A UK start-up is aiming to lure more companies to public markets by cutting the cost of listing their shares.
SquareBook, a technology platform that aims to link listing companies directly with potential investors, will sidestep the investment banks that dominate the process.
The company received approval to operate from the Financial Conduct Authority, the UK securities regulator, last month and is in talks with several companies considering a listing.
The number of listed companies in Europe and the US has halved in the past two decades as fewer IPOs and a boom in private capital have weakened the role of public markets as a vital means to raise money.
SquareBook aims to cut the cost involved in listing a business by up to 50 per cent by automating the tasks investment banks perform, such as building interest and allocating shares among potential investors.
Lower listing costs would reverse the “atrophy” occurring in the stock market, said Richard Balarkas, co-founder of SquareBook and the former chief executive of Instinet Europe, the broker.
“We want to take the lid off the process, to make it transparent and to put the issuer in control of listing their shares,” he said.
Mr Balarkas believed SquareBook would provide a clearer picture of the costs involved in a listing, which were often opaque. It would also aim to reduce the “pop” a new stock typically experiences, which is celebrated by investors, but signals the underwriting banks did not properly value the company, resulting in less capital being raised for the issuer.
Companies are showing a willingness to experiment with the listings process to save money. In June, Slack, the messaging app, completed a direct listing, where its shares shift on to the stock exchange but no capital is raised — a cheaper option that requires a shorter roster of investment banks.
The combination of fewer IPOs and a tightening of the fees banks typically make from listings has hurt investment banking revenues. UBS announced this week in its quarterly earnings that revenues for the investment banking division were 23 per cent lower than a year prior, a phenomenon being felt across the industry.
Mr Balarkas said SquareBook would not necessarily compete with banks but could work together to lower the cost of a listing for a shared client.
“We’re not going head-to-head with investment banks — they should be adopters of this service,” Mr Balarkas said. “We’re more likely to turn up with Red Cross parcels and protein bars rather than eat their lunch.”
The use of technology would give the issuing company greater control over the types of investors that hold its shares, Mr Balarkas said. For instance, a fund manager with a long-term focus may receive a preferential price for a large allocation of shares — which is allowed under FCA rules.
SquareBook worked with staff from the FCA in its “sandbox” initiative designed to help new companies test out ideas. The regulator has made efforts to improve the IPO process in the UK.
Last year, it put into force new rules that require analysts who are not involved in an IPO to have access to information and to company management in a bid to spark more companies to provide research on newly listed businesses.