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UK stock market rules torn up to woo science stars of future

London Stock Exchange - Suzanne Plunkett
London Stock Exchange - Suzanne Plunkett

The City watchdog is attempting to lure science and technology darlings to list in London with a major relaxation of its stock market rules.

The Financial Conduct Authority (FCA) has proposed to scrap the current premium and standard listings regime and replace it with a “single segment” system that could encourage fast-growing companies to float on the London Stock Exchange.

In a discussion paper, the regulator said many bioscience and technology companies are currently locked out of London’s premium listing segment as they are unable to meet the financial eligibility criteria, such as providing a three-year track record of revenue growth and audited financial records.

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It added: “This can mean these companies list on other markets with different ways of assessing companies’ financial positions on admission, often making it more difficult for UK investors to access these companies.”

At present, only companies with a premium listing are eligible to be included in the FTSE indexes, meaning that scrapping the current regime would mark one of the most significant overhauls of London’s stock market rules since the 1980s.

The FCA said: “Although many elements of the premium listing regime are valued by investors for promoting good corporate governance and shareholder engagement, some of the requirements lack the flexibility required by high growth and/or innovative companies to accommodate different and evolving valuation methods as well as different business structures.”

It comes amid fears that London is continuing to fall behind rival financial hubs in attracting new listings.

The Japanese owners of Britain’s biggest tech company, Arm, are preparing to float the $60bn (£48bn) semiconductor giant in New York. In the first three months of the year, only 12 companies listed on London’s main market, raising just £308m. Shanghai hosted 37 listings in the same period, raising $18.3bn.


Overhaul is a win for global Britain

By Clare Cole, director of market oversight at the FCA

The UK has a proud reputation for strong capital markets across the world.

Last year, was the best year for raising investment for listed companies since 2007. In all £16.9bn was raised in UK Initial Public Offerings (IPOs) including 126 companies listing on the London Stock Exchange.

We want to build on that success by making the UK listing regime more effective, easier to understand and to help promote competition. It needs to be fit for the future. We want to make it easier for companies to list in the UK while maintaining high standards.

To do that, we are continuing discussions with companies, investors and advisers about improvements that may be needed to make the UK listing regime as effective as possible. More companies listing at an earlier stage in their life cycle means more opportunities for investors to share in the returns of those companies as they grow. Trusted public markets provide opportunities for investors in a well understood environment with high standards of disclosure and FCA oversight.

We’ve already improved the listing regime by lowering free float levels, allowing certain forms of dual class share structures, and are introducing digital financial reporting so investors can use data faster to improve decision-making. We continue to focus on ways to reform public markets – all aimed at opening our markets up to more, new economy companies, and encouraging innovation, with high standards, to make our markets work more effectively.

Today, we’ve put forward one way of restructuring the regime into a single listing segment, looking to provoke a discussion with the entire market. Having all companies listing in one segment of the market, instead of the current split between premium and standard, could lead to a more effective listing regime for both companies and investors.

This includes reforming the gateway to listing, so investors make decisions over what makes a company suited for public markets rather than inflexible rules. More flexibility for companies to opt into a supplementary regime that provides for more interaction with shareholders could encourage more companies onto public markets, broadening investment opportunities. And reaffirming our commitment to robust standards that are easy to understand.

We look forward to hearing from companies, investors and advisers about what further changes they would like to see. We have a clear mission, as part of the FCA’s wider strategy, to promote competition and positive change with greater regulatory open-mindedness.

We support innovation in the market both from the companies themselves that are listing but also how the infrastructure that supports listing works and how it can be improved. We are committed to making sure any rules are fit for purpose so we can promote greater competition and keep the UK as a world leader in financial markets.

Well-functioning public markets enable companies to finance their businesses effectively, which in turn creates growth and jobs for the UK economy so benefiting us all.