How to save London’s stock market, by LSE boss David Schwimmer

There have been 30 takeover bids for London-listed companies this year, raising concerns that the London Stock Exchange (LSE) is shrinking to irrelevance. Last week, the spread-betting firm IG launched a “save our stock market” campaign to pull the exchange out of its “downward spiral”.

So what does David Schwimmer, chief executive of the London Stock Exchange Group (Lseg), which owns the LSE, make of the mounting fears for the future of the 300-year-old exchange?

From his office, with its spectacular views of St Paul’s Cathedral, Schwimmer insisted that takeovers were a natural part of the financial system.

Takeovers are not ‘bad’

“There’s this narrative that whenever a public company is acquired, that it’s seen as somehow a bad thing, which is a misunderstanding of how the markets are intended to work,” Schwimmer said.

Perhaps he would say that; he was a mergers and acquisitions expert at the US investment bank Goldman Sachs before he joined Lseg in 2018. Since then, the New York-born executive has transformed Lseg into a technology and data business — mainly through the $27 billion takeover of Refinitiv in 2021. It is now the tenth-biggest company on the LSE, valued at more than £55 billion.

But Schwimmer admitted that this ecosystem was not working smoothly, as the LSE was not replenishing the companies that have decamped from a UK market listing with new initial public offerings (IPOs). “The part of the ecosystem that seems a little bit out of balance right now is because there is a relatively smaller number of companies going public,” said Schwimmer.

The LSE reckons it has attracted nine IPOs this year, when the growth market AIM is included.

Schwimmer reckons this is not just a London problem, citing the influence of private equity in keeping companies private and also in buying stock market-listed companies.

Indeed, research by the New Financial think tank found that more than 1,000 listed companies in Europe, worth a combined $1 trillion (£730 billion), had been taken private in the past decade; 259 of those were listed in London, valued at $280 billion.

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Fighting private equity

Rough trade: the London Stock Exchange Group has faced challenges from private equity and the US market

CHRIS RATCLIFFE’/GETTY IMAGES

Its research also shows that London is not the only exchange to have endured a fall in the number of companies, losing a quarter since 2014, although in America the fall is only 8 per cent.

Over the past few decades, private equity has boomed, in part due to the low interest rates set by central banks after the 2008 financial crisis, which made deal making easier thanks to cheaper borrowing. Schwimmer pointed out that despite this, companies that are already listed are still using the LSE to raise extra capital; so far this year, the exchange is ranked third for “follow-on” raisings. But he is watching to see how the private equity industry responds to higher interest rates.

“As the interest rate environment moves around, is it a little bit more of a level playing field between private equity and public equity?” he asked.

This might raise the prospect of private equity houses kick-starting more IPOs of the businesses they own. But the LSE is also preparing to launch a new exchange — the private securities market (PSM) — to capitalise on the private equity sector.

It will use a trading method known as Pisces — the “private intermittent securities and capital exchange system” — under which private companies can sell shares for a limited time without having to formally list on the stock market.

To Schwimmer, it is an example of London showing the “dynamism” and “innovation” needed to adapt to a changing environment.

Flight to New York

The lack of IPOs is just one problem. London is also losing companies that shift their listings to New York, such as FTSE 100 betting business Flutter and the building group CRH.

The payments company Wise is the latest to announce plans to move its primary listing to New York, despite having had a good reception in London since it floated in 2021.

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Many believe — although the company does not agree with this — that a key reason for the move is that in the US, Wise founder Kristo Kaarmann will be able to retain his 50 per cent voting rights, even though he only owns 18 per cent of the shares.

When the company listed in London, Wise could maintain this so-called dual-class structure for three years, under a series of rule changes implemented after Brexit to compete with New York.

Kristo Kaarmann, chief executive of Wise

CHRISTOPHER PROCTOR FOR THE SUNDAY TIMES

These changes had made the exchange more competitive, he said, but stressed: “We need to maintain an element of openness and dynamism and not say ‘we’re done, it’s set in stone’ but recognise the markets are dynamic”.

He said he was he was “disappointed” with Wise’s move and hinted that he would back dual-class structures staying in place for longer, adding that he was “open minded” about further changes.

In reality, the LSE does not set the rules; these are the responsibility of the government or City regulator the Financial Conduct Authority. Instead, it acts like a salesman for London.

A key plank of its pitch is a “mythbusting” document seeking to dispel the idea that New York offers more liquidity — greater ease in buying and selling shares — than London, or that companies listing there achieve higher valuations. Only this week it published new data addressing the question of whether a UK company will get a better valuation in America.

The LSE is also trying to assuage concerns that executives in London will have to settle for lower pay than those in New York. “Have we adopted US-style compensation practices? No. But have we moved the discussion pretty significantly in a lot of different areas? Yes. I think that’s real progress,” Schwimmer said.

This year, he allowed himself — perhaps unwittingly — to become an example. That was when 30 per cent of his investors failed to support a rise in his pay to £7.8 million this year, up from £5.1 million, after a proxy agency, providing recommendations to shareholders, warned that it was “contrary to typical UK market practice”.

Overhaul Isas

Across the City, the focus is turning to encouraging more investment in shares by retail and institutional investors.

With this in mind, the government is preparing to review Isas, which allow £20,000 of tax-free savings each year and are used by 12 million people. But they have largely encouraged savings in cash rather than the stock market.

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Schwimmer presented what he described as a “possible construct” for Isas to invest in equities if savers are to share in a tax break that costs the government £8 billion a year.

Under this “construct”, savers would put 10 per cent of their savings into shares. This is greater than the 4 per cent that pension funds allocate to the UK market to match its weighting in global indices.

“So you are over-indexing on UK investment, which is what you should be doing if the government is giving a tax incentive for it,” he explained.

Not surprisingly, Schwimmer added his voice to the deafening calls to abolish stamp duty on shares, which brings in £3 billion a year in taxes. In any case, he said, hedge funds avoid the tax — in a “somewhat bizarre situation” — by trading through swap transactions with banks.

‘Very healthy pipeline’ of deals

“I would love for the stock exchange to be a growth engine,” Schwimmer said

JOSHUA BRATT FOR THE TIMES

City figures report signs of investment flows back into Britain, fuelled by the uncertainty over the American market created by President Trump’s tariffs.

Scott McCubbin, IPO leader at the professional services firm EY, likened this to the way in which investors got used to Covid, which, after an initial stall in activity, led to a jump in IPOs. “I think a lot of people are now dusting down their IPO plans and saying, ‘OK, if that’s the world we live in now, we just need to get on with it.’”

For his part, Schwimmer is adamant there is a “very healthy pipeline” of deals that have not yet been made public. There was some good news last week when the Greek-based industrials company Metlen declared it would shift its primary listing from Athens to London; with a current market value of more than €6 billion (£5 billion), it should qualify for the FTSE 100.

Ironically, Schwimmer admitted that his own shareholders ask him whether he should move Lseg’s listing to New York, given its technology and data focus. He dismissed such an idea immediately, saying that higher valuations do not always follow a hop across the pond. “The question I ask them is, ‘Okay, if we did that, would you pay another £10, £20 or £30 a share for Lseg?’ And the answer has always been ‘no’ — a kind of sheepish ‘no’ because everyone recognises that this narrative of valuations being different is not accurate.”

As the LSE makes up just 3 per cent of the wider group’s revenues, Schwimmer is repeatedly accused of not focusing on the London market. “It’s a big focus area and a big priority,” he insisted. “I would love it for the stock exchange to be a growth engine.” Many in the City will hope it can be.