Just before the Christmas break, the FCA published its latest consultation paper following on from the listing reform process which was first proposed back in May 2023. Badged as being the most far-reaching set of reforms seen for the industry in more than 30 years, this serves as the latest reminder that the need to reinvigorate London as a global capital markets venue is being take seriously. Not only does the City want to hang onto the mantle of being a listing venue of choice, but there’s also clear concern as to the impact the current state of affairs is having on the extensive professional services industry that exists to support and maintain the wider capital market structure.
Initial reaction to the consultation seemingly focused on the headline points and how without doubt this contained elements that would have the potential to level the playing field, ensuring the London doesn’t have adversely higher barriers to entry than competing markets. There were however two notable sub-texts contained in this latest update.
Indexation…
The first covered the topic of indexation, something that recently attracted the wrath of Elon Musk who bemoaned that the process had gone too far, with passive investment theories removing incentives for risk taking amongst asset owners. The FCA’s proposals here are somewhat more nuanced although could still offer hope for companies on the AIM Index, depending on the relevant inclusion criteria. Critically, if the market moves to compensate for protections which are no longer offered under the revised listing regime, index providers who previously demanded – for example – that an issuer maintained a premium market listing to qualify, may see junior market participants swept into scope. Under the proposed listing regime, it has been noted that index providers would need to reconsider appropriate criteria for determining constituents of a particular cohort, although it is unclear at this time how indexation may actually work under the proposed reforms. Further clarity on the subject will be vital for both issuers and investors alike, but it’s difficult to see the downside for established smaller companies here.
Where it leaves retail investors
The idea of driving greater retail ownership of direct UK equities has also been touted as a key way of bolstering lacklustre demand for London listed stocks, but do these listing reforms help? At a time when this group could benefit from the remaining sale of the taxpayer’s stake in Nat West Group, direct ownership of shares could be popular theme in 2024 but with these reforms also seeing a relaxation in reporting and voting requirements, the question this exposes is whether retail investors are better served by any changes here? Or does this simply pave the way for a greater focus to be applied to collective investments.
There’s certainly room to argue that for the vast majority of retail investors, their longer term savings needs can be better catered for by using a combination of existing investment vehicles, allowing a regulated third party to take charge of a degree of due diligence and also present a risk-appropriate set of opportunities in return. The question would have to be, is a potentially lower level of regulation something worth accepting to bolster the attractiveness of London as a listing venue? If it is indeed the key driver as to why the UK market is losing out to overseas competitors then it’s difficult to argue against, but this will need to be offset against the inevitable criticism that investing has become less democratic as a result.
Change for the listing regime in London seems overdue and inevitably there will be some objections, but levelling the playing field should be a key motivator for all. Some points of the suggested reforms will be quite blunt and others more nuanced, but at Avenir we are keeping abreast of the evolving process and believe we are well positioned to offer the flexibility necessary to assist issuers when it comes to adapting to the new normal.
An amended version of this article originally appeared in the January 2024 version of AIM Journal. You can download a printable version here.