Britain’s begging tech giants to list in London. Good luck with that. (2024)

LONDON ― The U.K. wants to save its once-mighty stock exchange from irrelevance. But it's fast running out of levers to pull.

Once a symbol of Britain's global might, the London Stock Exchange’s waning strength is now a worrying emblem of decline for the City of London.

The malaise has prompted handwringing in the Treasury, with Jeremy Hunt, the chancellor, set to hold a summit with tech companies on Thursday at his Dorneywood country residence to encourage them to see their future in London, rather than further afield.

The U.K.'s stock market has shrunk dramatically over the last decade and is struggling to attract new companies. Only Kazakh airline Air Astana has listed in London this year —putting the U.K. capital well behind both Europe and the U.S.

For Hunt, the companies that list their shares on stock exchanges are often household names and their success can create a sense of economic good times — and allow the U.K. government and public to cash in on any growth.

That’s something the ruling Conservative Party desperately needs ahead of the election, likely this fall, as it trails in the polls.

For the City, too, a big float spreads fees around banks, lawyers and advisors — and it doesn’t want to miss out on a boom. Or have its reputation as a top destination tarnished.

But the problem is simple for Hunt: rot has set in and there just aren’t policy moves left to make.

Years of reforms

As Hunt prepares to host the tech firms this week, U.K. shares are benefiting from a more positive economic situation — with the Bank of England expected to begin to cut interest rates as of June. Hunt will be hoping his summit encourages at least one tech company to see London as its long-term home — and he may have pulled off one success, as reports on Wednesday said British personal computer maker Raspberry Pi is planning a U.K. listing.

Yet the FTSE 100’s performance continues to lag behind its peers, most notably in the U.S.

There’s already been review after review of London’s stock markets, which have rolled back investor protections to make it more attractive for companies to raise cash in Britain.

Back in 2017, under then-Prime Minister Theresa May, the U.K.'s financial regulator watered down rules on sovereigns to attract Saudi Arabia’s oil fund.

That failed. In 2021, the regulator changed the rules to try and help London tap into a boom in blank-check companies.

That fad died away. The Financial Conduct Authority (FCA) has more recently unveiled changes aimed at keeping tech founders happy to stop them hotfooting it to the U.S., like homegrown chipmaker Arm.

And that’s not everything. Hunt has also been busy cajoling U.K. pension funds into investing more in the stock market — to drum up demand for company shares.

But none of that is working — because there are bigger economic forces at play.

“There’s no magic rule from (financial watchdog) the FCA that’s going to suddenly produce extra liquidity,” said a senior City lawyer, granted anonymity to speak freely.

Tech companies have been heading to New York get better valuations — a higher price for their shares — because the stock market in the U.S. is worth so much more than in London, driven by the success of giants like Apple and Amazon.

Examples like British chipmaker Arm are plentiful: When Deliveroo listed in London in 2021, its shares dropped 30 percent on debut. Shell says it's undervalued in the U.K and has threatened to head to the Big Apple instead. Meanwhile, a cannabis biotech company backed by Snoop Dogg said it would delist from the LSE after losing 97 percent of its value, citing "turbulence" in the U.K. public markets.

To make matters worse, the discount for U.K. shares is encouraging companies, like cybersecurity firm Darktrace, to head off into private hands —further shrinking the stock market.

“There are some problems we don’t really have solutions for,” said the lawyer.

The Brexit factor

The situation is so bad that London’s rivals are counting it out.

“In listings, the game is over,” said Stéphane Boujnah, chief executive of Euronext — a continental rival to the LSE, with stock exchanges dotted across Europe, including in Amsterdam, Milan and Paris.

For Boujnah, there’s an obvious reason: Brexit.

“London used to be the largest financial center of the European Union, including when it comes to European equities,” he said in an interview. “It's now the largest financial center of the United Kingdom for equities.”

Europe also suffered from a drought of initial public offerings last year, but it's off to a roaring start in 2024.

London can’t keep its old role as the go-to place for listings now it isn't a gateway into Europe, with companies like CVC, a private equity giant, now choosing Amsterdam, Boujnah said.

Still, he said, it can remain successful as an offshore finance center in areas like foreign exchange.

“The closer a segment of capital market is to the real economy, the more natural it migrates to the EU,” he added.

And EU politicians, like French President Emmanuel Macron, want to keep their big companies close to home.

Made in Britain

London could go further in scrapping the rulebook to attract companies, in a move toward the Brexiteers' dream of a Singapore-on-Thames, light-touch financial center.

Chinese fast-fashion chain Shein could be a test as it considers floating in London, amid regulatory hurdles and pushback in the U.S. over its human-rights record.

But winning business at any cost could dent the City's reputation.

James Alexander, chief executive of the U.K. Sustainable Investment and Finance Association (UKSIF), said strong governance standards and safeguards for shareholders are part of London's success.

“The notion that certain companies with particularly poor human rights practices and sustainability credentials could choose London as a listings destination will not help to make us more competitive in the long run,” he said.

The question of company listings triggers bigger questions about the future of the City, with a whiff of protectionism about the Conservative government’s current efforts to lure companies.

Before Brexit, the U.K. advocated for open financial markets as London hoovered up business.

But now, Hunt wants to strong-arm homegrown companies, especially tech firms, to stay put. And, the Chancellor wants to force pension funds to drive more money into the U.K. stock market rather than deploy it wherever they think best globally.

For some, that muddies the vision for London as a global financial center. “Is it about getting bums on seats in the U.K.?” said Sheila Nicoll, an industry veteran, and former head of public policy at U.K. fund manager Schroders.

“Is it about getting more firms to move into the U.K.? Or is it about helping more firms to expand out from the U.K.?"

Patience

London’s renaissance may just require a bit of patience.

London Stock Exchange Chief Executive Julia Hoggett, who has been a driving force behind the U.K.’s long list of reforms, insisted last week that the doom and gloom is overstated.

“We are going through the biggest rewrite of our primary market rules in 40 years,” she told a conference. “Some of the reasons why we have seen companies defer is that they were waiting for the rule change in order to take advantage."

“Once we start seeing the rule changes come through, then there is cause for optimism,” she added.

A flashy tech floatation might help convince voters the economy is back on track. And without policy levers available, a little political pressure might be Hunt's only option.

Eleanor Myers contributed reporting.