Cleaning up listings – more than a City of London issue – a Mindful Money view

11th July 2013

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The trade body that represents billions and billions worth of equity investment the Association of British Insurers has put forward a plan to “protect” London’s status as a financial centre. It says, confidently, that the proposal has the backing of ministers.

The recommendations particularly involve initial public offerings. The ABI suggests that a company must have a minimum free float of 25 per cent of its equity. It wants to reduce the size of banking syndicates that help companies place money. There have been concerns about banks’ pricing practices which are, of course, fundamental to whether shares are worth buying or not and even holding in the long term.

The Financial Times reports the ABI’s proposals today saying that the organisation’s members “own” a fifth of the stock market. Mindful Money suggests that this is technically true but in reality a lot of that money is actually sourced from British consumers and investors in pensions and investment bonds. This clean up is overdue because it is everyone’s interests.

It is certainly arguable that in an effort to attract business many rules, regulations and even just simple market practices got out of kilter with the needs of the end investor.

London has certainly not benefited from the turmoil and travails at Bumi and Kazakh mining stock ENRC in terms of corporate governance and we hope that the ABI proposals when viewed alongside those of the UK Listing Authority will also address governance concerns.

End investors don’t need those stocks in London unless they meet proper standards.

Millions of investors may be in trackers or members of pension schemes benchmarked in a way that means they have exposure to stocks from the whole of the market.

Without minimum standards, investors who have exposure to the market, may be exposed to the wrong things i.e. more than legitimate investment risk and business risk in some stocks. This is not what they should expect when they are investing in a “world leading financial centre”.

The ABI is to be congratulated on this initiative. But we repeat – technically it is the ABI member companies’ money, but  eventually it returns to the real owners, end investors and pension scheme members. That is why this not just a matter for the ‘City’ but one for the whole of the UK.

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