Norges Bank Investment Management would like to see an increase in the number of company listings and in a new research paper suggests more flexibility from exchanges and index providers could facilitate this.
The paper, The listings ecosystem – aligning incentives , examines the decline in the number of company listings and the concern this presents for investors.
It says that unintended consequences of regulations, lower capital needs, expansion of alternative funding sources, and changing market structure have been suggested as possible causes for this systematic decline.
The paper, which reflects Norges Bank Investment Management’s views, provides a framework that attempts to address this decline and proposes possible remedies that could be taken by the various stakeholders to encourage more listings.
The paper argues that at its core, the listing ecosystem needs to establish a new equilibrium to address the evolving conflicts of interest between founders, early investors, underwriters and future shareholders.
It proposes some practical steps that could be taken by brokers, exchanges and index providers.
One of the key findings is that given the demand from investors to access smaller and start-up companies, that exchanges develop new solutions in the form of new listing classes or alternative trading platforms, to enable smaller firms to go public at an earlier stage of their life cycle.
NBIM welcomes the idea of junior or secondary exchanges that aim to reduce barriers of entry for smaller firms. And that eligibility criteria, like trading liquidity and reporting frequency, could be relaxed at the early stages of new company’s listed life cycle.
It suggests that index providers could also be more relaxed and revisit their rules for inclusion.