The introduction of a new Specialist Fund Market aimed at issuers such as hedge funds and private equity vehicles opened for admissions yesterday. The London Stock Exchange ("LSE") intends that the new market will meet demand from both issuers and institutional, professional and highly knowledgeable investors for a means of obtaining a listing on a London based EU regulated market.
The LSE intends the new market to provide an option in London for investment entities seeking a market which has "directive-minimum" rules for admission and so will provide an alternative to the current route to listing under Chapter 14 of the UKLA's Listing Rules which is to be abolished in March 2008. As such it is intended to compete with overseas markets such as Euronext Amsterdam, which offer "directive-minimum" listings to investment entities.
The new market will be suitable for a variety of sophisticated legal structures including limited partnership interests and non-voting share structures allowing the flexibility to create structures which comply with tax and securities laws whilst also providing fund promoters with access to permanent capital.
As an EU-regulated market, securities traded on the new market will normally be acceptable to institutional mandates. Some institutional investors may require issuers to apply standards of governance and regulation which go further than those required for admission to the new market. Where this is the case, applicants are able to provide additional disclosures in their prospectuses tailored towards such institutional investors. Further, as a regulated market, the disclosure and transparency rules referred to below will apply.
Requirements for admission to the Specialist Fund Market
The new market is expressed to be designed for investment entities that are highly specialised and wish to target institutional, professional and highly knowledgeable investors. In announcing the market the LSE stated that it is not suitable for the retail market and therefore investment entities targeting retail customers will not be welcome.
Both UK and non-UK domiciled investment entities are eligible to make use of the new market.
An applicant for admission to the new market must demonstrate that its securities will be transferable and freely negotiable.
The Admission process
The admission requirements for entry into the new market are less onerous than those for listing on the LSE's main market. The new market is an unlisted market because securities do not need to be approved for public notification on the Official List as a prerequisite to admission to the new market. The UKLA's Listing Rules and, in particular, the detailed eligibility and disclosure rules in Chapter 15 are therefore inapplicable to applicants to the new market. The majority of the requirements for listing under Chapter 14 are replicated for admission to the new market. However, the minimum requirements for 25 per cent. of shares to be in public hands and for a market capitalisation of £700,000 are not applicable.
Admission is a two-stage process:
- the approval of a prospectus by the issuer's home state regulator (and passporting into the UK where relevant); and
- application to the London Stock Exchange for admission to trading on the new market.
In the case of of a non-EEA company such as an Isle of Man investment company, it will need to chose a home state regulator, typically the FSA.
The LSE has the right to refuse, cancel or suspend admission of any securities where it deems this necessary.
The FSAP provisions
Issuers applying for admission to the new market must comply with the minimum EU directive requirements set out in the EU Financial Services Action Plan Directives (the "FSAP provisions") and as implemented in the UK through the Prospectus Rules, the Disclosure and Transparency Rules, the Market Abuse Directive and the Markets in Financial Instruments Directive.
Disclosure and transparency rules
Issuers admitted to the new market must prepare and disclose annual and half-yearly financial reports and interim management statements in accordance with IFRS.
Major shareholders in an issuer admitted to the new market will be required to inform the issuer (who must then inform the market) when their shareholdings exceed, or fall below, certain thresholds. For UK domiciled companies, the thresholds are 3% and then every 1% above this. For non-UK domiciled companies, the thresholds are 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.
All persons discharging managerial responsibilities on behalf of an issuer admitted to the new market must disclose their personal dealings in the issuer's shares and any related derivatives.
Inside information must be disclosed by an issuer admitted to the new market as soon as possible and such issuers must keep a list of all persons who have access to inside information.
LSE admission and disclosure standards
Applicants for admission to the new market must comply with the initial and ongoing obligations set out in the LSE's Admission and Disclosure Standards including:
- the application process;
- notification of corporate actions; and
- ensuring that transferable securities are freely negotiable.
Transferring to the new market from other marketts
An investment entity wishing to transfer to the new market from AIM will generally by required to produce a prospectus in line with the rules of its EEA competent authority and, if necessary, to passport this into the UK prior to the application for admission to the new market.
An investment entity wishing to transfer to the new market from another regulated market will need to delist and comply with the relevant delisting requirements. It will then need to produce a prospectus approved by an EEA competent authority, unless an exemption applies, and, if applicable, passport it into the UK before the application for admission to the new market.
In light of the relaxation of the Chapter 15 rules in September and the further relaxation of the rules due in March 2008 it will be interesting to see the extent to which issuers take up the Specialist Fund Market compared to those that apply for a listing under Chapter 15.