Has Hunt twisted Son’s Arm to go for dual listing in London?

When companies like Arm Holdings or Bumble list on New York’s Nasdaq stock exchange, they are greeted with great fanfare: giant billboards with their names blazoned in neon-coloured lights beam out from screens on Nasdaq’s seven-storey building on Times Square. Inside the exchange, there is a newly opened cutting-edge department – MarketSite – dedicated to advertising the IPO and marketing the float with bell-ringing ceremonies galore and live feeds to just about every US media outlet.

In short, like most American events, floating your business is bold and brazen: creating enterprise – and wealth – is so deeply embedded in the US culture that listing your shares on the public markets is the big white whale and the great American dream. And so is Nasdaq itself: the exchange is the most visited tourist attraction in the US with 41.9 million visitors a year. Eat your heart out Disneyland, the Californian theme park said to be the most visited in the world but which last year had 16.9 million visitors.

The Nasdaq exchange – the world’s first electronic market – is only just over 50 years old yet it has established itself as the centre of US enterprise, specifically aimed at the more exciting high-growth, therefore higher risk, hi-tech companies. 

So although the Cambridge-based chipmaker Arm upset the apple cart earlier this year by choosing to list on Nasdaq rather than on the London Stock Exchange, the decision was really not that surprising at all. Indeed, it made complete sense for Arm to list in New York for all sorts of reasons. Perhaps more importantly, Arm’s decision served as a much-needed wake-up call for not only the City but Number 10 too, provoking the PM and his advisers to pull every string they could to persuade Arm’s Masayoshi Son, head of its biggest investor, SoftBank, to choose London. They failed. 

You can see why. Listing the shares of a company here in the UK at the LSE’s HQ in Paternoster Square in the shadow of St Paul’s Cathedral is a more muted affair. Yes, the LSE’s top brass usually come out to welcome the new CEO and his or her team onto the public markets, and the bell rings out to celebrate. 

But other than a few headlines in the business pages of the press, most of the public wouldn’t know about the listing or take a punt on the shares. The number of UK households which own shares has crashed by more than half over the last two decades to around 11 per cent. A recent Gallup poll shows that 61 per cent of all Americans own shares while in Sweden more than 20 per cent of all households are investors.  

Yet the glitzy approach by Nasdaq – and the New York Stock Exchange – towards new IPOs is not the only reason why so many British companies have been snubbing the City. That’s just the icing on the cake. 

Over the last two decades, what started out to be a trickle of companies switching from London to New York has turned into a flood: the number of companies listing in London is down by 40 per cent since its peak in 2008. This last year alone has seen just 23 firms floating on the LSE, a big drop from 45 in 2022, which was itself a 62 per cent decline on the record 119 listings the year before.

As well as Arm, other well-known companies such as the world’s biggest building supplies firm, CRH, and plumbing company, Ferguson, have shifted their listings from London to the US this year. More recently, the London-based commodity broker Marex, which had looked at listing on the LSE only a short while ago, said it was opting for Nasdaq because its shares would be better valued. Gambling giant Flutter is also heading for the Big Apple while education specialist, Pearson, has suggested it may be looking at a move overseas. At the same time – for more subtle but equally worrying reasons – around 34 firms have been taken off the public markets to be taken private. 

So what’s going wrong? There are many obvious reasons for a company to switch from London to New York: the US capital markets are deeper and more liquid, domestic investors – both institutional and private – are hungry for risk, corporate valuations are higher and the top bosses can get away with bigger pay packages. 

Add to that the can-do cowboy spirit of the US exchanges which are hungry for new business: their capital markets specialists actively touring the world talking to the CEOs and bankers to companies which are planning to list. Right now, rival exchange chiefs are fighting over trying to persuade China’s fast-fashion giant, Shein, to float in the US. To date, Shein has filed to list in New York but has had exploratory talks with the LSE as well so who knows where Shein may end up. 

But the New Yorkers will fight hard to win over the Chinese. As Nasdaq’s global head of listings Karen Snow said in a BBC interview this week, the exchange is always out selling its wares and right now is having “lots of conversations” with UK company chiefs about listing in the US. They are attracted to the higher valuations and deeper liquidity on offer in the US, she added, which has “the most transparent marketplace and really the best place to raise capital”. Another big factor, says Snow, is the valuation disparities between the exchanges, particularly for those companies such as Arm which had been hoping for a dual listing. 

Making it easier for companies to float in London – as well as having dual listings – is behind the latest review published by the Financial Conduct Authority. It’s the latest in a whole host of reviews undertaken by the authorities in an attempt to make the London market more attractive. 

This one looks promising. Finally, the FCA proposes to merge the standard and premium segments of the market as well as abandoning a requirement for firms to get shareholder approval for big transactions. 

It’s impossible to know whether these reforms will make London more attractive and competitive but the UK’s tougher listing regime has certainly been one of the reasons firms say they prefer the US.

Inevitably, having looser rules means the risk of failure, a likelihood accepted by the FCA as one of the side-effects of being more competitive. But as Sarah Pritchard, the FCA’s executive director of markets and international, said, the aim is to strengthen the attractiveness of UK capital markets and support UK competitiveness and growth.” 

If that means more companies fail, then maybe that’s just the sort of risk that needs to be taken if we are to inject some can-do spirit back into the London markets. The FCA’s proposals are a positive step, as are chancellor Jeremy Hunt’s Edinburgh reforms aimed at making it easier for DC pension funds to consolidate and to invest more in equities, thus improving liquidity. 

But the chancellor should also be making it easier for private capital to be unlocked through tax changes and take a look at what the Swedes have done to turn around private investors. If you don’t have domestic funds – or private investors – investing in UK-listed companies, then you can’t blame them for seeking out funds elsewhere.

It’s interesting that Arm’s chief executive, Rene Haas, and SoftBank’s Son were spotted leaving the chancellor’s office at No 11 on Tuesday – the day of the listings review. The proposed rule changes to the primary and standard market segments are intended to make it easier for a company like Arm to list in London alongside New York and to go straight into the FTSE 100.  

If Hunt has indeed persuaded Arm to go ahead with a London dual listing, then the LSE should go glitzy and install some of those Nasdaq-style billboards all the way down St Paul’s to Cheapside. And maybe it’s time to poach a few of Nasdaq’s top brass to teach them a trick or two.

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