UK Listings Review – Recommendations published – SPACs and more

White & Case LLP

White & Case LLPLord Hill today published his recommendations following the UK Listings Review Call for Evidence in November 2020. A link to Lord Hill's report can be found here.

The recommendations cover the Listing Rules applicable to Special Purpose Acquisition Companies (SPACs), which were not the subject of a specific question in the Call for Evidence. In particular, the report recommends the removal of the presumption that trading in a SPAC's shares should be suspended on announcement of an acquisition.

Lord Hill’s report also recommends amending the liability regime applicable to issuers (including SPACs) and their directors to make it easier to include forward-looking financial information in prospectuses.

As expected, the recommendations also address the current UK listing regime rules relating to free float requirements, dual class share structures, track record requirements, prospectuses, listing segments and dual/secondary listings.  

The main recommendations set out in Lord Hill's report can be summarised as follows:

  • SPAC suspension requirement
    • Rule presuming suspension of a SPAC's listing on announcement of an acquisition to be removed.  This means shareholders will continue to be able to trade a SPAC's shares post acquisition announcement provided certain requirements are complied with 
    • Additional investor protections proposed at the time of the acquisition – such as giving shareholders the right to vote on whether or not to proceed with the acquisition and also the right to redeem their investment when the acquisition takes place if they so choose 
  • Forward-looking financial information 
    • Inclusion of forward-looking information in prospectuses (at IPO and afterwards) to be made easier by amending the liability regime for issuers and their directors
  • Free float requirements
    • Reduction in the free float requirement from 25% to 15%
    • Allowing more choice for companies of different sizes to use measures of liquidity other than an absolute free float percentage
      • Larger cap companies should be able to demonstrate minimum numbers of shareholders and publicly held shares as well as a minimum market value of publicly held shares and minimum share price to support a liquid market
      • Smaller cap companies should have an agreement with an authorised broker to use best endeavours to find matching business in the absence of a registered market maker
    • Definition of free float to be reviewed and updated to consider whether the shares are in fact contributing to liquidity
  • Dual class share structures
    • Dual class share structures to be allowed on the FCA’s Premium Listing Segment (such structure are currently only permitted on the Standard Listing Segment)
    • Certain limitations to apply  e.g. maximum duration of 5 years, maximum weighted voting ratio of 20:1, ‘B’ class shareholders to be company directors, limitations on ‘B’ class share transfers
  • Financial track record
    • Extension of the revenue earning relaxations currently enjoyed by scientific research based companies to other high growth innovative companies
    • Financial track record requirements applicable to companies that have grown by acquisition to be simplified – "75% rule" to apply to most recent financial period only, not the entire 3 year track record
  • Prospectus rethink
    • Whole purpose of the prospectus to be re-examined, with a recommended approach closer to the regime that applied before the introduction of the Prospectus Directive and Regulation
    • Content requirements for public offer prospectuses and admission to regulated market prospectuses to be treated separately
  • Standard Listing Segment repositioning
    • Name to be changed to Main Segment and segment to be repositioned and promoted more effectively
    • Companies on the Main Segment to be index-eligible
  • FCA statutory objectives
    • FCA should be charged with the duty of expressly taking into account the UK’s overall attractiveness as a place to do business
  • Retail investors
    • Use of technology to improve retail shareholder involvement in corporate actions and their ability to undertake a stewardship role to be considered
    • Rules applicable to further capital raises to be amended to make them quicker, more efficient and more retail shareholder friendly
  • Connected research analysts
    • Review to be conducted of the relatively recent rules relating to the inclusion of unconnected research analysts in an IPO process which in practice have added a week to the IPO timetable

We believe the majority of market participants will welcome the recommendations contained in Lord Hill’s report which, as he notes, seeks to put the UK on a par with regulatory regimes of competing financial centres in the US, Asia and Europe. 

We note that some of the recommendations will require changes to primary legislation and as such will take some time to implement. Other recommendations, including crucially from London’s perspective those relating to SPACs, could be implemented relatively quickly by the FCA following the required consultation process. It will be interesting to see how the UK Government and the FCA react to these recommendations.

A more detailed client briefing will follow shortly as well as White & Case webinars on the UK Listings Review and on the European SPAC market.

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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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