Stock Exchange proposals for the SME sector

Initial reaction to ‘The Drury Report’ has been encouraging. We received a detailed response from the editor of this blog site who made a number of helpful comments (several of which discussed weaknesses within our recommendations).

The Director of Economic Affairs at the British Chambers of Commerce wrote:

“A very readable and sensible report. Hopefully one day equity funding will grow to occupy a greater share of the business funding space.”

We also received a response from the London Stock Exchange who have suggested we meet to discuss our recommendations. They included a copy of their own submission to the Chancellor in respect of his Autumn Statement (November 2012). It contained a number of interesting proposals:

The central theme of the paper is to promote equity investment by proposing a series of measures “to ensure that the equity markets support the high growth businesses already admitted to them and remain attractive to the next generation of UK companies.” It is supported by an ‘impact analysis’ provided by Deloitte.

There are four sections:

1) Improve access to the IPO markets for high growth businesses

a) create an ‘on-ramp segment’ of the main market which is more accessible for high growth companies.

b) this requires Government support (“to help persuade investors to support the high growth businesses considering an IPO”) but no new legislation or regulatory changes.

c) it will have lower free float requirements

d) there will be additional entry criteria based on revenue growth

e) the UK Corporate Governance Code will apply but companies will have a longer period of time in which to apply the principles.

f) the expectation is that companies will move on up to the Main Market ie. the ‘on-ramp segment’ is a stepping stone to encourage earlier progress to the equity markets.

g) it will require the support of the FSA

We think the proposed market will have the same status as AIM ie. unregulated.


2) Reduce taxes on equity investment to mobilise a wider pool of capital dedicated to growth businesses

a) abolish stamp duty on AIM and on-ramp segment companies

b) removing stamp duty on AIM will reduce the cost of capital by up to 15%

c) reduce CGT to 10% with a “minimum holding period”

d) include AIM shares in ISAs

This last proposal has received much interest since the Chancellor announced an enquiry into the idea in his Statement.


3) Government action needed

a) FSA to provide industry guidance on the application of their Conduct of Business regulations. “The FSA must balance consideration for economic growth with investor protection measures.”


4) Support the UK’s high growth companies in Europe

a) Government must continue lobbying to ensure the EU framework supports access to equity capital for growing companies.

We look forward to our meeting with the London Stock Exchange.

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