Market overviewSize of market
What is the size of the market for initial public offerings (IPOs) in your jurisdiction?
During 2021, there were 100 IPOs on the London Stock Exchange (LSE), raising a total of approximately £16.8 billion, with volumes increasing significantly by 233 per cent on 2020 volumes, according to information released by PricewaterhouseCoopers. The LSE retained its position as Europe’s most active market in 2021 (by both value and volume) and contributed approximately one-quarter of total European IPO proceeds. The largest IPO on the LSE during 2021 was by Deliveroo plc, with a total offering value of £1.5 billion and a total market capitalisation of £7.59 billion on admission.
The London IPO market experienced a material decline in IPO activity during the first quarter of 2022, with 10 IPOs on the LSE during this time, according to information released by PricewaterhouseCoopers, compared to 21 during the first quarter of 2021. The largest IPO during the first quarter of 2022 was by New Energy One Acquisition Corporation plc, a special purpose acquisition company, with a total market capitalisation of £175 million on admission and a raise of £175 million.Issuers
Who are the issuers in the IPO market? Do domestic companies tend to list at home or overseas? Do overseas companies list in your market?
The UK IPO market attracts issuers from a wide variety of sectors. As at 30 April 2022, there were 1,129 issuers on the LSE's Main Market, of which 927 were UK issuers and 202 were international issuers. A UK issuer may choose to list overseas where it has a closer connection with a particular jurisdiction or where it is seeking to attract a specific category of investors.Primary exchanges
What are the primary exchanges for IPOs? How do they differ?
The primary exchange for IPOs in the UK is the LSE. The LSE is the principal London exchange for equity trading and is a recognised investment exchange for the purposes of the Financial Services and Markets Act 2000 (FSMA). It operates a number of markets, including the Main Market and AIM.
The Main Market is the LSE’s flagship market and its principal market for UK and overseas listed companies. It is a regulated market for the purposes of the UK Markets in Financial Instruments Regulation. Admission to the Main Market requires an issuer’s securities to be admitted to listing on the Official List maintained by the Financial Conduct Authority (FCA). As a result, an issuer is required to submit two separate applications: to the FCA for admission to listing on the Official List; and to the LSE for admission to trading on the Main Market. A commercial company may choose to apply for a premium listing or a standard listing of its shares on the Official List. A standard listing requires compliance with minimum standards that were originally imposed under EU law, whereas a premium listing requires compliance with more onerous or super-equivalent listing requirements imposed by the FCA. A premium listing is a prerequisite for inclusion in the FTSE UK Index Series. Of the total shares listed on the Main Market as at 31 March 2022, approximately two-thirds were listed on the premium listing segment in the commercial companies category. In July 2018, the FCA introduced a new category of premium listing for sovereign controlled commercial companies.
AIM is the LSE’s junior market for smaller and growing companies and is not a regulated market under the UK Markets in Financial Instruments Regulation. Securities admitted to AIM are admitted to trading on an exchange regulated market and are subject to a lower level of regulation, both at the time of admission and, in certain areas, on an ongoing basis.
In March 2013, the LSE launched a further Main Market segment for UK and EEA-incorporated companies: the high growth segment (HGS). The HGS is a regulated market under the UK Markets in Financial Instruments Regulation but sits outside the FCA’s listing regime. It is aimed principally at high growth, trading businesses that intend, in due course, to seek admission to the Official List but may not yet meet the eligibility criteria for a premium or standard listing. However, to date, issuers have largely ignored this option.
Unless indicated otherwise, this chapter focuses solely on IPOs on the Main Market and principally an application for a premium listing (commercial company).
Which bodies are responsible for rulemaking and enforcing the rules on IPOs?
The principal statute governing securities offerings in the UK is the Financial Services and Markets Act 2000 (FSMA), pursuant to which power is given to the Financial Conduct Authority (FCA), in its capacity as competent authority, to make rules relating to the admission of securities to the Official List, certain continuing obligations for listed issuers, the enforcement of such obligations and the suspension and cancellation of listing. The principal regulation governing the document to be published in connection with an offer of securities to the public or an application for admission of securities to trading on a regulated market is Regulation (EU) 2017/1129, which was onshored to become part of UK domestic law on 31 December 2020 (the UK Prospectus Regulation). Where relevant, the FSMA cross-refers to provisions of the UK Prospectus Regulation.
When exercising its functions in relation to the admission of securities to the Official List, the FCA has historically used the name the UK Listing Authority (UKLA). However, the FCA no longer uses the UKLA name and instead refers to the FCA’s ‘primary market’ functions.
The principal rules for an IPO applicant are found in the Listing Rules and the Prospectus Regulation Rules (which form part of the FCA Handbook); the Prospectus Regulation Rules contain relevant extracts from the UK Prospectus Regulation. Parts of the FCA’s Supervision manual, the Decision Procedure and Penalties manual, and the Enforcement Guide cover the FCA’s related supervision and enforcement policies and procedures. In addition, the FCA’s Fees Manual contains details of fees charged by the FCA in relation to an application for listing, annual fees for listed issuers and fees for certain transactions by listed issuers. Following an IPO, a premium-listed issuer will be subject to the EU Market Abuse Regulation (Regulation (EU) No. 596/2014), which was onshored to become part of UK domestic law on 31 December 2020 (UK MAR), and, in particular, articles 17, 18 and 19 of UK MAR (the Disclosure Requirements), as well as the continuing obligations regime set out in the Listing Rules and the Transparency Rules (which form part of the FCA Handbook). The Disclosure Guidance, which also forms part of the FCA Handbook, provides guidance on certain aspects of the Disclosure Requirements and related issues. The FCA Knowledge Base, which can be found on the FCA’s website, contains certain technical and procedural notes designed to provide guidance on the application of the Listing Rules, the Prospectus Regulation Rules, the Transparency Rules and the Disclosure Requirements.
The London Stock Exchange (LSE) regulates admission of securities to trading on the Main Market and has its own set of rules, which include the Admission and Disclosure Standards and the Rules of the London Stock Exchange.
In addition, there are several institutional shareholder bodies that publish guidelines on good practice for UK-listed companies. Although the guidelines are generally not legally binding, the shareholder bodies may exert significant influence on institutional shareholder voting and, as a result, on the actions of UK-listed issuers.Authorisation for listing
Must issuers seek authorisation for a listing? What information must issuers provide to the listing authority and how is it assessed?
Issuers apply to the FCA for admission to the Official List and to the LSE for admission to trading on the Main Market.
The Listing Rules provide details of the eligibility requirements and the documents to be provided by new issuers in connection with an application for listing. Certain eligibility requirements apply to applications for a premium or standard listing of shares, and a further set of more stringent requirements apply solely to applications for a premium listing of shares. The key eligibility requirements for an application for a premium or standard listing of shares of a commercial company are as follows:
- an issuer must be duly incorporated or otherwise validly established according to the relevant laws of its place of incorporation or establishment, and operating in conformity with its constitution;
- the shares must conform with the law of the issuer’s place of incorporation, be duly authorised according to the requirements of the issuer’s constitution and have any necessary statutory or other consents;
- the shares must be freely transferable (subject to very limited exceptions), fully paid and free from all liens, and an application for listing must relate to all the shares of the class to be listed;
- the shares must be admitted to trading on a UK regulated market for listed securities that is a recognised investment exchange;
- an issuer must prepare a prospectus that must be approved by the FCA prior to publication;
- the shares must have an expected aggregate market value of at least £30 million; and
- at least 10 per cent of the issuer’s shares of the class to be listed must be distributed to the public or held ‘in public hands’ on admission. Shares considered not to be held ‘in public hands’ include, among others: (1) shares held directly or indirectly by a director of the issuer or any of its subsidiary undertakings (or persons connected with a director), or trustees of the group’s employee share schemes or pension funds; (2) interests of 5 per cent or more held by any person or persons in the same group or persons acting in concert; and (3) shares subject to a lock-up period of more than 180 calendar days.
The key additional eligibility requirements for an application for a premium listing of shares of a commercial company are as follows:
- the issuer must appoint a sponsor in relation to its application for listing. This will typically be an investment bank or a corporate broker approved for such purposes by the FCA;
- the issuer must have published or filed audited, consolidated historical financial information that covers at least three years and includes a balance sheet date that is no more than six months before the date of publication of the prospectus and no more than nine months before the date of admission to the Official List. The historical financial information must represent at least 75 per cent of the issuer’s business for the full three-year period and must demonstrate that the issuer has a revenue-earning track record and put prospective investors in a position to make an informed assessment of the business for which admission is sought;
- the issuer must satisfy the FCA that it and its subsidiaries have sufficient working capital available for the group’s requirements for at least the next 12 months from the date of publication of the prospectus;
- the issuer must be able to demonstrate that it carries on an independent business as its main activity;
- the issuer must demonstrate that it exercises operational control over the business it carries on as its main activity; and
- where an issuer will have a controlling shareholder on admission it must demonstrate that, despite having a controlling shareholder, it is able to carry on an independent business as its main activity. The issuer and its controlling shareholder must enter into a written and legally binding ‘relationship’ agreement that complies with certain independence provisions set out in the Listing Rules. The issuer’s constitution must also allow for a dual voting structure in relation to the election and re-election of independent directors. A controlling shareholder for these purposes is a person who exercises or controls on their own, or together with any person with whom they are acting in concert, 30 per cent or more of the voting rights in the issuer, subject to certain exceptions.
Certain of the above eligibility requirements for an application for a premium listing of shares of a commercial company are varied for mineral companies, scientific-research-based companies and property companies.
An issuer will need to submit an eligibility letter and checklist to the FCA, demonstrating how the relevant eligibility requirements have been met. Further engagement with the FCA may be required before the FCA is satisfied that the eligibility criteria have been met. The eligibility review is typically undertaken in parallel with the FCA’s review of the draft registration document and prospectus. In addition, the relevant checklists, other supporting documents and FCA fees are submitted at the same time as the draft registration document or prospectus, as applicable. During the course of the listing application process, an issuer is required to submit further documents including a completed Application for Admission of Securities to the Official List. The Admission and Disclosure Standards set out the process to obtain admission to trading and the documents to be provided to the LSE, which include a completed Form 1, an electronic copy of the final prospectus and the announcement relating to admission. A provisional application is required to be submitted to the LSE no later than 10 business days before the application is to be considered, and the shares must be capable of being settled in dematerialised form.Prospectus
What information must be made available to prospective investors and how must it be presented?
An issuer is required to publish a prospectus in connection with an IPO. The prospectus requirement is triggered where an issuer either makes an offer of securities to the public or seeks admission of securities to trading on a UK regulated market, subject to certain exceptions. The prospectus must be approved by the FCA. The prescribed tripartite form of prospectus comprising a summary, a registration document and a securities note may be published as a single document or as separate components, each of which is subject to FCA approval. The Prospectus Regulation Rules set out detailed content requirements for a prospectus, which are divided into separate requirements for each of the summary, the registration document and the securities note. A prospectus drawn up as a single document must include a table of contents, a summary that must satisfy specific content and formatting requirements, the risk factors specific to the issuer and/or to the securities and that are material for taking an informed investment decision, and further information items. The further information items are set out in a combination of schedules to the Prospectus Regulation Rules, containing minimum disclosure requirements for shares and building blocks covering additional requirements such as the presentation of pro forma financial information. Together with each draft of the document to be reviewed, issuers submit checklists to the FCA, cross-referring each minimum disclosure requirement to the relevant page in the document.
The overriding principle under the UK Prospectus Regulation for a new issuer is that the prospectus must contain the necessary information that is material to an investor for making an informed assessment of the assets and liabilities, profits and losses, financial position and prospects of the issuer, the rights attaching to the securities, and the reasons for the issuance and its impact on the issuer.Publicity and marketing
What restrictions on publicity and marketing apply during the IPO process?
Throughout the IPO process, all information disseminated internally and externally by an issuer and other parties to the IPO must be strictly controlled to comply with UK and other legal and regulatory requirements. It is customary for publicity guidelines to be put in place at an early stage to ensure adherence to the relevant restrictions on pre-prospectus publicity and marketing. Failure to comply with the restrictions may result in both civil and criminal liability being imposed on those responsible for the publication of the information, and may also prejudice the IPO process. All IPO-related materials must be vetted to ensure consistency with the prospectus, and information should be limited to factual matters and should not include any projections, estimates or forecasts about the issuer’s performance. Information contained on the issuer’s website and any information released to the press must also be carefully controlled. Non-IPO-related communications, such as typical product advertising and ordinary course communications with customers and employees, are permitted, provided that they contain no references to the IPO or the issuer’s prospects and are consistent with past practice.
All information disclosed in an oral or written form must be consistent with the information contained, or to be contained, in the prospectus. Specifically, no information may be disclosed that contradicts anything in the prospectus, refers to information that contradicts the information in the prospectus, presents the information in the prospectus in a materially unbalanced way or contains alternative performance measures unless they are contained in the prospectus. A communication relating to a specific offer of securities to the public or to an admission to trading on a regulated market that aims to specifically promote the potential subscription for or acquisition of securities will also be caught by the advertisement regime under the UK Prospectus Regulation. Certain offering and marketing materials, including press announcements, are likely to constitute advertisements and will be required to contain specific rubrics.
The financial promotion regime will apply to the communication of an invitation or inducement to engage in investment activity that is made in the course of business and capable of having an effect in the UK. These rules seek to limit the promotion of investments by persons who are not authorised by the FCA, unless the promotion is made within specified parameters and in accordance with specified procedures to clearly defined categories of investors. If an IPO-related communication constitutes a financial promotion, either it must be made by an FCA-authorised person or its content must be approved by an FCA-authorised person, or the communication must be covered by an exemption.Enforcement
What sanctions can public enforcers impose for breach of IPO rules? On whom?
Under the Listing Rules, the FCA may not grant admission unless it is satisfied that the requirements of the Listing Rules are complied with (including any special requirements it deems appropriate to protect investors) or if it considers that it would be detrimental to investors’ interests. It may also refuse to grant admission for securities already listed in another country, if it considers that the issuer has failed to comply with any obligations in respect of that listing, and it will not admit shares of a non-UK company that are not listed in either its country of incorporation or the country in which the majority of its shares are held, unless satisfied that the absence of the listing is not due to the need to protect investors. The LSE has similar powers to refuse an application for admission to trading in specified circumstances.
The FCA has information-gathering powers to verify compliance with the Listing Rules or to enable it to decide whether to grant an application for admission. It has a number of enforcement powers available to it where an issuer has made an offer of transferable securities to the public in the UK or an application for the admission of transferable securities to trading on the LSE. These powers include requiring the withdrawal or temporary suspension of the offer, requiring the temporary suspension of the application for admission or the prohibition of trading in the securities, and private or public censure of the issuer. The FCA may also impose unlimited financial penalties on an applicant for breaches of the Listing Rules or if any applicant has contravened a provision of, or made in accordance with, the UK Prospectus Regulation under section 91 of the FSMA or on a director of the applicant who was knowingly involved in such a breach.
The FCA has power to bring charges under the offences of making a false or misleading statement or creating a false or misleading impression pursuant to sections 89 and 90 of the Financial Services Act 2012 (as amended by the Financial Services Act 2021). Penalties may include a fine or imprisonment (or both). The FCA also has disciplinary powers in relation to the market abuse civil regime, and sanctions include financial penalties and public censure. Criminal liability may arise pursuant to section 19 of the Theft Act 1968 for directors who make false or misleading statements with intent to deceive shareholders or creditors, or the Fraud Act 2006 for dishonestly making a false representation with the intent to make a gain or cause a loss, resulting in fines or imprisonment (or both) for those found guilty of such an offence.