New UK Premium and Standard Listing Regime.

Transcription

1 March 2010 New UK Premium and Standard Listing Regime. The new premium and standard segments of the UK listing regime take effect on 6 April and the FSA has now published the final rule amendments needed to implement the changes. This note provides an overview of the new regime and considers the implications for existing and potential issuers wishing to choose an appropriate market for their securities. Overview The focus of the changes is on segmentation and labelling. In particular, listing is divided into standard (previously secondary ) listings, where listed companies comply with EU minimum standards and premium (previously primary ) listings where super-equivalent requirements apply (e.g. demonstrating a three year track record, appointing a sponsor on admission and complying with continuing obligations regarding substantial and related party transactions). The new regime allows only voting equity shares to be listed on the premium segment. All other types of security must be listed under the standard segment, within which there are five categories: Shares, GDRs, Debt and debt-like securities, Securitised derivatives, and Miscellaneous securities. Open-ended investment companies and closed-ended investment funds can only list equity shares on the premium segment (they may also have standard listed shares, so long as they have a class of equity shares with a premium listing). In implementing these new listing segments, the FSA has sought to adjust its rules so that they apply on a more consistent basis as between UK incorporated companies and overseas companies in each of the standard and premium segments. The most significant changes are: > Companies with a standard listing of GDRs or shares 1 will have to include a corporate governance statement in the director s report specifying the governance code that applies to them as well as details of internal financial control and risk management arrangements. > Shares which do not have full voting rights are regarded as ineligible for premium listing by the FSA. Any such shares which currently have a primary listing will be moved to the standard listing segment in June > Overseas premium listed companies will have to comply or explain against the UK Combined Code. Contents Overview... 1 Impact of the changes... 2 Increased corporate governance disclosure... 2 Premium listing for overseas companies... 2 Standard listing for UK incorporated companies 3 Moving from one segment to another... 3 Exclusion of shares without full voting rights from premium listing... 3 Conclusions... 4 Further information... 4 Appendix 1 Distinctions between Premium Listing, Standard Listing and AIM in principle Other than preference shares which are specialist securities. 1 New UK Premium and Standard Listing Regime

2 > Overseas premium listed companies must provide in their constitutions for shareholders to have pre-emption rights on secondary share issues. This rule will apply from 6 April 2011 to give existing issuers who do not already have such provisions time to amend their constitutions. > To make the standard listing segment available to UK companies, for the first time. A premium listing will remain a pre-requisite for inclusion in the FTSE UK series indices: other conditions for FTSE eligibility will also continue to apply as a premium listing of itself does not confer admission to the FTSE UK series indices. For investment funds and companies wanting to list their equity on the Official List, their sole option is premium listing. (Standard listing ceased to be available to these issuers following the implementation of the FSA s Investment Entities Listing Review, in 2008.) The impact of the principal rule changes is discussed below. A comparison of the main differences in the requirements for each of a premium and a standard listing of shares, a standard listing of GDRs and an AIM listing is set out at Appendix 1 of this note. Impact of the changes Increased corporate governance disclosure The new rules will require overseas issuers with a standard listing of GDRs or shares to comply with DTR 7.2 in respect of financial years beginning after 31 December This will require the making of a corporate governance statement in the directors report covering the governance code to which the issuer is subject in relation to the financial reporting process and certain details of share capital. The corporate governance statement must include a description of the board and its committees, the main features of the internal control and risk management systems. This requirement currently applies only to UK companies so there will be increased ongoing compliance obligations for non- UK issuers 2. Premium listing for overseas companies The main changes in the rules applicable to overseas companies with premium listings are in relation to compliance with the UK Corporate Governance Code (previously known as the Combined Code) and to preemption rights. The rules do not require compliance with the UK Corporate Governance Code, merely disclosure and an explanation of any non-compliance. This disclosure is intended to enable shareholders to make their own assessment of a company s corporate governance practices. Investor representative groups such as the ABI, the NAPF and the PIRC seek to monitor compliance and publish reports on UK listed companies and issue voting recommendations to their members. The FSA does not actively monitor the content of corporate governance statements, but to the extent it does so, it is concerned to check that they are made rather than to judge the adequacy of either any explanation given or the corporate governance practices disclosed. While many overseas companies with a premium listing already apply preemption rights voluntarily, this will be mandatory from 6 April 2011, allowing a transitional period during which issuers can make constitutional changes, if necessary. 2 EU issuers are likely to be subject to similar rules under their national laws or regulations. 2 New UK Premium and Standard Listing Regime

3 The pre-emption rule only applies to issues of shares (or sales of treasury shares) for cash. Offerings of convertible securities are not caught, although they are caught by the corresponding provisions of UK company law. However, the FSA states that it plans to consult separately on whether the pre-emption rule should be extended to apply to issues of convertible securities. The pre-emption requirement can only be disapplied by a resolution of shareholders, unless the issuer s home country has implemented Article 29 of the EU Second Company Law Directive the provision on which the UK law pre-emption requirement is based in which case pre-emption can also be disapplied as allowed by national law. There is no set limit on the size of disapplications. UK companies typically obtain an annual disapplication over shares representing 5 per cent of their issued share capital in accordance with institutional investor guidelines, but this is not a Listing Rule requirement. Standard listing for UK incorporated companies UK incorporated companies can now apply for listing on the same, less onerous, basis, as was previously available only to non-uk companies. As a result UK companies, for the first time, have a choice of regimes for listing their shares: they can choose between a premium and a standard listing. The availability of standard listing may be of interest to UK companies which might otherwise have sought an AIM quotation for example companies which meet the 25 per cent free float requirement but not the other requirements for a premium listing. The standard listing option could also be of interest to issuers who do not derive sufficient benefit from their premium listing (in terms of increased profile, enhanced analysts coverage, inclusion in the UK series of the FTSE indices or a more liquid market in their shares) to justify the expense of maintaining it. New applicants for a standard listing will have to publish a prospectus, so the same level of preparatory work will be required for a standard as for a premium listing. By contrast, a prospectus may not be necessary for admission to AIM. However, in other important respects the AIM Rules for Companies impose greater regulation on issuers including the requirement to have a nominated adviser or Nomad and certain continuing obligations such as the requirements to notify or obtain shareholder consent to certain types of transactions. The standard listing option will therefore be less onerous in terms of continuing obligations than an AIM quotation. Moving from one segment to another Overseas companies which have a premium listing and do not need to retain that type of listing (for example to remain FTSE-100 eligible) may wish to switch to the standard listing category, to avoid the need to explain noncompliance with UK corporate governance provisions and offer shareholders pre-emption rights, which would otherwise apply with effect from 6 April Until 6 April 2010, it is possible to re-categorise a listing from premium to standard without obtaining shareholder approval. However, shareholder approval will be required to re-categorise a listing after 6 April Exclusion of shares without full voting rights from premium listing The requirement that equity shares must have full voting rights in order to have a premium equity listing means that any non-voting or limited voting ordinary shares will be relegated to the standard listing segment in June New UK Premium and Standard Listing Regime

4 The transitional period of just over two years before this change takes effect is intended by the FSA to give market participants time to adjust to the new listing structure, which may lead companies that will be affected by this change to reexamine their share structures. The index weightings of companies that have such shares could be affected in the sense that premium listing is a prerequisite for inclusion of the shares in the relevant index. Conclusions The new listing segmentation achieves a greater level of parity between the obligations of UK and overseas companies, although investors will still have to take into account the different legal, economic and cultural implications of investing in companies from different jurisdictions. The stricter standards for non-uk companies with a premium listing may cause some companies to move to a standard listing or, if they have listings elsewhere, to reconsider the need for a separate listing in London at all. Standard listing may prove an attractive alternative to AIM, not only for non- UK companies, but also for UK companies. Further information The FSA s latest policy statement PS10/2 Listing Regime Review: Feedback on CP09/24 and CP09/28 with final rules is available at: The FSA s consultation paper CP09/24 Listing Regime Review: Policy statement for CP08/21 and further minor consultation is available at: The FSA s consultation paper CP09/28 Listing Regime review: Consultation on changes to the listing categories consequent to CP09/24 is available at: Contacts For further information please contact: John Lane (+44) john.lane@linklaters.com Charlie Jacobs (+44) charles.jacobs@linklaters.com Brigid Rentoul (+44) brigid.rentoul@linklaters.com Lucy Fergusson (+44) lucy.fergusson@linklaters.com Matthew Middleditch (+44) matthew.middleditch@linklaters.com Author: Anne Kirkwood This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2010 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP together with a list of those non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ or on and such persons are either solicitors, registered foreign lawyers or European lawyers. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. One Silk Street London EC2Y 8HQ Telephone (+44) Facsimile (+44) Linklaters.com 4 New UK Premium and Standard Listing Regime

5 Appendix 1 Distinctions between Premium Listing, Standard Listing and AIM (in principle) from 6 April 2010 Issue Premium Listing Standard Listing (equity) Standard Listing (GDRs of overseas issuers) AIM FTSE UK indices eligibility Yes, provided other conditions are satisfied Not eligible for inclusion in UK series of FTSE indices Not eligible for inclusion in UK series of FTSE indices Not eligible for inclusion in UK series of FTSE indices Publicity - Branding - LSE trading information - RIS disclosures Ability to use branding of Premium Listing LSE and regulatory information providers will be identifying Premium designation alongside trading information and announcements Likely requirement that all references to company being listed clarify that it is only a Standard Listing - must not make any representation which is reasonably likely to be understood as suggesting that it has a Premium Listing Likely requirement that all references to company being listed clarify that it is only a Standard Listing - must not make any representation which is reasonably likely to be understood as suggesting that it has a Premium Listing Not admitted to Official List Investment mandates Premium branding may attract investors, in similar way to FTSE indices No suggestion at present that investment mandates will restrict investors to Premium listed securities, but may become a distinction in future Standard listing may prove an attractive alternative to AIM, not only for non-uk companies, but also for UK companies Admission criteria Application for listing Requires three-year track record Requires clean working capital statement Requires a minimum of 25% of shares in public hands May provide negative working capital statement subject to explaining how working capital will be obtained Requires a minimum of 25% of shares in public hands No working capital statement required Requires a minimum of 25% of GDRs in public hands (not the underlying securities) Listing principles (LR7) Requirement for Sponsor (LR8) or Adviser Broadly drafted Listing Principles apply, potentially allowing FSA to take enforcement action where the prescriptive rules do not apply Sponsor required on a premium listing for publication of prospectus or circular for significant, related party or buy-back transactions Need an AIM nominated adviser (NOMAD) Public document Prospectus Prospectus Prospectus Prospectus only if there is a nonexempt offer to the public in an EEA member state, otherwise Admission Document 5

6 Issue Premium Listing Standard Listing (equity) Standard Listing (GDRs of overseas issuers) AIM Corporate transactions Significant transactions Related party transactions Corporate governance Requirement to disclose compliance with relevant corporate governance regime in annual report (LR 9.8.6(5) and (6)) LR 10 Class tests and requirements for announcement/ shareholder approval LR 11 requirements for disclosure/shareholder approval/fairness opinion A statement of how the listed company has applied the Main Principles set out in the UK Corporate Governance Code (formerly the Combined Code) in a manner that would enable shareholders to evaluate how the principles have been applied. Obligation to comply or explain against that Code. Under AIM Rules, need shareholder approval No need for shareholder approval but do need notification and fair and reasonable confirmation market practice is to comply with the Quoted Companies Alliance guidelines Corporate governance disclosures (DTR 7.2) Requires the making of a corporate governance statement in the directors report covering the governance code to which the issuer is subject in relation to the financial reporting process and certain details of share capital. Requires description of internal control and risk management systems and composition of committees. Requires the making of a corporate governance statement in the directors report covering the governance code to which the issuer is subject in relation to the financial reporting process and certain details of share capital. Requires description of internal control and risk management systems and composition of committees. Requires the making of a corporate governance statement in the directors report covering the governance code to which the issuer is subject in relation to the financial reporting process and certain details of share capital. Requires description of internal control and risk management systems and composition of committees. Share dealing restrictions) Model Code (LR 9.2.7) AIM rule 21 applies Ongoing obligations to update the market Disclosure of inside information to the market required? Disclosure of dealings by directors and PDMRs required (DTR 3)? Yes Yes Yes Yes Yes Yes Yes 6

7 Issue Premium Listing Standard Listing (equity) Standard Listing (GDRs of overseas issuers) AIM Disclosure and notification of interests in voting rights Must comply with requirements of DTR 5 Must comply with requirements of DTR 5 (See FSA release entitled Information for issuers of Depositary Receipts August 2008) UK issuers on prescribed markets (e.g. AIM) are subject to DTR 5. Non-UK issuers on these markets are not subject to DTR 5. Provision and dissemination of information Need to comply with DTR 6 Need to comply with DTR 6 Need to comply with certain provisions in DTR 6 Ongoing financial reporting obligations Financial reporting requirements Must produce an Annual Financial Report, Half- Yearly Financial Reports and Interim Management Statements Must produce an Annual Financial Report, Half- Yearly Financial Reports and Interim Management Statements Must produce an Annual Financial Report (DTR 4.1) Further share issues and buybacks Pre-emption rights (LR ) Pre-emption rights unless disapplied by shareholder vote Rights issues and open offers (LR 9.5) Share buy-backs (LR 12) Yes Yes Need for prospectus for further share issues Required if issuing over 10% of the number of shares of the same class already admitted to trading over 12 month period Required if issuing over 10% of the number of shares of the same class already admitted to trading over 12 month period Only needed for nonexempt offers to the public Warrants or options to subscribe Cancellation of listing Cancellation of listing Number of issued shares pursuant to warrants/options (excluding employee share schemes) must be limited to 20% of existing issued shares To cancel or move to standard listing - need 75% shareholder consent Number of issued shares pursuant to warrants/options must be limited to 20% of existing issued securities To cancel listing need 75% shareholder consent 7