New report urges action for future success of London IPO market

  • LSE Group issues call to action to ensure sustainable, long term future for London IPO market
  • New research shows London remains a global capital market leader
  • Key recommendations made for issuers, investors, advisers and Government

London Stock Exchange Group (LSEG) today announces the publication of, "Leadership in a changing global economy: The future of London’s IPO market" a new thought leadership paper exploring the health of the London IPO market. Produced, in part, in response to the current debate surrounding the new issue market in London, the study explores the trends, opportunities and challenges for the world’s most liquid international market.

The paper provides a straightforward and unbiased analysis of the realities of the London listing environment. In addition, it outlines a series of recommendations for ensuring the continuation of London as the pre-eminent home for UK and international IPOs.

The reports findings and recommendations come under five key areas:

  • Pre-IPO engagement: Issuers should allow more opportunities for extended and widened engagement at pre-IPO stage including more independent pre-IPO research
  • Pricing and valuation: Our analysis indicates that concerns that more IPOs in London are trading below their issue price compared to other financial centres, are unfounded
  • Deal syndicates: When constructing its syndicate, a pre-IPO company should fulfil its needs with the smallest number of banks, adding more only when there is a specific practical reason to do so
  • IPO fee transparency: Issuers should publish the band for banks’ fees in the prospectus and disclose the criteria which determines how the fee is awarded
  • Opportunities for policy makers: The UK government can help maintain the UK’s status as a global financial centre by reinstating the need for regulators to consider the attractiveness of the UK’s capital markets when regulating the financial services industry

Xavier Rolet, CEO of the London Stock Exchange Group said:

"A thriving IPO market is an essential component of a healthy economy. This study is a call to action for the City’s IPO community. Together, we need to ensure that the London listing market continues to flourish. London remains the premier destination for ambitious companies from the UK and around the world seeking to raise capital. London offers access to an unparalleled pool of international capital, broad and deep advisory expertise, visibility alongside global peers and as a market, a track record of supporting businesses, small and large, that is unsurpassed.

"As well as making strong recommendations to issuers and the wider financial community, we are also calling on the Government to enable regulators to consider the UK’s competitiveness in their regulatory framework. We are also reiterating our long-standing request for the abolition of stamp duty on shares."

The Mayor of London, Boris Johnson, said:

“London is rightly recognised as the most international financial centre in the world and the best place for leading companies to invest in and list their businesses. However, in times of global economic uncertainty and increasing competition from other markets, we have to shout louder than ever about what makes this city so unique. We should seize the opportunity to cement our reputation as the number one place to do business and I will do all I can to champion the cause.”

The Lord Mayor of London, David Wootton said:

“London is the world’s most international financial centre - a hub which brings investors together and directs funding to the many businesses around the UK and the world that are driving economic growth and creating much-needed jobs. In today’s economic climate, London’s ability to connect companies with investors becomes even more crucial. It is vital for us in the City to work together to deepen London’s connections as the world’s leading global financial centre - uniquely competitive, and uniquely equipped with the skills and expertise to meet the challenge from the established and emerging economies.”

The full report is available for download: www.londonstockexchange.com/IPOreport2011

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For further information, please contact:

Tom Gilbert
Press Office +44 (0)20 7797 1222
newsroom@londonstockexchange.com

Notes to editors:

Summary of Leadership in a changing global economy: The future of London’s IPO market:  

  1. Pre-IPO engagement
  • Issuers should allow more opportunities for extended and widened engagement at pre-IPO stage
  • There should be more independent pre-IPO research.This would allow earlier and deeper engagement with a wider set of investors, particularly on corporate governance
  • Issuers and advisers should fulfil corporate governance expectations early in the process. This will provide investors with a better understanding of, and confidence in the company, which could enhance the company’s wider reputation, and its performance in the secondary market

   2.    Pricing and valuation

  • Our analysis indicates that concerns that more IPOs in London are trading below their issue price compared to other financial centres, are unfounded
  • Over half of London IPOs traded above their offer price a year after they were floated in seven of the last ten years
  • Since the financial crisis, London has had the largest percentage of IPOs trading above their offer price compared to the New York Stock Exchange (NYSE) and the Hong Kong Stock Exchange (HKEx)

   3.   Deal syndicates

  • The size of a deal syndicate should be appropriate to the size and requirements of the IPO. When constructing its syndicate, a pre-IPO company should fulfil its needs with the smallest number of banks, adding more only when there is a specific practical reason to do so
  • Syndicates should be carefully constructed and managed to provide clarity of roles, leadership, and coverage. Consideration could be given by the pre-IPO company to appointing a lead member of the syndicate to channel advice from other members of the syndicate to the company and to other market participants
  • The study reveals that IPO syndicates in London have not dramatically increased in size. Syndicates in London are significantly smaller than in other leading financial centres

   4.   IPO fee transparency

  • Publish the band for banks’ fees in the prospectus. To increase the level of trust between banks and investors, the former’s fee structure could be made more transparent. The majority of companies already disclose the exact fee they pay to banks. This should be encouraged and as a model of best practice, all companies should at least disclose a fee band (for both the set and discretionary fee) in the prospectus
  • Disclose fee structure criteria. As well the disclosure of fee bands, it should be considered best practice in London to disclose the criteria which determines how the banks’ fee is awarded in the prospectus

   5.   Opportunities for policy makers

  • Reinstating the requirement for financial services regulators to consider the UK’s competitiveness. The UK government can help maintain the UK’s status as a global financial centre by reinstating the need for regulators to consider the attractiveness of the UK’s capital markets when regulating the financial services industry
  • Abolish stamp duty on share transactions. The UK has the joint highest rate of stamp duty in the world. This puts the UK at a competitive disadvantage when attempting to attract companies to list in London. By abolishing Stamp Duty on shares, the Government has a real opportunity to strengthen our economy

About London Stock Exchange Group:

London Stock Exchange Group (LSE.L) sits at the heart of the world’s financial community. The Group operates a broad range of international equity, bond and derivatives markets, including London Stock Exchange; Borsa Italiana; MTS, Europe's leading fixed income market; and Turquoise, offering pan-European and US lit and dark equity trading. Through its markets, the Group offers international business unrivalled access to Europe’s capital markets.

The Group is a leading developer of high performance trading platforms and capital markets software and also offers its customers around the world an extensive range of real-time and reference data products and market-leading post-trade services. 

Headquartered in London, United Kingdom with significant operations in Italy and Sri Lanka, the Group employs around 1500 people. Further information on London Stock Exchange Group can be found at www.londonstockexchangegroup.com.