The FSA has published the Listing Rules changes which implement its review of the listing regime following a two year period of consultation.
The FSA review considered key elements of the listing regime, including whether to retain the "super-equivalent" listing standard, the re-labelling of the different listing segments and whether secondary listings and the listing of GDRs should be removed altogether from the Official List. Ultimately, the FSA decided not to make any major structural changes to the listing regime and instead to focus on labelling and segmentation arrangements (for further details see corporate e-bulletin 2008/34). However, it has now decided to make significant policy changes in respect of the corporate governance of, and pre-emption rights for shareholders in, overseas companies with a "Premium listing".
The FSA has decided to introduce amendments to:
- restructure and re-label the regime into two segments, "Premium" and "Standard" (being the equivalent to the current primary and secondary labels) – the former denoting the more stringent super-equivalent standards and the latter EU minimum standards;
- make the Standard listing segment, which was previously only available to overseas companies, available to UK companies as well;
- strengthen the rules for overseas companies by requiring overseas Premium listed companies to ‘comply or explain’ against the UK Combined Code and offer pre-emption rights to shareholders;
- require overseas Premium and Standard listed companies to comply with the EU Company Reporting Directive which requires them, among other things, to provide a corporate governance statement and to describe the main features of their internal control and risk management systems; and
- simplify the process for companies with an equity listing wishing to move from one segment to another by clarifying that a cancellation of their listing is not required.
The Policy Statement and Consultation (CP09/24) is available on the FSA website here and includes the text of the amendments to the Listing Rules and the FSA's response on the Consultation Paper (CP08/21) published in December 2008. It also contains a further consultation in relation to the draft rule requiring overseas companies in the Premium segment to offer pre-emption rights to shareholders (see below) and a proposed rule to state that a company's equity shares will only be admitted to the Official List if those shares are to be admitted to a regulated market in the UK. The FSA will accept comments on those points until 2 December 2009.
The effective date for most of the new rules will be 6 April 2010. However, the FSA has decided to bring forward the timetable for making a secondary listing available to UK companies and the rule changes to implement this were effective from 6 October 2009. The new corporate governance disclosures for Premium listed overseas companies will apply to accounting periods beginning after 31 December 2009.
- Segmentation and labelling
The two-tier listing regime is being retained but re-labelled, with a tier 1 of primary listed securities with super-equivalent standards re-labelled as the 'Premium' segment and a tier 2 for all other securities, listed on an EU Directive minimum basis, re-labelled as the 'Standard' segment (see the diagram below).
Click here to view table
The Premium and Standard labels will be adopted to replace current primary and secondary listing segments from 6 April 2010. A new LR 1.5.3R will also be introduced that will prohibit the misrepresentation by a company of the type of listing that it has.
An issuer with a secondary (to become Standard) listing has fewer obligations under the Listing Rules than an issuer with a primary (to become Premium) listing (see our article Continuing obligations – EU directive-driven and UK super-equivalent for a summary of the two regimes). An issuer with a secondary listing is not subject to the requirements in:
Chapter 6 relating to additional requirements for listings of equity securities;
- Chapter 7 relating to the Listing Principles;
- Chapter 8 regarding the appointment of a sponsor to guide a company in understanding and meeting its responsibilities under the Listing Rules;
- Chapter 9 relating to the continuing obligations of a company after admission (including the requirements of the Model Code);
- Chapter 10 relating to significant transactions;
- Chapter 11 regarding related party transactions;
- Chapter 12 regarding purchases by a company of its own shares; and
- Chapter 13 regarding the form and content of circulars to be sent to shareholders.
An investment company can, as now, only be in the Premium listing segment under the separate regime in Chapters 15 and 16.
The FSA will carry out an exercise to allocate all securities to the relevant listing category.
The FSA stresses that it is aware that the new segmentation will only be effective if it is underpinned by an education campaign and effective monitoring. It aims to use the period up to the implementation of the rules to engage with market participants through meetings and seminars and to educate them on the new structure and the standards attributable to the segments. It also intends to amend the Primary Information Provider criteria so that regulatory announcements by companies are accompanied with the segment and category to which the company's securities belong and ensure that Secondary Information Providers reflect the new structure on their electronic portals, in terms of how the names of companies and their securities are displayed.
The FSA has previously consulted on whether more flexibility could be permitted in relation to who could operate a market for listed securities and explored whether securities that are to be admitted solely to a Multilateral Trading Facility (MTF) could be admitted to the Official List. The FSA concluded (in CP08/21) that, although it did not see any reason in principle why listed securities could not be admitted solely on an MTF, it would prefer to see how the European Commission and the market's view of the new MTF concept settles before allowing the equity securities to be admitted to an MTF. The proposed new rule on which the FSA is consulting which will provide that a company's equity shares will only be admitted to the Official List if they are to be admitted to a regulated market in the UK will clarify this position.
- Availability of Standard listing for UK companies
The FSA has opened up the Standard, directive minimum, listing regime in Chapter 14 to UK companies with immediate effect. The FSA's view is that UK companies should have the same choice as overseas companies and opening up the Standard regime to UK companies is intended to provide them with an additional option. The changes have been introduced by amendments to LR 9 and LR 14 and take effect from 6 October 2009. In practice, the FSA says it does not expect a significant number of companies to move from a Premium to a Standard listing citing, among other reasons, the fact that a current requirement for inclusion in the FTSE UK Index Series is a UK primary (to become Premium) Listing.
- Migration between Premium and Standard listings
Companies will be allowed to migrate between the Premium and Standard segments, without cancelling their listings, with effect from 6 April 2010. Companies with a Premium listing who wish to (i) move down from the Premium segment or (ii) cancel their listing, will have to obtain prior shareholder approval. In addition the issuer must comply with certain procedural requirements including:
- providing a notification to the FSA setting out, among other things, how the issuer satisfies the requirements of the category to which it is seeking to transfer;
- appointing a sponsor where the issuer is seeking to migrate into the "Premium" segment;
- if shareholder approval is not required for the migration, informing the market of the proposed migration through an RIS announcement (which must be approved by the FSA) giving at least 20 days' notice of the migration; and
- if shareholder approval is required for the migration, sending a circular to its shareholders giving at least 20 days' notice, making an RIS announcement at the same time as the circular is sent, and obtaining approval from at least 75% of its shareholders.
- Corporate governance for overseas Premium listed companies
Overseas companies which have a Premium listing will be subject to stricter rules on corporate governance and pre-emption rights. The FSA consulted on whether overseas Premium listed companies should compare and contrast their corporate governance code and practices against the UK Combined Code. The FSA has now decided that all Premium listed overseas companies should 'comply or explain' against the UK Combined Code. The FSA says that it believes that the UK Combined Code is sufficiently flexible to allow companies to explain the stance they have taken on some key corporate governance concepts where their practice does not accord with those set out in the Combined Code. The FSA also points out that 45 out of 171 Premium listed issuers already comply or explain against the Combined Code.
The changes will be implemented by amendments to the requirement in LR 9.8.7 R but the transitional provisions mean that existing overseas Premium listed companies will only have to comply with this rule in financial years beginning after 31 December 2009.
- Pre-emption rights for overseas Premium listed companies
The FSA had proposed that it would require overseas Premium listed companies to disclose pre-emption rights in their annual report and accounts. However, it has decided instead that overseas companies in the Premium segment should be under an obligation to give pre-emption rights to their existing shareholders when they make an offer for cash unless there has been prior shareholder consent to disapply pre-emption rights. It says that pre-emption rights are considered to be a fundamental protection for shareholders and any situation in which shareholders did not have any say in a decision that might affect their ownership would be at odds with this. The FSA has included a draft rule for consultation in Appendix 2 to CP09/24 which attempts to implement the requirement to offer pre-emption. The draft rule includes a requirement to ensure that the issuer's constitution provides for pre-emption rights. The FSA is seeking feedback on the draft rule and it says that it wants to ensure that the rule, as drafted, is workable in practice and is seeking input from market participants on whether the rule achieves this.
- Corporate governance for overseas companies with any equity or GDR listings
The obligations under the Company Reporting Directive which are implemented by DTR 7.2, and which currently only apply to UK companies, will apply to all issuers of equities and GDRs (whether with a Premium or Standard Listing) from 6 April 2010. Under DTR 7.2 a company must (i) make a corporate governance statement in its annual report and accounts based on the code to which it is subject, or with which it voluntarily complies and (ii) describe its internal control and risk management arrangements. The FSA says it recognises the need to strike a balance between its investor protection and competitiveness objectives and is willing to be flexible to accommodate the specific impact of its requirements on overseas companies who may find it difficult to comply with the requirements of DTR 7.2 because of conflicts with the legislation in their home jurisdiction or due to other practical matters. However, the FSA believes that any listed company should be able to comply with the requirements.
The FSA states that the approach in relation to pre-emption rights and corporate governance will ensure broadly equal treatment and therefore a level playing field for all listed companies within the same segment, irrespective of their country of incorporation, and will provide further clarity for the listing regime.