What value a listing?
It has long been assumed that in order to qualify as a “proper” company, a stock exchange listing is required. Yet a recent survey of major European companies may pose a question to this assumption.
Joining the “Official List” of companies that have been granted eligibility for their issued securities to be publicly traded on a stock exchange used to be the only practical channel for companies to sell their shares and bonds to investors.
That was before MiFID.
MiFID, among other key changes, effectively removed the “Concentration Rule” which confined investors to trading shares on stock exchanges. Almost overnight, before the ink dried on the MiFID pages the alternatives sprang up – Multi-lateral Trading Facilities (MTFs) and a range of similar platforms took share trading away from stock exchanges. Competition between stock exchanges was one of the regulatory objectives of this directive and created effective and lasting competition.
Now stock exchanges levy significant compliance burdens on listed companies accompanied by substantial costs and ever-increasing demands for reports.
Yet, trading in these company’s shares is no longer concentrated on the listing exchange. And price formation for those shares is subjected to the processes of high-frequency trading, computer-generated orders that include “spoofing” and, best of all, short-selling – all in the name of liquidity.
Leaving aside the open door that this type of market support for listed companies offers to “Activist Investors”, the supreme irony is that rather than use stock exchanges for raising capital, the major listed companies around the world have been giving capital back to shareholders in the form of share buy-backs.
This effectively reduces the issued share capital listed on stock exchanges – which should logically feed into trading volumes and liquidity. Yet trading volumes continue to rise.
If large companies do not need stock exchanges to raise capital – and there are now plenty of alternatives open to them, why do they need to incur the significant downsides of listing in terms of the cost and compliance burden?
After all if stock exchange listings do not assist companies to identify and track their shareholders – and they do not – and capital is available elsewhere, there seems to be a case for a service that can offer shareholder transparency, support high levels of corporate governance and offer sensible pricing consensuses for traded securities all at a fraction of the current cost.
Technology has an answer.
New exchange propositions are being created which use digital technology with the networked power of the web to reach out to investors globally. These exchanges will be regulated in Europe as “Regulated Markets”, some benefiting from positive attitudes of regulators to the new linked environment. They will operate official lists of eligible companies, as the incumbent exchanges do, and will support advanced levels of corporate governance including greatly enhanced shareholder transparency – all at much lower costs and frictional risks to all comers.
This is exactly the type of competition envisaged by the architects of MiFID.