London listings: Teaching an old bourse new tricks

Last year was a success for London in many ways. The London Stock Exchange (LSE) raised more equity capital than the Amsterdam and Paris exchanges combined, and the most equity capital raised outside of the US and Greater China.

The City of London also attracted many of the types of companies it has been trying to tempt for years: 39 percent of IPO capital raised came from tech and consumer internet listings. London hosted its first special purpose acquisition company, too, when Hambro Perks raised £150 mn ($204 mn) in November. The venture capital firm is now looking for a tech target.

That Hambro Perks could list a blank-check company in London was part of a raft of modernization plans taking place as London tries to shake its old school image: across the FTSE 350, there are 26 technology and consumer internet firms, while the FTSE 100 is still heavily populated by the Old Boys of the bourse.

The UK’s Financial Conduct Authority (FCA) noted in a paper published at the end of last year that although 2021 had been ‘positive’, with around 50 admissions to the Main Market between January and October, the London IPO market had been slow to recover after the financial crisis.

The number of listed companies in the UK has fallen by about 40 percent from a recent peak in 2008. Between 2015 and 2020, the UK accounted for only 5 percent of IPOs globally.

But this is a new London, looking to attract growth in a post-Brexit, post-pandemic world. And things are changing as listing rules get a shake-up, with the City now boasting names like Darktrace, Oxford Nanopore Technologies and payments firm Wise.

New rules, new listings

The UK Listings Review was completed in 2020, the Kalifa Review of UK FinTech published early 2021. The FCA published its Primary Market Effectiveness Review at the end of last year, reducing free float requirements, upping the minimum market capitalization threshold and allowing dual-class share structures.

Other reviews have been happening at the same time: the UK Treasury’s consultation on its Wholesale Markets Review, a consultation on the UK Prospectus Regime and the FCA’s work on changes to the Mifid II regime as it applies in the UK.

Charlie Walker, who heads up equity and fixed-income primary markets at LSE Group, says he is seeing a very pragmatic approach to what needs to be done. ‘These reviews are essentially asking, How do we make sure London is fit for purpose?,’ he says. ‘Just because there are rules that have existed for a long time, it does not necessarily mean that they are fit for the future.

‘Take free float, for example. The 25 percent requirement was more achievable when you did not have companies growing as large in the private space as they do today. Requiring a company to sell sometimes multi-billions of pounds worth of stock, on a single day of an IPO bookbuild, is not always in its interest – or that of the wider market.’

This is an extract of an article that was published in the Spring 2022 issue of IR Magazine. Click here to read the full article.