The Financial Conduct Authority (FCA) recently amended its stock market listing rules in an effort to encourage more companies to go public in the UK. The new rules officially came into force on 3 December.
So, what are the rule changes? And more importantly, what could the new listing regime mean for investors? Let’s find out.
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What are the FCA’s new listing rules?
According to the FCA, the new rules are based on recommendations made in Lord Hill’s UK Listing Review and the Kalifa Review of UK Fintech. They are mostly aimed at companies planning to go public in 2022.
They include:
- Allowing a targeted form of dual-class share structure within the premium listing segment. Dual-class shares tend to be quite popular among founders. This is because it gives them additional voting rights and essentially allows them to retain more control of their companies.
- Increasing the minimum market capitalisation threshold from £700,000 to £30 million. This will apply to both the premium and standard listing segments for shares in ordinary commercial companies.
- Reducing the number of shares an issuer is required to have in public hands (i.e. free float) from 25% to 10%. This change, like the one for dual-class share structure, gives founders more control over their companies. It may also allow them to list their companies earlier.
The new rules follow others that were implemented in August 2021 to make it easier for special purpose acquisition companies (SPACs) to list in London.
What do the new listing rules mean for investors?
The new listing rules could lead to an increase in investment opportunities for investors.
It is a well-known fact that many companies have previously been turned off from floating their shares on the London market due to its strict listing rules. The lack of dual-class shares for the premium segment, for example, has driven many tech companies away from London to other markets such as the US, where this particular feature is quite common.
But things could change with the new rules and more firms may now choose to conduct their IPOs in London. This could give investors a greater choice of stocks to add to their portfolios.
Clare Cole, director of market oversight at the FCA, said: “These changes ensure the UK’s markets maintain their reputation for dynamism, helping support the new types of companies seeking the investment that drives economic growth and by giving investors more choice with appropriate protection.”
However, with more opportunities comes the need for extra caution among investors.
Speaking to Capital.com, Russ Mould, investment director at AJ Bell, warned that: “Dual-class share structures and a lower free float may tempt more entrepreneurs to London but it may tempt more charlatans as well, and in the process raise the risk of poor governance costing investors their hard-earned savings.”
He suggests that a string of successful IPOs may tempt investors to let their guard down and possibly put their money in questionable companies.
Therefore, as much as there is a promise of more opportunities under the new rules, investors will still need to do their due diligence before putting their money into any company to avoid getting burned.
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How can you invest in the UK stock market?
Do you wish to start investing in the UK stock market and potentially capitalise on the new opportunities that are likely to come with the new listing rules? It’s quite simple to get started.
All you need to do is to open an online share dealing account with a reputable provider. We’ve created a list of top-rated providers of shared dealing accounts in the UK to help you narrow down your options.
If you plan on investing an amount of up to £20,000, consider investing through a stocks and shares ISA. Any returns from investments made within a stocks and shares ISA are usually tax free.
