With effect from 6 april 2010, the uK’s current two-tier listing regime is being restructured and uK and overseas companies will be able to elect either for a premium listing or a standard listing. these categories of listings will replace the existing concepts of a primary listing or a secondary listing on the official list.
Impact of the changes
the changes to the listing regime result from a consultation process the financial services authority (fsa) initiated over two years ago. the aim was to ensure that the uK’s listing regime is structured in the best way to provide an appropriate balance between protecting investors and maintaining the competitiveness of the uK capital markets for uK and overseas issuers. the fsa was also aware that there was some confusion, particularly amongst overseas companies and overseas investors, as to the differences between a primary listing and a secondary listing. the fsa has recently published its policy statement containing the final rules, which brings an end to the review.
for overseas companies with a premium listing, there will be some significant changes to their obligations in terms of new corporate governance requirements and the need for them to offer pre-emption rights to shareholders when making an issue of equity securities for cash.
for uK companies, the key change follows on from the opening up of secondary listings to uK companies (implemented in october 2009), allowing uK companies to obtain a standard listing from 6 april 2010. When the fsa made secondary listings (standard listings going forward) accessible to uK companies, it commented that it did not expect a significant number of companies to move from a premium listing to a standard listing, partly because to be included in the ftsE uK index series a company requires a premium listing. however, uK companies considering an admission of their securities to trading on aiM or the plus-quoted market now have an additional option which, in light of the Directive-minimum obligations that apply to a standard listing, may appeal to some companies.
Premium Listings from 6 April 2010
a company with or seeking, a premium listing will need to meet the more stringent “super-equivalent” obligations in the listing Rules that currently apply to companies with a primary listing but which do not apply to a company with a secondary listing and will not, from 6 april 2010, apply to a company with a standard listing. the “super-equivalent” obligations include additional eligibility criteria for admission of the company’s equity securities to trading, the application of the listing principles, the requirement for the company to have a sponsor in certain circumstances, shareholder approval for key transactions and additional corporate governance requirements. the premium listing segment will only be available for equity shares and will comprise three categories, namely commercial companies, closed-ended investment funds and open-ended investment companies.
Standard Listings from 6 April 2010
currently, companies with a secondary listing on the official list are only required to comply with obligations in the listing Rules that are based on the minimum requirements set out in Eu Directives applicable to securities admitted to trading on a regulated market. from 6 april 2010, these minimum requirements will apply to companies with, or seeking, a standard listing. however, as is currently the case with companies with a secondary listing, companies in the standard listing segment will not be eligible for inclusion in the ftsE uK index series.
a standard listing of equity shares will only be available to investment entities if they already have (and for so long as they maintain) a premium listing of a class of equity shares. Global depositary receipts (GDRs), certain debt and other securities, securities convertible into equity shares, options, subscription warrants, non-voting classes of equity shares and preference shares will also all be included in the standard listing segment from 6 april 2010.
Standard Listing or admission to trading on AIM or the PLUS-quoted market?
a standard listing on the official list will provide uK and overseas commercial companies which do not meet the eligibility criteria for a premium listing (or which do not want to submit to the more onerous standards and ongoing obligations regime of the premium listing segment) with an alternative to aiM or the plus-quoted market.
While a company applying for a standard listing will have to have a minimum market capitalisation of £700,000 and a minimum of 25 per cent of its shares in public hands (neither of which criteria apply for an admission to trading on aiM or the plus-quoted market), the regulation of the company once it has a standard listing and the ongoing obligations that apply to it will be less onerous than those applying to a company on aiM or on the plus-quoted market.
By way of example: a company with a standard listing will not need to appoint a sponsor; it will not be subject to specific share dealing rules; it will not need to seek shareholder approval of significant transactions; if it enters into a related party transaction, it will not require shareholder approval and will not have to make any disclosures to the market about such transaction. the chart at the end of this briefing provides a comparison of the key ongoing obligations for companies with equity shares or GDRs on the official list (and admitted to trading on the Main Market) and equity shares admitted to trading on aiM or the plus-quoted market.
Listing of GDRs, debt securities and non-equity securities
under the new listing regime, while issuers of equity shares will be able to choose either a premium listing or a standard listing, issuers of GDRs, debt securities, securitised derivatives and miscellaneous securities will only be able to obtain a standard listing. a new chapter, lR 20, is being added to the listing Rules for standard listed securities such as options and warrants that cannot be classed as shares, debt or debt-like securities, GDRs or securitised derivatives.
Migration from one segment to another
the listing Rules will incorporate a mechanism permitting issuers to migrate from one listing segment to another (ie, from a premium listing to a standard listing and vice versa), and from one listing category within a segment to another, without having to cancel their listing and re-apply for listing.
companies wanting to move from one listing segment to another will need to discuss the matter in advance with the fsa so that the relevant requirements can be agreed. for example, if an issuer wants to migrate from the standard listing segment to the premium listing segment, it will need to appoint a sponsor and it will need to satisfy the eligibility requirements of the segment to which it is seeking to transfer. in addition, a company wanting to transfer into or out of the open-ended investment company or closed-ended investment fund categories of the premium listing segment and a commercial company wanting to transfer out of the premium listing segment to acquire a standard listing will have to obtain prior shareholder approval, and the circular to shareholders must first be approved by the fsa. if shareholder approval is not required for the migration, the market will need to be informed of the proposed migration through an announcement approved by the fsa issued via an Ris.
New corporate governance requirements
the listing Rules currently require a uK company with a primary listing to state in its annual report and accounts whether it complies with the combined code on corporate Governance and provide an explanation of any non-compliance. however, overseas companies with a primary listing are not required to “comply or explain” against the combined code. instead, they have to disclose whether or not they comply with the corporate governance regime in their country of incorporation and the significant ways in which their actual corporate governance practices differ from those in the combined code.
in light of responses received during the consultation process and partly to ensure as much uniformity as possible in the premium listed segment, the fsa has decided to require all companies with a premium listing, including overseas companies, to “comply or explain” against the combined code going forward. overseas companies with an existing primary listing will only have to comply with this requirement in financial years beginning after 31 December 2009 to give them sufficient time to implement the new rule.
furthermore, the requirement for corporate governance statements in directors’ reports in the fsa’s Disclosure and transparency Rules is being extended to all companies with shares or GDRs listed, including overseas companies. at present, DtR 7.2 applies only to uK companies with a primary listing. as a result, all companies applying for a premium listing or a standard listing of shares or GDRs from 6 april 2010 will need to make statements about their corporate governance and describe their internal control and risk management systems in relation to the financial reporting process. however, a transitional provision has been included for overseas companies that have a premium listing or a standard listing of their shares or GDRs on 6 april 2010. such companies will only have to comply with the new corporate governance requirement in financial years beginning after 31 December 2009.
Pre-emption rights to be offered by overseas companies with a Premium Listing
from 6 april 2010, overseas companies with a premium listing will be required, when issuing shares for cash or selling treasury shares, to offer preemption rights to their shareholders unless there has been prior shareholder approval to disapply those pre-emption rights. the listing Rules currently apply this requirement only to uK issuers. Existing overseas companies with a premium listing on 6 april 2010 are being given some time to meet this requirement. they will not have to comply with the new rules on pre-emption until after 5 april 2011. however, if the law of the country of incorporation of an overseas company does not confer on shareholders equivalent rights to the pre-emption rights that protect uK shareholders, that overseas company, on applying for a premium listing on or after 6 april 2010, will need to ensure that its constitution provides for pre-emption rights, and be satisfied that conferring pre-emption rights will not be incompatible with the laws of its country of incorporation.
Additional miscellaneous changes to the Listing Rules
in view of the fact that one of the fsa’s main objectives in revising the listing regime was to make it more uniform and clear, the fsa recognises that it needs to educate those issuing, advising on, investing in or dealing with, uK-listed securities about the new structure. to assist with this, the fsa is working with primary information providers and secondary information providers to assess the most appropriate method of displaying the segment and listing category to which a company’s securities belong. also, a new rule is being included which prohibits a misrepresentation of the type of listing that a company has. the fsa proposes to undertake periodic checks to ascertain whether companies are complying with the new rules.
changes to the listing Rules have also been made to ensure that only securities that meet the full set of super-equivalent requirements will be eligible for a premium listing, since securities that do not meet these superequivalent requirements can have a standard listing. as a result, non-voting shares and preference shares, for example, will not be eligible for a premium listing in future. the fsa was proposing to allocate all such shares with a current primary listing to the appropriate listing category in the standard listing segment. however, it has recognised that a small number of issuers may have potential problems with being included in certain indices. as a result, the fsa has introduced a further transitional provision which enables issuers with a premium listing of equity shares that do not confer full voting rights on 6 april 2010 to retain that premium listing until 31 May 2012.
Table showing structure of new listing regime
the table below sets out the different listing categories within the premium listing and standard listing segments, together with, in broad terms, the relevant chapters of the listing Rules which apply to each category.