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London’s junior stock exchange should be scrapped as part of a radical overhaul needed to attract fast-growing firms and rejuvenate the UK’s capital markets, two influential think-tanks have warned.
The UK’s capital markets are “not fit for purpose” and require “radical surgery”, the report from the Tony Blair Institute for Global Change and the centre-right think-tank Onward said.
London was once the world’s largest stock exchange, but now ranks sixth, while it has failed to win a number of major new listings from tech companies.
Building materials group CRH and gaming group Flutter have shifted their primary listings to the US as companies seek to bolster their valuations, while Cambridge-based chip designer Arm also opted to float in the US instead of Britain to fetch a bigger price tag.
The London market had been left “dependent on legacy firms” such as energy and finance stocks that did not have the growth potential of technology businesses, the report said.
“Aim has failed in its stated purpose of providing a home for scaling businesses. It should be fully merged with the LSE’s main market, with a special route to listing specifically for high-growth firms in emerging technology sectors.
“In this way, London can differentiate itself from other global exchanges and attract a pipeline of high-quality, innovative companies.”
Tax breaks for investors in junior market stocks should be maintained for companies that seek the high growth path, it recommended.
Some 76 companies delisted from London’s Aim market last year, while executives of “the UK’s most vibrant companies” had publicly stated that they would not consider listing on London’s exchanges, the report said. “Low liquidity, diminished investor confidence, and a shrinking pool of capital available are compounding the exodus,” it added.
“The UK’s ability to finance growing tech companies is in trouble, but decline isn’t inevitable,” said Zachary Spiro, a policy fellow at Onward.
Other actions recommended by the report included slashing red tape and establishing a “Growth Capital fund” with £1bn to support the creation of five large-scale growth investors for science and tech firms.
“Britain’s competitiveness has fallen and we are no longer the financial powerhouse we once were,” said Benedict Macon-Cooney, chief policy strategist at the Tony Blair Institute.
“If we are to reclaim our throne we need bold reform to attract the best and brightest, build the next generation of superstar companies, and make us an economic power in the modern world.”
However, other corners of the City have argued for measures to support the Aim market. Barclays has suggested tax reliefs for investors in businesses that graduate from the junior exchange to the main market.
James Ashton, chief executive of the Quoted Companies Alliance, an organisation representing small companies, said that Aim was “an essential alternative for growth companies that feel they are not ready for the main market”.
“Its loss would narrow UK funding options and risk ingraining further a one-size-fits-all approach to regulation and governance that punishes small, entrepreneurial stocks,” he said. “Without it, I suspect fewer companies would IPO and more that are quoted would quickly go private.”
He added that many Aim stocks were too small to be eligible for the main market, which requires a minimum market value of £30mn.
Additional reporting by Michael O’Dwyer