A drive to level the playing field in the stock market by opening up flotations to retail investors has received a boost with the creation of a new business that aims to link private shareholders with deals.
The boss of RetailBook hailed a “significant milestone” on Monday after the company completed a carve-out from Peel Hunt, the City stockbroker, to become an independent firm.
The business has its origins in REX, a technology platform that was developed by Peel Hunt and allows individual investors to participate in listings and other big fundraising deals that have typically excluded retail shareholders.
It raised £2.5 million from investors including Peel Hunt in March as part of a plan to separate it from the stockbroker and was authorised by the Financial Conduct Authority, which is the City regulator, the following month.
There has long been criticism that individual investors are unfairly disadvantaged by the way fundraisings work. Shares sold by companies going public through flotations have usually been offered only to institutional investors, who stand to reap paper profits if the stock rises once it starts trading, a so-called “pop” that is aimed for by the investment bankers who organise listings.
Private investors have also been left out of share placings undertaken by already-listed businesses in deals that are typically priced at discounts to the prevailing price of their stock, meaning that retail investors have missed out on bargains and have also suffered by having existing shareholdings diluted.
Investment banks arranging deals have argued that trying to include small investors in listings and placings can be expensive and time-consuming but technology is paving the way for wider access.
The government and regulators are also keen to encourage more investing by the general public as part of wider efforts to bolster the health of Britain’s capital markets, amid concerns about cheap valuations for London-listed businesses and a dearth of initial public offerings in recent years. In June Raspberry Pi, the computer developer, bucked the trend with a listing on the London Stock Exchange. It will release its first results since its flotation on Tuesday.
Aaqib Mirza, RetailBook’s chief executive, said: “RetailBook’s vision is to deliver fairer and more inclusive capital markets for retail investors.”
It will vie with other platforms that allow private investors to take part in initial public offerings and follow-on fundraisings, including PrimaryBid, which was started in 2016, and the WRAP service offered by Winterflood, a leading equities market-maker owned by Close Brothers, the merchant bank.
Peel Hunt developed its REX platform nine years ago and the hope is that by separating it from the stockbroker RetailBook’s growth prospects will receive a boost. This is because carving it out should remove any perceptions of conflict of interest between Peel Hunt and RetailBook that could have deterred other banks from referring business to the platform.
In a boost to the plan, RetailBook revealed last year that the City investment banks Rothschild, Jefferies, and Deutsche Numis, as well as Hargreaves Lansdown, which is Britain’s biggest DIY investment platform, had agreed to collaborate with the venture.
Mirza, who was previously Peel Hunt’s chief technology officer, invested £75,000 as part of the March fundraising, while Steven Fine, who is Peel Hunt’s chief executive, put in £100,000, and Darren Carter, a City veteran who is a non-executive on the broker’s board, contributed £772,000.