No this article is not about his Majesty King Charles III who we all wish a long and happy reign. Instead, it is about the London Stock Exchange (“LSE”) and lack lustre ability to attract companies for listing. The LSE did actually have its roots in a Royal Exchange which was set up for merchants to conduct financial dealings back in 1571. However, local stock brokers were not permitted to trade from it so instead they traded in coffee houses and that was what lead to the creation of the LSE in 1773.
The LSE is just about keeping its position in the top 10 stock exchanges in the world by size and it is now finding it’s bigger rivals from the US, Hong Kong, Shanghai and India and even the Euronext just to name a few are bigger than the LSE and attract more listings. This may come as a surprise but it should not when you think about the size of the companies that are listed on the US stock exchanges such as Saudi Arabian oil, Google, Microsoft, Amazon and Apple just to name a few.
It is like the old adage of “money makes money” and in a bid to attract more capital to the UK, could be the main reason why the Financial Conduct Authority are looking to change the listing rules for the LSE. These changes are now looking to move the focus of listing to enable entrepreneurs to cash out of their business as well as enabling companies to attract more capital to fund the next stage of their growth.
It is hoped that the changes to the listing rules will make the LSE more nibble especially when the LSE got snubbed by Arm (that famous Cambridge technology company) when they decided to list on the Nasdaq despite the overtures of the UK government. The removal of some of the listing hurdles will encourage more companies to consider listing on the LSE. But why are these changes important and do not forget we already had an update to the listing rules recently through Big Bang 2.0 whose main architect was Lord Hill. Clearly the LSE is important to the UK economy so that is why there are more changes as without the LSE, UK Plc will lose a vital engine that creates economic growth through the promotion of economic development and investment which attracts capital into the UK.
However, these structural changes to the listing rules may still not achieve the desired goal notwithstanding as laudable as they are, simplifying the listing rules and having one standard rather than a standard and premium listing will simplify listing rules and regulations. Coupled with allowing companies to list when they only have 3 years audited accounts will also encourage companies to list at an early stage. Though this may still not be the answer that policymakers are looking for. This is because there is great swathe of money sitting in pension funds which needs to be encouraged to invest in higher risk equities. Therefore there needs to be a cultural shift if the LSE is to not to lose its crown and drop out of the top ten stock exchanges in the world.
