Steve Banfield
Industry Director, EQ
Whilst the implementation of these changes may seem to be being fast tracked, it’s worth remembering Lord Hills Review was published in March 2021, and the FCA consulted the market in both May and December of 2023, via their Primary Markets Effectiveness Review, where the FCA introduced new listing categories, including:
A new segment for Commercial Companies (Equity Shares) (ESCC) to replace the previous premium and standard listing segments. A Transition segment will remain for companies previously on the Standard Segment as they seek to make the necessary compliance arrangements for the ESCC.
The criteria are less onerous than the previous premium listing segment but more stringent than the previous standard listing requirements.
Key Features and eligibility criteria:
- Financial information conditions: The premium listing requirements for a three-year revenue track record and “clean” working capital statement have been removed.
- Controlling shareholders: Companies that fall into the Commercial Companies (Equity Shares) (ESCC) category will need to maintain their independence from controlling shareholders but will not be required to enter into a written relationship agreement. Instead, if a controlling shareholder proposes a shareholder resolution, the board must include an opinion statement on the resolutions in the shareholder circular. Constitutional and voting requirements on the election of independent directors will be retained.
- Dual-class share structures: These will be permitted for the ESCC subject to less stringent conditions. These structures are no longer subject to time-based sunset restrictions but may not be exercised on certain matters that adversely impact holders of listed shares.
- Pre-emption rights: Carried over from the premium listing requirements.
- Transactions: The regulation of material transactions entered into by a ESCC company will be disclosure-orientated. In particular:
- Following completion, companies will be required to publish a notice that the transaction has taken place, although there will be increased flexibility regarding the timing and content of announcements. They will be no longer required to be as soon as possible once the terms are agreed, nor will these transactions require audited financial information on the target or a statement regarding the fairness of the consideration.
- Removal of shareholder vote and FCA-approved circulars for class 1 (significant transactions) and related-party transactions. This will be replaced by a requirement of a transaction announcements.
- Larger related-party transactions will require a fair and reasonable opinion from a sponsor.
- There are no listing rule disclosure requirements for “class 2” transactions (below 25% threshold on the class tests) although compliance with MAR is required.
- Reverse takeovers will require shareholder approval and an FCA- approved circular.
- There will be no prescribed disclosure requirements for accompany experiencing financial difficulty/undergoing reconstructions.
- Shareholder approval is still required for certain share buy-backs, non-pre- emptive discounted share issuances, and listing cancellations.
- Continuation of most premium listing annual disclosures, including Task Force on Climate-Related Financial Disclosures (TCFD) and board diversity reporting.
- Ongoing application of eligibility requirements around controlling shareholders, dual-class share structures, and pre-emption rights. Institutional investors will be allowed to hold weighted voting rights and these rights will be subject to transfer restrictions and a 10-year sunset period.
There will be a new category for Shell Companies (Equity Shares) specifically designed for shell companies and special purpose acquisition companies (SPACs). Companies falling into this category will have up to 3 years to complete a transaction subject to shareholder approval, which can be extended a further six months in certain circumstances.
There will be a new International Secondary Listings (Equity Shares) category, designed for overseas incorporated companies with a secondary listing in the UK. This segment will have additional qualifying criteria, mainly confirming that their overseas listing regime is signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information. Again, this segment will be largely based on the previous standard listing segment.
The new regime will retain existing categories for global depositary receipts (GDRs), closed-ended investment funds, open-ended investment companies (OEICs), debt securities, securitised derivatives, as well as for warrants, options, and other miscellaneous securities.
All companies who move to a new segment will automatically be mapped across to their relevant new categories on July 29 and be covered by a single set of listing principles, which will include additional guidance on the role of directors and the accessibility of information, and a requirement for issuers to submit a board declaration confirming appropriate systems and controls are in place, upon the first admission of securities.
The ongoing sponsor role is cut back materially and limited to further issuance for listing applications with a prospectus, reverse takeovers, fair and reasonable opinions for related-party transactions, or if issuers seek FCA guidance, modifications, or waivers to FCA rules.
EQ’s view: These changes represent a significant overhaul of the UK listing regime, and it will be interesting to see if they deliver in terms of making compliance with the rules less burdensome and attracting more companies to market. It will also be interesting to see how investors react to these changes and whether they feel they are afforded sufficient protection under the new regime. There is a strong desire to move more toward a disclosures-based listing regime and a comply or explain Corporate Governance Code and it is right that company Directors should take responsibility and be held accountable for their actions. This includes with regard remuneration.
The FCA has committed to reviewing the impact of these changes in 5 years.
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EQ Monthly Bulletin - July 2024
In July's Bulletin we give an additional overview of the significant change in the UK Listing Rules following the announcement made by the Financial Conduct Authority, which come into effect on 29 July.
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