Last month the UK’s financial regulator announced an overhaul of listing rules in a bid to drive more initial public offering (IPO) activity on London stock exchanges.
The Financial Conduct Authority (FCA) said the new rules are the “biggest change to the listing regime in over three decades”. The “simplified” listings regime came into force on 29 July, with changes including greater flexibility in voting rights and updating the eligibility process for companies.
All of this is geared towards encouraging a wider range of companies to issue their shares on a UK exchange, increasing opportunities for investors and boosting growth and innovation on UK stock markets.
Investors and analysts are hoping to see more tech listings in the UK after chip giant Arm opted for a US IPO and cybersecurity firm Darktrace accepted a private equity buyout that will see it delist from the London Stock Exchange.
How could these changes translate into tech sector growth and could they light a fire under the UK’s dormant IPO market?
Changes address startup need for ‘capital injections’
“These changes will increase market attractiveness by aligning with international market standards,” Mark Bower-Easton, head of distribution at Oxford Capital, tells UKTN.
“This will increase UK market attractiveness to both domestic and international investors and enhance investor confidence with maintained investor protections.”
Ekaterina Almasque, general partner at OpenOcean, agrees – and says the new listing rules will grease the wheels of progress.
“Creating a single listing category and aligning standards with international requirements gives investors the stability they’re looking for,” Almasque tells UKTN.
“As a result, up-and-coming companies will find public markets far more accessible, leading to increased liquidity and a broader investor base. This, in turn, will give the UK the freedom it needs to compete with markets like the US.”
Almasque adds that the FCA has identified two quick wins in simplifying the eligibility process and reducing bureaucratic barriers.
She says by allowing dual-class share structures, the FCA is making the UK a more attractive destination for high-growth tech companies that previously might have listed elsewhere – or homegrown firms like Arm that had “given up hope” of securing growth capital at home.
“These changes will be particularly attractive to startups in need of quicker and more cost-effective capital injections,” says Almasque. “Removing obstacles to startup funding will pave the way for a vibrant UK ecosystem – particularly in tech, where upfront investment is vital for growth.”
London Stock Exchange ‘on life support’
IPO activity in the UK remains stagnant. According to PwC, UK companies raised £500m in IPO proceeds in the first half of the year – the same figure raised over the same period in 2023. London’s markets have had only a handful of prominent listings so far in 2024, too. While there has been a global slowdown in IPOs, many from the tech and investment believe that measures like the FCA’s listing rules could boost UK public markets.
“The London Stock Exchange has been on life support for too long,” says Almasque. “To revive it, we need a spark. These reforms could kickstart a change not just in how our IPO market operates, but also in how it is perceived across the world.
“By aligning our IPO requirements with global standards, we make the UK a more appealing destination for startups and investors, begin to reverse the current trend of British companies listing abroad, and show all stakeholders that this nation is serious about growth.”
Venture capital firms stand to benefit as well, with enhanced exit opportunities opening the door to a more dynamic investment environment, strengthening the entire investor ecosystem.
Bower-Easton agrees that by aligning with international standards and reducing certain regulatory burdens, the UK market becomes more attractive for startups considering an IPO.
“By updating these rules, the UK sends a signal that it is serious about becoming a more attractive and competitive place for companies to go public,” says Bower-Easton.
“By eliminating the need for shareholder votes on certain transactions, the new rules reduce the complexity and cost of going public. This can encourage more companies to consider an IPO, potentially revitalising the UK’s IPO pipeline.”
Regulatory barriers ‘a significant hurdle’
Despite the positive outlook, the FCA’s listing rule changes aren’t the answer to all of the UK’s IPO troubles. Bower-Easton says economic uncertainty has caused cautious investors and market volatility, including the long-term impacts from Brexit, Covid-19 and even the recent general election – all of which have had an impact on IPO markets.
“On top of this, the rigid regulatory barriers have been a significant hurdle – particularly for tech companies,” he adds.
“Competition from other significant European tech hubs like Paris has caused shifts in perception of the UK, impacting the UK’s IPO market – which has also had a direct impact on entrepreneurship within the UK.”
Almasque says policy changes, such as the alteration to carried interest taxation, risk driving investment and talent abroad to more favourable jurisdictions.
“The UK government needs to offer incentives to invest, and with the National Wealth Fund’s (NWF) 1:3 ratio target for public to private investment, investors will be watching closely to see if the UK market is both stable and capable enough to make returns.”
Looking ahead, Bower-Easton predicts a shift in investment timelines, with a move to more long-term investment making for a more stable and sustainable market.
“Alongside this, the increase in investor confidence through clearer regulatory frameworks can lead to an influx in participation from institutional investors, in turn boosting market activity,” he adds.
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