This October will mark 36 years since the Big Bang transformed the City of London into one of the world’s leading financial centres. With a single stroke, then Chancellor Nigel Lawson ripped up many of the City’s long-standing conventions in a bonfire of deregulation that saw the old, closed City of blue-blood brokers and open-outcry jobbers make way for a new, electronically enabled system open to all.
In making trading easier, the reforms ushered in a new era of share ownership as computerised trading and the arrival of aggressive foreign banks – previously barred from the City - brought down costs. Trading activity soared as a result, in turn encouraging ever-more investment into London’s financial infrastructure and shoring up its defences against other financial centres.
London remains one of the top two financial markets – vying, as ever, with New York for the top spot. But the internet era has meant the City’s position no longer looks quite as impenetrable as it once did. Brexit, too, has cast doubts over the City’s future as European centres look to tempt banks away. So far London has stood firm – but the world never stands still, and rivals will keep looking for ways to undermine its defences.
But London isn’t standing still either, with a flurry of regulation on the way aimed at replacing restrictive EU rules with new ones to help the City grow faster and further. Specifically, two new regulatory plans are afoot, the Financial Services and Markets Bill to revoke and replace EU regulation, and the UK Secondary Capital Raising Review recently completed by Mark Austin, a senior lawyer at Freshfields.
It is the latter that is perhaps of most interest to retail investors, given that among its primary aims is improving their access to company fundraisings, something that has not always been a given when companies have looked to raise capital from existing shareholders via dilutive private placings with institutions.
New technology-led services such as PrimaryBid and Peel Hunt’s REX platform – which has partnered with three of the UK’s largest investment platforms, Hargreaves Lansdown, interactive investor, and AJ Bell - have improved this. But allocations are often still quite small, and many companies still choose to exclude retail investors altogether, including from IPOs. Mark Austin’s review - which has been backed by the Treasury, the FCA, and retail platforms - is set to change this, once and for all making sure all shareholders are treated equally.
It has been a long time coming, not least the digitisation of shareholder registers that allow a company to identify all of its shareholders individually, something that for a long time hasn’t been possible under the UK’s nominee system. Putting this in place will be a key task of the new digitisation taskforce, which is expected to deliver an implementation plan by 2024.
As well as creating a fairer system for retail investors, the proposals should make it quicker easier for companies to raise capital, too, reducing the need to produce weighty prospectuses, introducing “accelerated” fundraising structures, and allowing companies to raise up to 20% of their issued capital via non-pre-emptive issues amongst other things.
That’s especially good news for what the report describes as “capital hungry” companies in sectors like resource exploration or drug discovery – often listed on markets like Aim and Aquis - that often need to raise regularly to fund growth plans and may be able to non-pre-emptively raise as much as 75% of their issued share capital, if agreed by shareholders.
But it is not without its risks, including that investors end up throwing good money after bad. Welcome though a “turbo charged” digital fundraising regime may be – a new Big Bang as it were - it will also depend on greater scrutiny of how listed companies spend their money, and open and transparent dialogue between companies and their shareholders. Put simply, better investor access to fundraisings means they need better access to management, too.