The UKLA (which from 1 April 2013 will form part of the new Financial Conduct Authority) announces in the fifth edition of its Primary Market Bulletin that it is consulting on several pieces of proposed new guidance on the Listing, Disclosure and Transparency and Prospectus Rules.
Among other things, the proposed guidance relates to:
- disclosing inside information in the context of periodic financial reporting
- parent company indemnities, guarantees and similar arrangements
- risk factor disclosures in prospectus summaries
- changes to the UKLA’s review of eligibility
- supplementary prospectuses
- sponsor services
Three existing UKLA technical notes and two procedural notes in the UKLA’s online Knowledge Base will be changed, and there will be an additional five new technical notes. The UKLA invites comments by 8 April 2013.
Disclosing inside information in the context of periodic financial reporting
The UKLA says that some issuers experience a significant price movement following an announcement of a periodic financial report, and that this suggests that the issuers may have possessed inside information for a considerable amount of time before the announcement.
The proposed new technical note makes it clear that an issuer must not defer the disclosure of inside information to coincide with the announcement of a periodic financial report and reminds issuers that the Disclosure and Transparency Rules require circumstances or events that may constitute inside information, even if not yet formalised, to be disclosed without delay.
The guidance also flags Listing Principle Two of the Listing Rules, which requires issuers with a premium listing to have adequate procedures, systems and controls to enable compliance with regulatory requirements. Lamprell plc has recently been fined £2.4 million for breaching this Principle and, as a result, failing to recognise and announce as soon as it should have done a deterioration in its financial performance due to operational problems with some of its projects.
Parent company indemnities, guarantees and similar arrangements
Since 1 October 2012, the Companies Act 2006 has provided that, if a parent company grants a statutory guarantee of its subsidiary’s liabilities for a financial period, the subsidiary need not produce audited accounts for the period (see our Law-Now dated 29.09.2012 More companies to be exempt from audit).
The UKLA’s proposed new technical note says that, until it is tested in court, the extent of the statutory guarantee is not clear. On the assumption that the parent’s liability is unlimited, the guarantee will be classified as a Class 1 transaction under the Listing Rules, so shareholder approval will be required. Entry into a guarantee that relates only to a wholly-owned subsidiary, however, will not be a Class 1 transaction, as the exemption in Listing Rule 10.2.4 R (1) will apply.
Risk factor disclosures in prospectus summaries Amendments to the Prospectus Directive, most of which came into force on 1 July 2012, introduced a requirement for prospectus summaries to disclose only key information on key risk factors, so as to provide the investor with key information on the offer.
The UKLA has acknowledged the concern from market participants that this could de-emphasise the materiality of the risks not included in the summary. Although the UKLA does not believe that this justifies including non-key risks in the summary, a revised technical note will include additional wording, drawing attention to all the risk factors, not just those in the summary. It is proposed that this wording will be included in the preamble to the risk factors section of a prospectus.
Changes to the UKLA’s review of eligibility The UKLA is proposing to change its process for assessing eligibility for the admission of securities to listing (and for other relevant events), so that the eligibility review and prospectus review will take place simultaneously, rather than sequentially.
Currently, the UKLA usually reviews eligibility for listing before reviewing drafts of the prospectus. By reviewing both eligibility and the prospectus at the same time, the UKLA hopes to improve the efficiency and clarity of the process. The draft amended procedural note describes the steps involved in an eligibility review, and the documents required.
The UKLA does acknowledge that, in a minority of cases, it will allow the applicant’s advisers to submit the eligibility letter before the prospectus: for example, where doubts exist over the applicant’s eligibility and the applicant wishes to sound out the UKLA before incurring the costs of preparing a prospectus.
Supplementary prospectuses The proposed guidance seeks to provide transparency on the UKLA’s approach to supplementary prospectuses. In general, when assessing whether changes be made by means of a supplementary prospectus, the UKLA will consider whether the “fundamental premise of the original documents still stands”.
The draft amended technical note says that it will not be appropriate to issue a supplementary prospectus solely in order to amend or clarify drafting. Any changes to the terms and conditions of an offer will require a new prospectus except where it is shown that the securities subject to the offer or admission are manifestly the same securities. A supplementary prospectus may be provided to inform investors of a material new factor but this new factor should not have the effect of amending the terms of the original offer.
The UKLA says that there may be further changes to the technical note following the current consultation on supplementary prospectuses by the European Securities and Markets Authority.
Guidance on sponsor services
The UKLA proposes new guidance on the definition of “sponsor services” and considers when a sponsor service begins and ends. The draft new technical note provides that a sponsor may still provide sponsor services before formal appointment and can therefore be subject to the Principles for Sponsors set out in the Listing Rules. The UKLA also considers that a sponsor will be providing sponsor services if it voluntarily provides guidance to the issuer, or enters into communication with the UKLA, on an event that requires the issuer to appoint or obtain guidance from a sponsor.