London’s financial watchdog this morning confirmed a list of changes to its listing rules that will come into force tomorrow, in an effort to bolster incentives for innovative founder-led companies to list on UK markets sooner.
Chief among the new changes, the Financial Conduct Authority (FCA) confirmed it is introducing a “targeted form” of dual class share structures within the UK’s premium listing segment, as well as reducing free float.
“By these actions we aim to reduce barriers to companies listing in the UK and encourage private companies to consider listing at an earlier stage, while still retaining high standards for investors,” the organisation said today.
“Encouraging more companies to enter UK listed markets will also provide more investment opportunities for investors on well‑regulated and transparent listed markets.”
Dual class share structures work by offering two separate sets of shares, one to the general public which typically have limited to no voting rights, and another set which is retained by founders and executives that have greater weighting in voting processes.
The greater power dual class share structures give to founders of companies allows them to exert more control over big company decisions, and prevent a hostile takeover in the initial years after IPO when their company is in a nascent stage of growth.
It’s a change designed to help the UK keep up as an attractive listing destination, in a time of huge competition for cross-border IPOs, and bring it in line with the US and Asia, where dual class share structures have been revived as part of recent reforms.
Today’s confirmed changes follow a five month consultation period in response to changes to the country’s primary market regime that were put forward by Lord Jonathan Hill in the UK Listing Review, and Ron Kalifa’s review of UK fintech.
As well as this change focused on founders, the FCA confirmed it is reducing the minimum proportion of shares in “free float” – i.e., in public hands – and easily tradeable on the market from 25 per cent to 10 per cent.
The FCA also announced it is increasing the minimum market capitalisation (MMC) threshold for both the premium and standard listing segments of the stock exchange from £700,000 to £30m – a move it said would “give investors greater trust and clarity about the types of company with shares admitted to different markets.” This is below the £50m cap originally proposed.
It comes after the watchdog has argued that companies below the £30m threshold were “better suited” to listing on London’s AIM market instead.
But city bosses have argued that this move could “undermine” the City’s competitiveness rather than improve it, and risks hampering a company’s ability to grow.
In addition to today’s changes, the FCA said it would undertake a deeper review into the UK listing regime next year, which could lead to more changes in the market structure to encourage IPOS.
“The changes announced today keep the ball rolling on the recommendations from the Hill Review,” said Christopher Woolard, EMEIA financial services regulation leader at EY.
“The immediate measures being brought in from tomorrow are a sensible first step, and balance investor protection with market attractiveness – both of which are much needed elements.”
“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,” said Clare Cole, director of market oversight at the FCA.
“Success should be measured, not on the number of companies that list, but rather on the quality of those companies, and the long-term sustainable returns they deliver for shareholders,” said Chris Cummings, chief executive of the Investment Association.
“It is important now to focus on a broader set of reforms to the wider listing ecosystem, including promoting the UK as a listing venue and improving the advice and support that high growth companies receive through their listing journey.”