The London Stock Exchange has joined City and business groups in urging the government to overhaul the rules for company listings in the UK in order to attract fast growth companies.
Ministers kicked off a review into the UK’s listing regime led by former EU commissioner Jonathan Hill last November to encourage more companies to float in London.
An industry consultation for the review closed on Tuesday, and has highlighted a deep split in the City.
On one side, corporate governance advocates want to uphold the gold standard of rules in London with only minimal relaxations to tight listing requirements.
But many City executives are pushing for more fundamental reforms to attract fast growth companies to the UK that might otherwise choose exchanges in the US, Asia or Europe that offer more relaxed regimes.
In its submission the LSE backed easing the rules that apply to its biggest blue-chip stocks, which adhere to its highest standards.
The LSE has urged the government to relax rules that demand start-ups, often owned by a founder or a small number of investors, sell a minimum of 25 per cent of their company in a listing, according to a person involved in the submission. It said this discourages owners who are reluctant to sell too much of their businesses.
The exchange also supported dual class share structures for companies in the top tier of the market, the so-called ‘premium’ segment. These would give certain shareholders greater voting rights than others, albeit with certain safeguards such as imposing time limits or restrictions on what the shares can vote on.
These recommendations will probably put it in conflict with others, such as the Investment Association, which represents the UK investment industry, whose submission is expected to warn against making such fundamental changes.
People close to the association said it would argue against the use of dual class shares in the premium segment, and so uphold the current principle of “one share, one vote”, and only lower free float requirements by a modest amount and for a limited time.
Government officials are open to reforms to help boost London’s position as a place for fast growing, tech-focused companies to be listed now that the UK has left EU rulemaking.
The bigger initial public offerings are fiercely fought over by different exchanges. London is seen to have become less attractive to the high growth companies that want more flexible rules over their listing, in comparison to the US and Asia where tech firms make up a much higher proportion of the market.
The debate has focused in part on the Hut Group, which floated in September last year and was the largest IPO in London for five years. It managed to only secure a so-called “standard” listing.
Others have also advocated deeper changes to attract tech-focused companies. Innovate Finance, which represents the interests of financial technology groups, warned that without changes “many founder-led businesses feel in time they will be pushed to more flexible listings markets overseas”.
In a letter to Lord Hill outlining its submission seen by the Financial Times, Charlotte Crosswell, head of Innovate Finance, argued for increased flexibility for dual class shares, changes to the minimum free float, and increased routes to a premium listing.
Without greater freedom to use dual class shares, she said that influential investors and fintech founders may prefer a listing on Nasdaq to London, “in favour of higher valuations and greater protection for personal investment positions”.
“Against the backdrop of Brexit, we need to recognise that interest in listing in EU markets is also increasing,” she added.
Business groups have also argued that changes are needed. The Institute of Directors said a segment of the premium listing category could be created for innovative high-growth companies. These would then be permitted to undertake IPOs or equity issuance with dual class share structures.
“The Hill Review must strike a fine balance. On the one hand, the UK must avoid a race to the bottom. Our high standards of governance are a selling point for global investors. On the other, our listing rules framework must keep pace with the times,” said Roger Barker, the IoD’s director of policy.
The CBI also backed relaxing dual class share limits for the premium market — with “appropriate limitations and rules of disclosure” — as part of “a flexible and proportionate regulatory approach to encourage deeper capital markets” in its response to the consultation.
The government has said Lord Hill will give recommendations in “early 2021”.