When one complaint is the complexity of the status quo, it’s a good sign if the proposed solution is obviously clear and simple.
The latest ideas to overhaul the listing regime for the London market fail that test.
The UK markets regulator wants to crunch together the existing “premium” segment that requires the highest levels of corporate governance standards with the more lightly regulated “standard” segment — a response to concerns that a two-tier market creates a stigma that deters companies from listing in London.
In reality, it isn’t that straightforward. The proposals are convoluted, could achieve little and suggest faltering confidence in the efforts to reinvigorate London as a listing venue.
The problem, as laid out by the regulator, is this: the UK’s share of global initial public offerings fell from a tenth in 2006 to half that by 2018, according to New Financial.
These proposals are part of a package of measures that started with the Hill report last year, which introduced dual-class share structures into the premium segment, established a UK regime for special purpose acquisition companies and dropped the required free float to list. There are also likely to be changes to prospectus rules, and reforms to ease and speed up raising money after listing.
For a project that is aiming to simplify, what’s on offer is rather complicated. The idea is that there would be a single segment, with a mandatory set of regulatory requirements: those would include adherence to the “comply or explain” corporate governance code, for example, which currently attaches to premium listings.
But companies could opt to meet a “supplementary” set of obligations, that includes rules around controlling shareholders and approval for significant deals. To confuse matters further, the standard segment would also remain — but only for secondary listings, global depositary receipts or debt issuers. (A separate proposal changing the reporting and accounts required to be eligible to list does actually seem helpful for high-growth or acquisitive companies.)
This feels suspiciously like replacing one two-tier system with another — in a way that, impressively, manages to leave both gung-ho IPO advisers and buyside governance purists underwhelmed.
“I’m not sure what problem they’re trying to solve,” said one. Some suspect a covert exercise to level down standards across the market. Nobody wants endless haggling over which of a menu of regulatory standards are in or out.
It may, in any case, prove academic: index inclusion currently attaches to the premium segment. Were FTSE Russell — which resolutely makes its own decisions — to decide that it still wants the full suite of investor protections in the index, then precious little would change.
Meanwhile, the overall push to reinvigorate London listings risks looking incoherent.
The rationale of the Hill review was that London’s buttoned-up approach to corporate governance had pushed business to go elsewhere. If you believe that (which presumably the government and regulators do), then these proposals row back on changes made only last year.
Dual-class share structures would be restricted to the slimline Hill version, used only on certain types of votes, rather than the full-fat version that companies like Wise and Deliveroo plumped for in their standard listings last year. The new single segment could therefore mean less flexibility for the tech start-ups and their entrepreneurial founders that the London market’s rebirth was supposedly designed to attract.
It wouldn’t be surprising if faith in the whole endeavour is waning. The implosion of the US Spac phenomenon has shown the dubious wisdom of chasing after elements of its market euphoria. The cheerleaders for fast-growing, pre-profit “spec-tech” have gone quiet. The high-profile tech listings that opted for London in the last couple of years, many with non-standard governance provisions, have mostly performed badly.
It is probably impossible to reconcile the concerns of reformers fretting about London’s dwindling global pull and the governance guardians who value the all-in protection of the premium badge. But this is starting to feel less like an ambitious overhaul of the London market and more like a bit of US FOMO accompanied by a slightly confused tidying-up exercise.