The FCA is consulting on targeted changes to the UK listing regime to remove barriers to listing in London. The consultation paper is available at CP21/21: Primary Markets Effectiveness Review (fca.org.uk). The consultation paper follows on from the UK Listing Review, chaired by Lord Jonathan Hill and the Kalifa Review of UK FinTech. Both of those reviews highlighted specific elements of the current UK listing regime which act as barriers to companies listing in London. Both made specific recommendations for improvements to the UK listing regime.
The consultation takes place at a time when the number of listed companies in the UK has fallen by about 40 per cent from a recent peak in 2008. Despite the recent success of Wise which was valued at nearly £9bn after a “direct listing” (admission to listing) in London, research included in the UK Listing Review shows that between 2015 and 2020, the UK accounted for only 5 per cent of IPOs globally. The FCA’s proposals are intended to encourage more companies to become or stay listed in the UK.
The key proposals are:
- introducing a targeted form of dual class share structure within the premium listing segment
- increasing the minimum market capitalisation threshold for both the premium and standard listing segments for shares in companies other than funds from £700,000 to £50 million
- reducing the required free float level from 25% to 10%
- showing more willingness to allow waivers for the coverage of the three year track record requirement
The FCA is also proposing a number of changes to the Listing Rules, Disclosure Guidance and Transparency Rules and the Prospectus Regulation Rules to simplify the rules and reflect current market practice.
Dual class share structure
A company with a dual class share structure (listed ordinary shares and unlisted weighted voting rights shares) will now be eligible for a premium listing.
The shares with weighted voting rights must meet the following conditions:
- a maximum weighted voting ratio of 20:1
- the shares may only be held by directors of the company at the time of IPO or beneficiaries of such a director’s estate
- the weighted voted rights must only be available in two limited circumstances: (i) a vote on the removal of the holder as a director of the company at any time and (ii) following a change of control, on any matter (to operate as a strong deterrent to a takeover)
- the weighted voting rights shares must convert to ordinary premium listed shares on transfer to anyone other than a beneficiary of the director’s estate
Shares which meet these conditions will be 'specified weighted voting rights shares' for the purposes of the premium-listing regime. The FCA does not expect these shares to be listed.
There will be a five-year time limit. The issuer’s articles will need to contain a mechanism which reflects this requirement, most likely by providing for the weighted voting rights shares to convert into ordinary shares at the end of the period of five years following the date on which the issuer first had a class of shares admitted to premium listing. An issuer with a dual class share structure will need to move to the standard segment or de-list if it wants to retain that structure beyond the longstop date.
Currently the premium-listed regime follows the “one share one vote” principle. In addition, LR 9.2.21R (Voting on matters relevant to premium listing) means that only holders of the listed company's shares that have been admitted to premium listing can vote on matters relevant to the premium listing (such as approval of a Class 1 transaction). Under the proposals holders of weighted voting rights shares would also be able to vote on those matters but only on a “one share one vote basis” (weighted voting rights would not be exercisable).
Raising minimum market capitalisation threshold: Issuers seeking admission to the premium or standard listing segments must, if the proposals are implemented, have a minimum market capitalisation of £50 million (MMC).
MMC is the minimum level of aggregate market value of all securities that are to be listed. The current level of market capitalisation is set under Listing Rule 2.2.7R which states that the expected aggregate market value of all securities (excluding treasury shares) to be listed must be at least £700,000 for shares, including shares of a closed-ended investment fund or open-ended investment company. In the FCA’s view, companies with a low market capitalisation are better suited for admission to other markets such as AIM or AQSE Growth Market.
This requirement would only apply for new listings and would not apply as a continuing obligation for currently listed companies. Listed companies which had a class of listed shares before the change in LR 2.2.7R(1)(a) and continue to do so after that may list additional classes of shares at the existing MMC of £700,000.
Reducing the free float requirement
The FCA intends to change the free float required under the premium and standard Listing Rules from 25% to 10% both at listing and as a continuing obligation.
Three year track record requirement
The FCA is not putting forward specific proposals at this stage. Instead, depending on feedback, it may publish further guidance on the circumstances in which the FCA may consider waivers to the existing rules on track record, possibly in a Primary Markets Bulletin.
Other models for the UK listing regime
CP21/21 also asks for feedback on the purpose and value of the current UK listing regime. The FCA wants to understand:
- what issuers and investors value in the current listing regime
- the balance between the FCA’s role and oversight, versus that of operators of trading venues and
- the benefits and weaknesses of the current structure of the listing regime.
Four models for the future structure of the listing regime are put forward for discussion. These are:
- Model 1: Create a single segment for UK listed companies and set the minimum possible requirements for eligibility for listing
- Model 2: Create a single segment for UK listed companies and raise both eligibility and continuing obligations for all UK listed companies to that in the premium segment
- Model 3: Maintain 2 broad segments for UK listed companies (enhanced version of the status quo)
- Model 4: Maintain 2 segments for UK listed companies but allow the market to set minimum standards for the ‘alternative’ segment. (based on UK Listing Review proposal)
This forms part of a longer term review of the UK listing regime which will take place alongside the review of the UK’s prospectus regime (See UK Prospectus Regime Review A consultation available at Consultation on the UK prospectus regime (publishing.service.gov.uk)).
When does the consultation close?
The consultation closes on 14 September 2021.
When will the changes take effect?
The FCA intends to implement the relevant rule changes by late 2021 although this is subject to consultation feedback and FCA Board approval.