The London Stock Exchange ("Exchange”) has published Notice N02/16 which sets out a revised version of the Admission and Disclosure Standards and the High Growth Segment Rulebook.

The revised Standards have been adopted in the same form as that proposed by the Exchange in its consultation published on 4 December 2015, with the exception of the proposed amendments relating to depositary receipts. The revised rules come into effect on 4 April 2016.

The Exchange is proposing alternative changes in respect of depositary receipts and is seeking feedback on these by 11 April 2016.

For the background to the changes and more detail on what is involved, see below.

The original proposals

On 3 December 2015, the London Stock Exchange published Stock Exchange Notice N19/15, which set out proposed amendments to the Admission and Disclosure Standards (the "Standards”) and High Growth Segment Rulebook (“HGS Rulebook”).

The Standards

The majority of the proposed changes to the Standards related to their structure and were of an administrative or clarificatory nature. They included:

  • a restructuring to make them a consolidated resource for issuers and advisers,
  • clarification of the definition of Main Market to make it clear that it encompasses all securities where application is made for admission to trading on the Exchange’s EU Regulated Market, whether listed or unlisted,
  • renaming the Specialist Fund Market as the Specialist Fund Segment to clarify that it is a segment of the Exchange’s Regulated Market and that issuers must therefore meet the associated requirements for Regulated Markets,
  • changes to effect the quarterly collection of data from issuers of depositary receipts and their depositary banks about the size of depositary programmes for issuers admitted to trading on the Exchange, and
  • an increase in the Executive Panel’s ability to impose a fine from a maximum of £50,000 to £100,000 per breach.

The HGS Rulebook

Under the revised Standards, the HGS Rulebook is incorporated as Schedule 5. A key change was the proposal that, for life science companies (those classified as “scientific research based issuers” under the Listing Rules), the Exchange may waive the requirements on the issuer to:

  • be a trading business,
  • control the majority of its assets, and
  • demonstrate consolidated revenue growth of at least 20% over a three year period.

It was proposed that the exemption would be considered based on certain factors proposed in the new rules.

The changes

In Notice N02/16, the Exchange provides feedback on its original proposals and confirms the resulting rule changes.

The Exchange notes that feedback was limited to the changes proposed in respect of issuers of depository receipts (DRs). As a result, those proposals will not be proceeded with. However, the Exchange is proposing a different set of changes in respect of DR issuers. Other than that, the proposed Standards have been adopted as proposed (including the HGS Rulebook as Schedule 5) and will take effect from 4 April 2016. To see the text of the new Standards click here.

Consultation on new proposals in respect of depository receipts

The Exchange advises that in feedback to N19/15, market participants wished to understand further background to the Exchange’s proposals to receive, on an on-going basis, the number of DRs issued and outstanding. It was also noted that the proposed requirement to amend the deposit agreement was not always necessary to obtain this information.

The Exchange explains that it needs to ensure it has appropriate information to ensure fair and orderly trading and is committed to enhancing both the primary and secondary trading opportunities it makes available. To this end, the Exchange notes that it is important for it to have visibility of the size of a depositary programme over its full lifetime, rather than just on initial admission to trading.

Taking into account the comments received, the Exchange proposes to remove the requirement for issuers to amend the deposit agreement. Instead, issuers will be able to make their own arrangements as to how the quarterly information is provided to the Exchange. The proposed amendment to the rule also specifies how an issuer should calculate the quarterly information figure.

It is proposed that issuers of DRs would have until 31 December 2016 to put in place arrangements in order to comply with the proposed rule (ie, the first quarterly information will be due on the first business day of April 2017 in respect of the preceding calendar quarter).

Amendments are also proposed to the additional obligations for issuers of unlisted DRs contained in Schedule 6 of the Standards. The amendments include a change to the free float requirement for unlisted DRs at admission. It is proposed that an issuer of unlisted DRs will be required, on admission, to have in public hands at least 25% of its securities that such DRs represent. Ancillary changes are also proposed to the additional obligations for issuers of unlisted DRs.

Next steps

The Exchange invites further comments from issuers, advisers and interested parties on the proposals by 11 April 2016. To see the text of the proposed amendments in full, click here. To see a copy of Notice N02/16, including the consultation, click here.

The Exchange plans to confirm any changes as a result of the proposals at the same time that the Standards will be updated to reflect the Market Abuse Regulation prior to 3 July 2016.