The Financial Conduct Authority (FCA) has published more guidance in the Knowledge Base on key technical and procedural issues affecting the Listing Regime. On 6 August 2014, the FCA published Primary Market Bulletin No.8 (PMB 8) which announces:
- the publication of final guidance in the Knowledge Base following consultations in Primary Market Bulletins 6 and 7 (PMB 6 and PMB 7), together with the FCA's response to feedback received; and
- a consultation on six new notes, the proposed amendments to nine existing notes, and the proposed deletion of one existing note.
Comments on the proposed guidance are requested by 1 October 2014. Click here to read PMB 8, otherwise, read on for our summary of the edition and the proposed new guidance.
What is new and final?
The FCA published PMBs 6 and 7 in July and October 2013 respectively, which proposed new and revised technical and procedural notes for consultation.
In PMB 8, the FCA published the feedback received during those consultations and announced the publication of the final guidance in the Knowledge Base. The final notes are listed below:
PMB 6 (Click here to read our summary of PMB 6)
- Listing Principle 2 – Dealing with the FCA in an open and co-operative manner (UKLA/TN/209.1)
- Reverse takeovers (UKLA/TN/306.2)
Minor changes have been made to the above notes to reflect the re-numbering of the new Listing Principle 2, following the changes to the Listing Rules (LRs) which took effect on 16 May 2014. For more information on the changes, click here.
PMB 7: (Click here to read our summary of PMB 7)
- Additional powers to supervise sponsors (UKLA/PN/910.1)
- Sponsor firms – ongoing requirements during reorganisations (UKLA/PN/909.2)
- Additional powers to supervise and discipline sponsors (UKLA/TN/712.1)
- Sponsors – uncertain market conditions (UKLA/TN/705.2)
- Sponsor transactions – adequacy of resourcing (UKLA/TN/709.2)
Minor changes have been made to the consultation versions of the above notes to clarify certain points made in the original versions.
Additionally, the FCA has confirmed that it is still considering feedback on the following draft technical notes which it published for consultation in PMB 7:
- Sponsors: application of principle to deal with the FCA in an open and co-operative manner (UKLA/TN/713.1)
- Non-equity retail prospectuses (UKLA/TN/632.1)
What guidance has been published for consultation?
The FCA is consulting on proposed new and revised procedural and technical notes on a wide range of issues. The main points from the proposed guidance are summarised below.
Cancellation of listing or transfer between listing categories – requests to waive the 20 business day notice period (UKLA/TN/210.1)
In PMB 8, the FCA states that it is often contacted by the advisers of issuers requesting approval to waive the 20 business day notice period (when it is required) where an issuer is cancelling its listing or transferring between listing categories. The FCA notes that it is generally very reluctant to permit a reduction and, consequently, it has published a draft new technical note on this issue, which states that it will only agree to requests to reduce or dispense with the notice period under certain limited circumstances. The FCA does not provide examples of such circumstances, but does state that the fact that a transaction is urgent, or that the LRs have been considered at a late stage, are not compelling arguments, particularly where a transaction has been under consideration for a long period.
Share buybacks – novel/complex approaches and Premium Listing Principle 5 (UKLA/TN/310.1)
The FCA acknowledges that there are a number of approaches that can be used by premium-listed issuers which achieve the same effect as a buyback of premium-listed shares in substance, but which are not a buyback of shares in legal form. In such cases, the FCA refers the market to LR 12.4.10G, which advises issuers to contact the FCA to discuss the application of LR 12 (Dealing in own securities and treasury shares) to their proposed transaction. The FCA notes that, where the proposed 'novel/complex' method replicates a share buyback, its approach is to interpret the rules purposively and apply LR 12 in a 'substance over form' manner.
Additionally, the FCA reminds premium-listed issuers and their advisers that Premium Listing Principle 5, which states that all shareholders that are in the same position must be treated equally, applies to share buybacks. Examples of approaches to share buybacks which may potentially offend this Listing Principle include transactions which seek to offer different terms to different shareholders, or transactions which exclude certain shareholders (or groups of shareholders) without apparent reason.
Discounted share issues and standard of disclosures in circulars (UKLA/TN/311.1)
The FCA notes that the LR requirement that non-pre-emptive fundraisings by premium listed companies should only be undertaken at a discount no greater than 10% to the prevailing share price is an important shareholder protection. Any discount above 10% must, in certain circumstances, be specifically approved by shareholders. The draft note reminds premium-listed issuers to refer to the requirements of LR 13.3 on the contents of the shareholder circular. In particular, it notes that the mere inclusion of a resolution to approve the discount in the circular does not comply with the requirement to disclose all information necessary to allow the shareholder to make a properly informed decision. Rather, the circular should explain, amongst other things, the level of proposed discount and the rationale behind why a large discount is required.
Related party transactions by closed-ended investment funds – amendment of an existing investment management agreement to cover new money (UKLA/TN/404.1)
The FCA states that it has seen various examples of premium listed closed-ended investment funds increasing their pool of investible capital by issuing a new class of shares, rather than issuing further shares of the same class as currently listed. In these circumstances, a revision to the investment management agreement is often made. The draft technical note seeks to help issuers and their sponsors with what the FCA considers to be the correct treatment of such revisions under LR 11 (Related Party Transactions).
Disclosure of 'lock-up' agreements (UKLA/TN/522.1)
In its draft technical note, the FCA notes that listed companies (both in respect of their own shares and as investors in other companies) should consider their disclosure obligations in relation to their obligations in lock-up agreements. In particular, the FCA is concerned that, in the absence of disclosure of the terms or conditions of a lock-up commitment which is capable of being modified, waived or cancelled by a party to the arrangement during the lock-up period, the market may conclude that the agreements are irrevocable or unconditional. Consequently, an issuer would potentially be in breach of DTR 1.3.4R which provides that an issuer should take all reasonable care to ensure that any information it notifies to an RIS is not misleading, false or deceptive and does not omit anything likely to affect the import of the information.
Pro forma financial information (UKLA/TN/633.1)
In October 2013, the European Securities and Markets Authority (ESMA) published revised Q&As. Q&A 51 (which took effect on 28 January 2014) deals with pro forma information and sets out four new illustrative scenarios which were re-drafted to reflect a harmonised approach to pro forma profit and loss accounts and a 'flexible approach' to the period for which pro forma information is required. Click here to read the ESMA Q&As.
In the draft technical note, the FCA addresses issues that ESMA's revised approach might pose to market participants in the UK. It also consults on guidance on other issues relating to pro forma financial information. Some key points from the technical note include that:
- the FCA would consider that a pure fundraising transaction (such as a large rights issue that is not connected to an acquisition) would not constitute a 'significant gross change' when one assesses whether to include pro forma financial information in a prospectus;
- the FCA would generally expect a pro forma profit and loss account to be presented in addition to a pro forma balance sheet and accompanying explanatory notes;
- 'voluntary' pro forma financial information would be subject to the requirements of Annex 2 of the Prospectus Directive Regulation, which explains how pro forma financial information should be presented and the information which must be included. The voluntary pro forma information should be prepared with the same level of care as if it were mandatory; and
- in respect of the requirement that the class 1 circular must include a statement of the effect of the acquisition or disposal on the group's earnings and assets and liabilities, the FCA notes that market practice for class 1 circulars has been to include a pro forma balance sheet and a narrative statement on earnings. The FCA does not expect that this practice will change for class 1 circulars, despite ESMA's revised approach with regard to 'significant gross changes' in respect of the disclosure in prospectuses.
In addition, the new note sets out illustrative examples of when a pro forma profit and loss account would be required and some Q&As in respect of its preparation.
Proposed revisions to existing notes
Some minor amendments are proposed to be made to the following notes to reflect the changes to the Listing Principles in LR 7 which took effect on 16 May 2014:
- Restrictions on Transferability (UKLA/TN/101.2)
- Compliance with the Listing and Premium Listing Principles (UKLA/TN/203.2)
- Equality of treatment – Premium Listing Principle 5 (UKLA/TN/207.2)
- Assessing and handling inside information (UKLA/TN/521.2)
- Risk factors (UKLA/TN/621.3)
- Sponsor's obligations on financial position and prospects procedures (UKLA/TN/708.2)
Furthermore, some minor amendments are proposed to be made to the following notes to reflect changes made to the sponsor regime in LR 8, including the introduction of new rules and guidance relating to records management which took effect on 31 December 2012:
- The sponsor's role on working capital confirmations (UKLA/TN/704.2)
- Sponsor's obligations on financial position and prospects procedures (UKLA/TN/708.2) (as also referred to above)
Minor changes were also made to Scientific research based companies (UKLA/TN/422.2) to correct LR references.
Additionally, substantial changes are proposed to be made to the note 'UKLA decision making and individual guidance processes (UKLA/PN/908.2)' to reflect the abolition of the Listing Authority Review Committee in January 2014 and to provide an outline of the procedure for UKLA decision making.
The FCA is proposing to delete the technical note 'Sponsors: creation and maintenance of records' (UKLA/TN/703.1) in relation to a provision which has previously been deleted in the rules affecting sponsors (LR 8). The FCA reminds sponsors that they are still required under the LRs to maintain accessible records which can demonstrate that they have provided sponsor services and have otherwise complied with their obligations under LR 8, including the basis of any opinion, assurance, confirmation or declaration given to the FCA or any guidance given to a premium-listed company.
More guidance provides welcome clarity
The proposed new guidance addresses a wide range of issues, some of which have been raised by issuers and their advisers during the course of transactions. Since the FCA is no longer open to informal ad-hoc queries on technical and procedural issues, further binding guidance from the FCA provides welcome clarity to the market.