Yahoo Finance Why you can’t buy Arm in stocks and shares ISA account
A listing technicality is denying thousands of retail investors the opportunity to buy shares in Arm Holdings (ARM) in their ISA stocks and shares account.
The Cambridge-based chipmaker, owned by SoftBank (9984.T), had a blockbuster IPO on 14 September when it listed on the Nasdaq (^IXIC) in New York and raised $4.87bn (£4.08bn).
However, not all investors have been able to buy into the company.
“It is a scenario that we see quite frequently, where shares are issued on the New York Stock Exchange (NYSE) via an American Depository Share mechanism (ADS)," an industry source told Yahoo Finance.
“The strict reading of the ISA regulations means that the ADS doesn’t qualify to be held in a stocks & shares ISA, because the underlying shares themselves are not individually listed. It’s one of those scenarios where, logically, we can’t really see an obvious reason as to why the ADS shouldn’t be ISA qualifying, but that is how the ISA regulations are currently worded, which we have corroborated with HMRC several years ago.”
It is not known when they might be available, if at all, in a stocks and shares ISA account. Yahoo Finance has contacted LSE for clarification and is yet to receive a response.
Analysts at AJ Bell also highlighted how wording provided by The Investing and Saving Alliance (TISA) suggests that the ADS' are not ISA qualifying.
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Hargreaves Lansdown also commented on the listing complication. "Our understanding is that Arm cannot be traded in an ISA. Arm is trading as an American Depository Share (ADS) which means that the actual shares are held in trust and the securities are simply representative. As a result, ADS can’t be held within an ISA wrapper."
Why opt to buy Arm via an ISA?
Stocks and shares Individual Savings Accounts (ISAs) allow people to invest in funds (shares or bonds from various companies pooled into one investment), bonds (a loan to a company or a government), and shares in individual companies.
There's often fees associated with stocks & shares ISAs, including a platform charge, management charge, trading fees and a transfer out fee.
On of the advantages of a stocks & shares ISA over a non-ISA investment account include exemption from capital gains tax (CGT), from bond interest, and from tax on dividend income.
However, your savings are not protected from losses as it is a risk-based investment.
Less than 5% of Brits have a stocks and shares ISA, according to recent statistics. According to Finder, in 2020-2021, the average subscription per account for stocks and shares ISAs was £4,568.
Why the fuss over Arm shares?
The British chip designer drew big investor interest after it signed up 28 banks, including Barclays (BARC.L), Goldman Sachs (GS), JPMorgan Chase & Co (JPM) and Mizuho Financial Group (MFG), for its IPO.
Shares in the company surged on its opening day on the Nasdaq after Japanese group SoftBank (9984.T) offered 9.4% of the company’s stock on the public market but still retained 90% after the IPO.
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Arm shares were priced at $51 before trading began, the top end of a range starting at $47, giving the company a market valuation of $52.3bn.
It was expected that the IPO would raise about $4.9bn for SoftBank, which paid $32bn to acquire Arm in 2016. After the IPO, the company confirmed that it raised $4.87bn based on the 95.5 million shares sold.
The Arm IPO created waves because the company designs much sought after microchips, which it then licences out to other companies.
Televisions, smartphones, drones, smart homes, smart cars, wearable tech, and electronic passports all use its technology. Given the ongoing global microchip shortage, Arm’s strategic importance has become more significant than ever.
Read more: Arm, Instacart, Birkenstock ... companies listing in 2023
“The company has exhibited robust financial performance, and its strategic advantages are manifold. These include a wide range of applications for its technology, a deep intellectual property moat, and established partnerships with key industry players,” Matt Oguz, founding partner at San Francisco-based Venture Science, said.
“Its substantial contributions to the ecosystem of connected devices make Arm an attractive proposition for investors looking to capitalise on the continued growth of IoT, AI, and edge computing.”
The IPOs of 2023 and beyond
Arm's IPO caused some market excitement with its recent listing and Instacart and Klaviyo have since followed suit.
Strong debuts could be enough to thaw some of the IPO freeze seen in the last 18 months. Year-to-date, there have been 84 traditional IPOs, that's according to Dealogic. In 2021, however, global markets delivered 2,682 IPOs raising $608bn (£500.54bn), including 459 IPOs in EMEA, raising $99bn.
The largest IPO globally in 2021 was the $13.7bn IPO of Rivian Automotive (RIVN) on the Nasdaq, an US electric vehicle automaker, which attracted significant investor attention.
This year, however, ARM, Instacart (CART), Klaviyo (KVYO) and upcoming Birkenstock (BIRK) are among the big IPOs of 2023 so far.
Watch: Nvidia & Apple: What the charts show about the tech giants
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