Following its consultation on a number of core areas in the AIM Rulebooks, the London Stock Exchange (the Exchange) has published a consultation on the proposed rule changes which it proposes to take forward. Headline changes which would apply from 30 June 2018 are:
- An ‘early notification’ procedure is to be introduced for consulting with the Exchange on new IPOs
- The Exchange’s absolute discretion to refuse admission is more prominently stated, with the Exchange likely to refuse admission where admission may be detrimental to the orderly operation, reputation and/or integrity of AIM
- Guidance is being given to nominated advisers on matters which the Exchange considers may affect the appropriateness assessment
- AIM companies must comply with a recognised corporate governance code
With effect from 3 January, and in anticipation of AIM achieving ‘SME growth market’ status, AIM companies must maintain all inside information and prospectuses published after that date on their websites for at least five years.
The key change proposed concerns the admission process. Although the Exchange maintains that the primary responsibility is on the nominated adviser to assess the appropriateness of a company for admission to AIM, the changes to the rules will make it clear that the Exchange retains an absolute discretion to refuse an application for listing, even is the applicant apparently meets the other criteria for admission set out in the rules.
In part to off-set the perceived risks to applicants in following through the application process only to be refused admission at the end, the Exchange is proposing to introduce a new ‘early notification’ procedure. This will create a formal procedure whereby nominated advisers can approach the Exchange much earlier in the process (using a template form which will broadly reflect the core issuer information in the Schedule One form). Nominated advisers will decide when to submit the ‘early notification’, based on whether they have identified concerns with the applicant and how much due diligence information they have.
Matters likely to cause concerns as to appropriateness include:
- Reputation and history of directors, key managers, senior executives, consultants and major shareholders
- Rationale for listing on AIM
- Formal criticism of the issuer or its directors
- Denial of admission to other exchanges
- Vague or ill-defined business model or operations
- Questions over the legality of the applicant’s business/business model or where it has failed to obtain all the assets or licences it requires to operate
- Where the applicant does not own all of its business/assets itself but relies on contractual arrangements with a third party (particularly where they may be issues regarding enforcing those arrangements)
Other proposed changes to the rules include the requirement for all AIM companies to adhere to a ‘recognised’ corporate governance code and then to explain any non-compliance. There will be no specified ‘recognised’ corporate governance code which must be adhered to. We expect that many AIM companies, as now, will choose to report against the Corporate Governance Guidelines for Small and Mid-Size Quoted Companies published by the Quoted Companies Alliance.
Changes not being pursued
Changes which did not make it past the consultation stage include:
- Setting a fixed minimum free float (instead the Exchange proposes relying on its existing guidance to maintain flexibility)
- Setting a minimum fundraise for IPOs on AIM
- Automatic fines for breaches of the AIM Rulebooks
However, nominated advisers might wish to note the Exchange’s comment in its feedback that it believes that the benefits of the minimum fundraising proposal would have been to increase certainty as to an applicant’s financial position and “the support of recognised institutions would provide confidence to the wider market about the company’s governance and business model”. While there is no formal requirement as to the investor-base in an AIM company, where there are potential concerns over the appropriateness of a business for listing on AIM, the Exchange may well take into account the extent to which the IPO is being backed by “recognised institutions” as opposed to less well-known or less mainstream investors.