Intermittent trading venue – key points


26th October 2023

In his Mansion House speech on 10 July 2023, the Chancellor Jeremy Hunt announced a package of long term reforms aimed at making the City of London a more competitive and innovative global financial hub. Amongst these reforms, the Chancellor announced the introduction of a new intermittent trading venue (the “ITV”), to be up and running before the end of 2024 and aimed at putting the UK at the forefront of capital market innovation.

The London Stock Exchange Group (“LSEG“), which will host the ITV, has declared that that the ITV has “the potential to supercharge the scaling of [the UK’s] venture financing ecosystem“.

What is the ITV?

The ITV will function as a platform which facilitates trading in eligible private companies’ shares. The idea is that during specific, pre-determined trading windows, new and existing shareholders will be able to transact through a stock exchange auction. The ITV therefore seeks to bridge the gap between listed public markets and private companies by giving certain private companies access to capital markets without requiring them to formally float on a stock market and expose themselves to the volatility of public markets.

The introduction of the ITV is designed to stimulate investment into pre-IPO companies, giving investors better access to liquidity. Not only will it allow institutional investors to buy into these companies at an earlier stage during their lifecycles and/or give them access to companies they might not otherwise be able to invest in, but it will also provide clearer and more certain exit opportunities for existing investors and employee shareholders. In turn, this will stimulate investment into these companies, and give them better access to liquidity.

How will the ITV work?

It is currently envisaged that the LSEG will host 12 auctions a year – one per month. These auctions will operate on an “opt-in” basis, and eligible companies will be free to decide how many auctions they participate in.

The ITV will utilise the LSEG’s existing auction technology and infrastructure, and will enable private companies to share information with potential investors through a closed portal. Through this portal, participating companies will be able to:

  • control the type of investor that participates in the auction; and
  • set pricing and volume limits.

This will give participating companies more control over the evolution of their shareholder base, and allow them to align their share register with their strategy for growth.

As its name suggests, the ITV will operate intermittently – it is not intended to be a primary capital raising mechanism, and companies will remain private outside of the auctions. The ITV will also be a secondary market only – the focus of the ITV will be on trading existing shares, and firms will not be able to issue new equity via the ITV.

What companies will be eligible to participate?

Eligibility criteria have yet to be announced and are expected to form part of the consultation in 2024. However, it will be crucial that the regulatory framework which is developed around the ITV strikes a sensible balance between:

  • on the one hand, imposing disclosure obligations on companies using the platform which give adequate protection to investors; and
  • on the other, incentivising use of the platform by making it less costly, time-consuming and complex for companies to access than public markets.

Conclusion

There is substantial and genuine excitement around the potential for the ITV to be transformative for pre-IPO companies in the UK. The ITV reflects an interesting, first-of-its-kind concept, marking a bold and innovative attempt at capital markets reform in the UK.

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