The retail section disappears from European IPOs | Financial markets

The times when José Luis López Vázquez screamed Matilde, you already have your telephone numbers! to encourage small Spanish savers to participate in Telefónica’s capital increase in 1967, the time of the retail investor in IPOs has already passed and behind them.

Investor participation retail in stock market debuts, it went down in history driven by chapters in recent financial history such as preferred shares, Bankia’s IPO or the Gowex scandal. Stock market debuts are no longer, strictly speaking, public sales offers (IPO), since to do so they must have a specific section for qualified investors and another for retailers, within which there may be a specific section for the company template.

Little by little, the IPOs reduced the section dedicated to small investors, to which up to 30% of the placement was previously allocated, as happened in 1999 with the first foray into the Parques Reunidos trading floor. The last major debut on the stock market that included the participation of small investors was that of Aena, in 2015. The partial privatization of the Spanish airport manager had a specific section for the investor retail which accounted for 5.7% of all placements. Small investors had to distribute a package of 3.8 million shares and achieved strong demand: more than 140,000 requests were made. Since then, only the premiere of OPDE has had a specific chapter for the small investor: 4% of the 200 million that the clean energy company placed on the market in July 2022 was allocated to it.

The scarcity of paper supply for the small investor goes further in time: since 2010 only three other debuts have had a specific section: Bankia, Banca Cívica and Enel Green Power, and none of such securities are currently listed as such. Bankia merged with CaixaBank; Banca Cívica also ended up being integrated into CaixaBank after listing only between 2011 and 2012, and Enel’s green subsidiary was delisted in 2016, six years after its debut.

From the market they justify the absence of a retail section in the IPOs due to the increase in costs and time involved in the placement processes. Thus, in the case of Aena, it took three weeks from when the CNMV approved the placement prospectus until it began trading, while Puig only needed two weeks. Added to this are the reluctance that the National Securities Market Commission (CNMV) has been showing. In the case of OPDE, the minority shareholders who attended the IPO had to explicitly state that they had read the placement prospectus and understood the possible risks.

The manager of the Spanish Stock Exchange, BME, recognizes that the lack of a retail section is among the causes of the low participation of households in the Spanish Stock Market, along with the growing weight of investment funds and the rise among investors of unconventional assets. According to a report published last October, retail investors controlled 16.2% of Spanish shares in 2022, the second lowest figure in the historical series.

In recent years, IPOs have become the preserve of qualified investors, a situation that is replicated not only in Spain but in the rest of Europe, where the last major IPO with a retail section was that of Porsche, in September. of 2022, which allocated 7.7% of the placement to this type of investors. Among this year’s placements, the Swiss Galderma and the German Douglas did have a small tranche dedicated to small investors, while CVC has been exclusively for institutional investors.

However, the exception to date was the French market, where companies were required to incorporate a retail section, although a recent modification has ended this rule. The French financial authority, AMF, decided in March to eliminate the obligation to include a retail tranche of at least 10% for all companies applying to list on the Euronext Paris regulatory market. A condition that, according to the supervisor, required issuers to offer small investors the securities for at least six business days, which made the operations more complex and had prompted criticism from many companies with aspirations to debut on the French Stock Exchange. in recent years. If retail investors did not cover that minimum percentage, the issuer could allocate those shares to institutional investors.

Less than a month after this decision, the venture capital firm Ardian placed the software company Planisware on the Stock Exchange, the first without a retail section on the French Stock Exchange. “There is a risk that the IPO projects planned in Paris will be executed on foreign stock exchanges, thus depriving retail investors of investment opportunities in the Euronext Paris market,” AMF justified.

The French supervisor has given itself three years to evaluate the withdrawal of the retail section obligation in IPOs and has assured that it will carry out a detailed study to evaluate the effects and practical consequences of the measure.

Small investor wanted

The crisis that is hitting the British Stock Exchange, affected both by the fall in trading volumes – the mantra of the rest of the European Stock Exchanges – and by the flight of companies to be listed in the United States, has led the United Kingdom Government to reconsider a strategy to encourage not only IPOs in the City, but also to increase the mass of minority investors. To benefit the investor retail, they are considering eliminating part of the legacy of the application of Mifid 2, especially that which restricted the analysis of securities, and which especially affects small and medium-sized firms. “Without access to the same analysis as institutional investors, too many retail investors rely on information sources such as messaging groups,” comments a report produced at the request of the London Executive.

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