FTSE share prices

In a post-Brexit world, the UK is looking at ways to promote London as a competitive destination for equity listings. James King reports.

On May 26, the UK’s Financial Conduct Authority (FCA) published proposals to radically alter the listing of equity shares, by collapsing the country’s existing standard and premium listing segments into a single model. If enacted, it will represent the biggest change to the rules governing the listing regime in many years. The idea stems from a wider, ongoing review of the listing framework that started in early 2021, as British regulators grapple with a post-Brexit reality in which competition with EU financial centres has risen.

In particular, the regulatory rupture caused by Brexit has seen many EU-domiciled businesses pursue listings in their local market over London. “The loss of passporting rights [for financial services] between the UK and the EU has hit companies’ ability to use the same listing prospectus between the two jurisdictions. This has contributed to the general drift towards the use of local exchanges, which has been a favourable trend for Euronext,” says Nik Colbridge, a partner with law firm Dentons.

To compound these difficulties, many EU exchanges were better positioned, from a regulatory standpoint, to benefit from the recent wave of special purpose acquisition company (SPAC) listings. This has also helped to raise the profile of Euronext exchanges. In response to these growing competitive pressures, the UK has been investigating – and enacting – ways to promote London as a competitive destination for equity listings. A number of changes have been implemented to date, including the admission of companies with dual-class shares onto the premium list.

Recent moves

The FCA’s latest proposition forms part of this effort to reinvigorate the country’s primary market. The proposals seek to overhaul the existing structure of primary and standard listing segments, which critics claim blunt the chances of high growth technology companies from listing in the UK. Specifically, the requirements to achieve a premium listing – and by extension representation on the FTSE indices, since standard listings are excluded – include a three-year revenue earning history which must cover at least 75% of the business, as well as sufficient working capital, among other obligations.

Under the proposed single listing segment, the reaction of the FTSE indices will be the thing to watch

Nik Colbridge

Instead, the FCA’s proposed single listing segment would eliminate the need to meet these standards, and rely on company disclosures in the listing prospectus to give investors the opportunity to decide on a company’s investment merits. Beyond this, listed companies under a single segment framework would be subject to ongoing obligations according to two different levels. Mandatory continuing obligations would provide a baseline of transparency for shareholders, as well corporate governance standards, while supplementary continuing obligations would offer shareholders a more sizeable role in holding a particular company to account.

Issues ahead

This approach, however, could stimulate confusion among the investment community for a number of reasons. Notably, under the current system, only premium listings are included on FTSE indices, so any shift to a single segment regime will change the way that a benchmark index will treat listed companies. “It could be confusing in the sense that a lot of investors aren’t aware of the premium versus standard classification. These investors look to the major indices to provide a benchmark; they look at whether the company is FTSE All Share indexed and use that status as a proxy for good corporate governance,” says Mr Colbridge.

Moreover, the creation of mandatory and supplementary continuing obligations could splinter the market into de facto “premium” and “standard” listings, partially undermining the rationale for the change in the first place. “Under the proposed single listing segment, the reaction of the FTSE indices will be the thing to watch. It seems likely that inclusion would be based on higher supplemental continuing obligations post-listing,” he says.

While the FCA’s latest proposals do, in theory, diminish the existing gap between premium and standard listings in the UK primary market, they nevertheless present their own complications. These proposals have a long way to go, however. The FCA expects to receive market responses by July 28, and has noted that an additional published discussion paper may be needed once it has had the opportunity to review feedback. Whatever the outcome, it seems clear that more change, in some form, is on the way for the UK’s listing framework. And as competition between international financial centres heats up, a bigger share of the market for equity listings is up for grabs.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter