With Euro 2024 in full swing, it can be easy to forget that England and France compete fiercely over more than just football. Both nations are also home to the two largest stock markets in Europe, with London recently overtaking Paris to reclaim its crown as the biggest bourse on the block for the first time in nearly two years.
But the chances of an open-top bus parade for the LSE’s top dogs seem slim, despite how amusing it might be to behold. Unlike knock-out football tournaments, the competition for European stock market supremacy never comes to a definitive conclusion. The LSE’s leaders cannot afford to rest on their laurels for even a day. And to remain top of the pile – off the pitch, at least – one of the biggest challenges England must tackle is not a goal drought, but its listings drought.
Persuading companies tempted by overseas markets to float in London is vital to scoring this goal. But yet another blow to this effort was dealt this week with the news that The London Tunnels – a business focused entirely on enriching England’s capital city – has abandoned a London listing in pursuit of one in Amsterdam. Even more concerning is the fact the battle for IPOs is more akin to the World Cup than the European Championships, with the likes of the US and Hong Kong regularly poaching London’s listing candidates.
There are of course myriad factors that come into play when firms decide where to list, but one of the most definitive is the market’s regulatory landscape. As British business titan Martin Sorrell reminded us in his recent Times piece on the subject, the adage goes that the US innovates, China imitates, and the UK regulates. The UK is indeed one of the most heavily regulated markets in the world – which may be seen as both a blessing and a curse with regards to its IPO prospects. To inject more life into its listings pipeline, Sorrell believes a departure from Britain’s unwavering focus on red tape is necessary. The UK government should instead prioritise incentivising investment in tech innovation if it is to continue competing with the likes of the US, he argues.
This argument is well-founded, but the idea that encouraging greater innovation would come at the cost of Britain’s reputation for regulation is misplaced – particularly when it comes to the financial services sector. In large and complex industries like finance, which impact the lives of countless people from all walks of life, there can be no downplaying the importance of stringent regulation in ensuring markets remain fair and – most importantly – stable. The solution must therefore be one that incentivizes innovation without stepping on watchdogs’ toes.
Nurturing data-centric software companies that help make regulatory compliance easier and more cost-effective for businesses could at least be part of the solution. If firms feel well equipped to navigate a market’s regulatory environment, regardless of its stringency, they are obviously less likely to look beyond their home market when considering a listing. Beyond potentially facilitating more IPOs, this could help companies already listed in London grow their market capitalization by galvanizing organic growth. After all, the rich pool of data collected and organised by reg tech innovators can be used for much more than simply appeasing watchdogs.
For instance, by analysing a host of conversations had between traders and counterparties – which may have been necessary to collect for compliance purposes – a firm can create sophisticated buy-side insights reports. These enable the company to keep track of incoming trade ideas and understand which liquidity providers are offering the best service, enabling it to identify the best counterparty for a particular trade and ultimately deliver stronger returns. Although this is a financial markets-centric example, the same principle applies to any industry in which data is a key tenet of strategic decision making.
While it is unlikely that London’s IPO woes can be solved overnight, the potential posed by incentivising greater investment in Britain’s reg tech innovators must not be overlooked. Indeed, it could be one of the most important tactics in England’s listings revival campaign.
**********
Oliver Blower is CEO at VoxSmart
***
The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group
