The London Stock Exchange proposes special listings for private companies

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WSJ.com: Markets

The London Stock Exchange LSEG 0.03%

Group is seeking to blur the line between public and private companies, as part of a plan to attract fast-growing tech companies to a post-Brexit UK listing.

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

Shares of private companies would be publicly traded in each trading window between one and five days, 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 public company, requirements that startup founders say deter them from listing shares.

“The new event type 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 December 21. It “should be viewed as an improvement on the current options available to companies looking to raise capital without imposing regulations that stifle growth.”

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

An LSE spokesman said there was “potential for additional market avenues to support a wide variety of businesses throughout their financing lifecycle, including helping them transition from the private to the public market and back again.”

The program would require regulatory approval and legislative changes.

FCA and UK Treasury spokesmen declined to comment.

The proposal comes as the UK seeks to redesign its financial markets after leaving the European Union in 2021. In November, the UK government gave the FCA, its chief financial policing organisation, a secondary mandate to promote competitiveness in the financial sector in addition to maintaining financial stability and consumer protection.

London struggles to attract young, fast-growing companies, with tech companies typically choosing to list in the US or Asia. Much of the recent boom in special-purpose acquisition companies, or SPACs, has been in the United States. The UK overhauled its listing rules last year 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 stock exchange, with the total falling from 2,365 five years earlier to 1,989 in 2020. A moderate reversal occurred last year, with listed companies rising to 2,017.

Under the LSE proposal, companies would be allowed to conduct private stock trades between public trading windows. Under the proposal, companies could also share inside information with key stakeholders during these periods without having to disclose it publicly.

Ahead of a public trading window, the company would have to issue a “cleanup statement” disclosing material information intended to level the playing field, the LSE wrote.

The LSE dubbed the idea “MTF-lite,” based on an industry term for a financial market known as a multilateral trading facility. If it continues, it would be the first exchange with this type of hybrid model for private companies to gain regular access to public investors.

There are existing privately held stock markets in the US that are operated by Nasdaq inc

and a number of competing startups such as Forge Global Inc. and EquityZen Inc.

But these trading venues are not accessible to most retail investors. Under current US Securities and Exchange Commission regulations, they are restricted to accredited investors – individuals who meet certain wealth criteria, such as: B. Net worth greater than $1 million without owning a home or annual income greater than $200,000.

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

write to Anna Hirtenstein at anna.hirtenstein@wsj.com

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