On 7 August 2015, the London Stock Exchange ("LSE") published AIM Notice 41 which provides a significant breakthrough, and which permits easier trading of shares of US companies on AIM as well as making minor changes to derogations from Rule 36 of the AIM Rules for companies. This arose from the EU Regulation on Central Securities Depositories ("CSD"), which was introduced on 28 August 2014 and came into force on 17 September 2014 ("CSD Regulation").
Securities that are admitted to AIM must be eligible for electronic settlement in the CREST system ("CREST") operated by Euroclear UK and Ireland Limited ("Euroclear"), the main securities depository for transactions on the LSE. Historically, certain US securities, known as Regulation S, Category 3 securities ("Regulation S Securities") under Regulation S of the Securities Act 1933 ("Regulation S"), have not been eligible for electronic settlement. These securities relied upon a derogation from AIM Rule 36 (which covers electronic settlement) in order for them to be held in certificated form. This made the trading of Regulation S Securities less attractive to institutional investors.
However, the LSE and Euroclear have been working towards an electronic settlement solution for Regulation S Securities and AIM Notice 41 confirms that a solution has now been provided which enables Regulation S Securities (including those eligible for resale under Rule 144A of the US Securities Act ("Regulation S/144A Securities")) to be settled electronically and traded through CREST. Consequently, from 1 September 2015, derogations will no longer be available from AIM Rule 36 for such securities.
Undoubtedly, these new changes will make the trading of Regulation S Securities much easier and can allow for shorter settlement periods, narrower pricing and greater liquidity for Regulation S Securities, making a UK listing a more attractive option for issuers and their investors. However, as there is no current, definitive guidance from the US Securities and Exchange Commission on the appropriate level of procedures for Regulation S offerings, care must be taken on how best to manage US securities law risks. CREST members and issuers should note that, whilst the new service offers a means to facilitate compliance with the applicable restrictions under Regulation S, it is their responsibility to satisfy themselves that these means are, in their individual circumstances, sufficient to enable compliance with US securities law.
Written in association with Carter Ledyard & Milburn LLP
Guy Lander, Partner Carter Ledyard & Milburn LLP, New York