Exchange responds to government's proposals on driving private sector recovery

  • Targeted policies and fiscal incentives needed to support SMEs
  • Government urged to help promote liquidity in growth company shares

Responding to the Government's ‘Financing a private sector recovery' Green Paper, the London Stock Exchange outlines how the success of the UK economy will increasingly be built on the performance of high growth SMEs, and makes a number of policy recommendations that will help ensure these companies can efficiently access the capital they need to grow.

The Exchange's policy proposals include:

  • Introducing a more favourable CGT regime for investment in quoted companies.
  • Allowing VCT participation in the secondary market.
  • Raising VCT investment ceilings.
  • Allowing ISA investment in quoted companies.
  • Abolishing Stamp Duty over five years.

Commenting on the submission, Marcus Stuttard, Head of AIM, said:

"This consultation represents an excellent opportunity for industry groups and businesses to work together with the Government to deliver real and tangible benefits to the UK's SME community. The targeted proposalsoutlined in this submission will help attract a wider set of investors to growth companies, providing them with vital initial capital and supporting deeper liquidity in the trading of their shares, generating a virtuous circle of investment and growth."

In its response the Exchange makes policy recommendations to support business funding across several key areas:

CGT

A reduced CGT rate or roll-over relief for capital gains on investment in companies on growth markets would not only boost liquidity but also encourage investors to re-invest their gains into smaller companies creating a more vibrant market for the longer term.

VCTs

Allowing VCT participation in the secondary market would provide urgently needed liquidity through funds that are already accounted for by the Treasury, while increasing the gross asset ceilings for VCTs from £7 million to £15 million and the employee test limit from 50 to 250 employees would make investment capital available to a wider pool of growth companies and SMEs.

ISAs

To bring a wider set of investors and boost liquidity in the secondary market, the Exchange calls on the Government to amend ISA rules to allow investment in unlisted companies, like those on AIM. The incremental investment that could result from AIM shares being made eligible for ISAs would partially offset the capital and liquidity that has been withdrawn from smaller companies during the financial crisis. This would further allow qualifying companies to diversify their shareholder registers.

Stamp Duty

Phasing out or abolishing Stamp Duty as part of a five year corporate tax strategy would further boost the efficiency of equity markets for UK companies, savers and investors. This measure would be revenue neutral for the Treasury and increase the total amount of capital investment by up to £7.5 billion a year[1]. As a reduced measure, the Exchange would welcome a targeted abolition of Stamp Duty for SMEs as a means of supporting growth companies' access to equity capital.

The London Stock Exchange plays a central role in the UK's small cap funding environment. More than 2,600 UK companies have joined the market since 1995, raising £24 billion at admission and a further £24 billion once on market. Today, there are 1,000 UK incorporated AIM companies that employ over 250,000 people and have an aggregate market value of £36.75 billion.

The Exchange's full Green Paper submission is available here:

www.londonstockexchange.com/policy

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For further information, please contact:

Alastair Fairbrother Press Office +44 (0)20 7797 1222

newsroom@londonstockexchange.com

Notes to editors:

[1] KPMG, Building a Sustainable recovery (2010)

About London Stock Exchange Group:

London Stock Exchange Group is Europe's leading diversified exchange business, incorporating Borsa Italiana and the London Stock Exchange. With over 500 member firms and more than 3,000 companies quoted across its markets, the Group operates the largest and most liquid equity marketplace in Europe.

The London Stock Exchange itself is the world's most international exchange with more than 600 overseas companies from over 70 countries. These figures include international companies quoted on the Alternative Investment Market (AIM), the London Stock Exchange's growth market, and the world's most successful market for small and medium sized enterprises with over 1,200 companies.

The Group offers trading in a wide range of instruments, holding the number one position in the trading of exchange-traded products (ETFs and ETCs) and through its interest in MTS, is Europe's leading platform for the trading of fixed income products. Through the Order Book for Retail Bonds and Mercato Telematico delle Obbligazioni (MOT) the Group also offers a comprehensive range of UK and European corporate and government bond trading services. Its Italian Derivatives Exchange Market (IDEM) sees over €2.5 billion worth of trading every day and through EDX London the Group provides a facility for the trading of Scandinavian and Russian equity derivatives.

London Stock Exchange Group also offers post-trade services such as netting, clearing and settlement on an efficient and competitive basis. These include services from Monte Titoli, the Central Securities Depository for all Italian financial instruments, and Cassa di Compensazione & Garanzia (CC&G), which in July 2009 was granted Recognised Overseas Clearing House (ROCH) status by the FSA to operate in the UK.

With the acquisition of MillenniumIT, the Group encompasses a leading developer of low cost high performance trading platforms and financial markets software serving both the industry and the Group's own businesses.

Since February 2010 London Stock Exchange Group has owned a majority stake in Turquoise, a Multilateral Trading Facility (MTF) providing pan-European and US lit and dark equity trading in some 2,000 securities across 19 countries.