Introduction: Regulator proposes sweeping changes to UK listing regime
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
New measures to encourage companies to float on the London stock exchange rather than abroad are being revealed today, but the changes would expose investors to more risk.
The UK’s financial watchdog plans to shake up the City’s listing rules, in the hope of halting the flow of companies to rival markets such as Wall Street.
The plans being detailed today by the Financial Conduct Authority (FCA) aim to make London a more attractive site to list, removing some of the eligibility requirements that can deter start-ups and newer companies.
The FCA is proposing several measures in a new consultation document, including:
-
simplifying the market, by merging London’s standard and premium markets into a single category for equity shares, scrapping the gold-standard “primary listing” category.
This “single equity category” would include measures to tempt company founders to list in London, such as being more tolerant of dual class share structures with different voting powers, such as so-called ‘Golden Shares’
-
Ditching removing mandatory shareholder votes on transactions such as acquisitions, so companies can press on with deals and grow faster
-
removing a requirement for firms to have three years of audited financial accounts, which would make it easier for companies to join the market
The FCA says:
The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.
But…shifting to a listing regime based on disclosure and engagement, rather than regulatory rules, does bring more risk into the system.
So, the FCA says it wants an open discussion about the change to risk appetite that this would entail.
A recent review found that the number of listed companies in the UK has fallen by about 40% from a recent peak in 2008, and that between 2015 and 2020, the UK accounted for only 5% of IPOs globally.
My colleague Jasper Jolly reports:
The Financial Conduct Authority (FCA) on Tuesday night said it plans to abolish the stricter “premium” class of London stock market listing, and make it easier for company founders to keep control of businesses using US-style “golden shares”, among a series of big changes to City regulations.
The changes are part of a push by the Conservative government to arrest the decline of the London stock market since the global financial crisis and lure new companies to list here. There were 2,101 companies listed on London’s main market in 2003, but that number has fallen to 1,097 today, according to London Stock Exchange data. The average number of companies floated has fallen from 177 a year before the financial crisis in 2008 to 66 a year in the period since then, according to the data company Dealogic.
Also coming up today
The US Federal Reserve is expected to raise US interest rates again tonight, as it tries to push inflation down to its 2% target.
The Fed’s FOMC committee is forecast to lift its benchmark policy rate by a quarter of one percent, to a new target range of 5-5.25 per cent, the highest level since mid-2007.
The Fed meeting is overshadowed by jitters over America’s regional banks. Shares in midsize lenders fell again yesterday, despite president Joe Biden insisting the banking system was ‘safe and sound’ following the collapse of First Republic.
JPMorgan’s takeover of troubled Californian lender First Republic’s deposits and most of its assets on Monday has not stemmed concerns over the health of the sector.
Trading in PacWest, the Los Angeles-based lender, was briefly halted for volatility yesterday and closed down almost 28%.
Western Alliance of Phoenix, Arizona, lost 15%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Banking relief after JP Morgan swallowed the First Republic Bank on Monday remained short-lived, as some regional bank stocks, like Valley National Bankcorp lost another 3%, Western Alliance Corporation another 15%, and PacWest Bancorp another 28%, even though it had said last week that the deposit outflows had slowed in March.
As such, SPDR’s US regional bank ETF was down by more than 6%.
It means that, no, the US regional banking crisis is hard to wane, high interest rates are truly being felt and the latter will likely have a sizeable impact on credit lending, hence on economic activity.
The agenda
-
9.30am BST: Office for National Statistics report: “How is the average price of items changing over time?”
-
Noon BST: US weekly mortgage applications data
-
7pm BST: Federal Reserve interest rate decision
-
7.30pm BST: Federal Reserve press conference
Key events
RS Group CFO quits after personal relationship with colleague
The finance chief of electronics products distributor RS Group has quit, revealing that he has had a personal relationship with a colleague.
David Egan resigned from his role as Chief Financial Officer (CFO) and as a director and will leave the business with immediate effect, RS Group told shareholders this morning.
Egan, who has also served as RS Group’s acting CEO twice, says his actions have “fallen short” of what is expected.
Egan explained:
“I have thoroughly enjoyed my seven years at RS and I am proud of what we have achieved. Very recently I notified the Board of a personal relationship with a colleague.
Following a detailed review by the Board, I recognise that there have been some shortcomings of judgment on my part and my actions have fallen short of the high standards expected of RS leadership. Therefore, it is right for me to step down from my role.
RS Group’s chair, Rona Fairhead (a former trade minister), says:
“Following a thorough review, the Board has accepted David’s resignation and in stepping down he recognises the importance of leaders setting and abiding by exemplary standards.
Egan will be replaced by RS Group’s VP Corporate Development, Jane Titchener.
The company says there are no changes to its profit expectations, but shares in RS Group are down 2.5% this morning.
RS Group, which distributes electrical and electronics components to manufacturers, has been hiy by a recent drop in sales in the US. Last month it predicted that operating profits for the last financial year would be slightly ahead of consensus expectations.
Haleon, the consumer health giant, has missed profit expectations despite hiking prices.
Haleon, which was spun out of GSK last summer, has reported earnings of 4.2p per share for the first quarter of the year, below forecasts of 5.24p per share.
That’s despite lifting its prices by 7.1%, which helped to grow revenues by 13.7%.
Rising costs ate into Haleon’s profits, explains Victoria Scholar, head of investment at interactive investor:
“Haleon confirmed it expects full-year organic revenue growth to come in at the upper end of its guidance range for 4-6%. First quarter adjusted earnings per share hit 4.2 pence, falling short of analysts’ expectations for 5.24 pence while revenue reached almost £3 billion, roughly in line with forecasts.
The consumer health spin-off from GSK has been dealing with squeezed profit margins which fell by 90bps on the back of cost inflation. It has been raising prices to offset the challenge of rising cost pressures with price increases rather than volumes mostly responsible for revenue growth in its biggest regions. However these price hikes have been insufficient to prevent a bottom line miss.
Nonetheless it reported strong sales growth across respiratory health, pain relief, oral health and digestive health thanks to demand for drugs during the cold and flu season. It has benefited from strength in China as Beijing unwound its strict anti-covid lockdown measures.
Since the spin-off last summer, shares got off to a difficult start, reaching a trough in September last year but the stock has been progressing nicely in recent months, rallying almost 30% over the past six months. But the disappointing earnings are weighing on shares today.”
Scott McCubbin, EY UKI IPO Leader, is urging the FCA to be careful about removing safeguards for shareholders, as it tries to make London a more attractive place to invest:
McCubbin says:
“The FCA’s proposals to reform and streamline the listing regime in the UK are a positive step in simplifying the process and could go some way in raising the UK’s profile as a global listing destination. However, caution is required as the proposals remove some key investor protections, such as the ability to vote on key transactions.
“Importantly, revising listing regulation is just one piece of the puzzle. A comprehensive package of measures across listings and other areas such as secondary markets, tax, retail investor access, forward guidance, analyst coverage, regulatory capital treatment and labour is needed, rather than a siloed approach.
“How FTSE Russell modifies the FTSE indexation rules as a result of any FCA revisions to the listing regime will also be a critical factor in enhancing London’s attractiveness as a listing venue.”
Lloyds Banking Group has reported a jump in profits, as higher interest rates boosted its earnings, but warned that the economic outlook is uncertain.
Lloyds made a pre-tax profit of £2.26bn in January-March, up from £1.5bn a year earlier, and beating forecasts.
Its net interest margin – the gap between what it charges for loans and pays on deposits – widened, which may intensify calls for banks to pass on higher interest rates to savers, as well as borrowers.
Charlie Nunn, Lloyd’s CEO, warned that customers were suffering from economic pressures, saying:
The macroeconomic outlook remains uncertain. We know that this is challenging for many people. Our purpose driven strategy, alongside our financial strength, means we can continue to support our customers across the country, helping Britain prosper.
Markets rally ahead of Federal Reserve decision
European stock markets have opened higher, as investors await tonight’s decision on US interest rates.
In London the FTSE 100 index has gained 37 points, or 0.5%, to 7810 points, having closed at the lowest level since 11 April last night.
Pearson, the educational publisher, is the top riser on the FTSE 100, up 3%. Yesterday Pearson’s shares tumbled 15%, as the education sector was rattled by fears that artificial intelligence could upend their business models.
As we reported last night, California-based online learning service Chegg spooked the market by reporting that its customer growth was suffering from a “significant spike in student interest in ChatGPT.”
Shares in Duolingo, the language learning site, fell 10%.
Interactive investor: reforms mustn’t come at expense of investor rights.
Efforts to make the UK a more attractive place must not come at the expense of investor rights, warns investment platform interactive investor.
Richard Wilson, CEO of interactive investor, is concerned that there are several ‘red flags’ in the FCA’s proposals, such as removing mandatory shareholder votes on takeover deals.
Wilson says:
“We strongly support the principles behind listing rule reform to make the UK more competitive, but eroding shareholder rights risks undermining market standards, and this is not the right answer.
“Dual-class structures, which come with differential voting rights, erode shareholder rights. Distorted rights distort governance and accountability. When company founders seek external capital from shareholders, as equity owners they must respect their shareholder rights. One share, one vote is a bedrock of shareholder democracy and we are concerned to see that the spectre of dual share classes, which we have actively lobbied against, still looms large.
Reference to removing mandatory shareholder votes on transactions such as acquisitions is another major red flag.
“We would also be concerned if the FCA were looking to sidestep responsibility for conducting due diligence as part of it acting as UK Listing Authority.
“It will be interesting to see which companies qualify for inclusion in FTSE trackers once the ‘premium’ definitional point is dropped.”
Shaking up the listing rules won’t stop pension funds taking a risk-averse approach to investing, points out Jason Paltrowitz, Director and EVP, Corporate Services at OTC Markets Group.
Paltrowitz says that some of the FCA’s proposals are ‘long overdue’, but there is a risk from watering down regulations.
While it is always prudent to review regulations to make sure they are fit for purpose, there is a risk that the FCA’s proposed reforms to UK listing rules are swinging the pendulum too far in the other direction.
We (OTC Markets Group) in the US have long supported a disclosure-based system which allows investors to determine the suitability of a security and efforts to bring London up to par are long overdue. However, the proposed reforms do not address the issue of a secondary market that is overwhelmingly made up of pension funds and index investing.
Firms within this space won’t change their investment appetite simply because it is easier for the issuer. The issues around early stage and growth companies choosing the likes of New York over London runs far deeper than regulation and will require a more holistic set of reforms to reverse the listings decline observed since 2008.
In the short-term, while many will welcome the FCA’s efforts to increase London’s attractiveness, there should be caution around any adverse impact on traditional UK investors from watering regulation down too much.
The Lord Mayor of the City of London, Nicholas Lyons, hope the FCA’s reforms can stop the City losing companies to rival exchanges, saying:
“Recent decisions by companies to list in the US have shown that an initiative of this kind is urgently needed to improve London’s stock market attractiveness.
These reforms today are therefore a step in the right direction and will give us the edge over other financial centres. Against the backdrop of slowing growth, unlocking capital and supporting our high-growth firms to stay and list in the UK will need to remain firmly on the agenda.”
Nils Pratley: FCA’s plan for stock market reform is both depressing and pragmatic
The FCA’s proposed changes to UK stock market listings are both “depressing and pragmatic”, our financial editor Nils Pratley writes.
For all the spin, the grand plan could be summarised “if you can’t beat ‘em, join them” – them being the US markets that have never shared London’s worries over shareholder rights and boardroom governance. It looks as if the UK financial authorities, prodded by ministers, have concluded that principles are great until they starting costing you business.
The FCA’s core proposal is to adopt a single class of listed company. So goodbye to London’s “premium” segment that could only be claimed by companies that signed up to strong governance standards. And, just as in the US, companies would no longer have to gain approval from shareholders for very large transactions, or ones with related parties.
What’s more, London would fling the doors open wider to companies with US tech-style unequal voting structures. So much for “equal rights for equal economic risk” – an entirely worthy cause, as many of us have argued for years. Thus it is hard to summon much real enthusiasm for the FCA’s vision. In governance terms, it looks a step backwards by about half a century.
But here, unfortunately for us purists, is the rub: there is little point in trying to operate the world’s most protection-heavy and virtuous stock market if fewer and fewer people want to use it. That way lies irrelevance.
And, since the theoretical governance protections have proved useless in preventing blow-ups like Carillion and NMC Health, one can reasonably ask if London’s high-minded ambitions were always hot air. Thus it is possible to see the regulator’s policy U-turn as simultaneously depressing and pragmatic.
Here’s the full piece:
FCA CEO Nikhil Rathi adds that the regulator wants to stimulate the debate about the UK’s appetite for financial risk, telling Today:
Wwhat we want to do with these proposals is stimulate that debate and recognise that if we are going to move to an environment where companies get access to markets quicker, grow faster, with that comes risk.
Risk will often entail significant profits for investors, but things will also go wrong as well. And that’s part of a healthy dynamic market.
FCA chief: reforms mean greater risks for shareholders
Today’s proposed changes to the UK’s stock market listing rules will make it “easier for companies to join the market quickly,” insists the head of the FCA.
But Nikhil Rathi is also clear that they will make the market riskier.
Speaking on Radio 4’s Today Programme, Rathi says the FCA is proposing some “really important reforms”, at a time when there is a “global phenomenon” of companies leaving public markets.
Rathi says:
What this is doing is striking a new balance between companies that are selling shares and investors.
It does entail more risk for investors, having to get to know companies better and make their own judgments about how they wish to invest and at what price they wish to invest.
Q: But won’t scrapping the premium section of the stock market damage London’s reputation?
Rathi insists London will “always maintain high standards” regarding disclosure and regulation.
But in a world where companies are growing very fast, it makes sense to have a single listing regime rather than offering two which they have to choose from to list in London, Rathi argues.
And he points out that that there will be “greater risk for shareholders” by allowing companies to rely more on disclosures rather than shareholder votes on major questions such as deals.
Rathi syas:
That does entail greater engagement with shareholders and greater risk for shareholders and I think that’s the trade off which we’ve been quite open about, as we think about how these reforms will work.
Introduction: Regulator proposes sweeping changes to UK listing regime
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
New measures to encourage companies to float on the London stock exchange rather than abroad are being revealed today, but the changes would expose investors to more risk.
The UK’s financial watchdog plans to shake up the City’s listing rules, in the hope of halting the flow of companies to rival markets such as Wall Street.
The plans being detailed today by the Financial Conduct Authority (FCA) aim to make London a more attractive site to list, removing some of the eligibility requirements that can deter start-ups and newer companies.
The FCA is proposing several measures in a new consultation document, including:
-
simplifying the market, by merging London’s standard and premium markets into a single category for equity shares, scrapping the gold-standard “primary listing” category.
This “single equity category” would include measures to tempt company founders to list in London, such as being more tolerant of dual class share structures with different voting powers, such as so-called ‘Golden Shares’
-
Ditching removing mandatory shareholder votes on transactions such as acquisitions, so companies can press on with deals and grow faster
-
removing a requirement for firms to have three years of audited financial accounts, which would make it easier for companies to join the market
The FCA says:
The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.
But…shifting to a listing regime based on disclosure and engagement, rather than regulatory rules, does bring more risk into the system.
So, the FCA says it wants an open discussion about the change to risk appetite that this would entail.
A recent review found that the number of listed companies in the UK has fallen by about 40% from a recent peak in 2008, and that between 2015 and 2020, the UK accounted for only 5% of IPOs globally.
My colleague Jasper Jolly reports:
The Financial Conduct Authority (FCA) on Tuesday night said it plans to abolish the stricter “premium” class of London stock market listing, and make it easier for company founders to keep control of businesses using US-style “golden shares”, among a series of big changes to City regulations.
The changes are part of a push by the Conservative government to arrest the decline of the London stock market since the global financial crisis and lure new companies to list here. There were 2,101 companies listed on London’s main market in 2003, but that number has fallen to 1,097 today, according to London Stock Exchange data. The average number of companies floated has fallen from 177 a year before the financial crisis in 2008 to 66 a year in the period since then, according to the data company Dealogic.
Also coming up today
The US Federal Reserve is expected to raise US interest rates again tonight, as it tries to push inflation down to its 2% target.
The Fed’s FOMC committee is forecast to lift its benchmark policy rate by a quarter of one percent, to a new target range of 5-5.25 per cent, the highest level since mid-2007.
The Fed meeting is overshadowed by jitters over America’s regional banks. Shares in midsize lenders fell again yesterday, despite president Joe Biden insisting the banking system was ‘safe and sound’ following the collapse of First Republic.
JPMorgan’s takeover of troubled Californian lender First Republic’s deposits and most of its assets on Monday has not stemmed concerns over the health of the sector.
Trading in PacWest, the Los Angeles-based lender, was briefly halted for volatility yesterday and closed down almost 28%.
Western Alliance of Phoenix, Arizona, lost 15%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Banking relief after JP Morgan swallowed the First Republic Bank on Monday remained short-lived, as some regional bank stocks, like Valley National Bankcorp lost another 3%, Western Alliance Corporation another 15%, and PacWest Bancorp another 28%, even though it had said last week that the deposit outflows had slowed in March.
As such, SPDR’s US regional bank ETF was down by more than 6%.
It means that, no, the US regional banking crisis is hard to wane, high interest rates are truly being felt and the latter will likely have a sizeable impact on credit lending, hence on economic activity.
The agenda
-
9.30am BST: Office for National Statistics report: “How is the average price of items changing over time?”
-
Noon BST: US weekly mortgage applications data
-
7pm BST: Federal Reserve interest rate decision
-
7.30pm BST: Federal Reserve press conference