In 2007, the United Kingdom Financial Services Authority (the FSA) entered into a consultation exercise with market participants to address a perceived lack of clarity in the categorisation of securities listed on the official list of the UK Listing Authority (the Official List). In February 2010, the FSA published its new policy1 and a set of modified rules which, among other things, introduced changes to the continuing obligations regime applicable to overseas (non-UK) companies that are the issuers of equity shares represented by certificates (GDRs) listed on the Official List (GDR Issuers).
Reclassification of Securities
With effect from 6 April 2010, all securities listed on the Official List have been re-classified into “Standard” and “Premium”. Issuers of “Standard” securities listed on the Official List (which include GDRs, debt securities, securitised derivatives, and options and warrants), must comply with the minimum standards of corporate governance, set forth by the EU. Issuers of “Premium” securities listed on the Official List (which covers equity shares) must comply with more stringent super-equivalent corporate governance requirements. Note that GDRs cannot be listed as “Premium”.
New Continuing Obligation
GDR Issuers must already comply with a number of continuing obligations, (See, Key Existing Continuing Obligations below). As a result of the new changes to the listing regime, GDR Issuers will now also have to comply with Disclosure and Transparency Rule (DTR) 7.2.
However, GDR Issuers will only have to comply with DTR 7.2 for financial years beginning after 31 December 2009.
2 Accordingly, the earliest time by which GDR Issuers must be in compliance will be when they prepare their audited financial statements for the year ended 31 December 2010 or, for those GDR Issuers that have a March year-end, the year ended 31 March 2011.
DTR 7.2 (Corporate Governance Statements)
For the financial year ended 31 December 2010 or, as applicable, the financial year ended 31 March 2011, GDR Issuers must prepare a corporate governance statement which must be included as either (a) a specific section of the directors’ report; or (b) in a separate report published together with and in the same manner as the GDR Issuer’s annual report or (c) by means of a reference in its directors’ report, if the document is publicly available on the GDR Issuer’s website. The corporate governance statement itself must contain a reference to:
- The corporate governance code to which the GDR Issuer is subject; and/or
- The corporate governance code which the GDR Issuer may have voluntarily decided to apply; and/or
- All relevant information about the corporate governance practices applied by the GDR Issuer beyond the requirements under national law.
In the case of (1) and (2) above, the GDR Issuer must (a) state where the relevant corporate governance code is publicly available; and (b) to the extent that it departs from that corporate governance code, explain which parts of the corporate governance code it departs from and the reasons for doing so. In the case of (3) above, the GDR Issuer must make its corporate governance practices publicly available and state where they can be found. If a GDR Issuer has decided not to apply any provisions of a corporate governance code referred to under (1) and (2) above, it must explain its reasons for that decision.
The corporate governance statement must contain (a) a description of the main features of the GDR Issuer’s internal control and risk management systems in relation to the financial reporting process; and (b) a description of the composition and operation of the GDR Issuer’s administrative, management and supervisory bodies and their committees.
Key Existing Continuing Obligations
In addition to the new corporate governance requirements under DTR 7.2, GDR Issuers must continue to comply with all existing continuing obligations. A summary of key existing continuing obligations are:
Annual Information Update
- A GDR Issuer must at least annually prepare an annual information update that refers to or contains all information that has been published or made available by that GDR Issuer to the public over the previous 12 months3 in one or more European Economic Area (EEA) States and in third countries in compliance with its obligations under EU and national laws and rules.
Annual Report and Accounts
- A GDR Issuer’s annual report and accounts must be published within four months of the end of the applicable financial year and must remain publicly available for at least five years. The annual financial report must be published on the GDR Issuer‘s website, following which the GDR Issuer must notify a regulatory information service (RIS) that the annual financial report is available on its website. The annual financial report must include (a) the audited financial statements; (b) a management report; and (c) responsibility statements. Note that GDR Issuers are not required to publish semi-annual financial statements or interim management statements.
Dealings by Persons Discharging Managerial Responsibility
- A GDR Issuer must disclose to an RIS details of any dealings by any persons discharging managerial responsibility4 or their connected persons in the GDRs or the underlying shares as soon as possible after the GDR Issuer becomes aware of any such dealings. Inside Information - A GDR Issuer is required to disclose to the market information which would, if generally available, be likely to have a significant effect on the price of its listed securities (inside information). All inside information must be disclosed as soon as possible via an RIS and on the GDR Issuer’s website by the close of the business day following the day of the RIS announcement, where it must remain for one year.
- A GDR Issuer must ensure that it and persons acting on its behalf or on its account draw up a list of those persons working for them, under a contract of employment or otherwise, who have access to inside information relating directly or indirectly to the GDR Issuer, whether on a regular or occasional basis. The FSA may require GDR Issuers to produce such insider lists to the FSA on request, and insider lists must be kept for at least five years from the date on which they are first drawn up or updated.
Shares in Public Hands
- A GDR Issuer must ensure at all times that 25 per cent. of its GDRs are held in public hands in one or more EEA States and, if not, it must notify the FSA as soon as possible of its non-compliance. For this purpose, holders of 5 per cent or more of the GDRs, or persons connected to the GDR Issuer, do not count as public holders.