FCA: Improvements to Equity Secondary Markets

FCA: Improvements to Equity Secondary Markets

The FCA is introducing changes to improve how equity secondary markets operate.

The changes are part of the Wholesale Markets Review, which we have been conducting alongside government. We are tailoring our rules to better suit UK markets and to promote competition and growth.

We previously consulted on rule changes for secondary markets, including on the transparency regime for equity markets.

They will:

  • enhance the quality of trade execution for investors by lowering the cost of trading, reducing market impact and ultimately increasing liquidity
  • improve the content and consistency of post-trade transparency for equities
  • simplify the reporting of transactions executed over-the-counter (OTC) for all financial instruments
  • improve choice and competition by allowing UK trading venues to reference prices from overseas venues, where those prices are robust, reliable, and transparent
  • enhance the quality of execution by removing restrictions preventing trading venues from using the same tick size used by trading venues established overseas

As part of these changes, we are introducing a new Designated Reporter (DR) regime, clarifying who holds the obligation of making sure that a trade is made public. It aims to establish a simpler and clearer regime for the reporting of OTC transactions.

The amended post-trade transparency requirements, including the DR regime, will come into force in April 2024, whilst all our other rule changes come into force immediately.

We will support the development of industry-led good practices to improve market-wide resilience during trading venue outages. We will further engage with stakeholders to determine whether a formal review is required on how well the UK market for retail orders works.

Our work on the wholesale markets review and proposed listing reforms supports our commitment to strengthen the UK’s position in wholesale markets, a key priority in our 3-year strategy.

FCA proposes to simplify rules to help encourage companies to list in the UK

The FCA wants to make the listing regime, the rules companies must follow to be allowed to list their shares in the UK, more effective, easier to understand and more competitive.

The FCA has been acting to improve the UK’s position for years. Within months of leaving the European Union, 2 years ago, the FCA significantly reformed the listing regime to boost growth and competitiveness.

While the UK has been Europe’s biggest financial hub for many years, listings in the UK have reduced by 40% since 2008, according to The UK Listing Review.

The decision by a firm to list is based on many more factors than regulation alone, such as taxation and the availability of capital.

However, the listing regime in the UK has been seen by some issuers and advisers as too complicated and onerous.

This is why the FCA is proposing significant changes to the listing rulebook, including replacing its existing ‘standard’ and ‘premium’ listing segments with a single category for equity shares in commercial companies.

Under the proposals requirements would be focussed on transparency for investors to support decision making and sponsor oversight at the listing gateway to ensure companies can meet the FCA’s standards.

A single equity category would remove eligibility requirements that can deter early-stage companies, be more permissive on dual class share structures, and remove mandatory shareholder votes on transactions such as acquisitions to reduce frictions to companies pursuing their business strategies.

The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.

The FCA wants an open discussion about the change to risk appetite that a listing regime based on disclosure and engagement, rather than regulatory rules, would require.

Nikhil Rathi, Chief Executive of the FCA, said:

‘London is a major international market with a deservedly good reputation globally among companies aiming to raise capital.

‘Our proposed reforms would significantly rebalance the burden of regulation to the benefit of listed companies and investors who are willing to set their own risk appetite and terms of engagement.

‘While regulation plays an important part, a company’s decision on whether, and where to list, is influenced by many factors so substantive change will require a concerted effort from government and industry as well.

‘We want to encourage more companies to list and grow in the UK, versus other highly competitive international markets.’

The FCA’s work on listings is a key part of its commitment to strengthen the position of UK wholesale markets, which is a priority in its 3-year strategy.

In 2021, the FCA moved quickly to improve the listing regime by lowering free float levels, allowing certain forms of dual class share structures and introducing digital financial reporting.

Source: FCA

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