UK watchdog to simplify listing rules as companies snub London

watchdog  People check their mobile phones as they stand outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls
UK watchdog plans to shake up stock listing rules. Photo: Peter Nicholls/Reuters

The UK financial watchdog has announced plans to change the rules on bringing companies into public ownership in a bid to attract more companies to list shares on British stock markets.

The Financial Conduct Authority (FCA) said its proposals would simplify regulations to make the UK "more competitive" with stock markets abroad.

It comes after British tech firm Arm and other businesses have shunned the UK and chosen to list in the US.

The changes in the consultation paper, if enacted, would remove the two classes of listings and create a single category. Currently there are standard and premium listing segments.

Only companies with premium listings are eligible to enter the FTSE 100 and FTSE 250 so abolishing the distinction would clear the way for more to join them.

The regulator said that creating a single category would take away eligibility requirements that put off early-stage companies. The proposals would also remove mandatory shareholder votes on acquisitions.

Read more: Arm chooses New York for key technology listing in 'kick in the teeth' for London

The FCA said this move would "remove eligibility requirements that can deter early-stage companies, be more permissive on dual class share structures, and remove mandatory shareholder votes on transactions such as acquisitions".

Removing some mandatory votes would "reduce frictions to companies pursuing their business strategies", the watchdog added.

Chief executive of the FCA Nikhil Rathi said: “Our proposed reforms would significantly rebalance the burden of regulation to the benefit of listed companies and investors who are willing to set their own risk appetite and terms of engagement.”

“But we must be upfront that these changes we are proposing to the listing regime will mean passing greater investment risk to investors and greater responsibility on to shareholders to hold the companies they own to account," he added.

The new rules could be in place by early next year for companies seeking new listings in London and phased in for companies already on the exchange.

While the UK has been Europe's biggest financial hub for many years, listings in the UK have reduced by 40% since 2008, according to The UK Listing Review.

AJ Bell managing director Kevin Doran, said: “The loss of Cambridge based chip designer, ARM Holdings, to the US market has clearly stung the government and FCA hard. As the crown jewel of the domestic tech sector, the fact that the company chose the US as its new home when returning to public markets is a sign of how far the UK has fallen since the company de-listed in 2016.

Read more: FTSE: Pension funds blamed for pushing companies to shun London for New York

“Like a bouncer at a night-club, the London market has traditionally adopted a stricter dress code than most when it comes to listing rules, whether in the form of restricting dual-listings, votes on major transactions or requiring fuller levels of disclosure when raising capital. Today’s proposal is the effective equivalent of asking the club-goers whether they’re willing to let the trainer wearing ruffians in, in order to keep the party going.”

Listing a firm on a stock exchange takes it from being a private to a public company, with investors able to buy and sell shares on specific exchanges. Companies usually list on stock exchanges to gain access to a wider range of investors.

Richard Wilson, chief executive of Interactive Investor, said he supported making the UK more competitive, but that “eroding shareholder rights risks undermining market standards, and this is not the right answer”.

“One share, one vote is a bedrock of shareholder democracy and we are concerned to see that the spectre of dual share classes, which we have actively lobbied against, still looms large,” Wilson said.

Watch: British chipmaker Arm files for an IPO in the US

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