Sometimes it feels like London needs to have a good lie down in a dark room and pull itself together.
The City remains the dominant international financial centre in Europe despite Brexit uncertainties, in terms of the value of financial activity.
On pure financial metrics, the UK is three times bigger than France and Germany while the UK IPO market is four times larger than in France and double the size of the German market, with equity trading twice as high.
And London has rebounded faster post-Covid. Less than 8 per cent of the City’s office space is empty, compared to more than 20 per cent in New York.
You’ve read this bit before. It has the regulatory environment, timezone and professional ecosystem to support firms in the journey from start-up to listed beast.
But all is not well at the City’s flagship exchange, the London Stock Exchange (LSE) which has taken a battering of late, with the fewest new IPOs since the 2008-09 financial crisis and multiple UK-listed companies opting to list shares in the US.
It’s a tough time for companies thinking about going public anywhere and London listings have suffered more than most in the last year.
But what’s this? Some reason to be cheerful. Research from equity management platform Ledgy reveals that almost three-quarters of British companies are prepared to list in the UK over any other destination.
Ledgy knows this market better than anyone. Some of the world’s most innovative and ambitious companies, such as Getir, Qonto, Trade Republic, Tide, ComplyAdvantage, BeReal and Too Good to Go, save time, maintain compliance and manage risk with Ledgy. In all, Ledgy has paying customers in 45 countries around the world.
The firm surveyed 2,500 companies across 10 different markets for its State of Equity and Ownership 2024 report to find out more about scale-ups’ IPO plans.
London was still voted the preferred destination for a stock market listing over any other destination. This is clearly good news for the prospects for the UK IPO environment in the years ahead as these firms are the lifeblood of the future for exchanges.
Ledgy found that events in the last year had led to more than one in five companies (21%) deprioritising IPO plans. The current macroeconomic environment was the most commonly cited factor stopping companies from taking the plunge into the public markets.
Ledgy co-founder and CEO, Yoko Spirig, discussing the research with Ian King on Sky News.
So what can be done to move that dial further from intention to action and to ensure healthy future markets?
Well, for one thing, we need to fix the plumbing. London’s current market infrastructure is, as the Financial Times neatly summarised it, “costly, inefficient, doesn’t allow companies to communicate with their shareholders, and actively prevents equal participation by all shareholders in corporate events like fundraisings.”
The Government’s Edinburgh reforms and the Flint review into digitisation are moving ahead at pace. This is important work, beset on all sides by vested interests in maintaining the status quo.
Not much further down the road is the issue of settlement. This year, US markets are moving the shorter T+1 settlement cycle for trades in stocks, bonds and exchange traded funds, from the current T+2, or two business days after the trade is agreed.
This will entail a lot of work for existing systems but ultimately lower trading costs and make the settlement of trades more efficient and reliable.
But it also gives the US a significant advantage. The change will halve the outstanding volume of executed, un-settled trades and thus reduce counterparty risk. It also offers the opportunity to modernise and digitise the settlement processes.
Portfolios are global in nature. Markets that don’t offer T+1 will lose out to those who do because there will be a greater cost of financing to cover their longer settlement cycle.
European exchanges are much less prepared for T+1. This could be a costly mistake and highly damaging to capital markets across Europe.
In our considered view, all markets need to start moving to T+0 as soon as possible, maintaining interoperability with T+1 and T+2 settlement where required.
If all settlement became instantaneous, then netting would be impossible, reducing liquidity in markets, so it’s preferable to move to a model of same-day settlement.
That would help avoid failed trade and allow for netting and a whole host of other checks – a better balance than so-called atomic settlement.
An obvious technology route for this is for systems to share data using a distributed ledger. It’s perfect for this purpose due to the “you can see what I can see” immutable nature of the technology.
It will also massively reduce the additional costs of reconciliation — checking trades are verified. This is a significant cost borne by entities across the trade chain.
London finds itself in a unique position. Positioned in the optimal time zone, a legacy ecosystem of expertise and regulatory credibility, close links with the US, Asia and Europe without being beholden to any one jurisdiction.
But it has it all to lose. The biggest challenges are a lack of will, industry disorganisation and ennui. An election looms and with it a possible changing of the guard. All of this creates uncertainty, delay and the drive to get the job done.
Meanwhile, those fast, innovative, firms of the future are watching and weighing up their options and while London is still considered a desirable place to list, that’s no given for the future.
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