LONDON – Special purpose construction companies, or SPACs, are showing signs of “froth” in the US – and that’s not going well for investors, the head of the London stock exchange warned on Friday.
“There has been little recognition about the market in the U.S. market,” London Stock Exchange Group (LSEG) CEO David Schwimmer told CNBC’s “Squawk Box Europe”.
“I think it’s important that investors, regulators, market participants use SPACs appropriately,” he said.
Too much in the U.S. SPAC market could “end badly” for investors, Schwimmer told reporters later in the day, according to Reuters.
SPACs are shell companies that raise money in a public offering to take over a private public body by taking over. They have become an increasingly popular route for some companies – especially those in the technology sector – that want to list their shares.
Last year, U.S.-registered SPACs raised a total of $ 78.2 billion over 244 IPOs, according to data from Refinitiv. They have already raised more than half of that just two months into 2021.
There are growing concerns about highly speculative investment in Wall Street’s hottest new vehicle. SPAC that focused on recreation recently made a biotechnology deal, while a white cannabis exploration company merged with a space company.
Goldman Sachs CEO – one of the biggest beneficiaries of the recent SPAC increase – said he does not think too much in the market would lead to “crisis.”
“The market will naturally flow some of the rest out of this,” David Solomon told CNBC earlier this year.
Europe has largely fallen out of SPAC hype. In Britain, a government-backed review called for reforms to the London list regime to allow SPACs that are similarly structured to those in New York.
A common complaint about SPACs listed in London is that trading can cease when a merger is announced.
A view of the London Stock Exchange Group’s sign in the City of London.
Vuk Valcic | SOPA Images LightRocket through Getty Images
“There are opportunities to change the rules in the UK regime to… suspend trading when trade is announced for SPAC,” Schwimmer told CNBC.
“With these changes, SPACs could be used as one of the tools in the machine here for the UK market.”
GameStop Mania
At the same time, regulators have lifted the warning about speculative investing in stocks with a major downside like GameStop.
GameStop shares went through wildly volatile trading earlier in the year as a result of what is known as “short-term pressure” – where investors push up share prices, forcing short sellers to hold positions. to cover.
The move was largely taken aboard the Reddit WallStreetBets, which had pumped out a number of unloved stocks including GameStop, AMC and BlackBerry.
“We’ve seen speculative froth in the markets from time to time over the years,” Schwimmer said, when asked about GameStop.
“There are some reasons for concern in certain areas in today’s markets,” he said. “I’m not in the investment advice industry but I think it’s important to continue investors proceed cautiously and make thoughtful decisions when investing in the market. “
The London Stock Exchange on Friday posted a profit of £ 1.1 billion ($ 1.5 billion) for 2020, up 5% from a year earlier. Exchange revenue rose 3% to £ 2.1 billion. LSEG is also divided by 7%.
That wasn’t enough to impress investors, however, as the company’s share price fell 9% on Friday.