It seems telling that the London Stock Exchange no longer displays its famous name on its building in the capital’s Paternoster Square. From one perspective, the dismantling of the old signage is entirely logical. The entity that was once the stock exchange has been transformed through acquisitions into a rather successful financial information provider, with listings and trading now a tiny adjunct to the main business. Hence the replacement sign bearing the infinitely duller name of the parent it created: LSEG.
From another viewpoint, though, it’s troubling. While this parent lavishes attention on the favourite child of data operations, its insignificant eldest may have been neglected.
But invisible or not to passers-by in the City of London, the exchange is capable, with help, of overcoming the tough challenges before it. What really ails it is not a distracted parent but its rival in New York, and listed companies and investors are paying the price.
Plenty of good work is being done to get capital flowing back into London. The Financial Conduct Authority (FCA) is on the verge of implementing significant changes to its rules to make listing more enticing. Rachel Kent’s work to usher in a new era of research coverage should deliver change as momentous as the Mifid rules that caused it to dry up in the first place. Plans are afoot to create superpensions that can take risks smaller funds would eschew. The Mansion House reforms should unlock pools of capital from pension funds. New government remits to regulators require them to consider growth as well as risk, and to rethink the heavy regulatory burden on companies. That will be a change welcomed by many bosses who believe the balance is wrong. Mountview Estates chief executive Duncan Sinclair wrote in the company’s recent interim report: “We are a tiny company but the ever-expanding regulatory and administrative burden imposed by various authorities is disproportionate to a company of this size.”
Elsewhere, a British Isa allowance is in the pipeworks, and pension funds are being pushed to support British companies – other nations direct far more capital into domestic investments with successful results. Thanks to every reader who responded to my request for your views on this topic. There are too many to mention here but most of you fully support encouraging and/or incentivising UK pension funds into British companies. A small number objected – it should be customers, not governments, setting funds’ direction, argued one.
However, a bit more urgency would not go amiss given the sheer scale of company exits since the Capital Markets Industry Taskforce was set up in July 2022. And, besides the above initiatives, other options also deserve consideration.
First, tax. No one wants to pay tax on their share transactions. Stamp duty on trading costs buyers of UK shares £3.3bn every year. There is no stamp duty to pay when you buy US shares. In a recent podcast, Charles Hall at Peel Hunt noted it is cheaper for him to buy Tesla than Rolls-Royce, and that stamp duty impacts London’s “liquidity, valuations and effectively drives investors who want to be more rapid in their transactions to invest overseas”. Flutter boss Peter Jackson, who is transplanting the gambling company to New York, has no doubt the tax makes London uncompetitive and unappealing. Other tax changes that could entice investors to increase their UK holdings – bearing in mind that there is nothing fundamentally wrong with British companies – include scrapping capital gains tax on small- and mid-cap gains, and expanding inheritance tax relief.
Companies could take a leaf out of Americans’ book. “British companies need to self-promote, and reach out to investors worldwide,” says Fraser Thorne, chief executive of investor relations and research provider Edison. “Life isn’t easy either for small US companies. They are one of 6,000, [whereas] UK companies are only one of 1,800. But they sell themselves and their investor relations team spend 95 per cent of their time talking to the buy side, not the brokers.”
DIY investing should be encouraged. “We need to get as many participants as possible into the market,” says one leading fund manager, and the City must operate in a way that means investors are always rewarded when currently they are not. “Everyone needs to leave the party with a balloon,” he remarks, adding that “risk aversion has become ingrained – a culture of trust has been replaced by one of fear.”
There are lots of ideas always floating around – but really, it’s just time to get on with it.
