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Retail IPO access portal on potential collision course with ASX on listing requirements

by James Dunn | 15 Sep 2016

With its 30th initial public offering (IPO) on the slipway, and the combined total of IPOs in which it has participated now above $800 million, digital investment banking platform On-Market BookBuilds continues to build on its retail investor-oriented niche in the Australian stockbroking industry’s primary market function.

But it remains on a potential collision course with the Australian Securities Exchange (ASX), which will soon release its amended listing rules.     

On Market BookBuilds’ world-first free-access portal into capital raisings for listed companies allows retail investors and self-managed super funds (SMSFs) to buy shares in IPOs and placements, without needing to be a client of a stockbroker. Once they register with On Market BookBuilds, investors can make on-market bids for shares in any IPOs that use the platform.

Ben Bucknell, chief executive of OnMarket BookBuilds, says the portal does not disrupt the stockbroking firms and investment banks — it helps them with distribution. “The lead managers have accepted us very well, because we help with distribution,” he says. 

“We make it easy for the lead managers because we provide them with an additional pool of demand, and a continuous flow of information on demand, which is visible in the book. That leaves them free to engage with the institutions, and we put the institutional roadshow up on the site for retail-land to see. It’s cheaper for the lead managers and it leaves a lot of value on the table for them.”

Testament to this, says Bucknell, is that lead managers are coming back to OnMarket BookBuilds, and issuers are recommending that it be used. 

For investors, the beauty is that they get access to IPOs and placements that otherwise would have been confined to the lead managers’ client bases. 

According to OnMarket BookBuilds figures, of the 29 IPOs in which it has participated since the portal’s launch in October 2015, the average first-day return has been 6.7 per cent. Investors who held a stock for a month earned 7.6 per cent. If they held the shares for three months, on average they earned 22.5 per cent, and if they held the shares for a year the average return was 73.6 per cent.

But Bucknell’s determination to democratise the IPO process could potentially be about to be torpedoed by the ASX, which spent FY16 consulting on proposals to update the admission requirements for listing, to (in its words) maintain the quality of ASX as a world-class listing venue.

The ASX says it had “constructive stakeholder engagement” on the proposals and is giving careful consideration to the feedback, including the potential impact on particular industries. The exchange has undertaken further targeted discussions with stakeholders to assist in finalising the proposed changes. It expects to respond to the feedback and publish the new listing admission requirements by the end of October. The exchange is known to be concerned about the need to protect retail investors from losing retirement savings in newly listed, risky businesses.

Currently, ASX rules require each IPO to have 300 to 400 shareholders. The ASX is proposing to reduce the minimum number of investors required in a float from 300 to 100 in IPOs of more than $50 million in value, and 200 investors for smaller floats. 

We think a minimum number of shares should be allocated to retail investors. Our recommendation to the ASX was to consider following rules modelled on Hong Kong …

The Australian Shareholders’ Association (ASA) says no other exchange in the world considers 100 to 200 investors to be a reasonable spread in an IPO. It says that number would be quite easy for an investment bank lead manager to satisfy, meaning less outside access to the stock. 

Apart from the amended shareholder spread requirements, the ASX also wants to increase the value of the minimum size of a parcel of shares in an IPO from $2,000 to $5,000. Additionally, the exchange says it wants to increase the minimum amount of free float (stock available on the day of listing) from 10 per cent to 20 per cent. 

Once announced, the new listing requirements will take effect on 19 December, based on the fact that late December to January is traditionally a quieter period for new listing activity.

Bucknell was a vocal participant in the consultation progress, arguing that the Australian capital market needs wider participation from retail investors, not less.

“We think a minimum number of shares should be allocated to retail investors. Our recommendation to the ASX was to consider following rules modelled on Hong Kong, which has 25 per cent of IPO shares that must be allocated to retail investors, or Singapore, which has 40 per cent of every IPO reserved for the retail public.

“We believe that the 5.94 million-plus Australians (or around one-third of the adult population) that own shares directly should have a greater opportunity to participate in the wealth generation process of IPOs, not less,” says Bucknell. “The thresholds that we’re suggesting are reasonable because there’s more than 577,000 SMSFs, and they account for $620 billion in assets, which is 29 per cent of Australia’s retirement savings.”

Bucknell argues that listing rules that give SMSFs certainty that they will be treated fairly in IPO and placement allocations effectively makes a new $620 billion pool of capital available to Australian companies raising capital. 

“This could lower the cost of raising capital and have national benefits for the Australian economy, jobs and growth,” he says.

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  • | Sep 15, 2016

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