With the number of listed companies in London nearly halving over the past two decades, investment bank Stifel has called for more radical reform of the Square Mile capital market if it is to reclaim a place on the global stage.
The broker said mergers, takeovers and companies shifting listings overseas have driven a steady loss of equity, with a "moribund" IPO market failing to offset the decline, with London listings having nearly halved to 1,092.
So far in 2026, there has been just one float in London (iFOREX Financial Trading).
The decline has been uneven, with smaller companies bearing the brunt. Since 2006, the FTSE 250 has lost 13% of its equity, the FTSE SmallCap index has almost halved in size, the AIM market has shrunk from over 1,700 companies to 679 and the FTSE Fledgling index has “almost disappeared entirely”.
Stifel said capital allocation trends are a central issue, with UK pension funds now allocating just 1.6% of assets to domestic equities, down from 21.7% in 1998, despite benefiting from significant tax relief.
This has contributed to a “vicious cycle”, where capital flows overseas, supporting higher valuations elsewhere and further weakening London’s appeal.
“London has been on the wrong side of this cycle for too long, and has to change course to onshore domestic capital,” wrote deputy head of research John Cahill.
While recent regulatory changes have aimed to simplify listing rules and improve capital raising, these are felt not to go far enough.
Stifel called for more radical reforms, particularly targeting pension funds, suggesting that a greater proportion of the UK’s £3.2 trillion pension assets should be directed into domestic equities.
The broker also highlighted stamp duty on share purchases as a structural disadvantage, describing it as “an anachronism” that reduces liquidity relative to other markets. Proposals include scrapping the duty, revisiting ISA rules to encourage equity investment and reversing cuts to inheritance tax relief on AIM shares.
Stifel also sees scope to expand retail participation and accelerate consolidation of local authority pension schemes into larger “megafunds” capable of investing at scale in UK assets.
However, the likelihood of rapid change remains uncertain. While the government and regulators have begun implementing reforms, many proposals – particularly around pensions and taxation – would require significant political commitment and could face resistance due to fiscal costs.
“The UK must reform its capital markets if the stock market is to return to growth and reclaim its place on the global stage,” Stifel said.