The changes to the Financial Conduct Authority’s listing rules, announced this month, mark a “divergence in regulation between the UK and the European Union,” which will make the UK a more attractive place to raise capital for growth companies, Alasdair Haynes, CEO of Aquis Exchange, told The TRADE in an interview.
The FCA announced a number of rule changes on 2 December, which the regulator said were designed to “ensure that the UK’s public markets remain a trusted and attractive place to list successful companies, providing opportunities for companies to grow from which investors will benefit.”
One of the changes was an increase in the minimum market capitalisation (MMC) threshold for the premium and standard listing segments for shares in companies from £700,000 to £30 million. The FCA said this would “give investors greater trust and clarity about the types of company with shares admitted to different markets.”
The increase in the MMC threshold means that Aquis and AIM are now the only alternatives for smaller companies looking to come to market. “This gives us an opportunity,” Haynes said.
The FCA’s UK Listing Review, published in March this year, noted that the number of listed companies in the UK had fallen by around 40% from the peak seen in 2008, and that between 2015 and 2020 the UK was responsible for only 5% of initial public offerings globally.
The review was launched by the Chancellor as part of an initiative to bolster the country’s position as a leading global financial centre in the post-Brexit world. The recent changes in listing rules are a response to this review.
The increase in MMC is seen as a positive for alternative venues such as Aquis Stock Exchange (AQSE), the primary listings business of Aquis, as the new ruling means that a £20 million market cap company would no longer qualify to float on the LSE standard list. “If companies cannot meet the new threshold, we continue to view the growth markets offered by AIM and AQSE in the UK as likely to be appropriate alternatives for most small companies,” the regulator said in its report.
“Smaller companies aren’t suited to the larger markets,” according to Haynes, and by listing on alternative venues as opposed to going down the venture capital route, “both retail and institutional investors get a better chance of investing in UK public markets.”
For entrepreneurs who want to maintain some kind of control over their business, going public allows them to maintain more influence than selling stakes to venture capital, he added.
AQSE’s main competition up until now had come from the standard list and not from AIM, the London Stock Exchange’s market for small- and medium-size growth companies, so this is a really good development for the business, Belinda Keheyan head of marketing at Aquis Exchange said.
In January 2021, Aquis split its AQSE Growth Market into two segments, Access, for early-stage companies with a minimum market cap of £700,000 and Apex, for more established businesses with a minimum market cap of £10 million. This allows for slightly different, and more appropriate rules for very small companies and those with a market cap over £10 million .
The AQSE Growth Market has seen significant growth in new listings with 22 IPOs so far this year versus only seven in 2020, 13 in 2019 and 14 in 2018, according to data from the exchange. New issuer fundraising has grown nearly tenfold with over £90 million raised year-to-date. The amount raised in 2020 was only £9.5 million. As of November 30, the three best performing new issues in term of share price were Pioneer Media Holdings (+111%), Silverwood Brands (+57%) and Samarkand Global (+24%).
The exchange’s market maker incentive scheme, introduced this year, has resulted in 14% tighter spreads for stocks in the Access segment and 11% tighter for Apex securities, the data showed.
Other changes to the listing rules concern dual class share structures, in an attempt to encourage founder-led businesses to move to public markets sooner. The FCA also reduced free-float requirements from 25% to 10%. The new listing rules came into effect on December 3.
“The rationale behind raising the minimum market capitalisation is probably a good thing, but there are many nuances behind what gives investors confidence in a company and it’s hard to apply a one- size-fits-all market cap and say that it will give investors more confidence,” Niki Beattie, CEO of Market Structure Partners said.
“The reduction in free float and dual class share structures will have a knock-on effect on corporate governance guidelines,” and “these companies will be much harder to govern so a lot of thought will need to be given to that, but it is all in the evolution of markets,” she added.
This month, AQSE also introduced changes to the rules applicable to Special Purpose Acquisition Companies (SPACs) planning to list on the Access segment.
The new term “enterprise company” is to replace the SPAC definition within the rules and to be eligible for admission an enterprise company must raise a minimum of £2 million by or at admission, have an expected market cap of no more than double its net tangible assets and have a minimum free float of 25%.
Enterprise companies have two years to implement their strategy. The amended Access rulebook took effect from December 8.
Aquis Exchange recently appointed a new chair of its board. The incoming chair, Glenn Collinson, replaces Niki Beattie, recipient of The TRADE’s Lifetime Achievement award, who stepped down after nine years in the role.