A little over a year ago, a new standalone category was created on the Official List for companies with a primary listing on a non-UK market and/or those incorporated outside the UK. The ‘equity shares (international commercial companies secondary listing)’ category was established to cater to overseas businesses facing challenges in meeting certain requirements in the main category due to regulatory restrictions in the issuer’s primary listing locale.
It is important to note that a UK-incorporated company with a primary listing abroad is not eligible to seek a secondary listing within the international category. The category enforces a regulatory framework similar to the listing rules applied to issuers on the standard segment, with minimum requirements related to market capitalization and free floats.
The introduction of this category was part of the Financial Conduct Authority’s efforts to revitalize capital markets in the UK, although the progress in listing volumes has been gradual. Regulators are tasked with striking a balance between implementing frameworks that ensure fair primary and secondary markets without stifling incentives for companies to go public. While a more hands-off approach to public markets might seem appealing, it can lead to increased risks of market manipulation and hinder price discovery.
Recent developments in the US, where Nasdaq proposed rule changes to the SEC, highlight the challenges regulators face. These changes include higher minimum public float requirements for new listings and faster processes for suspending and de-listing companies with illiquid secondary markets. The SEC’s focus on disclosure issues related to Chinese ‘microcaps’ listing in the US underscores the importance of access to company information in restrictive markets.
Arbitrage in dual-listed companies was recently discussed in relation to Uniphar’s interim figures. This trading strategy, typically utilized by institutional and high-frequency traders, involves buying and selling the same security simultaneously in different markets to capitalize on price differentials. Exchange rate movements and supply and demand dynamics play a crucial role in arbitrage opportunities, necessitating close monitoring of deal volumes.
Engaging in arbitrage trades carries risks that may outweigh potential profits if not carefully managed. Professional trading desks often employ advanced algorithms to execute these trades efficiently. Timing and settlement terms are critical considerations to avoid losses in arbitrage transactions.
Companies with dual-listing structures like Rio Tinto, Investec, and Prudential are common examples in the market. The Confederation of British Industry suggests that the London Stock Exchange could attract more listings, particularly from Asian companies seeking alternatives to navigate the uncertainties of global trade policies.
Overall, the evolving landscape of international listings and trading strategies underscores the importance of regulatory frameworks that promote transparency and market integrity while fostering a conducive environment for companies to access capital markets.