Here’s how to fix London listings
The exodus from the London Stock Exchange demands practical solutions, not complaint, says Jonathan Dickson
This week DCC Energy became the latest FTSE 100 group to be taken private, amid growing global competition for listings. Just last month, it emerged that as many as 20 FTSE 100 companies may move direct listings to New York.
There will be no shortage of comment diagnosing the exodus from London, and its consequences for the City’s global standing, and the wider UK economy. Capital and companies go where they are treated best, and America is the world’s largest capital market. So how can London compete?
It is time to focus on solutions to compete globally. What is missing is a clear set of measures to address the decline. The objective should not be to persuade companies to choose between London and New York, but to increase benefits and remove barriers, letting companies keep their home listing while accessing the US’ deep pools of capital. Taken together, the measures below would go a long way towards achieving that.
The concern that more FTSE 100 companies could move their listings to New York relies on the false assumption that this is the only way to access the full breadth of capital in the US. Many UK boards are missing a key route to connect with US investors. LSE listed entities Aviva, JD Sports, Reckitt and LSEG itself already access American investors through cross trading, which allows US investors to trade these securities in US dollars and during US hours. That keeps liquidity, price discovery, and future capital raising firmly anchored in London.
Structural fixes matter too. The 0.5 per cent levy on shares and ADRs that has stood for four decades adds a real cost to trading, borne by investors, and the LSE is right to push for its abolition. Taxes on income and capital gains benefit from investors winning, while transaction taxes kill the crop.
Giving citizen’s a stake
The UK government needs to quickly right the wrong of steering pensions away from owning FTSE shares, and the FTSE should follow the US indexes and be for companies with a UK nexus. Democracy and capitalism work better when the average citizen holds a stake in the success of the nation’s champions.
Entrusted with their shareholder’s savings, FTSE company boards must compete globally for executive talent and remunerate top executives like the world’s best footballers. Both perform under bright lights, with crowds jeering and every move scrutinised by the press.
Educating boards is essential too. S&P 500 inclusion is reserved for America’s largest companies, and listing on a US exchange does not magically turn a British company into an American one overnight. Companies with the bulk of their business outside the US will not score the continuous capital inflows and share-premium benefit that comes with index inclusion, something not often made clear. US investors understand that, and they usually do not reward companies with higher valuations simply for relisting.
UK boards should also weigh the positive case for staying listed in London: better to be a big fish in a smaller pond
London listed companies should also expand investor relations strategies aimed specifically at US investors, and clearly benchmark their financial performance against the world’s best and most well-known companies.
American Depositary Receipts (ADRs) are another important cornerstone for any global company seeking a place in US investors’ portfolios. ADRs are familiar to smaller institutions, including thousands of US family offices, and to retail shareholders who simply do not trade directly on the LSE. Nearly half of US household financial assets are invested directly in listed equities and listed funds.
UK boards should also weigh the positive case for staying listed in London: better to be a big fish in a smaller pond. Securities on the LSE are drawing renewed attention from US investors diversifying away from sky-high tech valuations and concentration risk in the S&P 500.
Rather than lament the decline of London, it is time to look to the opportunities, and to embrace solutions.
Jonathan Dickson is head of EMEA at OTC Markets Group