“Any time anybody offers you anything with a big commission and a 200-page prospectus, don't buy it. Occasionally, you'll be wrong if you adopt "Munger's Rule". However, over a lifetime, you'll be a long way ahead-and you will miss a lot of unhappy experiences.”

Charlie Munger, Vice-Chairman Berkshire Hathaway

Matters are coming to a head for raising capital in the United Kingdom. Just a few days before the close on Friday 24 September of HM Treasury's Prospectus Regime consultation, the FCA director of market oversight, Clare Cole, said: ‘the listing regime is still stuck in 1984’.

And so it is - but worse than that, it is bogged down by EU Prospectus Directive rules which have resulted in the exclusion of personal investors, except for ‘below the threshold’ crowd-funding: which many regard as an accident waiting to happen.

So in this commentary we look at the refreshing welcome for new ideas in the HM Treasury review, and we suggest that now is the time for convergence between company reporting and new issue disclosure requirements so that the requirement for a prospectus can be scrapped.

If you are buying shares, the normal route for doing so is in the secondary market: and, unless they are traded on AIM, you'll be paying Stamp Duty. If it's a new issue, forget about applying at a discounted price and free of any Stamp Duty: that's restricted to institutional investors, thanks to our archaic listing rules. So, you’ll have to buy your holding in the secondary market once it opens, normally at a significantly higher price.

There's generally a good standard of protection when buying shares in the secondary market, notwithstanding that you won’t have read the prospectus (because there probably wasn’t one issued, with so many offers taking the form of placings). Regular company reports are available telling you all about the company, and frequently written in plain English for personal investors. The reports are audited and checked carefully to comply with UK company law and, thanks to Part 9 Companies Act 2006, they’re available to all nominee-based investors using an opt-in investment platform.

Meanwhile your investment platform is fully regulated and properly capitalised in order to deal with any problems that may arise.

Contrast this with buying new issue shares, in the rare cases where you can get access, and where a ‘prospectus’ is available.

An internet definition of ‘Prospectus’ starts: 'Prospectus Is a word for the forward-thinking. Like prospect, prospectus looks forward. Thus, a prospectus originally outlined something that didn't yet exist, describing what it would become.’

But the typical investment prospectus today studiously avoids giving forward-looking statements in order to minimise risk for issuers and advisers: instead it reads like a liturgy of legal gobbledegook and, if you apply direct, you'll have no protection from an FCA-regulated agent.

It's high time to change the listing and prospectus process, and HM Treasury's review is clearly open to a radical improvement.

The best way for this would be to remove the requirement for a prospectus altogether, and to require that company reports should carry such necessary additional safeguards as to replace that requirement. This may require some convergence between BEIS and HM Treasury but it is the logical way forward, since there would then be one reliable point of reference for all people buying shares, whether in the secondary market or the primary market. With continuous online updating, it would include all relevant market-sensitive information, and links would be provided for all share buyers at the point of purchase.

Turning to the Treasury Prospectus review, it usefully highlights a whole range of deficiencies in the listing process, and the unfortunate consequences thereof. These include:

  • the almost total exclusion of personal investors from the primary market over the past 20 years;
  • the total absence of rights issues in the AIM market, thereby denying fundamental pre-emption rights to personal shareowners; and
  • the way that thresholds have become a cap for crowd-funding, channelled through over 3,000 so-called ‘investment firms’ rather than encouraging a properly-regulated issue process.

The fact is that the regulators, far from providing investor protection, have encouraged issuers and their advisors to think first about their own self-protection, and have excluded individual citizens.

But, as we commented on 6 September, in a properly-disintermediated capitalist system, ordinary people should have the right to be part-owners of the businesses that they use and work in day-by-day: and this should be a global right.

Which brings us to the final general comment on this review: Chapter 8, which considers overseas listed companies. In a world as inter-connected as ours, where business and communications flow so broadly across national borders, you cannot restrict investor protection and listing issues to individual nations. We need the finance ministers of the G7 to build a consensus for convergence, in order to support global personal share ownership, and in so doing to lay the grounds for a platform on which egalitarian capitalism can be built throughout the world.

If you are interested to reflect on comments on specific questions within the review, please follow this link; and, if you would like to support this response, please contact HM Treasury direct on [email protected]  

And, if doing so, please express your satisfaction that both HM Treasury and the FCA are doing something to right the wrongs of the past decades!

Gavin Oldham OBE

Share Radio

please note: Gavin Oldham is also a director of Interactive Investor, but this commentary is written in a personal capacity and on behalf of Share Radio