Beware of ‘foamy’ US investment firms, warns LSE boss | London Stock Exchange

A ‘foamy’ US market for so-called ‘Spac’ investment firms could end badly for some investors, with the trend posing a risk to UK investors if plans to liberalize market rules materialize, according to the chief executive of the London Stock Exchange.

The proposals for Special Purpose Acquisition Companies (Spacs) – “blank cheque” shell companies that raise funds first and seek companies to buy later – were announced earlier this week as part of a a sweeping package of reforms aimed at attracting more fast-growing companies to the list in London, with the aim of maintaining the UK’s position as a leading global financial center post-Brexit.

The popularity of the creation of Spacs has proven to be a hot trend in global finance over the past year. In January alone, new listings raised $26bn (£18.8bn) from investors in the US, almost a third of the record $83bn raised by 248 Spacs in 2020. basketball star Shaquille O’Nealthe former Cosmopolitan editor Joanna Coles and Martin Luther King Jr’s son were among those involved in launching Spacs.

Former basketball star Shaquille O’Neal has been involved in the Spac deal. Photography: Gerardo Mora/Getty Images

“I’m not the first person to say this, but there’s clearly some scum in the US Spacs market and some of that could end badly for some of these opportunities and these investors,” said David Schwimmer. , chief executive of the London Stock Exchange Group (LSEG), when asked if he thought the Spac phenomenon was a bubble.

“I think it’s important to recognize that Spacs are a useful tool in the capital markets toolkit. They are a way for companies to access public markets in a way that’s a bit different from initial public offering (IPO).Having said that, I think it is important [to recognise] that we see speculative cycles in the markets over the years. But Spacs have a role to play and it is important that investors and market participants use them thoughtfully and carefully.

Schwimmer welcomed the wide range of measures announced in the review, led by former EU Financial Services Commissioner Lord Hill for Chancellor Rishi Sunak. The measures include making dual-class structures more attractive to company founders looking to retain control after listing and reducing the amount of shares that must be sold to the public from 25% to 15%.

“London is a big market, the UK is a big market,” Schwimmer said. “We have a lot of big companies that have formed here, that have settled here, and because of certain aspects of the [current] registration regime, they sometimes feel tempted to go elsewhere, and we want to make sure that we avoid that temptation and that we can welcome them here.

Schwimmer also said LSEG, which is merging the operations of its £22bn Refinitiv acquisition, is looking at its needs for office space outside of London as it also seeks to introduce a flexible working arrangement after the coronavirus crisis. .

“In the UK we will certainly maintain our presence and headquarters in Paternoster Square and maintain our presence in Canary Wharf,” he said. “There are a number of other sites we have across the UK which we are looking at as part of the integration planning. When the time is right we would like to bring our people back into the offices. We will also have more flexibility in the future. The pandemic work environment has demonstrated that we can do a lot with a more flexible work environment.”

The company said it employed 3,927 people at the end of 2019. It has offices in cities including Edinburgh, Exeter and Nottingham, as well as data centers in locations across the UK.

Earlier this year, Amsterdam overtook London as Europe’s biggest stock trading hub in what was seen as a symbolic blow to the UK’s post-Brexit financial powerhouse status.

“It was well telegraphed, not surprisingly, and was the result of the share swap requirement under EU regulation,” Schwimmer said.

“I think there is no doubt that London remains one of the world’s leading financial capitals. It continues to have the strength, the critical mass, the expertise, the very pragmatic and reasonable regulatory regime and the legal system that businesses and market players all over the world rely on. As a global company based in London, we feel very comfortable with its position as the world’s financial capital.