UK stock market overhaul to revive the City of London

A major overhaul of rules governing UK stock markets has been unveiled by the nation's UK's financial regulator in a bid to reverse London's recent decline as a global financial centre.

The skyline of London city with Tower Bridge and financial district skyscrapers during sunrise, England, United Kingdom

David Sapsted

3 May 2023

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The Financial Conduct Authority (FCA) is proposing to abolish requirements forcing a shareholder vote on transactions between UK-listed companies and "related parties" - one of the reasons Cambridge chip designer ARM cited for listing on America's Nasdaq this year, rather than on London's FTSE.Stricter 'premium' class listings will be scrapped and the plans will make it easier for company founders to keep control of businesses by using US-style 'golden shares'.

'An important step forward' for UK competitiveness

Economic Secretary to the Treasury Andrew Griffith said the changes represented “an important step forward by the FCA in improving the international competitiveness of the UK as a place to list".He added: “We are the largest financial centre outside the US, but we recognise that companies and investors have a choice and it is important our rulebook keeps pace with practices elsewhere while still benefiting from the high-quality reputation of our markets."Chris Hayward, policy chair at the City of London Corporation, described the reforms as a "signal the UK is open for business”.

Advantages for tech companies listing in London

Although there are concerns that the changes could erode shareholders' rights, Nikhil Rathi, chief executive of the FCA, told BBC Radio 4's Today programme on Wednesday that the changes would simplify the rules and "make it easier for companies to join the market quicker".The changes, he added, would also allow the founders of technology companies to hold on to controlling shares for longer.In a joint statement with Sarah Pritchard, the FCA’s executive director of markets, Mr Rathi said: “Access to a potentially wider range of companies listing will provide greater opportunities for investors in UK markets and help create jobs and growth.“But we must be upfront that these changes we are proposing to the listing regime will mean passing greater investment risk to investors and greater responsibility on to shareholders to hold the companies they own to account.”

Impact of changes on investors' rights

The Guardian said the changes were part of a drive by the government to arrest the decline of the London stock market since the global financial crisis and to lure new companies to list there rather than New York."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," reported the newspaper."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."Prime Minister Rishi Sunak, who previously worked as a City financier, commissioned a review into the UK listing regime in 2021 and, last December, his government announced a separate plan for the sweeping deregulation for banks and insurers.Richard Wilson, chief executive of financial company Interactive Investor, said that while he "strongly" supported reforming the listing rules, he felt that "eroding shareholder rights risks undermining market standards, and this is not the right answer".Anne Fairweather, head of government affairs and public policy at investment company Hargreaves Lansdown, said the FCA proposals were "welcome", but said more consideration needed to be given to the impact removing some investors' rights would have."A focus on disclosure and engagement of investors, rather than reams of paper in a prospectus which aren't read, is welcome," she added.

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