.  And the jobbers would come along and say, 'We want to swap X for Y'.  And we would take those to the Debt, again it was fairly leisurely.  I used to go and see the Debt every Tuesday, I think.  It was originally Wednesday, I used to see the Debt, and then I think it moved back to Tuesday, I can't remember.  And the Debt would look at them and see whether it suited.  So one would help out on books in that sort of way.

BA: Would this be a fairly frequent routine occurrence?

NA: Oh, yes.  They would come up with a list every week.  Sometimes it suited the Debt, sometimes it didn't.  There were occasions when you would get Wedd wanting to go one way and Akroyd wanting to go the other and they naturally had the undoing of business straight between them.  I always used to say to Kenneth Hill who was the dealing partner, 'Is there nothing we can do to put them in touch with each other?'  But they didn't like it.  They didn't like, even though they had opposite positions they didn't like it, and so they much preferred to have it done through the Debt.  And in fact every so often we would try to sell it and see whether there was... but they could never agree on terms anyway, so.

BA: Were there ever situations in which jobbers had got themselves into trouble, either a small jobber trying to over trade and finding themselves caught that way and having to have recourse to you?

NA: I believe that there was a time when one of them got himself into quite a mess - it was before my time - and arrangements had to be made to help him out but it was before my time really.

BA: Did you ever have any contact with the jobbers outside of the House?  Did you meet with them?

NA: Oh, yes.  I would go and have lunch there and things like that.  A lot of them were friends of mine too.

BA: Did you ever meet in a formal capacity, perhaps that's what I'm getting at?

NA: We used to have fairly regular meetings with Wedd and Akroyd and we also used to have meetings with the smaller jobbers too.

BA: What would be the kinds of issues that you would discuss? 

NA: It was really just discuss what they thought about the market; very occasionally there might be something where one wanted to talk to them about - whether it would be a good idea to change some way in which the market operated or something like that.  I can't remember any specific issues but there were times when one wanted to do something like that.  

BA: Did you feel any wider responsibilities towards the Stock Exchange?  Did you feel for example some responsibility for the gilt market and maintaining an orderly gilt market?

NA: Oh, yes, one of my main jobs.  I think I said to begin with, that one of my main jobs was to make sure there was a reliable secondary market for government debt, and a liquid one, because other things being equal people will pay a better price for a liquid investment than an illiquid investment.  And that means the government saves money that way.  And I was also ex-officio on the Stock Exchange Council so I used to go to the Council meetings.  And there were occasions when the Bank would want me to deliver some sort of message at the Stock Exchange Council about something or other.  I would then discuss with the Bank what I was to say and so on.  I was, in those days at any rate, the main channel between the Stock Exchange and the Bank.  As time went on the Bank became more directly involved.  But in those days, if the Stock Exchange and the Bank wanted to talk together, to begin with at any rate, a lot of it was done through the Government Broker.  The Chairman of the Stock Exchange used to come and see the Governor every week, but that I think dated from 1975, when the market was really in a very poor state.  But yes, plenty of responsibility in the Stock Exchange as well.

BA: Did the number of gilt jobbing firms ever concern you?

NA: We were concerned that there should be this reliable market and we certainly tried to help the small jobbers.  When we were selling Taps we would usually sell so much before we changed the price, and we tried to make sure that the small jobbers weren't caught.  Normally when there were Tap stocks to be sold, the two main jobbers would come along and bid us for stock and our price would be known and we would sell so much at a price and then we would push the price up just to keep the pot boiling.  

BA: How did you feel about the Country jobbing firms, did you feel they were a necessary part of the market?

NA: Yes.  Well, they provided a useful service, they provided it almost entirely for the small investor.  There was I think something like ten percent of the government debt was held by individuals.  So it was an important sector.  And so we always tried to encourage them and when a Tap price was changing, Kenneth Hill would always ring up - there were two country jobbers really, there was Moulsdale and there was Aitken Campbell in Glasgow.  We would ring them up and say 'The price is changing, do you want some?'  And they would take it or not depending on what their position was.

BA: Now some of these questions, I have already anticipated when discussing Pember & Boyle.  By this stage, certainly, the Stock Exchange was being over shadowed by first the case in the Restrictive Practices Court and then of course the restructuring.  But did you feel, for example, that there was much of a gilt market outside of the Stock Exchange, either between institutions or discount houses.

NA: Discount houses would tend to deal and there was quite a lot of business in Shorts, where for tax reasons people would want to sell them last minute cum dividend, and buy them back the next day ex dividend. Discount houses were a sort of competitor to some extent with the jobbers on that.  Business was all supposed to go through the Stock Exchange - there were one or two cases where I'm not sure that it actually did - but it was supposed to.  I'm not sure how much discount houses dealt with each other, they might have done and in one or two cases I think they did.  Other stuff outside the market, I think not a great deal.  

BA: Apart from the referal of the Stock Exchange Rule Book to the Restrictive Practises Court, did you feel that there were any practical strains on single capacity?  You mentioned earlier that it was a system that worked.  Was it still working during the early 'eighties?

NA: Yes, yes, it was still working alright.  It was always an uncomfortable feeling that if Wedd or Akroyd made a serious mistake we would be in trouble, but luckily they never did so it was alright.  But it was not a very comfortable feeling.  You didn't think about it too much, you just hoped!  

BA: Did institutions like the Bank or Mullens ever put their minds to alternative systems for dealing?

NA: Well they had to in the end.  I think that while the system was still working satisfactorily, it was felt it would be dangerous to disturb it - you wouldn't know exactly how an alternative system would work. At that time at any rate, the gilt edged market became elevated to one of the primary tools of economic policy.  I personally felt that that was wrong.  I don't think that was what the gilt-edged market ought to be, but that's the way it came, and to risk disturbing that at a time when economic policy was very much under the microscope was an unacceptable risk.

BA: What did you feel about things like price agreements, spread agreements; for example, I've been told by one jobber that there was the informal agreement on the turn that a jobber would take on a Tap stock.

NA: That's right, yes.  They got a 32nd on it or a 64th on a short.  That was accepted.  It was, I suppose if you like, it was a covert subsidy to the jobbing system but that's where they did make most of their money - it was important that they should be healthy and it didn't always work - I mean they didn't always take it.  Certainly with a swap that suited, they might have booked the price at the 32nd higher or whatever but you'd get a better price for the stock you were selling because it suited them to have it.  And we would also, in order to help the funding process we would take other stocks against taps, usually on a basis of two for one money, which meant that we were continuing to fund and then we would have a few bits of other stock which we could sell off to people as and when they wanted it. 

BA: One of the criticisms that the jobbers had made of the brokers dealing in gilts was that they weren't prepared to compromise on commissions, they were a bit greedy and that was one of the things that was also undermining any resolve there would have been...

NA: Yes, I think that's probably true.  Commissions came down pretty substantially during my time.  When I began the commissions were a 16th on stocks between 5 and 10-year, shorts were always at discretion.  The 5 to 10-year stocks were a 16th and the longer stocks were an 8th and that was on the nominal, regardless of the amount involved.  And then they switched it to 8th on consideration, and then there came steadily volume discounts and discounts for tap stocks and half-commission on tap stocks and that sort of thing.  And by the end of it the commissions had come down quite a lot. The actual rates of commission charged were not very high but of course the volumes were very big, particularly as the government borrowing expanded, so the brokers did make quite a lot of money.  And yes, I think brokers were greedy about it.  The process was continuing all the time, and commissions did keep on going down, but they might have gone down further.  

BA: Now I assume, as an ex-officio member of the Stock Exchange Council you were involved in someway in the decision first to accept the agreement with the government over reforms of the Stock Exchange and then subsequently to do away with the single capacity system altogether.  What were your feelings about this?  Did you feel it was a necessary change, or was it a change one made with regret?

NA: We made it with some regret but I think it was necessary.  I think that if it hadn't happened, there was a grave risk of London becoming a backwater.  We were hoping, I suppose, to begin with that some form of single capacity might survive but it was really sort of cloud cuckoo land I'm afraid.  There were things to be said for single capacity - it was a protection for the investor.  But if London were to become a real international market, it was necessary to switch to the dual capacity system.  And I'm sure that was right.  The problems that we have now are really the legacy of the collective lunacy of the people who bought the firms. They paid enormous amounts - the various firms concerned couldn't believe their luck that people were falling over themselves to buy firms on a multiple of very high earnings - because the buyers came at a time when the market had been very strong, people had been earning a lot of money, and it was obvious that a lot of those earnings were just going to disappear. And they compounded it, the buyers a lot of them, by in effect consolidating the bonus system. One of the things that the old Stock Exchange people intrinsically had right I think was that they paid a basic wage which was adequate, but not anything very special probably, but if they did well then there were very large bonuses - 100 per cent of salaries were by no means uncommon.  So that meant that you hadn't got a hideous weight of fixed costs around your neck if the market went sour.  But the buyers of the firms consolidated the bonuses, so they had very high cost structures. And it was masked for a year by this great rise in '87, otherwise, I think, we'd have had trouble earlier, then the crash accentuated it because the market had got itself to a level where people were hooked on high salaries, ridiculous salaries were being paid to bribe people away from one firm to another, and then there they were - the business dropped right away, enormous fixed costs around their neck, nowhere to go but to cut the thing back.

BA: Now what was the relationship between the decision to alter the structure of the Stock Exchange as a market to the reform of the gilt market - was there momentum for the reform of the gilt market and the changes in the Stock Exchange provided the catalyst and the opportunity? Or did you suddenly find that you had to start thinking in terms of a new structure for a gilt market because that was being pressed on you by the changes?

NA: Once the decision to go to dual capacity was taken, it was obvious you couldn't go on with the existing system and one of the by-products of that was that you couldn't really have gone on doing Government business through Mullens which was due to become a part of a firm which had a market-maker in it.  And that's why I moved into the Bank of England, so there should be continuity in the running of it.  Kenneth Hill came with me.  No, once you went to dual capacity the thing was going to change and therefore the decision was taken that anybody who could show that they had a reasonably sensible business plan and sufficient capital and sufficient standing, should be allowed to become a gilt-edged market-maker.  I think that the projected market shares of all the gilt-edged market makers came to about 175 per cent of what there was so to speak.  So it's clear that there were too many people in there.  The Bank took the view that you couldn't say, 'This chap's OK, that chap isn't'.  And there were one or two cases [4 lines deleted] when it was suggested that if they didn't want to be turned down, perhaps they'd better withdraw their application.  But otherwise, I think that everybody who sounded reasonably sensible was given the opportunity.  We didn't really think that we could issue a licence to one lot of chaps and not to another.  

BA: Did you have any particular role to play in this process?

NA: Yes, quite a lot.  Really trying to work out how we were going to deal with them and things like that and in fact they don't make much money out of it, gilt-edged market makers, because there's no doubt the investing community now gets very much better service than it did - much cheaper and the market is that much bigger too.  You've got a much wider collection of people to go to.  So that from the point of view of the investor that's been changed for the better.  Small investor, I don't think has benefitted; I don't think he's quite so badly hit in the gilt market as he is in the equity market, where I think he actually does worse under the new regime.  I think he probably does about the same, I don't think he's benefitted but he's not worse off. 

BA: Had you been appointed for a fixed term?

NA: No, not as such.  There was an understanding, I think that I would go, in the ordinary way I would have probably have gone in April this year. When I went into the Bank then it automatically became a fixed term because in the Bank you retire on your 60th birthday.  I actually stayed on for a day afterwards, because there was an operation going on that I was interested in - gave the Bank my services free.

BA: Thinking back to when you first became involved with your father's firm in 1954, how would you contrast the Stock Exchange during the later part of the single capacity period - I suppose the period when you became Government Broker to the market which existed in the 1950s - how would you contrast the two?

NA: It was very much quicker.  The improvement in communications made an enormous difference.  We experimented very early on with a system of sending out stuff to clients' offices. It was a most extraordinary machine - it sort of burned stuff onto the paper and the smell was dreadful. But soon after that you got the television sets - various people had their own competing television networks - and then with the coming of Topic, people could put their own price services onto Topic.  The whole pace of it had increased enormously - it was a very leisurely thing when I started.  The gilt edged market opened in theory I think at 10 o' clock but the theory was you couldn't get a decent price until half past ten; it was very leisurely.  And then the time started to get earlier and earlier until there was an agreement to hold it at 9 o'clock, which still in a sense survives today in that the Bank of England's dealing day is 9-5.  We in the Bank would not deal outside those hours.  That was really, I think, people getting up earlier and earlier. Of course with the market becoming more and more international you needed to get up to talk to the Japs.  But it became much quicker, it became much more professional, there were far more people trying to till that particular piece of ground - you mentioned earlier the cult of the equity - the gilt edged market was largely neglected by a lot of people.  There was still the specialist firms in there but then with the change to the funding policy - not so much funding policy as monetary control policy - everybody could see that there were these vast amount of stock being dealt in and everybody wanted to try and get a slice of the action if they could.  It was quite difficult, though for new firms to break into the gilt-edged market: Greenwells were the outstanding example of somebody who came from nowhere in particular to be, I suppose, one of the most important firms in it.  A firm like Wood McKenzie for example which was a great success story in many ways, because of the statistical services they provided, they used to get a lot of what you might call 'tame orders' from institutions - what's called 'soft dollars' in effect.  In order to get the Wood McKenzie service in valuations and things like that people would send them a gilt-edged order, which they had to do anyhow.  And so they'd send it down and Wood McKenzie would get the commission.  But in spite of the fact they were getting quite a lot of tame business, they never really managed to hang anything onto it.  With that sort of framework to build on, if they'd actually got the right sort of people there, they should have been able to build themselves up to something quite significant in the gilt-edged market, but they never did.  It was one where people had reputations of being good on the gilt-edged market - Pepper was at one stage the great figure and he lost his air of infallability in, I suppose, '81 when he thought that interest rates were going to continue to fall, when in fact they actually turned right round and went up again, and that was a setback from that point of view.

Tape 2, side 2

BA: You've already mentioned one of the strengths of single capacity in that it prevented conflicts of interest. In your experience were there any other strengths of the single capacity system that come to mind?

NA: That was the principal one I think.  

BA: What would you have said to someone from the United States or from Europe where they didn't have this system, in justifying it, as opposed to what they might have had in other Stock Exchanges?

NA: I think I would have said the avoidance of conflict of interest.  Otherwise it's difficult to think of any.  The taxation treatment of partnerships really made it difficult for people to put money to reserve as a jobber.  They did build up their capital base but it wasn't as big as it ought to have been.  There's no doubt that [for] the volume of business they were undertaking, Wedd and Akroyd were seriously under capitalised.  But no, I can't think of anything particularly.  Have other people suggested things to you?

BA: Well, from the jobbers side, I suppose, let me think now, providing a liquid market, always being able to come up with a price, always being able to deal though of course you could always make a price that was pretty unattractive!

NA: Well that's right.  That is certainly true.  There were certain other systems, not so much in the gilt market perhaps but in the equity market, some of the overseas exchanges where you could only deal for a short period of the day - places like Dublin and so on - I think they were only open for an hour in the morning and an hour in the afternoon, or something like that.  All business had to be done then.  Same thing I think to some extent in France and Germany, too.  So there was a continuous liquid market but that wasn't a necessary product of single capacity.  You could have had a sort of all-day system in these other places but they just didn't choose to do it.  I don't think it is a necessary consequence of single capacity.

BA: You mentioned the capitalisation of firms in relation to their turnover, now in very, very general terms was that something that you thought about while you were the government broker?  Was it something you kept an eye on or the bank kept an eye on?

NA: Yes it did.  Not only, we got their figures, we used to get a sort of summary of their books every day - Wedd and Akroyd - so that if somebody appeared to be running a rather extreme position, one would say to them, 'Watch it.'  The actual profit figures we got slightly in advance - Wedd's figures were never published of course, but we used to get those half-yearly profit figures from them.  Akroyd's figures were published because they were a public company, equally we had those figures, and we had figures for the smaller jobbers as well.

BA: Again, in very general terms how often would you say, 'Watch it'?  I mean was it an infrequent occurence?

NA: On the whole it was infrequent, yes.

BA: Good, well I think we can conclude of that.

NA: Right.

BA: Thank you very much.