The UK’s Financial Conduct Authority (FCA) has overhauled the Listing Rules (the UKLR) to better align with international market standards and to improve the global competitiveness of the UK market. The new UKLR, which apply since 29 July 2024, represent a relaxation of the previous regime and a move to a more disclosure-based regime. There have been material changes to, among other things, the listing categories, significant and related party transactions, disclosure requirements, the sponsor regime and controlling shareholder relationships.
Impact on Irish issuers
Irish companies with a primary listing on Euronext Dublin and a secondary listing in the UK have been moved to the new ‘International Commercial Companies Secondary Listing’ category (International Secondary Listing). The features of this category are broadly similar to those of the previous standard listing category. The Irish listing rules have not been impacted by these changes, but Euronext Dublin may be considering its own revisions in the near future.
What has changed?
- The most fundamental change is the removal of the premium and standard listing segments, which have been replaced by a new single category of ‘Equity Shares in Commercial Companies’ (ESCC).
- As well as the ESCC, four new categories have been introduced (bringing the total number of categories to 11). These are: Transition, International Secondary Listing, Shell companies and special purpose acquisition companies (SPACs), and Non-equity shares and non-voting equity shares.
- Companies listed on the premium segment have been mapped over to the ESCC. The principal reforms can be found in this new category.
- Companies listed on the standard segment have been moved to the Transition category where their obligations remain unchanged. This category has no end date at present but is closed to new applicants.
- Non-UK companies with a primary listing on a non-UK market (e.g. Irish companies with a primary listing on Euronext Dublin) have been mapped over to the International Secondary Listing category, which has similar rules to the standard listing.
International Secondary Listing
The rules for this new category are broadly based on the previous standard listing segment requirements, which apply with some key modifications. Emphasis in the new category is placed on the requirement that the primary listing must be a genuine secondary listing. As well as the standard issue rules that existing issuers will be familiar with, certain additional eligibility requirements and continuing obligations apply as follows:
- The applicant must be a non-UK incorporated company. International groups with a UK public limited company as their top company will not be eligible for this category.
- The applicant must have a "qualifying home listing". This means that shares of the same class must be admitted to trading on an overseas-regulated, regularly operating, recognised open market that is subject to the oversight of the International Organization of Securities Commissions (IOSCO). The company must be subject to the rules of this primary listing without any dispensation as a foreign issuer.
- The company must comply with the market rules of its qualifying home listing at all times and must be able to confirm that it is (and has been) in compliance at all times with these rules.
- If an applicant's qualifying home listing is not in its country of incorporation, the FCA may require an explanation of the reasons for establishing that listing elsewhere.
- The applicant’s place of 'central management and control' must be situated either in its country of incorporation or in the country of its qualifying home listing. If a company is controlled and/or operated from a third jurisdiction, it will not be eligible for this category. Guidance on the UKLR notes that the FCA may dispense with or modify the ‘place of central management and control’ requirement where it is satisfied that the issuer’s operational and governance arrangements are not intended to reduce, and do not have the effect of reducing, the FCA’s ability to monitor compliance with the relevant rules. It is therefore possible that there will be some flexibility in the enforcement of this requirement in practice.
- A sufficient number (10%) of shares of the class being sought to list must be in public hands, excluding any treasury shares.
- A listed company must notify the FCA as early as possible if trading in its securities on its qualifying home listing has been suspended or admission of those securities has been cancelled or restored, in order to discuss whether a suspension, restoration or cancellation of listing under UKLR is appropriate.
- A listed company must notify the FCA as soon as possible if it no longer complies with its continuing obligations. (In respect of this requirement the FCA has indicated that it will keep the question of whether there should be a materiality threshold under review and assess this in light of the number of notifications it receives.)
Legacy standard issuers
For legacy issuers on the standard segment, certain alleviations to the above rules will apply indefinitely. These companies do not need to comply with the place of management and control requirements. While they will need to have a qualifying home listing, the requirement for the listing to be subject to oversight by an IOSCO signatory is disapplied. The requirement for the company to be subject to primary listing rules without foreign issuer dispensations will also be disapplied.
Reverse takeovers
A company in the International Secondary Listing category is not required by the UKLR to seek shareholder approval for a reverse takeover. However, the UKLR now clarify that the applicant (or its sponsor if it has one) must consult with the FCA before a reverse takeover is announced (or upon a leak that a reverse takeover is in contemplation), to discuss whether a cancellation is appropriate on completion of the reverse takeover. Where a cancellation is appropriate the applicant can apply for readmission as a new applicant on completion of the reverse takeover.
ESCC category
For companies mapped over to, or entering the ESCC category, there are a number of differences with the previous premium listing regime. Some of the most significant differences are outlined below.
- Lighter eligibility requirements: The eligibility criteria for the ESCC category are based on the previous requirements for the premium listing segment with some modifications. Companies applying for ESCC listing no longer need to publish historical financial information covering at least three years and at least 75% of the company’s business, demonstrate a three-year earning record, give an unqualified working capital statement, or demonstrate that they have an independent business and operational control over their main activities. These changes are helpful for any new entrants (notably growth companies) who may have previously been prevented from entry due to these requirements.
- Shareholder approval requirements pared back: While shareholder approval is required for a smaller number of transactions than under the premium segment, it is still required for reverse takeovers and transactions such as delisting, non-pre-emptive issues of shares at more than 10% discount, certain employee share schemes and certain share buyback arrangements.
- Relationship agreements: Agreements with controlling shareholders (holding 30%+) are no longer required, but the company must demonstrate it can carry on business independently and many companies may still feel more comfortable having such relationship agreements in place.
- Significant transactions:
- A new single category for significant transactions (previously ‘class 1’ transactions) has been created, defining a significant transaction as a transaction outside the ordinary course of business which is equal to or exceeds 25% under one of the class tests. Transactions in the “ordinary course of business” continue to be excluded from the significant transaction regime and new guidance is provided in the UKLR on what constitutes “ordinary course of business”. A break fee by itself no longer constitutes a significant transaction.
- Transactions that would have previously qualified as class 1 transactions do not require publication of a shareholder circular or shareholder approval. A listed company must publish a detailed announcement regarding the significant transaction, including information that would have been disclosed in a class 1 circular. However, unlike with a class 1 circular, these announcements are not subject to prior FCA approval and the following are no longer required: (i) a sponsor’s statement on the fairness of the consideration, (ii) a working capital statement, or (iii) audited financial information about the target where the listed company is acquiring a company (although audited financial information is still required where a listed company is making a disposal).
- Companies are now permitted to take a more flexible and staged approach to disclosure of significant transactions. The first announcement must be published as soon as possible after the terms are agreed, but a further announcement may be delayed until the required information becomes available (but before the transaction completes). The decision whether to enter into a significant transaction will be made by the board, so governance processes around transactions may need to be reviewed and enhanced.
- Listed companies no longer need to disclose ‘class 2’ transactions unless required to do so under the UK’s Market Abuse Regulation.
- The ‘profits test’ for class tests has been abolished on the basis it often produced irregular results.
- The UKLR permit flexibility on timing and content of the disclosures required for significant transactions. This provides flexibility for companies to take a staged approach to disclosure, including permitting certain information to be announced (as soon as it becomes available) prior to closing. Companies must publish a notification providing confirmation that the transaction has taken place. The decision whether to enter into a significant transaction will be made by the board, so governance processes around transactions may need to be reviewed and enhanced.
- Class 2 transactions (5-25%): No announcement is required for what were previously termed ‘class 2’ transactions that represent less than 25% in each class test (i.e. where any of the class tests is greater than or equal to 5%, but each is less than 25%).
- Related party transactions: The company no longer requires shareholder approval (or to publish a circular) where the class test results in a ratio of 5% or above. When a large, related party transaction meets the 5% class test in at least one class, it will be subject to market notification, the requirement for a sponsor’s “fair and reasonable” opinion, and board approval. The disclosure regime for smaller transactions (between 0.25% and 5%) has been removed. These transactions no longer require a specific notification or a “fair and reasonable” opinion.
- ‘Substantial shareholder’: The threshold at which a shareholder becomes a ‘substantial shareholder’ (and therefore a related party) has been increased from 10% to 20% of the voting rights of the issuer, meaning that fewer transactions may be subject to the new related party rules.
- Sponsors: A sponsor is still required for commercial companies on the ESCC category, shell companies and closed end investment funds at the application and listing stage. However, sponsors will now have a reduced role following listing, which is largely limited to: reverse takeovers, related party transactions, where a prospectus is required for admission to trading, transfers into or out of the ESCC, and any requests for individual guidance from the FCA, or the waiver or modification of the significant transactions regime.
- Dual class share structures: The requirements are less restrictive than those under the premium listing regime. For example, enhanced voting rights may be held by any legal person (e.g. institutional investors of the applicant) for a maximum of 10 years and there is no time limit for natural persons. A wider range of people (beyond just directors) may also hold weighted voting rights shares provided they have involvement or a stake in the issuer at the point of listing (e.g. shareholders and employees).
Further changes on the horizon
The FCA will formally review the UKLR in five years’ time to evaluate the impact on the market. Further changes are also on the horizon. In July 2024, the FCA published two consultation papers related to a proposed new regime for public offers and admissions to trading (the POATR), which will replace the current UK prospectus regime (inherited from the EU pre-Brexit).
For further information on the new UKLR and how they impact your business, please contact a member of the Equity Capital Markets Group, or your usual ALG contact.
