LSE LOBBIES FOR LOOSER LIMITS ON VENTURE CAPITAL INVESTMENT, END TO STAMP DUTY

Posted February 20, 2009

LONDON – The London Stock Exchange (LSE) is advocating a removal of restrictions on venture capital trusts (VCTs) to stimulate investment in small- and medium-size enterprises and boost liquidity in secondary markets.

The LSE has also called for the removal of Stamp Duty, which is imposed on equities alone, resulting in an unfavorable tax treatment versus cash and bonds. The LSE points out that removal of Stamp Duty will reduce the costs UK public companies face in accessing vital equity capital, encourage investment, and help restore the value of pension funds and other savings. It also cites studies that find Stamp Duty erodes, on average, 2.38 percent of the value of a pension fund and makes trading in UK less attractive for investors.

VCTs should be allowed to invest in shares in qualifying companies through the secondary market, rather than being restricted to new share issues as now, according to the LSE. This would also reduce the cost of raising capital and allow VCTs more freedom to shift investment to companies with better prospects, therefore also stimulating capital flow into VCTs.

“Last year, a record £71 billion was raised through our markets as many larger companies strengthened and rebuilt their capital positions through a process of re-equitization as the risks of over-reliance on debt finance became clear,” says Clara Furse, Chief Executive, LSE. “Moving swiftly to revive VCTs will help to ensure that smaller companies benefit from easier access to equity finance, and thereby help to mitigate the effects of the financial crisis on the real economy, complementing and reinforcing the steps that the Government is already taking to improve [small and medium enterprise] access to bank finance. On AIM alone there are over 1,000 small and medium UK companies employing more than 155,000 people – dynamic companies like these are vital to our economic prospects and our ability to generate new jobs.”

The LSE is advocating an increase in limits on gross assets and employees in determining companies’ eligibility for VCT investment, to increase the pool of eligible companies, calling for an increase of the asset limit from £7 million to £25 million, and the limit in number of employees from 50 to 200. Such an increase in the limits would make 170 more companies eligible for listing on AIM, the LSE’s growth market.