It gives me great pleasure to speak on this Bill which affords us an opportunity to talk about money, the money system and the investment of funds. I am delighted that old legislation dating back to 1799 is now being replaced with a modern regulatory procedure. I have felt for a long time that all pre-Independence laws should be systematically replaced by Irish statutes so that all laws governing us are ones that have been passed by an independent Irish Parliament.
It is welcome that are are at last taking control of another sector of our financial affairs. It amazes me that it has taken until 1994 to set up an independent Stock Exchange. I know there are historic reasons for the present set-up. In the 1970s the London Stock Exchange was changed to make it the main Stock Exchange in a federation of stock exchanges. It is important in an independent State with an independent currency to have a Stock Exchange of our own and I am glad EC Directives have ensured this will happen.
Questions have been raised in the debate as to why the Central Bank should become the regulatory authority. To date the Central Bank probably has not had great expertise in the matter of the Stock Exchange, but there is no reason it could not build up or buy in the expertise to become an effective regulatory authority. The group or body regulating the Stock Exchange must be totally independent of the exchange and it is sensible to provide that the Central Bank regulates the new Stock Exchange.
I notice in the brief circulated that the board of the Stock Exchange will include independent members representing the public interest, but I hope they will not be drawn exclusively from the business community. Everybody has an interest in the Stock Exchange, it is important that the independent members are seen to be in a position of public trust and take a public interest approach to their position on the board of the Stock Exchange. I hope an effort will be made to appoint people from outside the small circle of big business to represent public interest on the exchange.
I have a reservation about the mechanism in the Bill which provides that the Stock Exchange will carry out investigations in the initial stages into breaches of its rules. Self-regulation may cause problems. I accept that all reports of such investigation will have to be submitted to the Central Bank, but I am a little uneasy about the position where alleged breaches will be investigated by the Stock Exchange itself.
On the operation of the Stock Exchange, we must consider some of the trends that have developed over the years. I will deal later with the role of institutional investors on the Stock Exchange. Speculation in shares is still prevalent and that is all right in its own way. The Stock Exchange is self-fulfilling in its prophecies. In other words money is made on the basis of rumour and expectations. For example, if it is believed the market is good, people buy and as a result the market improves. The expectation reinforces the reality. I do not know if we can prevent that and there are inherent dangers in this practice as the price of shares can increase beyond their real value based purely on sympathy. Similarly, when people sell shares the price goes down, thereby encouraging others to sell. It is a self-reinforcing system where prices are far in excess of those warranted by the changes in the outside world.
In times of rapid movement on the Stock Exchange fortunes are made and lost. For those with information, particularly private investors who make a business of investing in the Stock Exchange and the movement of shares, fortunes are made. Making money in those circumstances does not generate wealth in society. Those who speculate on the Stock Exchange for the purpose of making money do not create wealth.
Another question raised by a previous speaker is that of insider trading. In view of what I said about the self-reinforcing prophecies on the Stock Exchange, the question of legitimate knowledge as opposed to insider trading is of great importance. Strict rules should be enforced to prevent insider trading. However, I foresee difficulties in distinguishing between legitimate knowledge and inside information which could be used to unfair advantage. For example, it could be common knowledge that the demand for timber will increase rapidly in future years and in those circumstances it would be fair for people to invest in the expectation that there will be huge growth in that industry. However, there are also instances where people make large amounts of money as a result of gaining knowledge within companies. It is important for confidence in the Stock Exchange that there is strict implementation of the rules and regulations to ensure that inside knowledge is not used.
A vast amount of money is invested in shares on the Stock Exchange on behalf of ordinary citizens who would never dream of investing directly in the exchange—I refer to institutional investors. Taking into account pension and life insurance funds and other funds operated through banks and so on, by far the largest amount of money on the Stock Exchange is transacted through institutional investors. There is an obligation on institutional investors to maximise the return, irrespective of how they get that return. These people obviously work on a world market and this issue raises many questions regarding the rights of people buying into pension or life insurance funds to have some say in where their money is spent and in what it is invested. It is in this area that huge sums of money come into play. Pension funds and life insurance policies may be used, unknown to the people who take out those policies, for exploitative purposes in this country or the Third World.
Some of us would be curious to know where our money is invested; we would like to think it is being put to good use. While I accept this runs counter to the maximisation of profits, that should not be the sole criterion for investment fund managers. That is their remit at present.
In the future — there has been some movement in this direction — a person will be able to invest in a life insurance policy under which a certain pecentage or all of the funds will be invested in an environmentally friendly programme rather than in a programme to fund cutting down the rain forests in the Third World. There should be widespread investment to ensure not alone profits but that funds will be invested for environmental purposes. This should be considered by investment fund managers. If I was offered the choice I would prefer to invest in a life insurance policy or a pension fund under which the money would be used for environmental purposes or a proportion, 20 per cent to 30 per cent, would be invested in companies in the west. I would be willing to accept a lower dividend in the knowledge that the funds would be used to support projects acceptable to me.
Investment fund managers should provide more information to those who buy policies; people will demand to know where their money is being invested and a wider choice so that they will be able to make informed choices as to the purposes for which their money will be used. There is scope for widening the choice of policies available to the purchaser given the huge sums involved and that money invested here can be used throughout the globe. We have no say in the way this money is used by investment fund managers on our behalf. It is time the consumer had greater choice in these matters.
On the way in which small businesses are financed, the Stock Exchange is not a mechanism for raising funds except funding for major businesses and the larger of the unlisted businesses in this country. If we accept that most businesses here are small employing between five and 35 people, we need a mechanism whereby funding can be made readily available to small businesses. A certain proportion of investment funds should be allocated for this purpose. This could be done by way of tax incentives. One will find that few small businesses have raised capital through the mechanism of the Stock Exchange. It is a fallacy to believe the Stock Exchange helps small businesses, rather Stock Exchange investors act in a prudent manner and tend to invest in banks and major corporations as they carry a lower risk. In investing in a life insurance policy or pension fund the consumer should have a choice and should have the option to invest a certain proportion perhaps 5 per cent, in small businesses. In return he would receive a lower dividend. Ba mhaith liom míle fáilte a chur roimh an mBille seo. Tá sé thar am go mbeadh malartán stoic dár gcuid féin againn sa tír seo. Cuireann sé go hiomlán leis an rud a rinneadh sna seachtóidí, nuair a cuireadh córas airgid dár gcuid féin ar bun, agus an rud a rinneadh sna tríochaidí, nuair a cuireadh an Banc Ceannais ar bun.