London should be centre of ‘Spac revolution’, says ex-LSE chief

The City of London should strive to become a global centre for Spacs to fend off rivals in the wake of Brexit, said Xavier Rolet, former London Stock Exchange head, and Matthew Elliott, Vote Leave co-founder .

Special purpose acquisition companies — which raise money from investors and list on a stock market, then look for an acquisition target to take public — have become one of the hottest areas of finance over the past year. New York has dominated the market.

“The UK needs to promptly consider the Spac revolution,” wrote Rolet and Elliott, together with broker Shore Capital’s head of research Clive Black, in a paper submitted to the government’s Future Regulatory Framework review, which is considering how the UK’s financial rules should change now that the country has left the EU.

Easing UK rules around these blank-cheque vehicles could help channel capital to British and European entrepreneurs and allow London to grab some of the equity-raising deals that have so far gone elsewhere, they argue.

“Spacs represent a financial instrument that should not be overlooked and where agility could realise considerable benefits to credible British and European entrepreneurs and dealmakers,” they wrote.

The investment structure has proven popular with institutional investors, who can park cash in Spacs while they wait for a deal to be done. Since the start of last year, 421 such vehicles have been listed globally, raising $127bn, according to Refinitiv. Of these, 405 were listed in the US, raising $125bn.

Amsterdam, which recently attracted the listing of a Spac launched by LVMH founder Bernard Arnault and former UniCredit chief Jean Pierre Mustier, is starting to emerge as Europe’s centre for these blank-cheque companies, thanks to its more flexible listing rules. UK regulations mean a Spac may have to suspend trading in its shares when a deal is announced, which is widely seen as a barrier to the adoption of the vehicle.

The UK has appointed former EU commissioner Jonathan Hill to conduct a review into factors that may be hindering UK listings. Rolet, Elliott and Black wrote that the review represents “a golden opportunity” and said that making tweaks such as permitting the disclosure of forward-looking statements by the company to investors during a Spac transaction could “draw a lot of business to the UK”.

“New York has taken the bulk of Spac issuance and Amsterdam has just started listing a few. London’s out of the race at the moment,” said Rolet, who is a board director at New York-listed Spac Golden Falcon. He is also non-executive chairman of Shore’s capital markets business, while Elliott serves as senior political adviser to the broker.

The calls to make the City more competitive comes after a series of blows to London’s longstanding dominance in European markets following the end of the Brexit transition period. Some trading in stocks and derivatives has flowed out of London, while Amsterdam last month supplanted London as Europe’s main share trading hub.

The trio also called for the City to become a leading centre for the trading of cryptocurrencies. Government agencies should be resourced to understand cryptos and attract top policymakers, so that London can be “at the heart of what will eventually be a regulated and very large component of financial markets”, they said.

In the paper, the authors also wrote of the need for a “serious reconsideration” of the EU’s Mifid II market rules to make London “faster, leaner, cheaper and better for global asset owners”. They called for an overhaul of Solvency II rules, which they said had pushed pension funds and insurance companies out of stocks and into bonds.

laurence.fletcher@ft.com