You would be forgiven for concluding from the pre-publicity that Lord Hill’s review of the London stock market’s listing regime, due to land before the chancellor’s budget on Wednesday, is solely about how to encourage more technology companies to float in the UK.
That’s certainly a central aim, and there’s a fair argument that, if London wants to keep pace with New York, a few old practices should be ditched. One would be the rule that says companies with dual classes of shares can’t be included in stock market indices such as the FTSE 100.
Founders of tech companies, unfortunately, tend to be control freaks obsessed with keeping “golden shares” in their creations. Nobody bats an eyelid in the US about voting inequality. The UK, which has made a fuss for decades, may have to yield to stay attractive. Purists will hate a backwards step on governance; pragmatists can probably live with it.
Two other areas of Hill’s review, though, feel at least as important. Please, let’s not also embrace the current American fad for special purpose acquisition companies (Spacs), or “blank cheque” shell companies that raise money from investors first and only then look for something to buy.
The UK’s rules on Spacs are clunkier (and thus less attractive for sponsors) for a reason: given the potential for abuse, outside investors need time to scrutinise insiders’ deal-making. Hedge funds, in search of faster action, seem to be the main lobbyists for looser Spac rules. Ignore them. There is no need for London to lower its standards on that front.
Rather, let’s hope Hill has listened to the quieter lobby that has called for ordinary retail investors, the forgotten players in the stock market, to be put back into the flotation, or IPO, business. Some 20 years ago, it was common for consumer-facing brands, when coming to the stock market, to include a retail offer to ordinary investors alongside the pitch to City institutions. These days retail offers in IPOs are rare.
Dr Martens, the boot firm, and Moonpig, the online greetings card retailer, devoted acres of their recent prospectuses to boasts about the loyalty of their customers. Neither company, though, acknowledged that loyalty by giving customers a chance to buy shares at public launch. Both IPOs were institutions-only affairs and regular punters only had a chance to buy after the “pop” in prices on the first day of dealings. Not every float is a flyer (remember Aston Martin) but equality of access to new issues should be a question of basic fairness.
Hill could usefully recognise that technology has solved many of the City’s standard grumbles about retail IPOs. PrimaryBid, the smart platform trying to open up access to capital markets, proved last year at follow-on fundraisings for Taylor Wimpey, Compass Group and others that the involvement of retail investors doesn’t have to slow the process. Those capital-raises were conducted at speed. The software is as smooth as online banking.
Rather, the main impediment is the so-called “six day” rule that is triggered when shares are offered to individual investors via IPOs. The rule is intended to ensure everybody has time to read the prospectus, but it was designed in the days when documents were sent by post. Just scrap it.
By way of flourish, Hill could recommend that 10%, say, of shares in a float above a certain size are reserved for private investors. That would shake things up. One doubts he’ll go that far, but a prod to boards to remember regular punters, who in any case tend to be less fickle than the average professional fund manager, would be a start.
So, yes, by all means obsess about the need for more tech companies in London. It’s an important cause. But the other tech-inspired revolution should be one that removes the IPO barriers that have been thrown in front of individual investors. The Hill review, potentially, is an important moment for the London stock market. Start from the principle that public markets need to be open fully to the public.