The Department for Business, Innovation and Skills (BIS) has announced that it is developing proposals with the London Stock Exchange to encourage fast growing companies looking to finance further expansion, particularly internet and technology companies, to conduct their flotation in London. Why now - and is this good news?

The London markets increasingly face competition from US markets, where there is speculation that recently passed US legislation – the Jumpstart Our Business Startups Act – will lead to a spate of IPOs by smaller companies. There are also proposals in the US to create a stock exchange that would specialise exclusively in smaller companies. Neither of these risks has yet materialised - but BIS may have decided to take pre-emptive action now.

The proposals will include a planned new route to the UK IPO market for high-growth companies, which will complement the UK's existing markets. BIS describes the proposals as a 'launch pad' for companies seeking a full Premium Listing.

BIS has indicated that the new route to market is likely to feature reformed rules for high-growth companies on the following matters:

  • Reduction of the free float – At the moment, at least 25% of the shares of a company applying for a premium or standard listing must be held by the public, unlike in the US where there are no free float requirements. However, the FSA has recently proposed removing the requirement for a minimum absolute percentage free float for standard listings, provided that sufficient liquidity is present. If that proposal is adopted, it would be good news for companies wishing to list on the standard market, but bad news for the new route to market because one of its unique selling points would disappear.
  • Easing of reporting requirements – This may mean that companies may not have to trade for as long before they can list and they may need to show financial information for a shorter period. Whilst good news for companies, this may be bad news for investors.

Further details on the eligibility criteria and benefits of the new route to market are due be published before the end of 2012. We shall keep you posted on developments.

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