FCA Proposes to Unify the Itemizing Regime for Business Corporations Underneath a Single Itemizing Section

The regulator continues its Major Markets Effectiveness Evaluate to advertise the competitiveness of a UK itemizing.

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

On 26 Might 2022, the FCA printed a dialogue paper (DP22/2) to hunt additional views on easy methods to make the UK itemizing regime more practical, simpler to know, and extra aggressive. This paper accommodates steered reforms from the FCA to elicit suggestions, fairly than a proper session on proposed rule adjustments.

Key factors from the dialogue paper embrace the next:

• Single itemizing phase: The FCA is contemplating a single itemizing phase for fairness shares in business corporations that may exchange the present premium and customary segments. Listed corporations must adjust to one set of obligatory persevering with obligations and select whether or not to decide right into a second set of supplementary persevering with obligations. As well as, the premium itemizing ideas could be prolonged to all corporations beneath the only itemizing phase. Current listed corporations ought to take into account these proposals, notably whether or not the supplementary obligations could be acceptable for them. Such corporations could resolve to decide into the supplementary set of continuous obligations in the event that they really feel that the extra investor protections would add worth for them and their shareholders. As a part of this evaluation, corporations would additionally have to keep in mind the anticipated future steering from FTSE Russell on the indexation implications. For instance, the indices could select to incorporate standards that require adherence to each the obligatory and supplementary persevering with obligations or probably different standards past the itemizing regime. See the desk on the finish of this publish that outlines how the persevering with obligations could be break up between obligatory and supplementary.

• Scope: As famous above, the proposed single itemizing phase could be primarily for “fairness shares” in “business corporations”. The FCA signifies that it will retain separate itemizing necessities for securities aside from fairness shares in business corporations (resembling SPACs and GDR listings) which can be at present listed in the usual phase, in addition to for secondary listings of fairness shares in business corporations which can be included abroad. Such abroad included corporations would subsequently have the pliability to listing on the only phase or alternatively search a UK secondary itemizing pursuant to necessities akin to a typical itemizing.

• Important transactions: In response to considerations concerning the numerous transactions regime, the FCA has requested for suggestions on whether or not the degrees of the category take a look at thresholds ought to be revised, resembling elevating the ratio for a Class 1 transaction from 25% to 33%. The next Class 1 threshold might scale back the circumstances the place a premium listed firm is put at a drawback (i.e., because of the want to organize a round and acquire shareholder approval) in aggressive M&A processes.

• Eligibility standards: One set of eligibility standards would apply to the only phase. The FCA can be contemplating whether or not to take away sure monetary eligibility circumstances (i.e., three-year income observe document consultant of not less than 75% of enterprise, and clear working capital assertion) and exchange them with prospectus disclosure necessities. This potential transfer to a disclosure-based regime might encourage extra UK listings of high-growth/pre-revenue corporations to listing for the reason that eligibility bar can have been eliminated.

• Twin class shares: The FCA means that twin class share constructions could be permitted throughout the single phase, however solely within the focused kind prescribed beneath the brand new itemizing guidelines launched in December 2021.

• Sponsor regime: The FCA proposes extending the scope of the sponsor regime to cowl all listed corporations beneath the only phase who would require a sponsor in the identical means as the present premium itemizing regime. The FCA is contemplating enhancements to the sponsor regime with respect to document maintaining, battle of curiosity, and transparency round price constructions, in an effort to probably scale back compliance burdens and to raised align a sponsor’s incentives with the long-term pursuits of an issuer.

• Transitional preparations for present issuers: The FCA signifies that it’s unlikely to maneuver all present premium listed corporations as a block into both the “obligatory” or “obligatory + supplementary” regimes, and has requested suggestions on the preparations that ought to be in place to transition to the brand new single phase. The FCA suggests one possibility could be to require a shareholder vote (at an AGM) to find out whether or not the supplementary obligations are acceptable for the corporate. For present customary listed issuers of fairness shares in business corporations which can be unable to or don’t want to meet the obligatory obligations throughout the new single phase, the FCA states that it’s going to doubtless embrace transitional provisions to permit these issuers to retain their listings in the usual phase (fairly than requiring them to de-list). Alternatively, these customary listed issuers that need to transfer to the brand new single phase might endure an eligibility evaluation with the FCA and accomplish that.

The deadline for responses is 28 July 2022. 

(Supply: DP22/2)