Stock market reforms aim to revitalise City of London; US regional bank shares hit again – business live

Key events

FCA CEO Nikhil Rathi adds that the regulator wants to stimulate the debate about the UK’s appetite for financial risk, telling Today:

Wwhat we want to do with these proposals is stimulate that debate and recognise that if we are going to move to an environment where companies get access to markets quicker, grow faster, with that comes risk.

Risk will often entail significant profits for investors, but things will also go wrong as well. And that’s part of a healthy dynamic market.

FCA chief: reforms mean greater risks for shareholders

Today’s proposed changes to the UK’s stock market listing rules will make it “easier for companies to join the market quickly,” insists the head of the FCA.

But Nikhil Rathi is also clear that they will make the market riskier.

Speaking on Radio 4’s Today Programme, Rathi says the FCA is proposing some “really important reforms”, at a time when there is a “global phenomenon” of companies leaving public markets.

Rathi says:

What this is doing is striking a new balance between companies that are selling shares and investors.

It does entail more risk for investors, having to get to know companies better and make their own judgments about how they wish to invest and at what price they wish to invest.

Q: But won’t scrapping the premium section of the stock market damage London’s reputation?

Rathi insists London will “always maintain high standards” regarding disclosure and regulation.

But in a world where companies are growing very fast, it makes sense to have a single listing regime rather than offering two which they have to choose from to list in London, Rathi argues.

And he points out that that there will be “greater risk for shareholders” by allowing companies to rely more on disclosures rather than shareholder votes on major questions such as deals.

Rathi syas:

That does entail greater engagement with shareholders and greater risk for shareholders and I think that’s the trade off which we’ve been quite open about, as we think about how these reforms will work.

Introduction: Regulator proposes sweeping changes to UK listing regime

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

New measures to encourage companies to float on the London stock exchange rather than abroad are being revealed today, but the changes would expose investors to more risk.

The UK’s financial watchdog plans to shake up the City’s listing rules, in the hope of halting the flow of companies to rival markets such as Wall Street.

The plans being detailed today by the Financial Conduct Authority (FCA) aim to make London a more attractive site to list, removing some of the eligibility requirements that can deter start-ups and newer companies.

The FCA is proposing several measures in a new consultation document, including:

• simplifying the market, by merging London’s standard and premium markets into a single category for equity shares, scrapping the gold-standard “primary listing” category.

  This “single equity category” would include measures to tempt company founders to list in London, such as being more tolerant of dual class share structures with different voting powers, such as so-called ‘Golden Shares’

• Ditching removing mandatory shareholder votes on transactions such as acquisitions, so companies can press on with deals and grow faster
  

• removing a requirement for firms to have three years of audited financial accounts, which would make it easier for companies to join the market

The FCA says:

The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.

But…shifting to a listing regime based on disclosure and engagement, rather than regulatory rules, does bring more risk into the system.

So, the FCA says it wants an open discussion about the change to risk appetite that this would entail.

A recent review found that the number of listed companies in the UK has fallen by about 40% from a recent peak in 2008, and that between 2015 and 2020, the UK accounted for only 5% of IPOs globally.

My colleague Jasper Jolly reports:

The Financial Conduct Authority (FCA) on Tuesday night said it plans to abolish the stricter “premium” class of London stock market listing, and make it easier for company founders to keep control of businesses using US-style “golden shares”, among a series of big changes to City regulations.

The changes are part of a push by the Conservative government to arrest the decline of the London stock market since the global financial crisis and lure new companies to list here. There were 2,101 companies listed on London’s main market in 2003, but that number has fallen to 1,097 today, according to London Stock Exchange data. The average number of companies floated has fallen from 177 a year before the financial crisis in 2008 to 66 a year in the period since then, according to the data company Dealogic.

The US Federal Reserve is expected to raise US interest rates again tonight, as it tries to push inflation down to its 2% target.

The Fed’s FOMC committee is forecast to lift its benchmark policy rate by a quarter of one percent, to a new target range of 5-5.25 per cent, the highest level since mid-2007.

The Fed meeting is overshadowed by jitters over America’s regional banks. Shares in midsize lenders fell again yesterday, despite president Joe Biden insisting the banking system was ‘safe and sound’ following the collapse of First Republic.

JPMorgan’s takeover of troubled Californian lender First Republic’s deposits and most of its assets on Monday has not stemmed concerns over the health of the sector.

Trading in PacWest, the Los Angeles-based lender, was briefly halted for volatility yesterday and closed down almost 28%.

Western Alliance of Phoenix, Arizona, lost 15%.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:

Banking relief after JP Morgan swallowed the First Republic Bank on Monday remained short-lived, as some regional bank stocks, like Valley National Bankcorp lost another 3%, Western Alliance Corporation another 15%, and PacWest Bancorp another 28%, even though it had said last week that the deposit outflows had slowed in March.

As such, SPDR’s US regional bank ETF was down by more than 6%.

It means that, no, the US regional banking crisis is hard to wane, high interest rates are truly being felt and the latter will likely have a sizeable impact on credit lending, hence on economic activity.

• 9.30am BST: Office for National Statistics report: “How is the average price of items changing over time?”

• Noon BST: US weekly mortgage applications data

• 7pm BST: Federal Reserve interest rate decision

• 7.30pm BST: Federal Reserve press conference