Post-Brexit shake-up crucial for London Stock Exchange to remain top player
On top of an energy shortage, soaring inflation and a looming recession, a chairman of the London Stock Exchange (LSE) has now warned that the UK must act fast in “tearing up decades-old orthodoxies and water down a host of stock market rules” to ensure that London remains a relevant destination for flotations and capital raisings. He added that the capital is no longer the “default” European venue for listings and equity raises, and that the LSE, once flying with the likes of New York, Shanghai, and Tokyo, could diminish to that of a regional exchange if it continues to shrink at the current pace. Although Brexit has presented a vital opportunity for the UK to branch out towards markets outside of Europe, experts assert that this should also work alongside the implementation of radical reforms to ensure that London persists as a relevant destination for flotations and capital raisings.
As of June this year, the number of companies trading on the LSE stood at 1,900 – a slight decrease from 1,994 during the same time last year. For context, negotiations regarding Brexit first started in 2016, when the number of listed companies on the LSE reached 2,348 in January that year. Whilst the key concept of Brexit outlined the significance of the country becoming a more globalised hub, Nayan Gala, industry expert and founder of global startup investment banking platform, JPIN, has noted that regulation and rule changes are vital to maintaining London’s competitive edge to other markets.
In May, the Financial Conduct Authority (FCA) proposed plans to scrap the current premium to lure tech companies to the UK – however, additional “mandatory and supplementary” obligations would be introduced to be met by public companies. Having worked across a range of international markets, Gala argues that a new set of regulations should include less stringent rules for companies to list on the stock exchange. He notes that by showing the ability to host initial public offerings at more attractive and enticing valuations, alongside a wealthy pool of global investors participating in this arena, the UK could build a regime in which could attract high quality and growth companies to list in a post-Brexit era.
London has traditionally been known as the world’s most international stock exchange. In 2020, 25% of the world’s cross-border IPO capital was raised in London, and three of London’s five largest IPOs were international. In comparison, only 13 listings took place in the first six months of this year, raising just shy of $150m – a staggering 71% and 99% decline on the last two years respectively.
Nayan Gala, investment specialist and founder of JPIN, comments on how the UK could benefit from relaxing current regulations: “London has always been an attractive destination for companies looking to go public, with a particular interest from international businesses. The last few years have evidently raised a few hiccups on the road – but now, particularly with the opportunities Brexit has provided, regulations that once came with the stock market must be eased in response to this. This will likely assist with boosting the stock volume, value and quality, and could result in a significance bounce back of the LSE.”