As reported in the last edition of UK Corporate Update, the FSA has published rule amendments to implement a new listing regime. This allows UK companies to apply for listing on the same, less onerous, basis as is available to overseas companies, with effect from 6 October 2009. Other changes which are intended to clarify the listing regime and ensure a level playing field for all issuers, regardless of place of incorporation, will become effective in April 2010.
The FSA has now published a policy statement and consultation paper which explains the rule changes in more detail and invites views on some elements of the new regime that will come into force in 2010.
Standard listing for UK incorporated companies
UK incorporated companies can now apply for listing on the same, less onerous, basis, as has been available to non-UK companies, to provide a level playing field to UK companies. This change took effect from 6 October 2009. As a result:
- UK companies for the first time have a choice of regimes for listing their shares: they can choose between a “premium” and a “standard” listing (formerly known as primary and secondary listings respectively). Companies with a standard listing need only comply with the minimum standards required by EU legislation, so UK companies now have the opportunity to list on the London main market without having to comply with the additional rules that apply to UK companies or overseas companies with a premium listing. The availability of choice of listing regimes is a significant contributor to the attractiveness of the London Stock Exchange as a listing venue for overseas companies.
- The standard listing option may be of interest to UK incorporated issuers that do not meet the eligibility requirements for a premium listing, or issuers who do not derive sufficient benefit from their premium listing (in terms of increased profile, enhanced analysts’ coverage, inclusion in the UK series of the FTSE indices or a more liquid market in their shares) to justify the expense of maintaining it.
- Standard listing will also offer UK incorporated commercial companies (but not UK investment funds or UK investment companies) an alternative to a quotation on AIM. The standard listing option will be available for UK companies which meet the 25% free float requirement and publish an EU Prospectus Directive compliant prospectus (“prospectus”).
- There is no need to publish a prospectus for an institutional offer made on AIM (as it is not a regulated market). However, in other important respects the AIM Rules for Companies impose greater regulation on issuers. Examples are the requirement to have a nominated adviser or Nomad and certain continuing obligations such as the requirements to notify or obtain shareholder consent to certain types of transactions. The standard listing option will therefore be less onerous in terms of continuing obligations than an AIM quotation.
- A premium listing will remain a pre-requisite for inclusion in the FTSE UK series indices. Issuers who require that form of index inclusion will still need to comply with the FSA’s stricter requirements for obtaining and maintaining a premium listing over and above the EU minimum provisions (e.g. demonstrating a three year track record and appointing a sponsor on admission to listing; and complying with continuing obligations regarding substantial and related party transactions).
- Under the FSA’s new regime, the listing of GDRs on the main market will fall within the standard listing segment along with debt and other non-equity securities. UK incorporated issuers are required to obtain a listing of their underlying shares at the same time as any GDR listing. This means that the main benefit of listing of GDRs, lesser disclosure requirements, is not available to UK companies.
- The sole option available to investment funds and investment companies wanting to list their equity on the Official List is premium listing. (standard listing ceased to be available to these issuers, in 2008, following the implementation of the FSA’s Investment Entities Listing Review).
Remaining provisions
Other new rules, which come into effect on 6 April 2010, include:
- Enhanced corporate governance requirements: Overseas companies which currently have a primary listing will be required to "comply or explain" against the Combined Code (rather than the corporate governance requirements of their country of incorporation) in respect of financial years beginning after 31 December 2009. This may lead overseas companies to reassess their corporate governance policies and board structures in order to be able to state that they have complied with the provisions of the Combined Code. In addition, all listed companies with shares or GDRs listed will be required to comply with requirements to make statements as to the corporate governance code to which they are subject or have voluntarily complied with and explain any non-compliance with that code as well as describing their internal control and risk management arrangements in relation to the financial reporting process.
- Moving from one segment to another
- Shareholder approval will be required to re-categorise a listing: overseas companies which have a premium listing and do not need to retain that type of listing (for example to remain FTSE-100 eligible) may wish to switch to the standard listing category, to avoid the need to explain non-compliance with UK corporate governance provisions and offer shareholders pre-emption rights, which would otherwise apply from 6 April 2010. Re-categorising the listing before that date can be done without obtaining shareholder approval, whereas from that date, the requisite approval must be obtained.
- A company wishing to transfer from a premium to a standard listing must obtain prior shareholder approval. Companies wishing to transfer into a new listing category must meet the eligibility requirements of the new category, so that, for example, a commercial company wishing to move up from a standard listing to a premium listing must make a clean working capital statement in a circular and appoint a sponsor, who must provide to the FSA confirmations regarding the issuer's compliance and financial reporting procedures and the basis of its working capital statement.
Further consultation
The FSA is consulting on two further issues until 2 December 2009:
- The draft rule requiring non-UK companies in the premium segment to offer pre-emption rights to their shareholders. The FSA’s aim is to ensure that the rule is effective in ensuring that shareholders are consulted on the possible dilution of their holdings in the same way as UK companies are currently required to do;
- The draft rule changes to clarify that equity securities with a standard listing must be admitted to trading on a regulated market.
Next steps
The FSA is carrying out an exercise to allocate all securities to the relevant listing category. This will be an important assignment to avoid unintended consequences such as a convertible bond issuer with a standard listing finding itself subject to the range of continuing obligations that accompany a premium listing and in breach of these rules as a result of non-compliance with them. This project will require amending existing definitions and the scope of the current Listing Rule chapters. It will therefore require a separate consultation, to begin in mid-November 2009.
To help educate the securities industry on the changes, the FSA intends to work with a range of market participants to help increase their awareness of the new segmentation and listing categories. Other rule changes will support this aim, for example, all listed companies will have to ensure that they display the segment and category to which their securities belong when they make a regulatory announcement.
Further information
The FSA’s further Policy Statement and consultation paper “Listing regime review - Policy Statement for CP08./21 and further minor consultation” is available at http://www.fsa.gov.uk/pubs/cp/cp09_24.pdf.
The Listing Rules Sourcebook (Amendment No 3) Instrument 2009 setting out the changes to the Glossary and the Listing Rules and showing the changes proposed to the existing rules is available at http://fsahandbook.info/FSA/handbook/LI/2009/2009_54.pdf.
The FSA’s Handbook Notice No 92 announcing the making of the changes is available at http://www.fsa.gov.uk/pubs/handbook/hb_notice92.pdf.
