UK’s IPO Rule Changes to Encourage Market Health

London IPOs are seeing a historic low as the British government doubles down on efforts to boost activity — according to Bloomberg.

The British Competition and Markets Authority (CMA) recently suggested that all companies listed on the London Stock Exchange should be grouped into one category in order to eliminate premium and standard categories.

The CMA is hoping to increase the number of new firms and enhance London's reputation, supposedly which has been impacted as a result of Brexit.

How IPOs Generate Capital

When companies want to raise capital, they have three main options: sell shares to the public, sell shares to investors through an initial public offering (IPO), or retain ownership by staying private. Most companies prefer the first two over the third — it’s just more time- and money-efficient.

So what is an IPO?

An IPO is a company’s public offering of stock that gives existing stockholders the opportunity to sell their stake in the company and cash out. New investors can buy into the company as well, which increases exposure and liquidity for all market participants. While not every business is ready for an IPO, getting listed on a major exchange is almost universal as a first step towards getting capital from institutional investors and other large holders.

What is an IPO?

A company lists its shares on an exchange and sets a price to buy or sell them. This price is called the “offer” price, or “offer“ price. When an investor buys shares at the offer price, the shareholder receives ownership of the company’s stock. The exchange operator maintains a record of who owns which stocks. 

The goal is to get a nice price for the stock so the company gets a lot of cash and the investors get the best deal they can. Public offerings are the backbone of venture capitalism’s funding mechanism; if it weren’t for IPOs, wealthy investors like Peter Thiel would not have enough money to finance the most promising companies.

How IPOs Work

When a company wants to go public, it contacts an exchange and finds out what requirements need to be met to list shares. The company then prepares a prospectus, a document that outlines the business, management, finances, and other important details. 

The prospectus is reviewed by the exchange, and if it’s OK, the company can list the shares. The listing date is when the exchange opens its books to the public and marks shares traded on it. 

The price (or “bid” price) is the minimum a company has to pay to buy shares and is publicly available. The “offer” price is the maximum amount a company has to pay to sell shares and is also publicly available.

The Benefits of Going Public

  • Raise money and sell stock.
  • Get institutional investors involved.
  • Get publicity and raise your valuation.
  • Get private equity backing.
  • Get listed on an exchange.
  • Buy an acquisition at a lower price, or sell an acquisition at a higher price.
  • Institutional investors have greater access to your company’s equity.

The Disadvantages of Going Public

  • You lose a degree of control over your business.
  • You have to deal with increased scrutiny, scrutiny that will be directed at your private company.
  • You have to deal with increased taxes, increased regulation. 
  • You may not be able to raise money quickly; you may also have a lengthy waiting period between announcing an IPO and actually being able to go public.

IPO Market Overview

Since the IPO boom of the 1980s, new issuances have been declining. By the end of 2016, only $5.2 billion of new shares were sold in U.S. public markets, down from $27.1 billion in 2013. There are many reasons for this decline, but the main reason is that companies do not want to go public.

IPOs are not dead, but they are down. The era of buying Apple stock to the moon may be fading as inflation climbs, causing companies like Netflix to face the harsh reality of consumers in a tighter pinch.

The market for IPOs is cyclical and tends to be more active during economic booms. During recessions, there is less money available for companies to go public, which pushes the market for IPOs into a cycle of decline.


Companies considering a London stock offering are in for a treat, thanks to the simplification process and lowered costs, according to Robin Walker, who is an expert in IPOs at Equiniti Group Plc. European cities also provide stiff competition.

Overall, this is just one instance of wizardry that the financial bigwigs behind the curtain will be trying out in the months to come, as global economies deal with immense uncertainty that has been waiting under the wing from a debt cycle that has reached maximum saturation.

Consider investing more in your ability to produce things of value, whatever your profession is, and avoiding debt (even if you have to start very small) is probably wiser than going into it.