Their report, entitled ‘Arm’s snub by City blamed on FCA’ (FT Weekend, 4 March) should be a wake-up call for the London Stock Exchange.
Arm’s owner, SoftBank, and government officials have blamed the failure on the inflexibility and restrictive rules of the Financial Conduct Authority. But alas, since 2010, a series of UK governments have orchestrated an unprecedented destruction of what is perhaps the world’s best-functioning capital market.
Today we have a declining market. Responsibility for this rests with the government and the formation of the FCA in 2013, which took over the listing process and imposed a number of restrictions.
Gone was the simple “Agree or Explain” motto. In their place came indexing rules and the strict 25 percent free float requirement, now set at 10 percent.
The rules need to be simpler and not designed in favor of index trackers, which have convinced regulators to delay the inclusion of large companies, thereby destroying the market.
For example, if Saudi Arabian oil major Aramco, now the world’s largest publicly traded company, had been listed in London and its free float of 1.5 per cent included in the index, it would have been very much in the best interest of London as an attractive financial hub. This is a national tragedy.
The UK Treasury used to be at the forefront of market reform, led by Sir Steve Robson and his colleagues. They insisted on bookbuilding and immediate indexing of companies they were selling as a result of lessons learned from the 1987 crash and BP’s listing.
The knowledge of price and settlement risk and the inclusion of trading on the index increased the knowledge of all market participants.
This knowledge, gained during the privatizations of the Thatcher era, is now lost. The City of London has spare capacity and the productivity and reputation of its financial markets have declined.
Maybe it’s time to bring people like Sir Steve out of retirement.
Jan Hannam
Former Head of Capital Markets
JPMorgan, London W11, United Kingdom
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