City regulators should “tighten” the rules around exiting the London Stock Exchange to prevent “opportunistic” firms cancelling their listings and hammering shareholders, one of the City’s top brokers has said.
Tim Cockroft, chair and founder of investment bank Singer Capital Markets, suggested regulators should strengthen the rules around de-listing after a spate of firms exited London’s junior market this year, blaming lofty costs, tight regulation and a lack of liquidity.
“It seems like they all write the same PR paper,” Cockroft told City A.M., in reference to the reasons given for de-listing.
“Some of them haven’t delivered great shareholder performance, and maybe it’s an easier option. I think I’d tighten up the technical rules on how you can do this,” he added.
The comments point to a wave of firms that have exited the AIM market this year citing similar reasons for going private.
Last month, two of London’s leading listed biotech, RedX Pharma and C4X confirmed plans to leave the market in the same week after suffering a slump in the value of their shares, blaming constraints on their ability to raise funds.
While firms are allowed to voluntarily cancel their listings, the moves often send shares into freefall and hammer investors in the companies. The announcements of both firms de-listings saw shareholders take a battering after shares in the firms cratered.
The boss of pharma firm Redx also moved to scoop up hundreds of thousands of shares in the company after its share price collapsed on news it would exit the market.
Neither firm responded to a request for comment. Cockroft did not mention any company by name.
“Sometimes it’s opportunistic. If people can [exit], maybe they will,” he added.
An exodus from London’s two markets has triggered existential questions over the future of the London Stock Exchange this year.
The number of firms listed on AIM has cratered 30 per cent from 1,104 to just 742 since 2015. Last year alone, AIM suffered 78 cancellations and a further 15 in the opening two months of this year.
Cockroft, who was also a founding employee of investment bank Peel Hunt, suggested that regulators had underestimated the pull of the private markets over the past 20 years as they piled stringent regulation onto London’s public markets.
“It’s a competitive world. Why does the US market get a lot of plaudits? Why does [private equity] get a lot of plaudits? It’s because they’re slightly easier to be on than the UK,” Cockroft said.
“On the regulatory side, that probably was [something] that they didn’t look at – you’re actually competing with private capital markets, which have a lot less regulatory burden than the public markets.”
Cockroft’s firm Singer has been among a host of smaller City investment banks to feel the squeeze of a downturn in public markets activity over the past two years. In its latest accounts up to the end of 2022, the firm reported post-tax profits of £1.85m, down from £14.5m the year prior.
Public markets globally have been squeezed by the pull of private ownership and the ease with which firms can now access capital in arenas other than on a stock exchange.
London Stock Exchange bosses and the government in the UK have been looking to combat the trend with a hybrid private-public market, which will allow companies to trade their shares while remaining private.
PISCES, as it has been dubbed by ministers, is among a slew of capital markets reforms being pushed through by the regulators and the government to try and revamp the appeal of the City of London.
Chancellor Jeremy Hunt has also tabled measures to force pension funds to disclose the make-up of their investment portfolios and shadow chancellor Rachel Reeves last year floated the idea of forcing pension funds to invest five per cent of their assets in UK based companies.
While Cockroft warned pension funds should not be “strong armed” into investing in London, he said more investment from pension funds could trigger a meaningful shift.
“I think releasing and getting pension funds to invest in the UK – that will be huge,” he added.