Reports of the City's death have been greatly exaggerated
Concerns that London is losing ground to other financial centres within Europe, such as Amsterdam, which has surpassed London as Europe’s largest centre for equities trading, are overblown. The UK capital remains an attractive listing venue for high-growth firms and could become more so after a Treasury review of London’s listing regime is published this week. But the City should not abandon the core principles on which its reputation has been built just to claw back a short-term loss of business.
For all the hand-wringing over trading being done overseas instead of in London, its IPO market is enjoying its best start to the year for more than five years, with over £4bn raised through flotations on the London Stock Exchange since the start of 2021.
These have included deals for modish high growth tech companies such as virtual auctions firm Auction Technology Group and online gift card retailer Moonpig.
On Monday, Trustpilot, the Denmark-based global reviews website, announced its intention to float in the UK, while food delivery app Deliveroo is expected to unveil plans for a blockbuster IPO shortly.
Trustpilot is a global tech business that could have chosen to list in Denmark, its home country, or in New York, but picked London instead. Deliveroo likewise could easily have chosen to list on the Nasdaq, where its industry peer DoorDash recently raised $3.4bn in December, at a dizzying valuation.
London feels far from being a market struggling to compete for new listings but there is also a chance that more can be done to make the UK capital even more attractive.
The Treasury has pledged to review the UK listing regime to make listing in London more attractive and proposals such as allowing dual class share structures on the premium segment of the market, or waiving the minimum freefloat requirement could tempt more companies.
The findings of the review are expected to be made public alongside chancellor of the exchequer Rishi Sunak's budget on Wednesday.
Following Brexit, the government was right to look at ways and means that the UK can maintain its dominance of financial services in Europe, including making London a more attractive place for international companies to list. But it should not sell its soul in the process.
A premium listing on the London Stock Exchange is coveted around the world as a gold standard for corporate governance. Despite Brexit, London also remains one of the deepest pools of institutional investment capital in the world. These are the main reasons why London has long been a draw for international companies seeking a home on the stock market.
Companies with dual class share structures, which allow company founders to maintain outsized voting rights, can also already list in London, as The Hut Group did last year. They just cannot be included in the premium segment or the FTSE UK indices.
This is an area where nuanced changes to the rules would be most welcome. It is a shame that a home grown tech company like The Hut Group cannot be included in the FTSE 100. The performance of the UK benchmark index has been disappointing during the last five years, due to its heavy weighting towards industries like banking and oil, underperforming the DAX, the CAC 40 and the S&P 500. Allowing high growth companies like The Hut Group in would update the image of the UK index.
Ironically, by not permitting companies with dual class share structures on the premium segment, the result is weaker standards, as the corporate governance regime on the standard segment is more lax than on the premium segment.
Meanwhile, it smacks of opening the stable door once the horse is already frolicking far off meadows. Many investors that buy into companies like The Hut Group have a global mindset, and are unconcerned by whether they are buying into a dual class structure or not.
Following Brexit, the main change is that investors based in the EU must trade on exchanges based within the EU’s jurisdiction. Liquidity is ultimately what is important, and the London market still has that in spades. More pragmatic and flexible regulatory oversight of the stockmarket will be an added bonus.