THE OPERATION of public markets frequently attracts high levels of scrutiny. But for much of the past 18 months, the spotlight on the UK equity market and the listing regime has been intense. Questions over corporate governance at companies with a controlling shareholder – and by extension the rights and protections for minority investors – led to a detailed review by the UK Listing Authority (UKLA), part of the FCA.
As a former senior regulator, I’m all too aware how easy it is to characterise debate as conflict. There have been flashpoints, but there has also been open discussion and dialogue between investors, issuers, advisers, infrastructure providers and regulators.
Openness is one of London’s defining strengths, and markets function best when the needs of investors and issuers are balanced. London offers a broad variety of routes to market. Each of these – Premium, Standard, High Growth Segment and Aim – is carefully calibrated to meet the needs of both issuers and investors at each stage of development and risk appetite.
One of the crucial roles any regulator plays is to examine the marketplace, and potentially intervene through rule changes to ensure that an appropriate equilibrium is consistently achieved.
The result of the UKLA’s review is a three-pronged plan to tighten the rules: an ongoing agreement between a company and a controlling shareholder to ensure independence; strengthening the interests of minority shareholders, including a veto over transactions between the company and controlling shareholder, plus additional voting power over the election of independent directors; and greater transparency from companies to ensure shareholders have the right information to exercise voting rights.
Ensuring independence without being unduly prescriptive is the central theme. It is a good one. The UKLA has shown it understands that, for markets to work best, there must be a prioritisation of the appropriate level of dialogue between companies and their shareholders. Secondly, investors must have the right level of information about companies they invest in, allowing them to align their risk appetite.
For premium-listed companies, the rule changes work on both counts. Strengthening the disclosure rules around independent directors also provides further clarity to investors.
The rule changes have also been kept in perspective. They do not impose an undue burden on the vast majority of companies and significant shareholders already within both the letter and the spirit of the law. The latter point is important – London’s great strength has been its consistent use of a principles-based approach to regulation.
There will be critics who claim the rules are too onerous and will put off international companies with controlling shareholders. But achieving appropriate investor protection is a hallmark of the London markets, and has been one of the key reasons foreign companies have chosen to list here.
Another way to look at it is the numbers. IPOs on London Stock Exchange this year are the highest by volume since 2007. The pipeline is strong. Markets and rules rightly evolve, yet London’s position as the international financial leader only gets stronger.
Alexander Justham is chief executive of the London Stock Exchange.