The London Stock Exchange (“LSE”) is home to one of the world’s most international equity markets. London’s position as Europe’s leading financial centre and the strength of its investment community make it one of the principal investment centres worldwide and is part of the reason why so many international companies have chosen to list here. These listings have traditionally been driven by a number of important business considerations including:
- access to significant capital pools at a relatively low effective cost;
- the potential for development of a liquid and efficient market for the listed company’s shares; and
- the ability of major shareholders to develop an appropriate exit strategy or “liquidity event”.
Choosing the most appropriate market may not be straightforward. Companies should consider the pros and cons of each market and how they meet their overall needs. An overseas company has a choice of a primary or secondary listing of its equity securities or a listing of depositary receipts on the main market of the LSE (“Main Market”), a regulated market, or a listing on the LSE junior market, AIM. Depositary receipts may also be listed on the exchange-regulated Professional Securities Market.
Issues for Consideration
There are a number of general issues to be considered in connection with any London listing, including:
- the market on which the listing will occur (either the Main Market or the AIM Market or the Professional Securities Market), and the type of security that will be listed and traded;
- the applicable listing requirements, which depend upon the market that is chosen and the type of security being listed;
- the timetable and costs associated with a listing and any related securities offering;
- changes to the company’s corporate governance systems that may be required under the applicable regulations;
- the amount of management time that will be required in order to complete the listing process and any related share offering; and
- the costs and administrative burden that will be borne by the company following its listing in London.
Listing on the Main Market of the LSE
A primary listing (“Primary Listing”) arises where a company has its principal or only listing on the LSE. A secondary listing (“Secondary Listing”) traditionally arises where a company has its primary listing on another stock exchange outside the United Kingdom and is seeking an additional listing in London. The requirements for listing on the LSE differ between a primary and secondary listing, with a company with a primary listing having more onerous listing and disclosure requirements and continuing obligations.
In order to list on the Main Market of the LSE (whether in the form of equity shares or depositary receipts), a company needs to have its securities admitted to the Official List of the UK Listing Authority (this requires approval from the UK Financial Services Authority (“FSA”) in its capacity as the UK Listing Authority), as well as the securities being admitted to trading on the London Stock Exchange (regulated by the LSE). The principal rules governing such listing and the continuing obligations will be the listing rules published by the FSA (“Listing Rules”), while the principal rules governing the contents of prospectus accompanying such application will be the prospectus rules published by the FSA (“Prospectus Rules”).
Changes brought by EU Directive 200/34/EC
Prior to July 2005, overseas companies seeking a UK listing on the Main Market needed to comply with the full UK Primary Listing regime unless it already had a home listing elsewhere and could therefore be admitted on a secondary basis i.e Secondary Listing. However in July 2005, the rules relating to UK listings were revamped allowing overseas companies to list in the UK by way of Secondary Listing even though they may not necessarily have a listing elsewhere.
This situation arose as a consequence of the implementation of EU Directive 2001/34/EC, so that overseas companies seeking a Secondary Listing on the Main Market only comply with EU Directive Standards i.e similar to Euronext or Deutche Bourse, whereas the regime remains more stringent for a Primary Listing, reflecting some of the historical requirements in relation to continuing obligations and the like, than the EU Directive Standards.
Secondary Listings are therefore available to overseas companies i.e non-UK trading companies (but not to UK or non-UK investment companies) based on compliance with EU Directive Standards and accordingly no home listing elsewhere is required.
However, in order to ensure greater transparency between the two types of listing on the Main Market, and to address institutional investor concerns, the FSA is presently consulting the market with a proposal to distinguish between Premium Listings (Primary Listings) and Standard Listings (Secondary Listings). The FSA is also currently considering whether to allow UK issuers to list on a secondary basis.
Same Trading Platform
LSE uses the same automatic quote drive platform (SETS) to trade Main Market securities (regardless of whether they are listed on a Primary or a Secondary basis). Consequently, Secondary listed issuers have access to the same trading platform as Primary listed issuers,but they do not have to comply with the more restrictive Primary Listing regime. The Secondary Listing regime occupies a good position between the “gold standard” and super-equivalence of the Primary Listing regime and the largely self-regulated AIM regime designed for young growing companies. Larger overseas companies who find AIM too small, but do not want to be subject to the more prescriptive rules of the Primary Listing regime may therefore wish to explore Secondary Listings.