Good morning everybody, and welcome to the latest edition of C&F Talks. It's my great pleasure to have with me today, Tom Godwin who's a Partner at Freshfields. Tom is going to be speaking at the Future of UK Capital Markets Regulation Summit which is being held in London on the 11th of November. Tom, welcome.

Thank you Maurice, thank you for having me.

Very good to have you with us.

Your panel, Tom, is going to be looking at the question “to what extent will the government and regulators' commitment to reforming the listing regime change companies' and investors' attitudes to the UK markets?” Overall, without trying to sort of guess the outcome of the discussion at the panel, what are the main elements involved in this question and do you think that regulatory change of this kind is going to alter the companies' and investors' attitudes, and have you seen some of that already?

Yeah, I mean it's now a few months since the first of those listing reforms came into effect and off the back of a few years, as you say, of reform agenda. And to answer the question as to which elements of it I think are important, the rules themselves clearly have some importance but I do think, as you sort of alluded to, that the attitude, the messaging that there being a reform agenda in London provides to the wider market is really helpful and I think the commitment to reform is certainly helping to change perceptions of the UK listing environment. I think there's a consistently improving attitude from prospective IPO candidates that we speak to about listing in the UK when they're thinking about different places that they might come to market.

And based on what we're hearing from clients, that improvement is at least in part due to the changes that have been made already but also to the message that the reform agenda is sending that the UK is forward-thinking and is looking to be competitive. As we know, our markets, particularly our main market, is weighted towards certain sectors. It's weighted towards financial institutions, financial services providers, energy, mining companies, real estate and a lot of those sectors have a focus on value driven stock.

But I think there's a theme in the rule changes, which is no surprise given the government's sort of rhetoric around this since the election, that the UK market wants to be a place that welcomes companies on a growth trajectory, both to bring them to market earlier than perhaps we've seen in our market in the past and to give them a regulatory environment that supports that growth. In terms of the short-term impact, as you say, you know, there are clearly a number of other factors that are probably more important in kick-starting the IPO markets, both in the UK and elsewhere. And we all know about those inflation interest rates, some macro effects that affect market confidence.

But certainly, the number of inquiries about potential listings, both in London and Europe and the US that we receive has picked up since the start of the year, I would say, and that increase has continued, you know, through to now and is only growing. We have already seen clients, you know, come to the UK for secondary listings, clients from Asia already developing a bit of a pipeline for that. And the pipeline for the sort of more traditionally-sized, shall we say, large caps, mid-to-large cap companies is really strong.

And also, interestingly, you know, we are seeing more inquiry, more interest from smaller mid-cap companies looking to list perhaps on AIM to start with and using the public markets as a place for growth rather than it being the goal at the end of, you know, at the end of the period. So, it would be interesting to see how much that can become a part of the picture in London.

Fantastic. Well, that sounds like good news. All those different elements sound like very good news. Of course, regulatory reform isn't just about the reform of the listing rules and so on.

There's been a lot of focus on pension funds and whether or not there should be change there and how they view it in terms of their individual mandates and unnecessary risks and corporate government standards and so on. Some of the cities suggesting that risk becoming the best regulated graveyard. What's your view of how the pension funds, some of these pension funds are viewing this? Do you think that eroding, if you like, the sort of golden corporate government standard as they perceive it has risks attached to it that need to be taken into account that haven't been? Or do you think that this is just part of progress for the market and globally?

Well, without being too much of a lawyer about these things, this will be a slightly balanced response.

But I think fundamentally it is part of the agenda. It's a necessary part of the agenda. I think the rules are creating a level playing field between the UK and other listing venues.

If you look across to what we perceive as our sort of main exchange competitors in the US and Europe and Asia, the sort of structures that those organisations are worried about are available in the vast majority of those venues. I think the UK's premium segment, now the equity security segment has been not quite alone, admittedly, but certainly an outlier for some time in having that one size fits all approach. I sort of, I hasten away from describing it as a gold standard because it isn't the right standard for some companies.

But having that sort of single-minded approach to both the eligibility to the market and also to corporate governance has put the market in the place where it has that weighting that I talked about earlier to particular types of company in particular sectors. As I mentioned, it's a good example that there's been quite a lot of focus on allowing companies with long-term dual class structures to be listed on the single segment and to stay on the single segment. So companies where a small number of shareholders have weighted voting rights for particular decision-making.

And those are of course permitted to stay in place past IPO for a short term, but by changes that came in a couple of years ago. But I think the important thing is to remember to compare the UK to its competitors, and not to be the almighty or something that's a gold standard. But look, I do think it's a fair challenge from those investors and from that type of investor in particular that necessarily is focused on value.

But moving away from specific prescriptive regulatory requirements, and towards this more disclosure-based regime that the regulator tells us is the theme. It certainly does give applicants, and it gives listed businesses more flexibility in terms of how they manage themselves and in terms of their structures. And it's opening the market up to those sorts of businesses.

It might not mean that they all rush to market immediately, but at least it removes the friction point for a whole section of the market to engage. And the onus is on those businesses to implement corporate government structures that are appropriate for them and that are appropriate for their investor base. And it's going to be very important for those companies to engage with investors as they develop those frameworks.

Maurice

Yeah, and do you think, I mean, I remember that the Capital Markets Industry Taskforce, one of the themes it was looking at was this relationship between companies and their investors. And there was a sense there'd been a degree of disintermediation by proxy advisors and so on, and shareholders not having the time to perhaps communicate with their investee companies as much as they used to. Do you think that's just part of the modern world? Or do you think the Capital Markets would work better if there were better communications between investors and companies so the investors better understood what companies were doing? Do you think that aspect of CMIT's work is relevant and that corporate governance would be improved through that? What's your view on that?

I do think it's relevant. I think there's certainly a place for those sort of proxy organisations in being able to almost unionise for investors and create a voice that can be heard. But similarly to what I was just discussing, the danger with that sort of approach is that you are left with a one-size-fits-all. And if there are particular types of companies that investors want to invest in, and there is a proxy service that aims solely at those, then great.

But that isn't true of most investors, I think. It isn't true of the market as a whole, and it shouldn't limit the way that the market operates. So there is, I think, a great deal of impetus needed to improve that dialogue between companies and investors and make it more direct for those companies that are in a slightly different place and need a slightly different framework.

I think that in terms of taking away those prescriptive rules on corporate governance in particular, the key thing in a disclosure-based regime is that companies get that disclosure, that interaction with investors right. And the proxy advisors have a part to play in this. The rules still include very fulsome disclosure requirements, which should allay some of these fears.

But this is a really key phase in the reforms, I think. It's incredibly important for market practice to develop with that new flexibility that companies have to maintain the quality of that investor dialogue and to make that sort of system work. And of course, without sort of overstating it, the obligations on companies and issuers and their boards to look after the best interests of shareholders and the statutory framework that sits around that is almost entirely unchanged. So the onus really is on issuers to make sure they get that interaction with investors right.

Yeah, no, I fully agree. Tom, we could continue chatting about these and many other issues for a long time. Sadly, our time is up.

For our viewers, it would be very good if you want to hear more about these and related issues. If you'd like to attend our event, the Future of UK Capital Markets Regulations Summit, being held in London on the 11th November.

Further information at the City & Financial website, www.cityandfinancial.com. Tom, thank you so much. Look forward to seeing you on the 11th.

Thank you, Maurice. Thanks for having me.