What is the intermittent trading venue?
The Chancellor announced the introduction of an intermittent trading venue in his latest Mansion House speech, in which he outlined plans to increase investments in British businesses, particularly high-growth businesses, in line with the Government’s vision of Britain as a science superpower and the world’s next Silicon Valley.
Little has been disclosed so far on the details. However, early announcements suggest that the plan is to create a platform that allows windows for trading in private companies' shares at pre-determined intervals. The window would allow new investors to buy into a company and existing investors or staff to exit, providing much improved liquidity. The platform will be for trading of existing shares only, but the hope is that an ability for investors to trade in and out of companies' shares will aid fundraising as companies grow.
The London Stock Exchange has hailed the scheme as providing the following benefits: "investors get more access to liquidity moments; early shareholders and VC and PE funds can find exit opportunities; new institutional investors can gain access to companies they might not be able to otherwise; and, critically, staff can have access to liquidity too."
The venue has been compared to the Nasdaq Private Market (NPM), a secondary market trading platform for investors in private companies.
Who are the companies?
This will, in part, depend on what requirements they must satisfy. Companies listed on the NPM, for example, must have raised at least $30 million in funding in the past two years or have a valuation north of $50 million. These companies also need to be profitable, with at least $750,000 in annual net income. If similar thresholds were to be applied for the intermittent trading venue, this could preclude a number of private companies from participating.
The disclosure requirements for participation will also be key. The heavier the disclosure requirements, the higher the costs for companies. The regulatory requirements will need to be significantly less onerous than for a listing, while at the same time offering adequate protection for investors. Getting the balance right will be important.
Who are the investors?
The type of investor the scheme attracts will depend on the level of control offered. VC / PE funds would typically expect a more bespoke regime with veto rights and board representation. It remains to be seen whether the scheme could accommodate any of the rights typically expected by VC / PE funds.
The scheme may be targeting a later stage investor – eg an institutional investor. It could be designed to dovetail with one of the other measures from the Chancellor’s Mansion House speech: an industry led compact committing many of the UK’s largest Defined Contribution (DC) pension providers to the objective of allocating at least 5% of their default funds to unlisted equities by 2030.
Conclusion
There are high ambitions for the intermittent trading venue, the first of its kind in the UK. However, the key to the scheme’s success will be in the detail – tantalisingly vague at present. Will it revolutionise funding for growth companies in the UK - encouraging startup firms to scale up while staying at home rather than departing for the US? That will depend on getting the framework right – for both companies and investors.
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