Three-minute explanation of… London’s new listing rules

For those thinking about going public, now could be an opportune time. In a bid to make the UK a more attractive place to list shares, regulators have approved the biggest overhaul of London stock market rules in more than 30 years.

Just days after the election of a Labour government, the Financial Conduct Authority (FCA) announced it would make procedures “simpler” for companies to list on the UK stock market, following a drop in the number of listings and a rise in companies favouring the US market.

In May, gambling company Flutter moved its primary listing to New York, while UK-based chip designer Arm opted to list on Wall Street last August after the government failed to persuade it to list in London.

In fact, the number of publicly traded companies in the country has fallen by around 40% since its peak in 2008, according to data from the London Stock Exchange.

The new rules will come into effect on July 29 and are expected to revitalise the London stock market. Just days after taking office as the UK’s new chancellor, Rachel Reeves said the changes represent a significant step towards “reinvigorating our capital markets, bringing the UK more in line with its international counterparts and ensuring we attract the most innovative companies to list here”.

But what do these changes mean for UK-listed companies and companies making their public debut in London?

What are the revised rules??

The new listing rules will give companies the power to make decisions without putting them to a shareholder vote, giving them greater flexibility over the timing and content of the disclosures they are required to make. However, major events – such as acquisitions and decisions to delist shares – will still require shareholder approval.

Companies will also be able to adopt a dual share structure. This is where founders or directors are given stronger voting rights over ordinary shareholders so they can maintain control after listing. The aim is to attract more tech startups to list in London, as opposed to New York, where dual voting is more common.

Other changes are aimed at simplifying the listing process. Namely, the existing ‘premium’ and ‘standard’ listing requirements will be removed and replaced by a single, less onerous category of “commercial companies”. In addition, companies seeking to list will no longer be required to provide historical financial information or revenue history, although disclosures about these will still need to be included in a prospectus.

A more favorable environment?

“This is the most radical change to listing requirements in 30 years,” says Adam Zoucha, senior vice president at accounting platform FloQast. “It’s the UK rolling out the red carpet for high-value IPOs – cutting red tape and simplifying compliance.”

However, reducing mandatory reporting levels will not ease the burden of due diligence and reporting, he adds. Instead, it is likely to increase investors’ appetite for transparency and place the onus on pre-IPO and listed companies to demonstrate good communication and fiscal discipline to shareholders.

“Companies may welcome a more streamlined process, but vigilance is essential to mitigate risk, post-IPO,” says Zoucha. “Robust financial processes that closely analyze, monitor and report on a company’s financial health will be the order of the day.”

Some market participants will be less enthusiastic about the new listing rules. The FCA acknowledged that investors are “overwhelmingly against” its proposals not to require shareholder approval for significant transactions. The changes will mean there is a greater risk of investors losing money but “better reflects the risk appetite the economy needs to achieve growth”, the regulator said.

While the new rules are a step in the right direction, attracting high-quality companies and restoring competitiveness to the UK market will require more changes than just regulatory reform. After all, there are other factors that play a significant role in influencing where a company decides to list.

Enhanced research incentives, better policies to attract global talent and a friendly tax regime that supports employee stock options are among some measures suggested to further encourage companies to list in London.