Changes to the UK Listing Regime

On 6 April 2010, the Listing Rules (which apply to those companies whose securities are listed on the Official List of the London Stock Exchange) will be amended to implement changes proposed by the Financial Services Authority (“FSA”) as part of a consultation exercise that began in January 2008.

The principal change that is being made is to reclassify the existing listing regime into new categories of listing comprising of “premium” and “standard” listed companies. The new classifications will replace the current categories of “primary listings” and “secondary listings”.

The FSA has noted concerns about the potential confusion in the market over the nature of listings held by different issuers. Historically, all companies listed on the Official List had to comply with the UK's highest form of regulatory standards known as the “super-equivalent standards” which impose requirements exceeding the EU minimum standards (as prescribed by the European Prospectus, Market Abuse and Transparency Directives), with the exception of overseas companies which had a primary listing of their shares elsewhere. These overseas companies were subject to less stringent regulatory standards. The listing regime was subsequently changed to extend the scope of the secondary listing regime to all overseas companies and regardless of whether they had a primary listing elsewhere.

The FSA has therefore been concerned to ensure that market participants are not inadvertently misled into thinking that an issuer has a primary listing which meets “super equivalent” standards (i.e. those rules that exceed the relevant EU directives standards), when it only has a secondary listing and needs only comply with the less onerous standards that apply. In addition, concerns were expressed about the fact that UK companies are currently only able to seek a primary listing of their shares.

As such, the new “premium listing” category will comprise those issuers that meet the “super equivalent standards” and all others will be designated as “standard listings”, which need only meet the less stringent harmonised European standards. There will be no substantive change in the regulatory requirements that apply to primary listed and secondary listed companies, except that overseas companies with a premium listing will be subject to the more onerous obligations on corporate governance and pre-emption rights. These pre-emption rights require overseas companies to offer shares to existing shareholders when they make an offer of shares for cash, unless there has been prior shareholder approval not to do so. Overseas companies with a “premium” listing will also need to “comply or explain” against the Combined Code on Corporate Governance in its accounts for financial years beginning on or after 31 December 2009. From 6 April 2010, all overseas companies with equities or GDRs (irrespective of whether they have a “premium” or “standard” listing) will need to comply with Disclosure and Transparency Rule 7.2, which requires a company (amongst other things) to make a corporate governance statement in its annual report based on the Combined Code on Corporate Governance to which it is subject or with which it voluntarily complies and also describe its internal control and risk management arrangements in relation to the financial reporting process.

Previously UK companies could only gain a primary listing, whereas all new issuers will be able to seek a “standard” listing, irrespective of the country in which they are incorporated. In addition, existing listed companies will be able to migrate between the different categories of listing by means of a simplified procedure, meaning that UK companies be able to move down from a “premium” listing to the new “standard” listing category in the future. The procedure for any such move from a “premium” to a “standard” listing will require (amongst other things) a resolution being passed by at least 75% of the company’s shareholders. In this manner, it is hoped that the new regime will increase flexibility for the London market, providing more options for existing listed companies or by offering a simplified and cheaper route to listed company status for new applicants. It is not expected, however, that in reality many existing listed companies will seek to downgrade their existing listing status.

For new applicants considering a listing in London or on another European exchange, the “standard” listing option may prove to be an attractive one, given that the applicant will not need to confirm that it has sufficient working capital for its activities for the next 12 months, will not need to appoint a sponsor and the lighter regime that will apply in relation to significant and related party transactions. At a time when the costs of listing on other markets such as AIM are increasing, companies may also be attracted by the perceived cost savings associated with obtaining a “standard” listing. However, it remains to be seen as to whether any real cost savings will actually result from seeking and/or maintaining a “standard” listing as most companies will still need to appoint financial and other advisers for such a listing and/or any significant ongoing transactions. Consideration will also need to be given as to whether companies seeking to list will be able to achieve a sufficient profile and awareness of their securities in the market, where they are not of a sufficient size. Existing and potential FTSE listed companies will in any event be required to maintain a “premium” listing. In addition, companies with both “premium” and “standard” listings will need to comply with the requirement of the Prospectus Rules to prepare a prospectus where they seek to issue more than 10% of their shares in a 12 month period.

A new rule is to be introduced that prohibits a company from misrepresenting the type of listing that it has. All regulatory announcements made by a company will therefore need to be accompanied by the segment and category to which the company’s securities belong.

In conclusion, the introduction of a new listing regime for the Official List of the London Stock Exchange is unlikely to bring about any significant changes to the existing one. However, the new regime will afford UK companies the opportunity of seeking a “standard listing” to which a less stringent regulatory regime will apply. In addition, all listed companies will be able to move between different listing segments. However, it remains to be seen whether many UK companies will seek a “standard listing” over a listing on one of the smaller markets that are available to them.

For further information, please contact Anthony Brockbank or Dominic Gurney-Champion.