Why Brexit will be no problem for London’s IPO market in the long term
The UK has a new captain.
In the immediate aftermath of the referendum vote David Cameron said he was not the captain to steer the ship.
In among the volatility in the markets and with sterling, some said HMS UK was listing. Many also thought it meant the backlog of IPOs, which had been held back in the run up to the vote, would be in the doldrums.
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The period of uncertainty may inhibit market activity – at least for now – as volatility makes it difficult to price IPOs and owners and issuers will not wish to come to market if valuation levels are unattractive.
Some say that market uncertainty with regard to the listing and prospectus regime is likely to act as another damper on activity.
But we believe that there is little ground for concern because there is unlikely to be any material change to the UK regime.
There are good reasons for this – history, status and the UK’s future relationship with the EU.
So first, looking back before we look forward. The London Stock Exchange had its rules on “Admission of Securities to Quotations" long before the UK joined the EEC in 1973 and the regime has evolved over the forty-three years of the UK’s membership.
The UK has been closely involved in, and has influenced strongly the evolution of the EU securities regulatory regime and the development of the creation of the Single Market for EU financial services.
The next reason is status. In order to protect the LSE’s status as a leading international listing venue and trading platform, even when the UK is outside the EU, the Treasury and FCA can be expected to continue to require adherence to international standards equivalent to those imposed by the prospectus and transparency directives. Indeed the premium listing regime in the UK has always gold-plated the EU standards.
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Finally, it will be some time before we know what will be the future relationship between the UK and the EU.
Even when the UK has exited, if the government were to decide to make significant changes to the listing and prospectus regime, it is unlikely that the consequences would have much impact on the UK IPO market. The prospectus content requirements under the prospectus directive are informed by international standards that seek to harmonise disclosure levels globally, including in the US. It is difficult to see why the UK would wish to diverge from these.
Outside the Single Market, a UK prospectus would no longer benefit from the passport that allows a prospectus approved by the regulator in one member state to be used to market in another. The impact of this would be limited because, in practice, the passport is used in only a minority of larger IPOs with a retail element.
These may be uncharted waters, but there is nothing to indicate that regulatory winds will make those waters choppy in the long term when it comes to IPOs.