London Stock Exchange has published a discussion paper on proposed changes to the AIM Rules for Companies and AIM Rules for Nominated Advisers.
The London Stock Exchange's (LSE) discussion paper looks at proposed changes to the AIM Rules for Companies and AIM Rules for Nominated Advisers, including proposals relating to:
- the role of the nominated adviser (nomad)
- admission criteria
- appropriate levels of corporate governance
- breach of the AIM rulebooks.
Role of the nomad
Early notifications – currently, when a company is applying for admission, nomads are required to have an early discussion with LSE where there are any atypical features or potential issues that may be of concern to LSE. The proposal is to extend and codify the requirement for early discussions on key specified information to all proposed admissions. The key information considered essential to those discussions includes details of:
- any proposed fundraising
- significant shareholders pre-admission and (expected) post-admission
- shares not in public hands and how the nomad is satisfied that there will be adequate free float
- any issue that has arisen as part of the nomad's due diligence process that may give cause for LSE to question whether the admission of the applicant may be detrimental to the reputation or integrity of AIM. Where an issue has arisen, how the nomad has reached a view that it does not affect the applicant’s appropriateness for AIM.
Rule 9 powers – under Rule 9, LSE has the discretion to refuse or impose conditions on an admission if issues identified during the admission process remain unaddressed. A non-exhaustive list of factors is proposed, to provide guidance to nomads about the types of issues that may give rise to concerns and to ensure consistency of approach. This list includes:
- concerns as to the good character, skills, experience or history of a director, key manager, senior executive, consultant or shareholder
- where the rationale for seeking admission to AIM is not clear
- formal criticism of the applicant or any of its directors by other regulators, governments, courts, law enforcement or exchange bodies
- corporate structure and business models that give rise to concerns regarding appropriateness for a public market.
Currently there are no specific eligibility criteria regarding minimum size, trading history or percentage free float. These are matters that are considered in the broader assessment of a company’s appropriateness for AIM.
Free float – a prescribed numerical or percentage free float threshold for AIM companies is not proposed. LSE instead favours a qualitative approach; the guidance currently available together with early discussions with nomads strikes the right balance between supporting liquidity in the secondary market and supporting innovation and emerging growth companies. The discussion paper asks respondents whether they agree with this approach.
Minimum fundraising – LSE is not advocating a minimum overall size of applicant criteria but believes it would be beneficial to introduce a minimum capital raising threshold to a wider set of new applicants. A minimum fundraising requirement, at an appropriate threshold, would likely involve institutional participation, ensuring an extra level of scrutiny over the application. The discussion paper notes that a new fundraising threshold could be similar the existing rules which apply to investing companies, under which an applicant seeking admission must raise a minimum amount in cash via an independent equity fundraising. If a minimum threshold were introduced LSE notes that:
- some limited exceptions would be proposed to cover circumstances where the purpose of the criteria can be met by other evidence (for example, where a company is admitted to another market and already has a track record as a public company)
- LSE would expect this to be satisfied by an independent fundraising and not by funds from related parties, unless the related party is a substantial shareholder only and an authorised person.
Respondents are asked for views on the appropriate threshold level, with a suggested range of between £2 million and £6 million, and whether the proposal should apply to all applicants or just non-revenue generating businesses.
Corporate governance requirements
LSE asks for views on the adequacy of the current rules in two areas:
Board composition – currently, nominated advisers are required to assess the efficacy of boards on admission and on an ongoing basis but there are no mandatory composition requirements (such as a specific number of non-executive directors or independence criteria). LSE wants to maintain a framework in which companies actively consider their specific governance requirements (with support from their nomads) but considers that only in exceptional circumstances should an AIM company not have a chairperson, finance director and non-executive directors.
Disclosure – currently, an AIM company is required to disclose details of the corporate governance code that it has decided to apply, how it complies with that code or, if no code has been adopted, details of its current corporate governance arrangements. LSE believes that it is preferable for AIM companies to have a choice of options to suit their specific stage of development and size. The paper asks for views on whether this approach should be retained or whether it should be mandatory for companies to comply and explain against an industry code of their choosing (for example, the QCA Corporate Governance Code for Small and Mid-Sized Quoted Companies or the UK Corporate Governance Code).
Breach of the AIM rulebooks
The paper asks for views on whether it would be appropriate to introduce automatic fines for explicit breaches of the AIM Rules for Companies. If so, it asks for feedback on what types of breaches fines should apply to and at what level.
What happens next?
Responses to the discussion paper must be given before 8 September 2017. LSE will then consider the feedback and decide whether to draft changes to the AIM Rules for Companies and AIM Rules for Nominated Advisers for consultation.