The UK’s financial watchdog has backed listing reforms in Britain in a bid to tempt more SPACs to the London market.
The Financial Conduct Authority (FCA), at City & Financials' “The Modernisation of the Listing Regime” event, pushed for changes to ensure capital markets were up-to-date and innovative, particularly around special purpose acquisition companies (SPACs).
SPACs, so-called “blank cheque” companies, have boomed in popularity over the last year. They are companies with no business operations that raise money through a stock market listing and then use that money to buy another business.
SPAC investors are typically retail investors and these structures can give them access to private investments they would otherwise not be able to reach. For companies that sell to SPACs, these types of deals offer a quick and relatively easy way to list on the stock market.
Over $100bn (£73bn) has been raised through SPACs in just the last 12 months and the total raised in 2021 has already surpassed that of 2020.
Notable examples of companies that have gone public through SPACs include Nikola (NKLA), DraftKings (DKNG), and Virgin Galactic (SPCE). Social Capital founder Chamath Palihapitiya is the best known SPAC "sponsor," as founders of the vehicles are known.
“The listing regime is still stuck in 1984,” Clare Cole, FCA's director of market oversight, said. “Large aspects of our regime remain unchanged since then – at its core is a regime based on rules designed when we still stored data on a floppy disk.”
She pointed to the fact that a lot has changed in the last 37 years, from the impact of 9/11 to the financial crisis, and from Brexit to the coronavirus pandemic. In addition to this, global markets have seen the rise of fintech, crypto, and the increasing importance of environmental, social and governance (ESG).
Watch: What are SPACs?
“Throughout all this, capital markets have remained critically important. Yet they have not adapted with the times,” Cole said. “Of course, we have seen some changes, but they have been reactive, often slow and linked to European requirements. Some might argue we may have missed the boat in some cases.
The reforms follow the publication of the Lord Hill review into stock market rules earlier this year. The report called for an overhaul of public market rules to help keep the UK competitive with international markets.
Lord Hill urged the chancellor to commission an annual review into the state of the City of London to ensure Britain's financial sector does not fall behind international developments again in future.
"The UK needs to keep working at improving its reputation as a well-regulated global financial centre that is open for business," he said at the time
On Friday, Cole added: “Lord Hill’s Listing Review put a spotlight on aspects of our regime that are causing companies to think twice before pursuing a London listing.
“That spotlight, as well as the insights from the Kalifa Review of UK Fintech, gave us a head start in considering whether the Listing Rules are still suitable for the types of companies that are coming to market in today’s economy.”
It comes as companies have raised £9.8bn ($13.5bn) in initial public offering (IPO) capital in the first six months of this year, the highest in any first-half since 2014.