UK chancellor Rishi Sunak is poised to overhaul Britain's stock market rules in a bid to convince more high-growth tech businesses and 'blank cheque' companies to list shares in London.
Sunak will on Wednesday publish a review of the UK's public markets alongside the government's budget. The review, carried out by Lord Jonathan Hill, recommends overhauling Britain's listing rules in a bid to keep the UK competitive internationally.
Key recommendations include:
Allowing dual class shares that give more powers to founders, a practice pioneered by Google that is now commonplace in US equity markets.
Reducing free float requirements from 25% to 15%, which would allow companies to offer smaller chunks of their business for sale in initial public offerings.
And liberalising listing rules for special purpose acquisition companies (SPACs) so that the UK can tap into the recent global boom in this market.
The push to modernise the UK's public markets comes amid concerns that the UK is falling behind other international markets, notably the US.
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"The UK has one of the world’s foremost listing regimes, but we cannot be complacent in the face of fierce competition from the US and increasingly from financial centres in Asia," said Miles Celic, chief executive of lobby group TheCityUK. "We must strive to be at the forefront of global trends and standards."
Lord Hill said the recommendations in his report were aimed at "closing a gap which has already opened up" with other international markets.
"All the recommendations are consistent with existing practices in other well-regulated financial centres in the USA, Asia and Europe," he said.
He said the recommendations would help attract tech and life sciences businesses to list in London and "simplify and streamline" rules for all public companies in the UK.
Technology has been the biggest driver of stock market growth over the last decade, helping to propel markets in the US to new highs. The UK has struggled to grow big tech businesses that can compete internationally. Those that have reached significant scale have mostly gone to the US to list shares publicly because of more favourable valuations and share rules there.
Correcting this imbalance is seen as crucial by many in the City and government, particularly as homegrown tech success stories such as Deliveroo, Darktrace, and Wise prepare to go public.
Britain has also missed out on a recent boom in SPACs (special purpose acquisition companies) due to more restrictive rules in the UK. SPACs, also known as 'blank cheque' companies, are shell companies that raise money through an initial public offering. The money is used to fund an acquisition of a private company. These deals can theoretically make it easier for private companies to go public, while SPACs offer investors access to private businesses at an attractive price.
SPACs have exploded in popularity over the last year, largely in the US. SPAC deal volume grew sixfold in 2020 and represented half of all US IPO activity last year, according to Barclays Capital. There have already been 168 SPACs so far this year, the bank said, noting that the sector was "a major area of growth" for investment banks.
Sunak, who commissioned the report last November, said Lord HIll's report had "more than delivered" on the goal of presenting "bold ideas" to keep the UK at the forefront of international finance post-Brexit. The chancellor said he was "keen we move quickly to consult on [the report's] recommendations." The government will now consult with Financial Conduct Authority (FCA) on reforms.
Lord Hill's report was welcomed by the private sector. Celic said TheCityUK "strongly support" the report's conclusions.
Lord Hill urged the chancellor to commission an annual review into the state of the City of London to ensure Britain's financial sector does not fall behind international developments again in future.
"The UK needs to keep working at improving its reputation as a well-regulated global financial centre that is open for business," he said.