Author: Stuart Lucas

‘A new venue offering intermittent liquidity would solve a very real problem by bridging the gap between the private and public markets, creating a genuine boost to the scale-up economy in the UK and for any company that wishes to grow here.

Crucially, this market will enable companies to stay private if they want to, while providing structured and efficient liquidity in their existing shares at predetermined, infrequent intervals. Infrequent is the key word: this market will serve companies whose investors neither need, nor have the desire for ongoing liquidity.’– Dr Darko Hajdukovic, Head of New Primary Markets, London Stock Exchange, June 2023

Back in June, when we first read about the London Stock Exchange’s (LSE) plans for an Intermittent Trading Venue (ITV), my first thought was ‘this sounds awfully familiar’. My second was: ‘it’s about time.’ As a platform that has been running periodic (read: infrequent) auctions for private company shares for over 12 years, we’ve long been aware of the liquidity this approach to trading can bring to growth companies. The preferred public market option for these companies to attract capital, AIM, has been failing to justify its own costs for years and the LSE’s plans for their ITV looks like an admission of that to us. 

We’re now almost six months on from the ITV story first appearing and we’re yet to hear anything more concrete. Considering British PLC is in desperate need of a boost, it seems like an odd time for feet dragging when there’s companies nationwide sitting on billions in trapped liquidity and a proven route to let it loose on the economy. This is vital for making the UK look like an innovative place to do business once again.

What is an Intermittent Trading Venue? 

First off a quick explainer on what exactly an ITV is and why the LSE seems so keen on introducing one. 

An ITV is simply an exchange that allows the buying and selling of company shares for a pre-ordained time – unlike public markets such as the LSE or its growth arm, AIM, which provide ‘daily liquidity’. These can be particularly useful for small to medium growth companies, the kind you might find in the lower half of the AIM listings for example. While the LSE’s official line is that this will serve those ‘whose investors neither need, nor have the desire for ongoing liquidity.’ We would add that even if they did, they wouldn’t find it on AIM. Despite the average AIM IPO bringing in, by its own numbers, around £20m of funding, the number of AIM listed companies is down nearly 60% since its 2007 peak. Investors have, for the most part, moved on.

The overall IPO market is down which not only hinders founders and initial shareholders from cashing in but investors too, many of whom are far from billionaire VCs but friends, family and first employees. It also facilitates the recycling of cash – especially considering the illiquidity discount (30% to 50% by our estimates) it offers buyers – back into the market, bolstering sentiment. With cash in short supply, it’s no surprise the Government is so keen on the idea. 

As with much of the noise coming out of the LSE and the Treasury at the moment, this is actually a good idea. However, with a General Election surely coming soon and a change in government increasingly certain, many decision makers seem stuck in limbo. This is despite the clear evidence that the companies themselves are looking for new routes to liquidity themselves, with many delisting in an attempt to attract new capital.

Our concern is that the LSE may not understand the intricacies of the private markets and may, through no fault of its own, get caught up in politicking. AIM, afterall, has long been in need of a serious shake-up but the energy to start shaking doesn’t seem to be there. 

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We know how impact an ITV can be for releasing trapped liquidity as we have been running one for 12 years and completed over 750 auctions. 

Truth be told, although we’re delighted the LSE has seen sense and accepted that periodic auctions are the right way forward, it did come as a bit of a surprise. Especially considering that over the years, we’ve had a number of conversations with its team about how we could help them implement such an approach, but to no avail. Considering the current plan is an ITV by the end of 2024 and it’s now the end of 2023 and there are no concrete plans in sight, we would be happy to share some of our expertise.