In this article, we look at some recent regulatory, technical and commercial developments that have taken place during the last quarter.
We have identified the following as likely to be of interest to companies with, or contemplating, a listing on the UK main market or a quotation on AIM and their advisers:
- CREST settlement enabled for Regulation S, Category 3 issuers
- New AIM guidance for issuers on disclosures in relation to equity finance products in which they or their directors have an interest
- Publication of European Commission action plan for development of a pan-European capital markets union.
DEROGATIONS AS TO THE REQUIREMENT FOR ELECTRONIC SETTLEMENT NO LONGER NECESSARY FOR US REGULATION S, CATEGORY 3 ISSUERS
Until now, UK quoted companies that rely on the safe harbour provisions in Regulation S under the US Securities Act 1933 known as ‘Category 3 issuers’ (broadly, being US domestic issuers or non-reporting non-US issuers for whose securities there is substantial US market interest), have had to contend with an inherent tension between US and UK securities laws.
Regulation S enables a company to issue shares to US persons outside the US without facing the expense and complication of having to register the offering with the SEC. In order for an offering to fall within Regulation S, any shares in a Category 3 issuer issued to US persons must be held in certificated form for up to one year after their date of issue. However, under the UKLA Listing Rules for premium listed companies and the AIM Rules, those shares must be eligible for electronic settlement.
Historically, this conflict has been dealt with by the LSE or AIM granting a derogation from the relevant rules (LR6.1.23 and Rule 36 of the AIM Rules), allowing the issuer to settle the relevant securities in certificated form. Following extensive discussions between the LSE and Euroclear UK & Ireland (which operates CREST), Euroclear has now created an electronic settlement service enabling settlement of these securities through CREST.
The LSE has confirmed that with effect from 1 September 2015, all existing Category 3 issuers are able to use the CREST electronic settlement platform and as such, derogations from the relevant UK rules are no longer required. We expect that the move from physical to eletronic settlement for these issuers will have the positive effect of reducing failed trades and increasing liquidity, thereby ultimately making a UK listing more attractive.
AIM PUBLISHES GUIDANCE FOR ISSUERS ON DISCLOSURES IN RELATION TO EQUITY FINANCE PRODUCTS IN WHICH THEY OR THEIR DIRECTORS HAVE AN INTEREST
On 24 September 2015, AIM issued new guidance on the content of disclosures required by AIM companies relating to equity finance products to which they are party (including equity lines of credit, equity swap facilities and crowd funding products) as well as equity financing products made available to directors of publicly traded companies which allow them to utilise their shareholdings to raise personal finance.
In relation to complex and non-standard financing products, companies and their Nomads are advised to consider the nature and structure of the transactions carefully and ensure that they are adequately described in announcements – depending on the complexity of the product, more detail may be required than would normally be the case. In deciding on the content of a disclosure, in addition to the product itself, AIM companies should consider the surrounding circumstances and the likely impact in the market.
The guidance makes clear that companies will need to have in place sufficient systems and controls to identify when directors enter into personal financing arrangements involving their shareholdings, bearing in mind that the company will not itself be party to these arrangements. Companies will need to assess whether these arrangements will need to be disclosed as directors’ share dealings, given that the definition of ‘deal’ is very widely drafted in the AIM Rules.
In each case, AIM companies are advised to consult their Nomads and advisers as soon as possible in order to discuss the arrangements and any disclosures that may need to be made. The LSE has shown that it remains alert to ensuring that AIM companies are active in making full, accurate and timely disclosure as and when required under the AIM Rules.
A copy of the LSE notice can be found here.
EUROPEAN COMMISSION ACTION PLAN FOR CAPITAL MARKETS UNION
On 30 September, the European Commission published an action plan on building a pan-European capital markets union by 2019. Currently, European capital markets are relatively fragmented and there is a high degree of reliance on debt finance. The Commission’s aims include creating deeper and more developed capital markets across the EU, improving their efficiency and effectiveness at matching investors to companies in need of financing and increasing the availability of finance for all companies (including, in particular, SMEs) and reducing the cost of financing for the economy as a whole.
A copy of the Commission’s action plan can be found here.
On the same date, the Commission also published a call for evidence on the EU regulatory framework for financial services, including equity capital markets. The call for evidence is intended to enable the Commission to appraise the combined effect of the various aspects of current financial services regulation within the EU and identify gaps, inconsistencies and unintended consequences (for example, regulatory arbitraging between markets), excessive complexity and duplicative reporting requirements. The call for evidence closes on 6 January 2016 and responses are sought from interested parties, including corporates and their advisers.
A copy of the call for evidence can be found here.
Modernising the prospectus regime to reduce the costs of listing within the EU and creating a more proportionate regime for SMEs appear to be high on the agenda for the Commission, which is to be welcomed.
The Commission has said that it intends to release its consultation on the review of the Prospectus Directive, being the next step in the action plan, by the end of 2015.