The Financial Conduct Authority (FCA) has published two papers as part of its review of the structure of the UK's primary markets to ensure that they continue to serve the needs of issuers and investors.
The discussion paper "Review of the Effectiveness of Primary Markets: The UK Primary Markets Landscape" (the Discussion Paper) raises broad questions about the effectiveness of the UK primary markets, the listing regime and the FCA's regulatory role. The Discussion Paper focuses on the standard listing segment and certain categories within that segment. The FCA notes in the Discussion Paper that there is evidence suggesting the premium listing regime works well. It is therefore at the moment proposing to make only technical changes to the premium listing regime. These are set out in the FCA's consultation paper "Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime" (the Consultation Paper).
Key points in the Discussion Paper
The FCA is looking at whether the distinction between standard listings (based on EU minimum standards) and premium listings (which are more burdensome) remains relevant. Standard listings were originally intended to be attractive to overseas companies that might find the more onerous requirements of the premium listing regime unattractive. However, standard listings are generally regarded as unattractive because there is a lack of clarity about their purpose and the standards they require. The name, which implies "second best", is also unhelpful.
International issuers in practice favour a global depositary receipt listing if a premium listing is not appropriate. However, typically, these are not available to retail investors who might wish to invest in mature overseas companies. The FCA is therefore seeking views on whether there should be a distinct international segment available to large international companies. The FCA envisages that the key to its success would be developing a package of investor protections, appropriate to the segment's aims and capable of fostering investor confidence.
Open-ended investment companies currently cannot apply for a standard listing, but can have a premium listing if they are authorised or recognised. However, open-ended investment companies are also subject to regulation outside the Listing Rules. Stakeholders generally view this regulation outside the Listing Rules as providing the main source of investor confidence, with the premium rather than standard listing being a potentially unnecessary overlay.
The FCA addresses specific concerns about the effectiveness of the UK’s primary equity markets in providing growth capital, in particular for early-stage science and technology companies.
If, after receiving feedback on the Discussion Paper, the FCA decides to take forward any specific policy proposal, it will issue a further consultation paper.
Key points in the Consultation Paper
The eligibility criteria in Listing Rule 6 will be rewritten to simplify and clarify them and there will be two new Technical Notes covering financial information and the track record and independent business requirements.
There will be a new concessionary route to premium listing for certain types of property company that cannot meet the three-year revenue-earning track record. There will also be new Technical Notes with extra guidance on the existing concessionary routes for mineral companies and scientific research based companies.
There will be changes to the current profits test used to classify the size of transactions for premium listed companies. The purpose of the changes is to avoid the anomalous results which the current test often produces. The FCA is also seeking views on whether there are any other potential adjustments to the profits test.
When a reverse takeover becomes public the FCA will no longer assume that there is insufficient information in the market about the target of the transaction, with a resulting suspension of listing. Principally as a result of the Market Abuse Regulation, the FCA is proposing to assume that companies will have disclosed all relevant information on the target and therefore remove the presumption of suspension for reverse takeovers. This proposal will extend to all issuers with a premium or standard listing of securities but not to shell companies. The FCA will continue to hold a general power to suspend listings to protect the smooth operation of the market. It will also still typically seek to cancel the issuer's listing when it completes a reverse takeover.
The FCA is proposing that, following the consultation, it will publish the new rules in the second half of 2017.