The London Stock Exchange group is trying to blur the line between public and private companies, part of a plan to attract fast-growing technology firms to list in the UK in the wake of Brexit.
The LSE has proposed the creation of a special market for private companies to publicly trade their shares on the exchange within a few days, according to a person familiar with the matter and proposals from the LSE to its regulators, the Financial Conduct Authority and the UK. According to. Treasury as seen by The Wall Street Journal.
Private-company shares will trade publicly in each trading window between one and five days, monthly or quarterly, or every six months. The companies will not be subject to the same regulatory oversight as a fully listed company, requirements that the startup company’s founders say is a deterrent to listing shares.
“The new venue type will act as a stepping-stone between the private and fully public markets,” the LSE wrote in a document sent to the FCA and the Treasury on December 21. It should be “viewed as an improvement on existing options” available to companies seeking to raise capital without enforcing regulation that hinders growth.
Startup founders, their employees and early stage investors will be able to raise cash by selling shares to retail and institutional investors. Under the proposal, large private companies will also be able to access the public market. LSE said in the proposal that tech firms such as banking app Revolt, buy-now-pay-later giant Klarna and money-transfer startup Wise could have used this route to raise money for their shareholders.
A representative for LSE said that “there is potential for additional avenues to support a wider range of companies through their funding lifecycle, including helping them transition from the private to public markets and actually coming back again.”
The program will require regulatory approval and legislative changes.
Representatives for the FCA and the UK Treasury declined to comment.
The proposal comes as the UK seeks to reshape its financial markets after leaving the EU in 2021. In November, the UK government gave the FCA, its apex financial policing organisation, a secondary mandate to promote competition in the financial sector. Financial stability and consumer protection.
London has struggled to attract young, fast-growing companies, with tech firms typically opting to list in the US or Asia. The recent surge in special-purpose acquisition companies, or SPACs, was largely in the US after the UK revised stock-listing rules last year to make London more attractive to tech companies and SPACs.
The LSE has faced a long-term decline in the number of companies listed on its exchange, with the total amount falling to 1,989 in 2020 from 2,365 five years ago. Last year saw a moderate reversal, with listed companies rising to 20177.
Under the LSE proposal, companies would be allowed to conduct private share transactions between public trading windows. As per the proposal, companies will be able to share internal information with key stakeholders in those periods without publicly disclosing it.
Before the public trading window, the company must make a “cleansing statement” disclosing material information, which is intended to level the playing field, the LSE wrote.
The LSE named the idea “MTF-lite”, based on an industry term for the financial market known as a multilateral trading facility. If it goes ahead, it will be the first exchange with this type of hybrid model for private companies to have time-to-time access. public investor.
There are current markets for privately held shares in the US, which are operated by Nasdaq Inc. and several competing startups such as Forge Global Inc. and EquityGen Inc.
But these trading sites are not available to most individual investors. Under current regulations from the US Securities and Exchange Commission, they are limited to accredited investors—people who meet certain asset criteria, such as excluding one’s home with a net worth of more than $1 million or above $200,000. of annual income.
The Wall Street Journal reported that in the US, the SEC is working on plans to disclose more about private companies’ finances and operations due to concerns about a lack of oversight in a fast-growing segment of the market.
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