image

business forward

London Stock Exchange planning to relax "free float" rules to attract more tech "unicorns" - Proactive Investors UK

Is this a sensible relaxation of cherished City values or another case of selling out to the might of technology companies?

The London Stock Exchange is preparing to slash the “free float” requirement for stocks to be eligible for inclusion in the FTSE indices.

Free float refers to the proportion of shares that are not owned by committed long-term holders, such as company founders. The current requirement is for the free float to be at least 25% for a stock to be included as an index constituent; it is understood that the requirement is set to be cut to 10%. For overseas companies, the requirement is set to drop from 50% to 10%.

FTSE Russell, the London Stock Exchange subsidiary responsible for producing index data, is also preparing to soften its stance on dual-class share structures, where, typically, one class of share has voting rights and another has no voting rights or proportionally far fewer.

The dual-class share structure has long been popular among Britain’s pub groups and has recently come back into fashion with tech entrepreneurs keen to retain control of their “baby”, such as Wise PLC (LSE:WISE, FRA:6WS), which listed last month and currently has a market capitalisation of £9.6bn – about the same as Mike Ashley’s Frasers Group PLC (LSE:FRAS) – and Deliveroo PLC (LSE:ROO), which has a market cap of £5.6bn.

Companies that have dual-class shares are not allowed to list on the premium segment of the London Stock Exchange, which counts against them when it comes to being included in FTSE Russell indices.

The moves being run up the flagpole by the London Stock Exchange are seen as an initiative to encourage more tech companies to list in London.

If implemented, they could see companies such as THG PLC (LSE:THG), better known as The Hut Group, gatecrash the FTSE 250. With a market capitalisation of £6.45bn, THG currently ranks 108th among London-listed heavyweights.

The top four – Toyota, Mitsubishi Electric, Ricoh and Konami – are all Japanese companies, while the top 20 also features a number of US companies such as Honeywell (NYSE:HON), Boeing, IBM and General Electric (NYSE:GE).

The Daily Telegraph reports that the reforms would be in place in time for the spring “window” next year, in which a torrent of companies are expected to seek a listing, possibly including Klarna, the buy-now-pay-later online payments provider that has been valued at £33bn, which would put it on a par with Lloyds Banking Group PLC (LSE:LLOY) at around number 31 in the ranking of most highly valued London-listed companies.