Immediate changes to the UK Listing Regime to reduce barriers to listing

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Three significant changes to the Listing Rules took place on 3 December 2021, immediately following the publication by the Financial Conduct Authority of the new rules. Other changes will follow on 10 January 2022.

Background

The changes implement certain proposals on which the FCA consulted in its July 2021 Primary Markets Effectiveness Review (the Review). Broadly, these changes are designed to remove barriers to listing and to improve the accessibility of the FCA's rulebooks without compromising the highest standards of market integrity. 

What has changed from 3 December 2021?

Introduction of dual class share structure (DCSS) to the premium listing segment

This change has been introduced as consulted on. It is designed to meet the needs of founder-led growth companies and to address the specific barriers to these companies listing in the premium segment. (There are no equivalent barriers in the standard segment.)

The change introduces a five‑year exception to the rules that provide that voting on matters relevant to premium listing is limited to those holding premium listed shares. The exception is available to unlisted shares carrying weighted voting rights that meet the following conditions:

  • they require holders to be directors of the company at the time of an IPO or, following the death of a director, a beneficiary of the director’s estate;
  • they entitle the holder to more than one vote per share on votes to remove the holder as a director of the company;
  • in the event of a successful change of control, they allow the holder to exercise weighted voting rights on any matter (to operate as a deterrent to a takeover);
  • they set a cap on weighted voting rights relative to ordinary shares of 20:1; and
  • they include a mechanism for the end of the five-year exemption period (e.g. the conversion of the weighted voting shares to ordinary shares or their expiration).

Minimum market capitalisation on listing for premium and standard listing segments

This has been increased from £700,000 to £30 million for new listings of shares. 

There is, however, no change for closed-ended investment funds and open-ended investment companies. Further, companies with shares admitted to listing prior to 3 December 2021 and which continue to have at least one class of shares listed may continue to list additional classes of shares based on a minimum market capitalisation of £700,000.

The FCA had originally proposed a minimum market capitalisation of £50 million. The change to £30 million acknowledges the consultation feedback that too many smaller companies considering a UK listing might find £50 million too high. At the same time, the FCA is satisfied that the new minimum meets its concerns that smaller issuers are more suited to other markets where they can get more support in meeting regulatory requirements involving market integrity and market abuse.

Under new transitional rules:

  • applicants that had, as at 2 December 2021, made a complete submission to the FCA for a listing eligibility review are still able to apply for listing based on the £700,000 minimum, provided they do so by 2 June 2023;
  • shell companies, including SPACs, that are already listed or that have recently cancelled a listing and subsequently reapply to list shares following a reverse takeover, can apply for listing based on the threshold of £700,000. This is provided they have completed submissions to the FCA for an eligibility review for listing and a prospectus review on or before 1 December 2023. 

Minimum number of shares in public hands for premium and standard listing segments ("free float")

As proposed in the Review, the new rules:

  • set a revised 10% level for the minimum value of shares in public hands (previously 25%); and
  • remove the discretionary ability for the FCA to accept a lower level either at listing or under the continuing obligation requirements. 

If an existing listed issuer were in breach of the new 10% level, the FCA would ask that they present a plan for coming back into compliance with the rule as soon as possible (rather than, as previously, allow them to show they had liquidity via other means).

What will change on 10 January 2022?

In the Review, the FCA also consulted on a range of more minor changes not intended to change market practice, but to update the FCA Rulebook to reflect modern technology and business practices and to add clarity and remove duplications. These changes will take effect on 10 January 2022. Examples include:

  • removing the requirement for two copies of documents, now that electronic copies are provided;
  • removing competing rules in relation to share buyback exclusions;
  • updating the rules on Class 2 thresholds; and
  • reconciling LR App 1 and PR App 1 where they have drifted apart.

Changes beyond 10 January 2022

As well as consulting on these specific changes, the Review also included a high-level discussion on the purpose and value of listing, with a view to informing how to make the listing regime more effective in the longer term. The FCA will provide more detailed information on responses to this element of the Review in the first half of 2022, including its proposed next steps. The track record requirements for premium listing (consulted on in the Review, but not subject to change at this stage) will be considered as part of that process.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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