What UK stock market listing rules change mean
The Financial Conduct Authority (FCA) confirmed a series of new listing rules on Thursday, in a bid to boost growth and innovation on UK stock markets.
London’s markets have been trailing behind its peers in recent years, struggling 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.
The reforms for exchanges such as the London Stock Exchange (LSE) and Aquis Exchange address, and build on, a number of the recommendations made in the UK Listing Review and the Kalifa Review of UK FinTech.
The new rules came into force on Friday.
What is changing?
London Stock Exchange updates, sent straight to your inbox
The financial regulator confirmed said it will allow a targeted form of dual class share structures within the premium listing segment.
This will encourage innovative, and often founder-led companies onto public markets sooner, as well as broadening the listed investment landscape for investors in the UK.
The amount of shares an issuer is required to have in public hands will also reduce from 25% to 10%, decreasing potential barriers for issuers created by current requirements.
Another change is that it is increasing the minimum market capitalisation (MMC) threshold for both the premium and standard listing segments for shares in ordinary commercial companies from £700,000 ($929,519) to £30m.
Read more: Wait for Omicron data before interest rates decision, says BoE policymaker
Raising the MMC will give investors greater trust and clarity about the types of company with shares admitted to different markets, it said.
“We need to act to meet the needs of an evolving marketplace. These changes ensure the UK’s markets maintain their reputation for dynamism, helping support the new types of companies seeking the investment that drives economic growth and by giving investors more choice with appropriate protection,” Clare Cole, director of market oversight at the FCA, said.
“Over the last few months, we have moved quickly to address areas where our rules could be improved to encourage innovation in primary markets. By taking this agile approach, we are pleased that new IPOs in 2022 will be able to benefit from the revised rules.”
What does this mean for the UK?
According to the UK Listing Review, the number of listed companies in the UK has fallen by about 40% from a recent peak in 2008. Between 2015 and 2020, the UK accounted for only 5% of IPOs globally.
The new changes will help the UK’s public markets become a more attractive place to list successful companies, providing opportunities for companies to grow and for investors to benefit.
The London Stock Exchange welcomed the news saying it will help the UK maintain its position as a global financial hub. However, it added that more can be done to ensure that the regulation is responsive to the evolving financing needs of companies.
Meanwhile Alasdair Haynes, chief executive of Aquis Stock Exchange said: “We are delighted with these changes – particularly the minimum market capitalisation requirement for the standard list, which will encourage SMEs to list on a venue with proportionate regulation and support.
Watch: How public and private companies differ
At the turn of the year, the LSE sought to shorten the process for IPOs as part of a new review of its listing rules.
It is pushing for the UK government to speed up the time it takes for a company to float on the exchange which would fall more in line with current procedures on US and continental exchanges.
At the moment, IPOs take five weeks in London from publication of the registration document to a stock’s trading debut. In 2018 the UK market regulator added an extra seven days onto the process to allow unconnected analysts earlier access to information.
In August, the FCA introduced new rules to make it easier to list special purpose acquisition companies (SPAC), which have featured heavily on Wall Street where $125bn (£94bn) of these have listed this year to date.
Only one SPAC has listed in London under the new rules, with most European SPAC listings favouring Amsterdam.
Read more: UK service sector boosted by export sales and new business growth
SPACs, also known as “black cheque” companies, have boomed in popularity over the last year. They 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.
Over $100bn has been raised through SPACs in just the last 12 months and the total raised in 2021 has already surpassed that of 2020.