London Stock Exchange proposes special listings for private companies

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

Private-company shares would trade publicly between one and five days in each trading window, once a month or quarter, or every six months. The companies wouldn’t be subject to the same degree of regulatory oversight as a fully listed company, requirements that startup company founders say are deterrents to listing shares.

“The new venue 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 Dec. 21. It “should be seen as improving on the current options available to companies seeking to raise capital without imposing regulation that will inhibit growth.”

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

An LSE representative said there is “potential for additional routes to market to support the widest range of companies through their funding lifecycle including helping them transition from the private to the public markets and indeed back again.”

The program would require regulatory approval and legislative changes.

Representatives from the FCA and the UK Treasury declined to comment.

The proposal comes as the U.K. looks to reshape its financial markets after leaving the European Union in 2021. In November, the U.K. government gave the FCA, its top financial policing organization, a secondary mandate to promote competitiveness in the financial sector in addition to maintaining financial stability and consumer protection.

London has struggled to attract young, fast growing companies, with tech firms typically choosing to list in the US or Asia. The recent boom in special-purpose acquisition companies, or SPACs, largely took place in the U.S. The U.K. revised stock-listing rules last year in a bid to make London more attractive to tech companies and SPACs.

The LSE has endured a longer-term decline in the number of companies listed on its exchange, with the total amount falling to 1,989 in 2020 from 2,365 five years earlier. Last year saw a moderate reversal, with listed companies rising to 2,017.

Under the LSE proposal, companies would be allowed to conduct private share transactions between the public trading windows. Companies would also be able to share inside information with major stakeholders in those periods without having to disclose it publicly, according to the proposal.

Before a public trading window, the company would be required to put out a “cleansing statement” disclosing material information, which is intended to level the playing field, the LSE wrote.

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

There are existing markets for privately held shares in the U.S., run by Nasdaq Inc. and a number of competing startups such as Forge Global Inc. and EquityZen Inc.

But these trading venues aren’t accessible to most individual investors. Under current regulations by the US Securities and Exchange Commission, they are limited to accredited investors—people who meet certain wealth criteria, such as having a net worth of more than $1 million excluding one’s home or an annual income above $200,000.

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