On 6 August 2007, the changes to the Prospectus Rules and the Listing Rules detailed in the June 2007 policy statement published by the Financial Services Authority ("FSA") (other than the proposed change to LR8.2.1) came into effect. This article highlights certain aspects of the key changes. The revised rules can be found at


The FSA has also taken this opportunity to update the Listing Rules and the Disclosure and Transparency Rules to reflect the Companies Act 2006.

Prospectus Rules

The FSA has amended PR2.4.1R to allow issuers to incorporate by reference documents previously or simultaneously approved by the competent authority in the issuer's Home Member State. The FSA has clarified PR3.4.3R to reflect its expectation that issuers publish a supplementary prospectus "as soon as practicable" after a new significant matter arises.

Listing Rules

LR5 – Suspending, cancelling and restoring listing

  • Cancelling listing: The FSA has deleted references to preference shares, options, warrants and convertible securities from LR5.2.5R which means that an issuer need not obtain approval from the holders of such securities prior to the cancellation of a listing. The FSA has extended the policy set out in LR5.2.10R (dispensation of the need to obtain shareholder approval prior to a cancellation of listing in the context of a takeover) to include, amongst other things, takeovers implemented by schemes of arrangement.

LR9 – Continuing obligations

  • Ongoing control of major assets: The FSA has introduced a new listing rule at LR9.2.2A. The new rule requires that (subject to certain exceptions) listed companies must demonstrate control of the majority of their assets on an ongoing basis. The rationale for this rule is that a company should (1) be able to keep the market informed of price sensitive information on a timely and on an ongoing basis; (2) ensure that shareholders of a listed company are able to benefit from the protections afforded by LR10 and 11; and (3) be in a position to drive forward the agenda of the company.
  • Model Code: The FSA has implemented two significant changes to the Model Code, found in LR9Annex 1R. The first amendment is the removal of "employee insiders" from the scope of the Model Code. The FSA makes clear, however, that this amendment to the Model Code has no impact on a company's obligations to prepare and maintain insider lists. The second amendment introduces a revised clearance to deal procedure where neither the chairman or CEO is available to give pre-clearance to deal. Pre-clearance to deal can now be given by the senior independent director, a committee of the board or other officer of the company nominated for that purpose by the chairman or the CEO.

LR 10 - Significant transactions

  • Material changes: The FSA has introduced guidance as to what constitutes a material change in the context of LR10.5.2R (material change to terms of class 1 or reverse takeover transaction after production of circular). LR10.5.3G provides that the FSA would consider, amongst other things, an increase of 10% or more in the consideration payable to be a material change to the terms of the transaction.
  • Reverse takeovers: The FSA has introduced guidance at LR10.6.3G which provides that an issuer should consider whether a suspension of listing in accordance with LR5 is necessary where a reverse takeover has been announced or leaked.
  • Exit arrangements: LR10Annex 1(5)R has been amended to provide that where the total consideration in a transaction is not subject to a maximum, and the other class tests indicate the transaction to be a class 2 transaction, the transaction should be treated as a class 1 transaction. Similarly, where the other class tests indicate a transaction to be a class 3 transaction, it should be treated as a class 2 transaction.

LR 11 - Related Party Transactions

  • Joint Ventures: The FSA has deleted 50:50 joint venture partners from the definition of related parties in LR11.
  • Loans to directors: The existing exemptions to LR11 have been extended to include loans made to directors under sections 204 or 205 of the Companies Act 2006 (which will replace sections 337 and 337A of the Companies Act 1985).
  • Substantial shareholders: The definition of substantial shareholder has been amended to exclude situations where (i) the substantial shareholder is only a related party of the listed company by virtue of managed funds held by the subsidiary of the substantial shareholder or (ii) the substantial shareholder has attained voting rights in its capacity as a long term insurer.

On 6 October 2007, the Listing Rules will be further amended so that the requirement to appoint a sponsor set out in LR8.2.1R will be extended such that as well as being required to appoint a sponsor on the production of a prospectus, an issuer will also be required to appoint a sponsor on the production of an "equivalent document". Certain other consequential changes to the Listing Rules will also be made at that time.