Navigating hurdles, yet Leeds Reforms steer capital markets towards their intended course
The UK government has unveiled a series of reforms aimed at revitalising the country's capital markets and enhancing its competitive edge on the international stage. These reforms, collectively known as the Leeds Reforms, are part of the government's deregulatory agenda and are designed to inject vitality into the UK's capital markets, which have experienced turbulence in recent years with a decreased number of Initial Public Offerings (IPOs).
Last year, some red tape was cut to ensure that the UK was at least on an equal footing with international rivals in terms of listed businesses. This year, the government has taken further action to improve economic growth, with deregulation being a key focus. One significant announcement in the Leeds Reforms is the raising of public prospectus requirements from 20% to 75% for secondary share issuances.
The reforms will result in a clearer delineation between the main market and the Alternative Investment Market (AIM). The AIM is expected to fulfil its intended role as a growth market, offering higher risks but potentially higher rewards. To boost IPO numbers in London, the government is considering several key reforms. These include implementing a new prospectus regime from January 2026 that reduces the complexity and removes the mandatory prospectus for some public offers while introducing platforms acting as gatekeepers for smaller companies.
Another reform is lowering the free-float requirement from 25% to 10% and removing the three-year revenue track record for listings. This could make it easier for smaller, growing companies to list on the London Stock Exchange. The government is also launching new trading platforms like PISCES to foster growth through more flexible private trading environments.
The rationale underpinning PISCES is not entirely clear, but the PISCES market was established earlier this year as part of a series of measures aimed at revitalising the UK's capital markets. Discussion about the possibility of introducing 24-hour trading has taken place, but 24-hour trading would likely require a significant level of investment.
Removing obstacles to trading may not spur an increase in activity alone, but it does create the possibility of a virtuous cycle as and when demand picks up. The reforms are unlikely to result in a marked increase in the number of IPOs in London over the next 12 months. For IPOs, further reform is expected through the introduction of protected forward-looking statements with a distinct liability regime.
A deal with the EU that allows UK-approved prospectuses to be passported across the EU has not been reached yet. This could potentially limit the impact of the Leeds Reforms on the international stage. Despite this, reforms that inject vitality into the UK's capital markets should be welcomed, as they have the potential to unlock economic growth in the UK.
It's important to note that a string of defections from the US to London is not expected as a result of these reforms. However, the positive progress made in bolstering the position of the UK's capital market could contribute to the UK's attractiveness as a financial hub, potentially attracting more businesses and investments in the long run. The Leeds Reforms are an example of the government's deregulatory agenda, and they demonstrate the UK government's commitment to creating a business-friendly environment that supports economic growth.
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