Many of the world’s stock markets are making efforts to attract listings by smaller companies, but these efforts are having mixed success, according to the World Federation of Exchanges (WFE).
In a study released Tuesday, the industry trade group for exchanges and clearing firms said 68% of its member exchanges now have specialized listing platforms or market segments devoted to junior companies, which offer alternative listing rules, reduced fees, or other measures designed to facilitate listings by smaller firms.
However, these initiatives are being “met with varying levels of success, which depend on the manner, and level, of regulatory and government support,” the WFE said.
The study noted that the number of venture listings on exchanges based in advanced economies “has made almost no progress in the last decade.” Conversely, the number of listed companies on emerging market exchanges has nearly doubled over the same period.
“This increase is primarily driven by the developing countries in the East Asia and Pacific region, which accounts for 49% of global venture listings,” the study said, adding that “listings in the North America and Latin America and Caribbean regions has been decreasing during the same period.”
In terms of market capitalization, the value of venture listings in emerging markets has increased about thirteen-fold since 2012, the WFE said, with about 90% of that total in the East Asia and Pacific region. Overall, the market cap for venture companies has increased five-fold over the same period.
The report concluded that the efforts of exchanges to drive venture listings are most effective when they are “supported by a vibrant and widely-supported financial ecosystem, implying that a combination of tailored exchange initiatives and broader financial ecosystem action is necessary to drive substantial growth in [venture] listings.”
It recommended that regulators undertake educational efforts for venture firms to highlight the benefits of public listings; that regulators work with exchanges to develop tailored listing requirements; and that exchanges entice investors with reduced fees, research coverage, and investor education targeting junior stocks.
“Only when the whole financial ecosystem takes action will we see global prosperous [venture] markets,” said Nandini Sukumar, CEO with the WFE, in a release Tuesday. “Policymakers need to consider how best they can enhance the attractiveness of their domestic exchanges through initiatives such as tax incentives or the simplification of listing regimes.”
The WFE’s research also found that venture markets “generally exhibit lower liquidity compared to main markets” and that there’s a “notable correlation” in returns between venture markets and main markets.
Further, the study said volatility in venture markets has increased in the post-pandemic period, “with policies such as stimulus packages amplifying market fluctuations.”