London’s main market watchdog has started outlining plans to make the City a more attractive place for companies to list shares, in a long-awaited move that follows a series of high-profile wins for New York, the square mile’s arch rival.
The Financial Conduct Authority wants to “reform and streamline” London’s stock marketrules governing what companies must do to put their shares on sale. The changes come after listings in the UK plunged by 40% since 2008 according to data from The UK Listing Review quoted by the regulator.
It also follows a major blow struck to London when the biggest success story of Britain’s tech sector -- the chip design giant Arm Holdings -- chose New York as the new home for its shares when it returns to life as an independent company.
Arm’s current parent Softbank is expected to raise between $40 billion and $80 billion when it spins Arm back out as an independent company. Softbank bought Arm, which helped power the smartphone revolution, when the Cambridge-based company was a FTSE 100 constituent.
The FCA’s proposals intend to make London’s rules “more effective, easier to understand and more competitive” by replacing the current system of two tiers of shares, each featuring different voting rights, with one single class of stock.
Nikhil Rathi, the watchdog’s chief executive, said: “We want to encourage more companies to list and grow in the UK, versus other highly competitive international markets.”
He pledged the changes would “significantly rebalance the burden of regulation to the benefit of listed companies and investors who are willing to set their own risk appetite and terms of engagement”.
That kind of reform has long been seen as one of the main potential benefits of Brexit, which its backers said could help transform London into Singapore-on-Thames, a reference to the stellar growth of one of Asia’s main market venues.
But the hopes for a new dawn for the City as a trading centre were clouded when a series of high-profile companies, most notably Arm, favoured the US, where rules look less onerous and easier to understand. Valuations are also seen as more likely to be higher over the Atlantic, due to a deeper pool of capital.
The FTSE 100 also lost the world’s biggest building products firm, CRH, which shifted its listing to the US.
The FCA’s fightback is the biggest single effort to simplify listings rules since the UK left the EU.
A simpler and easier single-share structure should appeal to young firms, which tend to be the fast-growing and innovative companies most sought after by governments.
It may also remove the need for costly and cumbersome mandatory shareholder votes on certain matters, including acquisitions, which are seen as a bureaucratic barrier for London listings.
Complex reporting criteria for decision making between parts of Arm Holdings – which were classed as internal matters when it was part of Softbank – were blamed in part for its decision to go to New York.
Last month, shock analysis for The Standard found that Britain’s top 100 companies would be worth towards £500 billion more if they moved their stock market listings to the US.
Chancellor Jeremy Hunt pledged at his first full Budget earlier this year that there would be reform to help restore London’s fortunes, which are also thought to have suffered from a lack of incentives for pension funds to sink their capital into UK shares.
The FCA wants an “open discussion” about how a streamlined listing regime, based on disclosure and engagement, rather than regulatory rules, would change risk appetite.
It said today it “has been acting to improve the UK’s position for years.”
Rathi added: “While regulation plays an important part, a company’s decision on whether, and where to list, is influenced by many factors so substantive change will require a concerted effort from government and industry as well.”
