London to Join SPAC Boom in Post-Brexit Market Overhaul
An electronic stock board displays the FTSE Bursa Malaysia KLCI Index in the trading gallery at the RHB Investment Bank Bhd. headquarters in Kuala Lumpur, Malaysia. (Photographer: Sanjit Das/Bloomberg)

London to Join SPAC Boom in Post-Brexit Market Overhaul

The U.K. is to reform stock exchange rules around blank-check firms as part of wide-ranging reforms to boost the attractiveness of London after Brexit.

Company founders will also be able to keep greater control when they list their businesses in the city, according to a state-backed report published late Tuesday.

Chancellor of the Exchequer Rishi Sunak said the government will act quickly on the proposals to boost London’s standing among investors, saying in a statement ahead of his annual budget that “we’re determined to enhance this reputation now we’ve left the EU.”

Under the proposals, the U.K. would remove some investor protection in order to ignite the “dormant” market for special purpose acquisition companies. London generally requires these cash shells to suspend their shares once they have found a business to acquire, to shield investors from price jolts while the deal is done.

“The rule regarding trading suspension is seen as a key deterrent,” according to the report written by Jonathan Hill, a former financial services commissioner for the European Union. Instead, regulators should let trading continue but spell out shareholders’ rights to learn about any deal, vote to approve it and withdraw their funds.

Founders Helped

London would also introduce dual-class share ownership to let founders keep greater voting power, as seen at U.S. tech giants including Facebook Inc. These rights would expire after five years and face other curbs in order to meet corporate governance standards.

The city would also cut the amount of equity a company must sell to outsiders to 15%. Businesses currently need to sell at least 25% to be eligible for a so-called premium listing in London, which has benefits such as eligibility for the FTSE indexes and greater trading volumes.

Other recommendations of the review include:

  • a “complete rethink” on documents issued before a company lists, known as the prospectus
  • involving retail investors more in raising funds and shareholder votes
  • giving the Financial Conduct Authority a duty to consider “the U.K.’s overall attractiveness as a place to do business”
  • addressing a shortage of research on small companies, after EU rules known as MiFID II “made this market failure worse.”

The proposals will now be scrutinized by the FCA, which said Wednesday it “will act quickly,” with an aim to start a consultation this summer and change its listing rules in late 2021.

London Stock Exchange Group Plc’s Chief Executive Officer David Schwimmer also welcomed the findings. “Continuing to evolve the U.K. listings regime is key to providing flexibility for companies who want to list in London,” he said.

To be sure, London is already enjoying a bumper year for new listings. Initial public offerings including bootmaker Dr. Martens Plc and online greeting-card platform Moonpig Group Plc have raised 3.3 billion pounds ($4.6 billion) in 2021, the most for this time of the year since 2006. Companies including Russian retailer Fix Price, review site Trustpilot and homegrown food-delivery startup Deliveroo are preparing to list.

London to Join SPAC Boom in Post-Brexit Market Overhaul

However, the city has missed out on the boom for SPACs that has swept Wall Street and beyond, with $83 billion raised last year alone. Meanwhile, Polish parcel locker firm InPost SA last month cited Amsterdam’s deep pool of tech-focused investors as a reason to take its IPO there.

“There is a widespread sense that, after a long period, linked to Brexit, of London and its financial services being on the back foot, there is now an opportunity for the whole system, including politicians and regulators, to get back to the job of strengthening our standing as one of the world’s leading global financial centers,” Hill said in the report.

The proposals come a week after a review into the fintech industry led by former Worldpay boss Ron Kalifa, which made similar recommendations on relaxing stock market rules.

Companies that submitted evidence for the review included asset managers such as BlackRock Inc., banks like HSBC Holdings Plc and fintech Revolut.

Some investor groups had raised concerns about some of the proposals. The Investment Association, which represents asset managers, has warned that minority investors could lose influence at the expense of founders. The group said in a statement that it looked forward to working with the government on the reforms while “ensuring there are appropriate investor protections.”

©2021 Bloomberg L.P.

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