For companies thinking of going public, now could be an opportune time. In a bid to make the UK a more attractive place to list shares, regulators have approved the biggest overhaul of London stock market rules in more than 30 years.
Just days after the election of a Labour government, the Financial Conduct Authority (FCA) announced it would make procedures more “straightforward” for companies to list on the UK stock market, following a drop in the number of listings and a surge in companies favouring the US market instead.
In May, gambling company Flutter switched its primary listing to New York while the UK-headquartered chip designer Arm opted to list on Wall Street last August, after the government failed to convince it to float in London.
Indeed, the number of publicly traded companies in the country has plunged by about 40% from a peak in 2008, according to London Stock Exchange data.
The new rules will come into force on 29 July. Just days into her role as the UK’s new chancellor, Rachel Reeves said the changes present a significant step towards “reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here”.
What are the revised rules?
The new listing rules will give businesses the power to make decisions without putting them to a shareholder vote, giving them greater flexibility on the timing and content of the disclosures they’re required to make. However, major events – such as takeovers and decisions to delist shares from an exchange – will still require shareholder approval.
Companies will also be able to adopt a dual share structure. This is where founders or directors are given stronger voting rights over ordinary shareholders so that they can retain control after listing. The aim is to attract more tech startups to list in London as opposed to New York, where dual voting is more common.
Other changes aim to simplify the listing process. Namely, existing ‘premium’ and ‘standard’ listing requirements will be removed and replaced with a single, less onerous “commercial companies” category. Additionally, organisations seeking to list will no longer have to provide historical financial information or revenue track record, although disclosures on these will still have to be included in a prospectus.
How will the new rules impact shareholders?
“This is the most radical shake-up of listing requirements in 30 years,” says Adam Zoucha, senior vice-president at accounting platform FloQast. “It is the UK ‘rolling out the red carpet’ for big-ticket IPOs – by cutting red tape and simplifying compliance.”
However, reducing levels of mandatory reporting will not lift the burden of due diligence, he adds. Instead, it’s likely to increase investors’ appetite for transparency and put the onus on pre-IPO and listed companies to demonstrate good communication and fiscal discipline to shareholders.
“Companies may welcome a more streamlined process, but vigilance is essential to mitigate risk, post-IPO,” Zoucha says. “Robust financial processes that closely analyse, monitor and report on the financial health of a company will be the order of the day.”
Some market participants will be less enthused about the new listing rules. The FCA acknowledged that investors are “overwhelmingly against” its proposals not to require shareholder approval for significant transactions. The changes will mean there is a higher risk of investors losing money, but it “better reflects the risk appetite the economy needs to achieve growth”, the regulatory body said.
While the new rules are a step in the right direction, attracting high-quality companies and restoring UK market competitiveness will require changes beyond regulatory reform. There are, after all, other factors that play a significant role in influencing where a company decides to list.
Enhanced incentives for research, better policies to attract global talent and a friendly tax regime that supports employee stock options are among some suggested measures to further incentivise companies to float in London.
