The new Listing regime

The changes are intended to provide more clarity for investors in a changing and increasingly competitive global listing environment. The FSA hopes that the new regime will help maintain London’s reputation as an attractive place to list UK and overseas companies, with strong investor protection.

Current regime

Under the current system, a UK company can apply for a Primary Listing, which means complying with the full Listing Rules regime. This so-called super-equivalent regime is more onerous than the minimum standards required by the European Union. Until recently, UK companies could not apply for a Secondary Listing, which requires compliance only with those Listing Rules that reflect the European Union’s minimum requirements for listing and disclosure. This was changed on 6 October 2009 due to demand from a number of companies with specific capital-raising needs.

Overseas companies can apply for either a Primary Listing or a Secondary Listing.

New regime

The key changes are:

• listings on the Main Market of the London Stock Exchange will either be Premium Listings or Standard Listings
• broadly speaking, a Premium Listing will be the same as the current Primary Listing. A Standard Listing will broadly replicate the existing lighter-touch Secondary Listing regime;
• both Premium and Standard Listings will be available to all equity issuers;
• overseas companies will be subject to the same listing and continuing obligations as UK-incorporated companies. In particular, an overseas company opting for a Premium Listing will be required to follow the same super-equivalent rules on corporate governance and pre-emption that already apply to UK Primary Listed issuers (see below);
• companies will be able to migrate between Standard and Premium Listings without having to de-list (although shareholder approval may be required); and
• Premium Listings will only be open to equity securities that are issued by commercial companies and closed and open-ended investment entities. Standard Listing will be available for equities (excluding investment entities), global depository receipts and debt and securitised derivatives.

The amendments to the Listing Rules will come into force on 6 April 2010. A new Listing Rule will be introduced that will prohibit companies from misrepresenting their types of listing. Companies will also be required to make their status clear on their RIS announcements. There will be a concerted campaign by the FSA to educate the market about the significance of the new designations.

The requirement for overseas companies with a Premium Listing to ‘comply or explain’ against the Combined Code on Corporate Governance, and to safeguard existing shareholders’ pre-emption rights to the same extent as UK companies are required to, is a significant change. The requirements will apply for financial years commencing after 31 December 2009 and may require overseas companies that currently have a Primary Listing to review their corporate governance policies and board structures in order to ensure compliance with the Combined Code. All overseas companies with equities listed, whether under the Premium or the Standard tier, will need to comply with Disclosure and Transparency Rule 7.2 (which currently applies only to UK companies), which requires the company to make a corporate governance statement in its annual report and accounts based on the corporate governance code to which it is subject, and to describe its internal control and risk management arrangements.

Premium or Standard Listing?

UK companies will for the first time have a choice of regimes for listing their shares. Issuers will need to weigh up the cost of compliance against the benefits of a Premium Listing.

A Premium Listing will remain a prerequisite for inclusion in the FTSE UK series indices. This is likely to be a deciding factor for many companies, as exclusion could significantly affect liquidity in their shares. Companies seeking an increased profile and enhanced analysts’ coverage will also prefer a Premium Listing.

Standard Listing may be attractive to existing smaller companies that want to reduce their compliance burden, or for smaller companies that are looking for a realistic alternative to AIM or that want to move up from an AIM listing.

Migration between Premium and Standard Listings

A company wishing to migrate from a Premium to a Standard Listing must obtain prior shareholder approval (by way of a special resolution). An issuer seeking to upgrade from a Standard to a Premium Listing will also be required to appoint a sponsor and to notify the FSA. In neither case will an issuer be required to cancel its listing.

Standard Listing as an alternative to AIM?

Standard Listings will offer UK-incorporated commercial companies (but not UK investment funds or UK investment companies) an alternative to a quotation on AIM.

A Standard Listing is only available to companies that meet the free-float (or 25% in public hands) requirement. The aggregate market value of all securities (excluding treasury shares) listed must be at least £700,000 and an EU Prospectus Directive-compliant prospectus must be published. In contrast, there are no minimum free float or market capitalisation requirements on AIM. Also, admission to AIM might only require the preparation of an admission document instead of a full prospectus.

Although it will not bring inclusion on the FTSE indices, a Standard Listing will confer the higher status attributed to a listing on the Official List without the burden of the super-equivalent standards imposed on a Premium Listing. In this regard, the Quoted Companies Alliance, which represents the interests of smaller quoted companies, has expressed concern that the introduction of the Standard Listing, with its minimum compliance requirements, may in turn harm the attractiveness of the AIM and PLUS markets, citing the fact that companies with a Standard Listing are not required to appoint a Sponsor; the Combined Code will not apply; and shareholder approval is not required for transactions such as takeovers.

Comment

The FSA hopes that the new regime will maintain an appropriate balance between investor protection and the competitiveness of London as a listing environment, and will minimise the differences between the treatment of UK and overseas companies. In terms of substantive changes to the listing regime it is unlikely that the reforms will make a major difference to UK companies that currently have a Primary Listing. There will, however, be a heavier burden for overseas companies that want a Premium Listing.

The new regime will coincide with what is expected to be a bumper year for initial public offerings, and will make a London Listing an easier target to achieve by using the Standard Listing route. But it is likely that most companies looking to undertake an IPO after April 2010 will still do so via a Premium Listing, in order to secure increased marketability for their shares through being quoted on the FTSE UK series indices. Indeed, the FSA has said that it does not expect many companies to opt for a Standard Listing.

A Standard Listing may, however, be seen as intermediate position for companies trading on AIM that wish to end up ultimately with a Premium Listing, or for companies with a primary listing elsewhere seeking a secondary listing in London.