In 2000, public markets in the UK represented 10% of the world’s market capitalistion. Today, that number stands at just 3.5%. On the face of it, the numbers are stark, but if we take the right action, there is plenty to be optimistic about.
Our latest report explores one part of the capital markets ecosystem; the transition between junior stock markets and main markets in the UK. Our findings show that if a smoother glidepath between junior and main markets were created, it could increase the attractiveness of UK capital markets, providing an incentive for a small number of companies, seeking fast, high growth to consider using the UK’s junior stock markets as a steppingstone to a main market, thereby incentivising them to stay in the UK.
Vibrant capital markets are vital for a growing economy
At the moment few companies graduate to a main market, even when they have grown to considerable size, because often they see no advantage to do so. Rather than just looking at barriers to companies coming to the market in a traditional way by IPO directly onto the main market, there are other, additional ways to help increase the attractiveness of UK markets for a particular type of fast-growing company.
Thriving UK junior markets with a good reputation as well as reduced regulatory requirements that act as a conduit to a senior market could then encourage more companies to use them as a stepping stone to the senior market rather than considering a main market listing (which may not be in the UK) as their first foray into the public markets.
Katharine Braddick, Group Head of Strategic Policy, said: “UK capital markets are central to the success of the UK economy – they spur innovation, business growth and job creation. While great strides have been made to enhance policy frameworks in recent years, our research shows there is more that can be done. Removing unnecessary frictions for high growth companies looking to graduate into main markets would drive dynamism and agility within UK capital markets. Our five recommendations are designed to improve this and bolster the UK’s competitiveness on the international stage.”
“Our research shows there is more that can be done. Removing unnecessary frictions for high growth companies looking to graduate into main markets would drive dynamism and agility within UK capital markets."
Katharine Braddick, Group Head of Strategic Policy
Our policy recommendations
The recent reforms to the UK Listing regime, moving to a disclosure-based approach, have, to some extent, removed the hard requirements that acted as a barrier for some companies moving from a junior market to a senior market. These have the potential to significantly tip the balance when companies are considering whether moving to a main market is of benefit for them.
However, more could be done to make a positive glide path that is more accessible and clear for companies that are not currently public. Alongside improving the profile and reputation of the UK’s junior markets, the Government and FCA should:
1. Remove prospectus requirement
2. Taper the cliff edge of tax incentives
3. Stamp Duty Reserve Tax
4. Smarter Regulatory Framework
5. Support the use of discretion by junior market operators
Remove the requirement for a prospectus for admission to a UK regulated market for companies that have been admitted to a junior market for 18 months.
Sustain the tax incentives currently provided in relation to ‘unquoted’ or ‘unlisted’ companies (Enterprise Investment Schemes, Venture Capital Trusts, Inheritance tax and Capital Gains) when they graduate from a junior market to a senior market for a limited period of time.
Review the application of Stamp Duty taking into account the evidence from junior markets.
When putting EU-inherited files through the Smarter Regulatory Framework, consider whether specific alleviations could be included to support the needs of UK junior markets.
The FCA should provide guidance and supervisory support to junior market operators so that they are able to use the discretion granted them under the new Public Offers and Admissions to Trading regime.
“Our research shows that while both junior and main markets are effective at helping companies with capital raising and providing liquidity and volatility, certain areas of the junior markets are not meeting the needs of companies. A problem which we believe could be resolved with a smoother pathway for companies to graduate to main markets."
Rhiannon Price, Director, Policy and Strategy, Capital Markets
About the author
Barclays’ Group Policy Development team creates public policy thought leadership content on behalf of Barclays. Our work draws on the bank’s expertise, data and insights, and is intended to inform the design and application of public policy solutions in response to pressing economic and societal challenges.
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