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After leaving the European Union at the end of 2020, the UK has taken its first clear step towards strengthening the function of its capital markets, and re-affirming London’s standing as one of the world’s leading financial centres. The UK Listing Review board, led by Chairman Lord Jonathan Hill, published its final recommendations report last week which aims to close the gap that has emerged between the UK and other rival listing venues primarily in the US.
What is clear is that now is the time to act. London can no longer afford to watch companies choose to list in either New York or Asia, or watch its share trading influence erode as post-Brexit flows are diverted to continental European centres such as Amsterdam. Although historically a premium listing in London was globally recognised as a mark of quality for companies, London only accounted for 5% of global IPO issuance between 2015 and 2020, with the number of listed companies in the UK having fallen by 40% since its 2008 peak. Furthermore, the composition of the FTSE index lays bare another challenge: the most significant companies listed in London are either Financial or more representative of the ‘old economy’ than the companies of the future. In fact, at one stage last summer Apple alone was worth more than the combined value of every company in the FTSE 100.
Lord Hill's review
Lord Hill’s review, which has been broadly welcomed by market participants in the UK is not about proposing radical new departures in regulation and oversight to try and seize a new competitive advantage over other financial centres. None of the recommendations go beyond what can already be found in the US, Asia or to a lesser extent in Europe (see below for a summary of the key recommendations). This is a defensive move in recognition that the current listing regime, with its over-complexity, duplication, overly long timescales and unnecessary and burdensome requirements has driven business towards the competition who have proved more innovative and flexible. If London wishes to remain competitive as a listing venue, attract high-growth companies and capture listings from the Special Purpose Acquisition Company (SPAC) boom as it crosses the Atlantic, it needs to play catch-up, and fast.
With much of the emphasis in the Hill review squarely focused on increasing efficiency and performance of the capital markets, the key factor will be in how to achieve this while still maintaining the high investor protection standards and governance that London is renowned for.
At Praexo, we have long championed the use of technology to improve the functioning of capital markets transactions, interactions between corporates and their shareholders, and governance standards. It is of particular relevance therefore that the Hill review makes reference to the use of technology to improve the capital raising process (and empower retail investors) and also seeks to adopt new, quick-to-market, and innovative ways to raise capital such as SPAC listings, an area for which Praexo’s solutions have widespread applicability. For more information on how technology and our solutions can be applied to these areas, see our recent articles published.
With the final recommendation report out of the way, it’s now over to the Financial Conduct Authority (FCA) to review and implement any changes. The FCA has committed to acting quickly, recognising the urgency to reform with the aim of publishing a consultation paper by the summer. Her Majesty’s Treasury (HMT) will also consider any legislative changes that may be required. No doubt, emboldened by the UK’s departure from the European Union and regulatory framework, and incentivised to show swift and decisive action, change can be expected to come quick. Watch this space.
 LSE for listed companies and Dealogic for share of global IPOs
Summary of Lord Hill’s key recommendations
Improving the environment for companies to go public in London.
- Allow companies with dual-class share structures to list in the premium segment but maintain high corporate governance standards by applying certain conditions
- Reassess the free float requirements by lowering the absolute requirement from 25% to 15% and allow more choice for companies of different sizes to use alternative measures to demonstrate sufficient liquidity in trading post-liquidity
Review of the rules around Special Purpose Acquisition Companies (SPACs) which serve as an important alternative route to IPO and financing for many high growth companies.
- Revise the Listing Rules which require suspension of trading in the shares of a SPAC on announcement of a potential acquisition
- Provide additional protections for shareholders at the time of the acquisition, such as a shareholder vote and redemption rights
Redesigning the Prospectus Regime with a view to simplifying the process through more flexibility and responsiveness and look at ways to increase retail participation for primary market issuance, both at IPO and for further issues.
- Decoupling when a prospectus is required and separating the requirements for admission to a regulated market from offers to the public
- Change how the prospectus exemption thresholds function to ensure documentation is only required when appropriate for the type of transaction
- Use of alternative listing documentation (e.g., in the event of secondary share issuances)
Tailoring information to meet investors’ needs better in order to reduce the challenges faced by companies, especially high growth companies and/or those who have grown through significant acquisitions, to meet the requirements for the premium listing segment.
- Adjust the liability regime associated with prospectuses so directors can publish and stand behind forward-looking guidance
- Amend the requirement for historical financial information covering at least 75% of an issuer’s business for premium listings to a test that is only applicable to the most recent financial period within the three-year track record, reducing the period of disclosure from three to two years for acquisitions made in the last financial period
Empowering retail investors and improving the capital raising process.
- Consider how technology can be used to improve retail investor involvement in corporate actions
- Consider how to improve the efficiency of further capital raising by listed companies in order to facilitate a quicker and more efficient process and more easily involve retail investors
Improve the efficiency of the IPO process by revisiting the rules governing the provision of unconnected analyst research and its effect on timing, cost and execution risk.
Praexo is a French Fintech company co-founded in 2019 by a team of investment bankers and IT managers from bulge-bracket investment banks. Praexo intends to introduce data-science and digitalisation in capital raising processes in order to help private companies in improving their investment case and how top management interacts with the investor community. The objective of Praexo is to allow top management to regain ownership in these processes without losing grip to their daily operations.
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