Periods of volatility have a predictable effect on markets. Investors have less appetite for risk, IPO issuance slows or halts completely, and follow-on activity becomes far more selective. As bid-ask spreads widen and the cost of capital rises, valuation confidence weakens and execution risk increases for issuers. The ambition to access capital does not disappear, but it is deferred, causing pipelines to stagnate, as issuers wait for ‘better’ windows.
Right now, the UK reflects these dynamics. On the supply side, there is no shortage of companies ready for public markets. Venture and private equity-backed growth businesses continue to mature, building a substantial pipeline of potential issuers. Yet demand is more fragile.
In volatile conditions, public market participation becomes more irregular, and valuation gaps between private and public markets widen. Timing risk intensifies, and issuers face a difficult choice – to accept a discount, delay a listing, or seek private capital instead. Increasingly, optionality shifts toward the private sphere, with listings postponed or abandoned altogether.
And yet, this is precisely when public markets matter most.
Critical infrastructure
Public markets are critical infrastructure that supports the entire investment ecosystem. They are not simply venues for capital raising in benign conditions. They must provide continuous price formation, enable secondary liquidity, and allow companies to raise capital repeatedly over time. In periods of stress, these functions become more – not less – valuable. Liquidity provision may be uneven, but its presence remains essential. In this sense, public markets might be considered countercyclical, with their need becoming more important even if volumes fall.
Reduced primary issuance does have consequences for market quality, however. Fewer IPOs and secondary raises mean fewer expansions in free float, limiting the depth and breadth of tradable assets. Over time, liquidity concentrates in incumbent names, while the universe of listed growth companies contracts. This creates a vicious cycle, with thinner markets discouraging investor engagement. This ultimately raises the cost of capital and further suppresses issuance. Left unchecked, these risks erode the diversity and dynamism that public markets are meant to support.
Market structure, therefore, is central to resilience. Predictable issuance frameworks and efficient price formation mechanisms are essential in maintaining confidence through the cycle. It is also important to recognise that public markets are not only for large-cap businesses. Tomorrow’s large caps are today’s small caps, and it is the growth of these scale-up companies through public investment that helps drive economic growth in the UK. For earlier-stage public companies in particular, graduated access to liquidity can help bridge the gap between private and fully mature public markets.
Reducing friction
Equally important is reducing friction across the lifecycle of a listed company. Streamlined admission processes, proportionate regulation with balanced ongoing disclosure requirements, and robust secondary trading conditions all contribute to a more accessible and functional market environment. Competition between venues, alongside continued innovation, can further enhance these outcomes, ensuring that markets evolve in line with issuer and investor needs. These are some of the key reasons that the Aquis Stock Exchange exists.
History provides evidence that access can be preserved, even in challenging conditions. During the global financial crisis, many companies were able to raise capital across multiple transactions, while other listed businesses relied on emergency recapitalisations, demonstrating that markets remained open for those able to navigate them.
Similarly, in the early stages of the COVID-19 pandemic, companies continued to access equity capital through placings. helped in part by temporary regulatory adjustments that enabled issuers to move quickly. The lesson is not that issuance volumes remain constant, but that well-functioning market structures can preserve access when it is needed most.
Prioritising continuity
The objective in volatile markets should not be to force issuance against the cycle. Cyclicality is an inherent feature of capital markets and cannot be engineered away, nor should it. The priority instead is continuity and ensuring that access to capital remains available, that primary and secondary markets function in an orderly manner, and crucially, that institutional investors retain confidence in participation.
This continuity rests on a small number of essential enablers including transparency in pricing, stability in rules and processes, and consistency in execution outcomes. When these elements are in place, markets can absorb volatility without losing their core function.
Ultimately, issuance may ebb and flow, but access must endure. Long-term market health depends not on the volume of deals in any given quarter, but on the reliability of the system as a whole. Volatility will always test markets, but it should never be allowed to close them.