London Stock Exchange proposes special listings for private companies

The LSE has proposed the creation of a special market for private companies to publicly trade their shares on the exchange on certain days, according to a person familiar with the matter and proposals from the LSE to its regulators, the Financial Conduct Authority and the UK Treasury, as seen by The Wall Street Journal.

Shares of private companies would trade publicly between one and five days in each trading window, once a month or quarter, or every six months. The companies would not be subject to the same level of regulatory oversight as a fully publicly traded company, requirements that startup founders say are a barrier to stock listing.

“The new type of location would act as a stepping stone between private and fully public markets,” the LSE wrote in a document it sent to the FCA and the Treasury on Dec. 21. It “should be seen as an improvement on the current options available to companies that want to raise capital without imposing regulation that inhibits growth.”

Startup founders, their employees and novice investors could raise money by selling shares to private and institutional investors. Large private companies would also gain access to the public market under the proposal. Tech companies such as banking app Revolut, buy-now-pay-later giant Klarna and money transfer startup Wise could have used this route to raise money for their shareholders, the LSE said in the proposal.

A representative from LSE said there is “potential for additional routes to market to support the broadest range of companies throughout their financing lifecycle, including helping them transition from the private to the public market and indeed back again.”

The program would require regulatory approval and legislative changes.

Representatives from the FCA and the UK Treasury declined to comment.

The proposal comes as the UK looks to reform its financial markets after leaving the European Union in 2021. In November, the UK government gave the FCA, its main financial police organization, a secondary mandate to boost competitiveness in the financial sector. , in addition to maintaining financial stability and consumer protection.

London is struggling to attract young, high-growth companies, with technology companies typically opting to list in the US or Asia. The recent boom in specialized acquisitions, or SPACs, has largely taken place in the US. The UK revised its listing rules last year in an effort to make London more attractive to tech companies and SPACs.

The LSE has seen a longer-term decline in the number of companies listed on its exchange, with the total number falling to 1,989 in 2020, compared to 2,365 five years earlier. Last year saw a moderate turnaround, with publicly traded companies soaring to 2017.

Under the LSE proposal, companies would be allowed to conduct private stock transactions between the public trading windows. Companies would also be able to share inside information with key stakeholders during those periods without having to make it public, the proposal said.

Prior to a public trading period, the company should issue a “cleansing statement” containing material information, which is intended to level the playing field, the LSE wrote.

The LSE called the idea “MTF-lite,” building on an industry term for a financial market known as a multilateral trading facility. If it goes through, it would be the first exchange with this kind of hybrid model for private companies that periodically have access to public investors.

There are existing private equity markets in the US, run by Nasdaq Inc. and a number of competing startups such as Forge Global Inc. and EquityZen Inc.

But these trading platforms are not accessible to most individual investors. Under current U.S. Securities and Exchange Commission regulations, they are limited to accredited investors — people who meet certain asset criteria, such as a net worth of more than $1 million excluding your home or an annual income of more than $200,000.

In the US, the SEC is working on a plan to force more disclosure on the finances and operations of private companies amid concerns about a lack of oversight in the high-growth market segment, The Wall Street Journal reported.