The Financial Conduct Authority has overhauled the UK’s listings rules as the regulator, government and the private sector look to stem the tide of IPOs leaving London.
The watchdog is relaxing voting rules around “significant transactions” such as M&A.
Companies will no longer have to hold a mandatory vote, but must publish information on large deals.
READLondon Stock Exchange still tops Europe for capital raisings
The FCA is also scrapping mandatory votes for transactions involving “related parties” such as company founders. Votes for reverse takeovers and delisting will stay, the regulator said.
The changes remove some of the ‘gold-plating’ that has given shareholders a greater say in how London listed firms are run compared to their international counterparts.
The FCA said it is replacing the dual “standard” and “premium” listing options with a single category with streamlined eligibility requirements to allow more companies to list in the UK.
“The FCA is striking the right balance between managing risk and encouraging growth,” said Conor Lawlor, managing director for capital markets at trade body UK Finance.
“It’s at the courageous end, the bold end of where they could have ended up,” said James Wootton, co-head of global equities at Linklaters.
An uncompetitive position
Wootton said while mandatory shareholder voting was a staple of the UK regulatory regime, it was placing UK listed companies at a disadvantage.
“It was a rule that put UK listed companies, in some situations, in a globally uncompetitive position,” he said.
After a record 2021 for IPOs, the listings market in London has taken a beating. This year is on track to be the worst one for IPOs in London since the financial crisis; according to data from Dealogic, there were only five deals worth $910m in 2023 on the London Stock Exchange.
London has also lost several high profile listings including Arm in September and more recently UK trading services provider Marex, which has begun the IPO process in the US.
“Rather than make London a standout place, it’s removed those points of difference,” Wootton said. “It allows London to compete on a level playing field, to take advantage of its inherent advantages that made it a financial centre for the last 100 years.”
READFloating away: London battles to get its mojo back
The CityUK boss Miles Celic said the reforms will be part of “an ongoing process to ensure that the UK is a market of choice for businesses to list, invest and grow” and “more work will be needed in the years ahead.”
A silver lining for the City is that London remains number one for capital raising in Europe, boosted by follow-ons and convertibles, doubling its nearest rival on the continent.
The LSE’s chief executive Julia Hoggett chairs the Capital Markets Industry Taskforce, one of the many working groups trying to improve the equities market in the UK. LSE’s group chief executive David Schwimmer said the company remains committed to the exchange and that there was no “de-emphasis of the LSE” as it pushes harder into data and clearing.
Golden data
The FCA also said it was moving forward with plans to establish a single golden source of trade data for bonds and derivatives, a so-called consolidated tape.
The UK is one of the world’s largest markets for fixed income, but it is driven by over-the-counter trading, making pricing more opaque and pushing the cost of data up 50% in recent years.
“The UK is a world leader for bond and derivative markets, and we want to make it better by ensuring investors have access to better, quicker, clearer and cheaper data,” said FCA executive director for markets and international Sarah Pritchard.
Traders could forgo buying data from multiple sources in favour of the consolidated tape.
“A UK consolidated tape will help ensure the UK remains one of the capital markets of choice for issuers and investors,” said Lawlor, “Having one reliable and transparent view of prices and volumes will encourage more retail and institutional investors, both in the UK and overseas, to participate in the UK’s capital markets.”
However, one of the favourites to win the bid to become the tape’s vendor pulled out unexpectedly earlier this month. Bond data heavyweights Bloomberg, MarketAxess and Tradeweb said they were ending the joint venture established to bid on the tape. The three only formally set up the company in May.
The FCA’s decision follows the EU’s efforts to establish a consolidated tape in all asset classes. In the US, a tape for bonds — TRACE — has been operating for decades.
To contact the author of this story with feedback or news, email Jeremy Chan
