The UK's finance watchdog could replace the country's two-segment listing regime in an attempt to lure more tech companies and startups to its exchange.

The Financial Conduct Authority on Thursday released a paper examining possible reforms to UK listing rules, which suggested that merging the premium and standard segments on the London Stock Exchange's main market could simplify entry and make it a more attractive destination.

The two markets are differentiated by the level of eligibility requirements a company must meet in order to list, with the premium calling for a higher level of corporate governance. The structure was originally set up to comply with EU minimum standards.

The regulator said that those in the standard segment can be stigmatized, particularly as only companies in the premium segment are eligible for inclusion in the FTSE index. Many startups are locked out of the premium segments because they are unable to meet the current criteria, which include requirements like a three-year revenue earning record. This, according to the FCA, can lead some companies to list in other jurisdictions that evaluate their financial profiles differently.

If the segments are combined, all listed companies would need to meet a single set of criteria designed to ensure an adequate level of investor protection and could then choose to opt in to stricter rules.

If enacted, this change would be the latest attempt by the UK to amend its rules in hope of attracting more listings amid increasing competition from European exchanges in cities like Amsterdam and Paris. Last year, the UK government approved recommendations from the Hill review, including allowance of dual-class share structures in the premium segment and a lower free-float threshold, with the same goal. Rules for SPACs were also eased.

However, the potential near-term boost the new system might provide remains murky.

"While the proposed rule changes could make the UK a more attractive listing destination over the long term, the immediate future for IPOs remains weak," PitchBook EMEA analyst Dominick Mondesir said. He cited a range of cyclical and secular factors that will continue to deter sponsors from listing their portfolio companies, including rising interest rates, high inflation, and the war in Ukraine, along with supply chain issues and stock market volatility.

According to the Hill review, as of March 2021, the number of listed companies in the UK had fallen by about 40% from a peak in 2008. Between 2015 and 2020, the UK accounted for only 5% of IPOs globally. VC-backed public listing activity rebounded last year with record numbers of IPOs, but the widespread downturn for tech stocks in 2022 has all but stopped such debuts.

"Until inflation eases in a clear and convincing manner, coming back to target of around 2%, central banks will be forced to remain hawkish and continue their path of monetary tightening, which adversely impacts equity markets," Mondesir added.

The paper is open to public consultation until July 28 before the FCA makes any formal proposals. 

Featured image via Oli Scarff/Getty Images

This article originally appeared on PitchBook News