Britain's financial watchdog has fired the starting gun on plans to overhaul stock market rules in a bid to lure more SPACs to the London market.
The Financial Conduct Authority (FCA) on Wednesday said it would launch a four week consultation on rules changes for special purpose acquisition companies (SPACs) — so-called "blank cheque" companies that have boomed in popularity over the last year.
The FCA said in brief statement it would look to "strengthen protections for investors" and align rules "more closely with other major jurisdictions."
SPACs are companies with no business operations that raise money through a stock market listing and then use that money to buy another business. SPAC investors are typically retail investors and these structures can give them access to private investments they would otherwise not be able to reach. For companies that sell to SPACs, these types of deals offer a quick and relatively easy way to list on the stock market.
The FCA's proposals include allowing SPACs to continue trading after identifying an acquisition target and a redemption option for investors.
The reforms follow the publication of the Lord Hill review into stock market rules earlier this month. The report called for an overhaul of public market rules to help keep the UK competitive with international markets. A key proposal was liberalising rules around SPACs to attract more to list in London.
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"At present, the regulatory framework is far more limiting with regards to SPACs than in the rest of Europe, especially in comparison with the US," analysts at Barclays Capital wrote in a note published on Wednesday. The analysts said reform would be "key" to attracting more SPACs.
SPACs have exploded in popularity over the last year, largely in the US. Over $100bn (£73bn) has been raised through SPACs in just the last 12 months and the total raised in 2021 has already surpassed that of 2020.
"As the SPAC market has grown rapidly in the US, it has drawn increased scrutiny," Barclays analyst wrote. "As such, whilst issuance remains strong, it may slow in the US, and that could have a knock-on impact on the rate of growth in Europe."
The FCA said it hopes to have new rules in place by early summer.
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