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Amid doom and gloom about the City of London’s prospects, UK ministers are determinedly talking up hopes of a capital markets renaissance.
A fistful of measures, including new incentives and disclosure rules, are intended to bulk up the shrinking London market. A new private share trading system is designed to ease companies’ transition to public markets. It could have the opposite effect.
Details of the plan — named the Private Intermittent Securities and Capital Exchange System, or Pisces for short — are still being consulted on. But trading venues launched under the framework by the London Stock Exchange Group and others will give investors in private companies a chance to trade their shares in periodic auctions. It will only act as a secondary market, not for raising more capital through the issue of new shares.
It could act as a staging point for a full-blown listing by fast-growing companies. There are more than 10,000 of these with over £10mn of turnover or £5mn of assets, reckons the non-profit ScaleUp Institute. But Pisces might also appeal to companies that are already quoted. Myles Milston, boss of private markets platform Globacap, says it could encourage companies to delist. Aquis Exchange, a specialist trading venue, has also expressed scepticism about the plan’s impact on IPOs.
For quoted companies, shifting to a private trading system is likely to cut costs. For a company quoted on London’s Aim market, running costs — including RNS announcements, brokers and exchange fees — are typically at least £200,000 a year. That may be a factor in some recent departures from London’s stock exchanges — 17 so far this year, according to Dealogic.
Low liquidity is another. Aim’s daily trading volumes have recently averaged just 0.07 per cent of shares outstanding. The Pisces plan to run periodic auctions that concentrate activity over a short time window is sensible, given the likelihood of limited demand. That said, companies already have several share trading options. Asset Match, for example, is an electronic platform that runs auctions every three months for companies including football club Tottenham Hotspur.
Pisces is not aimed at private investors. That is a missed opportunity, given the importance of the retail market in countries like the US. Rather it is pitched at institutions that want structured, standardised access to private markets. It will offer investors certain regulatory protections, a clear price formation process and a short settlement period.
The hope is that it will help investors and businesses to take advantage of the shift towards private markets — now worth more than £13tn, according to McKinsey. This is a worthy goal. Just don’t expect it to end the IPO drought any time soon.
vanessa.houlder@ft.com
