Friday 20 November 2020 10:51 am

Watchdog calls for end to relaxation of pre-emption rules

The audit regulator has called for an end to the relaxed pre-emption rights past the November deadline, in what has been hailed as a positive step for retail investors. 

The so-called pre-emption rights were first introduced in March by the Financial Reporting Council (FRC) in a bid to help struggling companies raise cash quickly. 

Read more: Watchdog eases cash call cap to help firms raise cash amid coronavirus outbreak

The FRC-based Pre-Emption Group (PEG) recommended investors apply flexibility in considering issuances of shares. It bypassed pre-emption rights that give existing shareholders first refusal to new share issues. 

After the 30 November deadline, companies will have to resume the first-refusal rights when they raise after the 30 November deadline.

“Market activity over the past eight months has shown that investors were clearly in favour of companies having access to the capital they needed,” the FRC said. “Whilst considerable uncertainty remains, companies have had eight months to assess their situation and respond accordingly. From 1 December this year we will revert to the requirement for full pre-emption”. 

Richard Wilson, chief executive of interactive investor welcomed the decision as a positive step for retail investors. 

“We welcome the news that the FRC is finally giving individual investors, many of whom are interactive investor customers, a seat back at the table. Between March and October 664 firms issued shares, but around a third of these were not vailable to individual shareholders.” 

Read more: London leads Europe in follow-on fundraising with busiest period in a decade

He rejected the FRC’s claims that investors had been in favour of the relaxation of rules.

“If you were to ask one of the millions of small shareholders in the UK, our research shows you would not get a ringing endorsement.” 

More than £30bn was raised on the stock market during the first six months of the pandemic as companies bolstered their balance sheets. 

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