City gears up to lure tech floats -- the case for and against

So the City watchdog wants to relax the listings rules I see, what gives?

The Financial Conduct Authority prefers the word “improve”, but yes it looks likely it will change the rules so that firms only have to make 10% of their shares available before they float, down from 25% presently.

It will also be more relaxed about “dual share” classes, which would allow entrepreneurs to sell stock but retain a high level of voting rights so they don’t lose control of their company.

This is about luring tech firms?

Yes. There’s a feeling, not least from the tech sector but also within government, that London is fuddy-duddy on this issue, and that’s why it loses tech floats to New York in particular.

Is the City supportive of this move?

Far from all of it is. Traditional fund managers point out that the rules were there to protect investors and that one of the reasons London has thrived over decades is because it has a reputation for having a strong legal and regulatory framework. Such reputations are hard won and easily lost.

In any case, London still won’t be the most lax listing regime, even if it wanted to be. When did a race to the bottom become a good thing?

Charles Howarth, a corporate partner with law firm CMS, says: “The change to allow companies with dual share classes in the Premium segment is welcome, but there must be a risk that the proposed restrictions around the use of dual share classes will mean that the regime is still not competitive with the US markets.”

He adds: “The proposed change to the free float requirement is welcome. But as Lord Hill noted, this change may fail to have any impact unless FTSE Russell changes its own rules to allow companies with a free float under 25% to be included in the FTSE UK indices.”

Isn’t the main point of all this to make more money for bankers?

I am shocked, just shocked, that you could think such a thing.

Russ Mould at AJ Bell says: “On the face of it, moves to boost the City as it fights for market share with Amsterdam, Paris, Frankfurt and other venues in a post-Brexit world seem sensible, as do attempts to allow up-and-coming firms to raise the money they need, as it will give them chance to invest, flourish and reinvigorate the British economy.

“But casual observers who do not work in the financial markets could be forgiven that this is simply another attempt to loosen well-established rules so that the City and its eco-system of bankers, lawyers, advisers and fund managers do not miss out on the juicy fees which are currently flowing toward New York.”

Rules are good, then?

They used to be. Some note that the Financial Conduct Authority set a pretty depressing precedent when it changed its rules in an (ultimately futile) attempt to get Saudi Arabia’s Aramco to offer a secondary listing in London when it floated on the Riyadh exchange in December 2019.