In a bid to revive flagging listings and confound worries that the City is losing its edge, the UK regulator has issued new regulations. They drew a broadly positive response.

Wealth managers reacted favourably to new stock market listing rules from the UK’s Financial Conduct Authority, enacted to bolster the City amid worries about falling listings and liquidity.

This week, the FCA unveiled what it called the “biggest changes to the listing regime in over three decades.” The rules, applying from 29 July, are designed to encourage a wider range of companies to issue their shares on a UK exchange.  

The watchdog set out what it called a simplified listings regime with a single category and streamlined eligibility for those companies seeking to list their shares in the UK. “As part of these changes, we are removing the concepts of 'premium' and 'standard' listing, while retaining categories that describe and set rules appropriate to the type of security or issuer type,” it said.

The FCA is changing these listing types in favour of a new “commercial companies” category for listings. 

“For this category, we have maintained the approach of not requiring votes on significant and related party transactions and being more permissive in relation to companies listing with dual class share structures (DCSS) or weighted voting rights,” it said.

Companies wanting to list will no longer have to provide historical financial information, revenue track record and clean working capital statements, though disclosures on these will still have to be included in a prospectus.

“The FCA’s overhauling of listing rules in the UK is very admirable and it is pleasing to see action being taken to address the de-equitisation of a key financial market,” Chris Beckett, head of equity research at Quilter Cheviot, said. “London has been a critical hub for financial services and having a healthy stock exchange is important for its reputation, particularly with a new government and the UK no longer part of the European Union.”

“However, using the listing rules as a reason for the London market’s struggles is a bit of a red herring. The main reason for the gloomy clouds over the City is the makeup of the main indices. London is home to large, legacy industry companies, such as miners, oil and gas and financials, which have been out of favour in the past decade and show no real signs of becoming loved once more,” Beckett said. 

“This is a much-needed shot of adrenaline for the London Stock Exchange. The FCA’s new listing rules could unblock the UK’s tech ecosystem by making public markets more accessible to early-stage companies,” Naureen Zahid, director of investor relations at OpenOcean, an early stage tech VC firm with offices in London and Helsinki, said. 

“For startups, the streamlined eligibility requirements and reduced procedural hurdles mean faster and less costly access to capital, allowing them to scale more rapidly. This is especially beneficial for tech companies that often need substantial upfront investment to innovate and grow,” Zahid said.

Although the reform packages were planned under the previous Conservative government, the FCA’s announcement yesterday suggests continuity on policy as a new Labour administration takes charge. This publication understands that under new finance minister Rachel Reeves, the government is highly focused on making the City more competitive. 

There have been setbacks: The value of initial public offerings on the London Stock Exchange fell to new lows in 2023 amid a slew of companies opting for US listings. For example, UK chipmaker Arm listed on the Nasdaq last year. IPOs are important liquidity events that wealth managers track. Another issue is that there has been a structural shift since the end of the dotcom bubble towards private markets at the expense of public ones. 

The rationale
Explaining its thinking, the FCA said: “The overhaul of listing rules better aligns the UK’s regime with international market standards. It also ensures investors will have the information they need to make decisions about their money, while maintaining appropriate investor protections to hold the management of the companies they co-own to account.

“The new rules remove the need for votes on significant or related party transactions and offer flexibility around enhanced voting rights. Shareholder approval for key events, like reverse takeovers and decisions to take the company’s shares off an exchange, is still required.  

“The FCA has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth,” it said. 

Reactions
Tom Lee, head of trading proposition, Hargreaves Lansdown, a large UK IFA, said: “A successful listings regime which supports our home market is essential. However, making the UK an attractive place to list has to be balanced with rights for shareholders and ensuring that the quality of the market is not diluted.

“We will watch closely as these new rules embed, we have been concerned that the plan to remove shareholder votes on significant and related party transactions would dilute investors’ rights. 

“As we look forward to further regulatory change planned, we are keen that retail access to IPOs and secondary capital raising rounds are at the heart of changes. The current regime is a barrier to retail investment.

“The demand from retail investors to buy into the equities market is there, and regulatory change should support this demand. Boosting retail investment on the stock exchange will have wider market benefits providing depth and liquidity, as well as boosting interest in investment with the wider public, unlocking further capital for UK-listed companies. Building an understanding of how investment plays a part in long-term financial resilience is essential,” Lee added.

Quilter Cheviot's Beckett said that changing the UK listings regime is not a silver bullet for the woes of the City, however.

“Clearly the FCA and government wants to attract new and exciting businesses to help counteract this problem, but there are some challenges to this approach which will be very difficult to get around. Firstly, growth investors tend not to invest in the UK, for the reasons listed above. They tend to look to the US for these companies and as such if a business wants to achieve an attractive valuation, it too will go to America. Furthermore, most institutional and retail investors care very little about where the company they are buying is listed. We live in a 24/7 digital age now where you can buy companies listed in London, New York, Tokyo, Shanghai or Frankfurt at the touch of a button. Many of the companies in the FTSE 100 are global in nature too, so will naturally look to overseas markets if that is a better fit for them.

“Finally, while these reforms are a good, albeit limited, first step, we need to be careful not to lower standards too much. Encouraging businesses to list here is beneficial, and we hope these reforms will help, despite reservations, However, attracting high quality companies requires maintaining robust governance standards. Given the FCA’s mandate and actions to date, it fully understands the need to protect those standards," he concluded.

"Lighter regulation, including more flexible dual class share structures aimed at attracting high-growth companies, will be welcomed by many issuers and sell-side advisors but the shift in emphasis to a more disclosure-based approach undoubtedly carries risk for investors. Many investors, however, accept that risk when investing in companies listed outside the UK, so to some extent the reforms simply level the playing field," David Robinson, partner at law firm, Fladgate, said.

“The biggest overhaul of the UK’s listings regime in 40 years will be welcomed by many in the market but it’s unlikely to make the UK more competitive than the US and unleash a rush of IPO activity as intended. The real market shift isn’t firms leaving the UK for the US, it’s from public markets to private. Over the past year, we have seen countless firms de-list and go private because public markets aren’t the same force they used to be," Myles Milston, co-founder and CEO of Globacap, said.

“In the last decade, private markets have grown at almost double the rate of public markets while falling less in the downturns, highlighting their robust nature. Nearly every day a new institutional investor announces they are increasing their allocation to private markets due to better returns. Private markets now offer a far more competitive alternative to the traditional IPO route for companies looking to raise capital and access liquidity. Instead of worrying about a few changes to make listings easier, we should be looking to supercharge the UK’s private markets and powering the real economy," he added.