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Should Your Company List on The London Stock Exchange?

LSE's Sarah Baker explains how the exchange could benefit startups that are too small for Wall Street.

Via jam_90s & Garry Knight

It’s no question that Wall Street is home to the world’s most prominent stock exchanges. Together, the DOW, the Nasdaq, the S&P 500 and the Russell 2000 contain some of the most prominent public companies in the world. But any truly healthy and diverse economy offers investment options for more than just the largest and most prominent companies, but for smaller companies that are perhaps earlier in their life-cycle as well. That’s what makes the smaller, but reliable London Stock Exchange so valuable.

“London remains the most international financial center in the world,” said Sarah Baker, Head of North American Strategic Engagement at LSE in a recent interview with Broadcast Contributor Silvia Davi.” We have more international companies listed than anywhere else, and more international equity under management than any other market. So, I think for North American companies that either have operations abroad, or are looking to go global, or have ambitions that they haven’t realized yet, London is a really good place to consider raising finance. If you are a North American company, and you want to trade with Mongolia, for example, you will find investors in London who understand and support what you want to achieve in your company. So, I think that’s really important for the North American market.”

This is a pivotal time for the United Kingdom, with Brexit negotiations ongoing and political turmoil throughout Europe, and that’s creating a unique opportunity for startups and investors. “2016 was an interesting year politically,” says Baker. “What we saw last year was a slight slowdown in the IPO market. We saw lots of companies in North America that we knew were waiting to do an IPO, and were holding off and waiting to see what happens. But so far, in 2017, the market has really rebounded.”

“So far, this year we’ve had five North American IPOs, and we’re expecting many more in the pipeline,” Baker says. “Also, the FTSE 100, post-Brexit was the leading performing international index in the world outperforming other indexes here in North America, and also in Asia. So, that filled us with confidence. Seventy-five percent of the companies that make up the FTSE 100 are international. That shows the continued strength of London as an international financial center, and we don’t know what will happen in the future, but so far, we look at the companies that have come from North America to London, we look at the performance of the index in London, and we’re really confident about the future.”

According to Baker, those at the LSE have observed natural resources companies from across North America have done very well, as well as investment funds. “Last week, we had the launch of a firm called Bio Pharma from a New York-based pharmaceutical fund, and that completely outperformed what it’s initial expectations were. So, we’re really enthusiastic about that, and we expect to see many more in the pipeline.

Baker believes that for many of these companies, the smaller size of the LSE compared to the major exchanges on Wall Street can be a significant advantage. “In the US, the average size of a company on the Nasdaq is $500 billion dollars. The average size of a company on LSE is $100 billion dollars. So, you can get a listing on public markets in London on a much earlier stage in your growth than you could in the US.”

Despite being notably smaller than the largest US exchanges, the LSE has been expanding its reach – a fact that likely serves to alleviate the worries of companies listing on the exchange. “I’ve been working for the stock exchange for six years, and within that period, every year has been so exciting, because we’ve gone through this strategy of internationalization and also diversification,” says Baker. “People think of the London Stock Exchange as, traditionally, a capital marketplace where companies come to list. And that’s a core component of our business. But, over the last six years, we’ve really built the business around that initial capital markets offering. I think when I joined we had maybe a 500-person staff, mostly based in London and Italy… Now, we have 4,500, all around the world. So, for example, we have a trade and technology division, based in Sri Lanka. And that trade and technology, they supply to around 40 exchanges and market infrastructure companies around the world.”

That growth has also allowed the LSE to keep up with the rapid changes brought about by technology advances in the financial space. “We consider ourselves to be a market infrastructure company, and I think it’s not a stretch to say we are a fintech company,” Baker explains. “It’s essential that our market remains completely up-to-date to service our customers. In order to do that, we have a dedicated technology division, which works with some of the most exciting fintech companies around the world, to make sure we keep our offering up-to-date, to make sure that either we’re working in partnership with these smaller companies, or we consider bringing them into the stock exchange group. So, we’ve done that with a number of smaller firms, and I think also, we’re looking to the challenges ahead. For example, blockchain. We’re monitoring very carefully and thinking about what impact that has on the market, and what we should be doing now to service our customers well in the next five-to-ten years.”

The LSE’s embracing of technology is perhaps best exemplified through their Open Access Model, which “enables our clients to have access to the best possible services we could offer, but also have a choice of other services that other exchanges offer,” according to Baker. “So, for example, you can trade on our market, but clear with one of our competitors, and that’s absolutely fine with regards to the open access philosophy. It basically encourages us to be more competitive. So, we think that helps us in terms of competition, and it provides better service to our customers.”

Any change significant enough to matter draws vigorous opposition from those who depend on the status quo.
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