The Financial Services Authority has published the Listing Rule changes which implement its review of the listing regime. The most significant change is the restructuring of the regime into premium and standard listings, which will replace the current primary and secondary listings from 6 April 2010.
The Financial Services Authority (FSA) has published the Listing Rule changes which implement its review of the listing regime. The most significant change is the restructuring of the regime into premium and standard listings, which will replace the current primary and secondary listings from 6 April 2010.
The changes also mean that UK companies can list their securities on the standard segment (previously only available for overseas companies). Overseas companies with UK listings will also be affected (see box “Key changes”).
The changes follow a period of consultation which started in January 2008 (www.practicallaw.com/6-384-8832). The FSA considered key elements of the listing regime, including whether to retain the "super-equivalent" listing standard (that is, requiring companies to comply with rules that exceed the relevant EU directive standards), the re-labelling of the different listing segments and whether to remove secondary listings and the listing of global depositary receipts (GDRs) altogether from the Official List.
The two-tier listing regime is being retained but re-labelled with effect from 6 April 2010. A tier 1 of primary listed securities with super-equivalent standards will be re-labelled as the premium segment and a tier 2 for all other securities, listed on an EU directive minimum basis, will be re-labelled as the standard segment.
There will be no substantive change in the requirements for a primary (to become premium) or secondary (to become standard) listing, with the exception that overseas companies with a premium listing will be subject to more onerous obligations on corporate governance and pre-emption rights (see “Overseas premium listed companies” below). (For a feature article on the current regime, see “Continuing obligations: EU directive-driven and UK super-equivalent”, www.practicallaw.com/0-383-9878.)
An issuer with a secondary (to become standard) listing has fewer obligations under the Listing Rules than an issuer with a premium listing.
A new rule will be introduced that will prohibit the misrepresentation by a company of the type of listing that it has. Regulatory announcements by companies will have to be accompanied with the segment and category to which the company’s securities belong.
The FSA has opened up the standard listing regime to UK companies with immediate effect. The changes have been introduced by amendments to Listing Rule (LR) 9 and LR 14, which took effect on 6 October 2009.
The FSA says that, in practice, it does not expect a significant number of companies to move from a premium to a standard listing citing, among other reasons, the fact that a current requirement for inclusion in the FTSE UK Index Series is a UK primary (to become premium) listing.
Investment companies will, as now, only be able to list in the premium listing segment under the separate regime in Chapters 15 and 16 of the Listing Rules.
Companies will be allowed to migrate between the premium and standard segments, without cancelling their listings, with effect from 6 April 2010. Companies with a premium listing which wish either to move down from the premium segment or to cancel their listing, will have to obtain prior shareholder approval.
In addition, the issuer must comply with certain procedural requirements, including:
Providing a notification to the FSA setting out, among other things, how the issuer satisfies the requirements of the category to which it is seeking to transfer.
Appointing a sponsor where the issuer is seeking to migrate into the premium segment.
If shareholder approval is not required for the migration, informing the market of the proposed migration through a regulatory information service (RIS) announcement (which the FSA must approve), giving at least 20 days’ notice of the migration.
If shareholder approval is required for the migration, sending a circular to its shareholders giving at least 20 days’ notice, making an RIS announcement at the same time as the circular is sent, and obtaining approval from at least 75% of its shareholders.
Overseas companies with a premium listing will face the following new requirements:
Corporate governance. They will need to "comply or explain" against the Combined Code on corporate governance (the Code) in financial years beginning after 31 December 2009.
The FSA says that it believes that the Code is sufficiently flexible to allow companies to explain the stance they have taken on some key corporate governance concepts where their practice does not accord with the Code. The FSA also points out that 45 out of 171 premium listed overseas issuers already comply with or explain against the Code.
Pre-emption rights. From 6 April 2010, they will be required to offer pre-emption rights to their existing shareholders when they make an offer of shares for cash (unless there has been prior shareholder consent to disapply pre-emption rights).
The FSA is consulting on a draft rule which attempts to implement the requirement to offer pre-emption by requiring companies to ensure that their constitution provides for pre-emption rights (Appendix 2 to CP09/24).
In addition, from 6 April 2010, overseas companies with equities or GDRs (whether with a premium or standard listing) will need to comply with Disclosure and Transparency Rule (DTR) 7.2. This requires a company (among other things) to:
Make a corporate governance statement in its annual report and accounts based on the code to which it is subject or with which it voluntarily complies.
Describe its internal control and risk management arrangements in relation to the financial reporting process.
It is unlikely that many UK companies that currently have a primary listing will seek to switch to a standard listing, although it may be attractive to a few companies. However, the option of obtaining a standard listing is more likely to be attractive to some companies looking to come to the market for the first time.
Antonia Kirkby and Richard Hollis are professional support lawyers at Herbert Smith LLP.
Policy statement and consultation “Listing regime review” (CP09/24), www.fsa.gov.uk/pubs/cp/cp09_24.pdf. Listing Rules Sourcebook (Amendment No 3) Instrument 2009 (FSA 2009/54), http://fsahandbook.info/FSA/handbook/LI/2009/2009_54.pdf.
The Financial Services Authority is amending the listing regime to:
Restructure and re-label the regime into two segments: "premium" and "standard" (equivalent to the current primary and secondary listings). A premium listing will require a company to meet super-equivalent standards, while a company with a standard listing will only need to meet EU minimum standards.
Make the standard listing segment, which was previously only available to overseas companies, available to UK companies as well.
Simplify the process for companies with an equity listing wishing to move from one segment to another by clarifying that a cancellation of their listing is not required.
Strengthen the rules for overseas premium listed companies by requiring them to "comply or explain" against the Combined Code on corporate governance and to offer pre-emption rights to their shareholders.
Require overseas premium and standard listed companies to provide a corporate governance statement and to describe the main features of their internal control and risk management systems.
The changes will take effect from 6 April 2010 except the change allowing UK companies to have standard listing, which took effect on 6 October 2009.