Shaking up the UK listing rules – wise move or danger ahead?
A shake-up of the UK stock market listing rules could be on the cards to attract faster growing companies and there are mixed opinions as to whether the proposed changes would be beneficial.
ShareSoc, which campaigns on behalf of small investors, and the Quoted Company Alliance (QCA), which lobbies on behalf of small and mid-cap companies, both see the current rules as ‘antiquated’ and not fit for purpose, yet they have very different notions about what needs to be done.
There is also a feeling that now is the wrong time to be chasing growth companies given how markets have been so bullish of late.
Flooding the market with less mature businesses doesn’t seem a good idea when some experts suggest we are heading towards bubble territory, with bitcoin racing ahead, a large number of inexperienced investors chasing penny stocks and bragging about gains on social media, and so on.
The Government has commissioned an independent review of the London Stock Exchange listing rules following the UK’s exit from the EU, to be chaired by Lord Hill.
The consultation is canvassing industry views on current rules around free floats (the amount of shares that are free to be publicly traded and not held by directors and strategic investors), dual class share listings and track record requirements.
The review is trying to explore how to make London a more attractive market for the innovative and successful companies while also maintaining the highest standards of corporate governance and shareholder protections.
TARGETING FASTER GROWING COMPANIES
Although London Stock Exchange hasn’t published its response to the review, according to a person familiar with the matter it prioritises maintaining both issuer and investor confidence while also suggesting tweaking some of the rules to make the market more attractive for fast growing companies.
We understand it is eager to speed up the timetable for floating a company on the UK stock market as well as letting more retail investors take part in IPOs (initial public offerings). The timetable is currently five to six weeks compared to two in the US.
ShareSoc argues that standards should not be relaxed just to attract more companies and highlights the need to stop even more frauds and scams.
Director Cliff Weight says: ‘It is noticeable that this review has focused on what can be done to make the UK a more attractive regime for companies to list, where perhaps a more important consideration is what can be done to make the UK a more attractive regime in which to invest.’
MORE FLEXIBILITY, MORE RISK
The QCA has framed its own response from the perspective of making the London market less burdensome for the small and medium sized companies that it represents.
The group thinks the review represents a good opportunity to inject fresh ideas and suggests radical changes to the current rules, calling for the Standard listing on London’s Main Market to be reinvented completely. It advocates creating a new market emulating the growth-focused Nasdaq in the US.
The QCA argues that the Standard listing is a ‘tarnished product’ and seldom used. Creating a new growth platform for mid-sized firms would provide a natural progression path for firms that have outgrown AIM but are not yet ready to move to a Premium listing on London’s Main Market.
It recommends a new branding aimed at specific types of companies. It would encourage growth companies, tech, e-commerce and science to remain in the UK and create wealth and jobs.
The group argues it would be necessary to relax some of the rules around the minimum free float, prior track record of the business and prospectus requirements.
ARE THERE ANY SHARED VALUES?
There are areas of agreement between the QCA and ShareSoc such as the inherent conflict of interest between the commercial interests of the LSE to quote as many companies as possible with the need for effective regulation.
Both organisations say the rules for producing a prospectus for secondary market placings should be abolished as well as the €8 million fundraising limit before a prospectus is required.
IT’S NOT ALL BAD NEWS
By some measures the current rules have served UK and international investors well. For example, data provided by Factset shows London to have one of the most diversified investor bases in the world.
Just over half of investors are international compared with just 15% for the New York Stock Exchange and Nasdaq in the US.
Lord Hill is expected to report his findings in the early part of this year. Whatever his recommendations, they could be very important for the development of the UK stock market.
Different types of listing
Most people may be familiar with London’s Main Market and AIM market listings, but for the uninitiated there are different segments that comprise a Main Market listing.
The Premium listing requires that companies adhere to the UK’s highest standards which are stricter than the EU’s minimum requirements under the Standard listing.
In addition, there is a High Growth Segment which provides more flexibility than the Premium listing. Food delivery company Just Eat (JET) listed under the High Growth Segment before moving to the Premium listing.
The Standard listing has cost advantages because there is no requirements to appoint a nominated adviser (NOMAD) or sponsor and no requirement to comply with the UK Corporate Governance Code.
Also, companies are not subject to providing significant or related party transactions.