The regulator continues its Primary Markets Effectiveness Review to promote the competitiveness of a UK listing.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 26 May 2022, the FCA published a discussion paper (DP22/2) to seek further views on how to make the UK listing regime more effective, easier to understand, and more competitive. This paper contains suggested reforms from the FCA to elicit feedback, rather than a formal consultation on proposed rule changes.

Key points from the discussion paper include the following:

  • Single listing segment: The FCA is considering a single listing segment for equity shares in commercial companies that would replace the current premium and standard segments. Listed companies would have to comply with one set of mandatory continuing obligations and choose whether to opt into a second set of supplementary continuing obligations. In addition, the premium listing principles would be extended to all companies under the single listing segment. Existing listed companies should consider these proposals, particularly whether the supplementary obligations would be appropriate for them. Such companies may decide to opt into the supplementary set of continuing obligations if they feel that the additional investor protections would add value for them and their shareholders. As part of this assessment, companies would also need to take into account the expected future guidance from FTSE Russell on the indexation implications. For example, the indices may choose to include criteria that require adherence to both the mandatory and supplementary continuing obligations or potentially other criteria beyond the listing regime. See the table at the end of this post that outlines how the continuing obligations would be split between mandatory and supplementary.
  • Scope: As noted above, the proposed single listing segment would be primarily for “equity shares” in “commercial companies”. The FCA indicates that it would retain separate listing requirements for securities other than equity shares in commercial companies (such as SPACs and GDR listings) that are currently listed in the standard segment, as well as for secondary listings of equity shares in commercial companies that are incorporated overseas. Such overseas incorporated companies would therefore have the flexibility to list on the single segment or alternatively seek a UK secondary listing pursuant to requirements akin to a standard listing.
  • Significant transactions: In response to concerns regarding the significant transactions regime, the FCA has asked for feedback on whether the levels of the class test thresholds should be revised, such as raising the ratio for a Class 1 transaction from 25% to 33%. A higher Class 1 threshold could reduce the circumstances where a premium listed company is put at a disadvantage (i.e., due to the need to prepare a circular and obtain shareholder approval) in competitive M&A processes.
  • Eligibility criteria: One set of eligibility criteria would apply to the single segment. The FCA is also considering whether to remove certain financial eligibility conditions (i.e., three-year revenue track record representative of at least 75% of business, and clean working capital statement) and replace them with prospectus disclosure requirements. This potential move to a disclosure-based regime could encourage more UK listings of high-growth/pre-revenue companies to list since the eligibility bar will have been removed.
  • Dual class shares: The FCA suggests that dual class share structures would be permitted within the single segment, but only in the targeted form prescribed under the new listing rules introduced in December 2021.
  • Sponsor regime: The FCA proposes extending the scope of the sponsor regime to cover all listed companies under the single segment who would require a sponsor in the same way as the current premium listing regime. The FCA is considering improvements to the sponsor regime with respect to record keeping, conflict of interest, and transparency around fee structures, in order to potentially reduce compliance burdens and to better align a sponsor’s incentives with the long-term interests of an issuer.
  • Transitional arrangements for existing issuers: The FCA indicates that it is unlikely to move all existing premium listed companies as a block into either the “mandatory” or “mandatory + supplementary” regimes, and has requested feedback on the arrangements that should be in place to transition to the new single segment. The FCA suggests one option would be to require a shareholder vote (at an AGM) to determine whether the supplementary obligations are appropriate for the company. For existing standard listed issuers of equity shares in commercial companies that are unable to or do not wish to meet the mandatory obligations within the new single segment, the FCA states that it will likely include transitional provisions to allow these issuers to retain their listings in the standard segment (rather than requiring them to de-list). Alternatively, these standard listed issuers that want to move to the new single segment could undergo an eligibility assessment with the FCA and do so.

The deadline for responses is 28 July 2022. 

Control of Business (retaining the adjusted regime for mineral companies) Related Party Transactions (issuers of equity shares in standard listing already have to comply with separate RPT requirements in DTR 7.3) Constitutional Arrangements (one-share, one-vote provisions in various parts of the rules)
Shareholder Approval for Cancellation of Listing Rights Issues/Open offers (including 10% discount rule) Externally Managed Companies
Employee Share Schemes Discounted Options Arrangements Dealing in Own Securities and Treasury Shares
Pre-emption Rights
Already apply to issuers of equity shares in standard listing
DTRs Reverse Takeover Provisions Excluding Shareholder Vote MAR
Comply or explain provisions (in some cases already apply to issuers of equity shares in standard listing)
UK Corporate Governance Code Climate-related Financial Disclosures Diversity and Inclusion
Controlling Shareholder Regime Independent Business Significant Transactions (including shareholder vote for reverse takeovers) — additional consideration being undertaken regarding class test thresholds

(Source: DP22/2)