Introduction
On 11 July 2024, the FCA published its final UK Listing Rules (UKLR). This follows the consultation launched in May 2023 on the proposed reform of the UK listing regime and the publication of the FCA’s Consultation Paper in December 2023, which set out the FCA’s detailed proposals on the UK’s new listing regime.
The UKLR represent the most significant reform to the UK’s listing regime in over three decades, which aims to create a simpler, more disclosure-based listing regime, better aligned with international market standards. The objective is to encourage a wider range of companies, including particularly high-growth companies, to choose to list, raise capital, and grow in the UK, while maintaining high standards of market integrity and consumer protection. The new disclosure-based approach will require increased engagement between listed companies and investors, allowing a degree of self-regulation between market participants as regards risk and returns.
The UKLR largely adopt the earlier proposals
The final UKLR largely adopt the detailed proposals published in December 2023. The proposals included the following key changes to the current listing regime:
Equity shares (commercial companies) category
The UKLR create a single listing category for equity shares in commercial companies, removing the existing ‘premium’ and ‘standard’ listing segments. The following key concepts in respect of this category remain as proposed in December 2023:
- Listing requirements for historical financial information, revenue track record and clean working capital statements are removed, though prospectuses will still require disclosure of financial track record up to three years and a working capital statement.
- A sponsor will be required for new applicants and to provide declarations, similar to existing declarations, including that an issuer has met its prospectus obligations and has a reasonable basis for the working capital statement within it.
- Significant transactions will require no prior shareholder vote, but enhanced market notifications will be required where a threshold of 25% under any class test is reached, but without mandating working capital statements or re-stated historical financial information. The profits test has been removed, as expected, and new guidance has been provided on what constitutes ‘ordinary course of business’.
- Related party transactions will require market notification, a sponsor’s fair and reasonable opinion at 5% or higher under any class test, and board approval – a position similar to the requirements currently in place under the AIM Rules for Companies.
- Reverse takeovers will require an FCA approved circular and prior shareholder approval.
Equity shares (transition) category
A transition category for equity shares has been created for existing issuers of ‘standard’ listed shares (that do not fall within the other new categories) and certain ‘in-flight applicants’ (as detailed below), based on the current rules for ‘standard’ listed shares. This category will otherwise be closed to new applicants and to transfers from other categories. There is no deadline for issuers to transfer out of this category, but they can apply to transfer to the commercial companies category if and when they are ready and eligible to do so. The FCA will keep this category under review and may seek to wind it down, subject to consultation, if and when few issuers remain in it.
Importantly, if a transition category issuer seeks to undertake a reverse takeover and wishes to retain a UK listing, then upon completion, the enlarged entity would need to re-apply to list. This application would have to be to an open listing category, such as the commercial companies category, subject to meeting the relevant eligibility requirements.
Equity shares (shell companies) category
A new listing category for equity shares for SPACs and other shell companies has been created, broadly based on the current ‘standard’ listing requirements, but with tailored modifications and additions.
A sponsor is required at admission, for further issues of shares, for transactions requiring shareholders’ approval, for applications to transfer to this category from another category and to support a reverse takeover that the SPAC will be required to carry out within 24 months of admission of the issuer to this category. The final UKLR provide further flexibility in that this period can be extended by 12 months up to three times with shareholder approval and an additional six months in certain circumstances.
Equity shares (international commercial companies secondary listing) category
This new category is designed for non-UK incorporated companies with more than one listing where the ‘primary’ listing is on a non-UK market. This category replicates the ‘standard’ listing rules with targeted ongoing/continuing provisions tailored to ‘secondary’ listing. Detailed eligibility criteria are as set out in the proposals published in December 2023. An issuer in this category will need to maintain the eligibility requirements on an ongoing basis, following admission.
Key changes made by the final UKLR to the earlier proposals
Following consultation, the final UKLR have adopted a number of changes to the detailed proposals published in December 2023. The key changes include:
- The final UKLR make adjustments to the timing and content of disclosures proposed in relation to significant transactions, giving more flexibility on the timing and content of such disclosures. The earlier proposals envisaged a single announcement with detailed disclosures on the proposed transaction being made as soon as the terms of the transaction are agreed. The final UKLR ensure that shareholders are notified of certain information as soon as possible after terms are agreed, with certain further information being announced as soon as possible, and in any event by no later than the completion of the transaction. A further announcement will be required to confirm when the transaction has completed. The requirements set out in the Market Abuse Regulation will continue to apply, in addition to the requirements under the UKLR.
- Institutional investors (being legal persons) may hold enhanced voting rights (via dual class share structures) so that they are not disincentivised from supporting pre-IPO funding rounds or bringing companies to listing in the UK. Under earlier proposals, only natural persons were allowed to hold such rights. Certain protections have been introduced to ensure these enhanced voting rights do not last in perpetuity with a new 10-year period, during which the enhanced voting rights held by these investors may be exercised.
- The requirement that companies must be independent from any controlling shareholder has been retained, but it is now supported through disclosures and requirements for directors to formally give opinions on any resolutions proposed by a controlling shareholder when a director considers that the resolution is intended or appears to be intended to circumvent the proper application of the listing rules. The earlier proposals relied instead on issuers entering into a binding agreement with controlling shareholders.
Impact on smaller and dual listed companies
The final UKLR largely adopt the detailed proposals published in December 2023, with some changes following from the consultation process. The changes made represent a further move toward a more flexible disclosure-based listing regime.
Expansion of the pool of persons allowed to hold enhanced voting rights is a positive development, as it allows companies to incentivise institutional and private equity investors to support pre-IPO funding rounds or bring those companies to listing in the UK.
Similarly, a tapered approach to announcement of information relating to significant transactions within the new commercial companies category, as well as the possibility to extend the period in which cash shell companies and SPACs are to complete a reverse takeover, provide greater flexibility and are welcome developments.
As previously commented, we consider that the introduction of the separate international secondary listing category for dual listed issuers, with “lighter touch” rules, based on the existing ‘standard’ listing rules, is a further welcome change under the UKLR.
Importantly, the UKLR will continue to operate within broader regulatory checks and balances. These include the Market Abuse Regulation, the Disclosure Guidance and Transparency Rules, financial reporting requirements and the Prospectus Rules, all of which remain unchanged. Company law and corporate governance standards also provide a wider framework that will continue to apply.
Next steps
The UKLR are due to become effective on 29 July 2024, when the current Listing Rules sourcebook will cease to have effect and will be replaced by the UKLR sourcebook.
An applicant for the admission of securities that has made a complete submission to the FCA for an eligibility review for listing by 4:00pm on 11 July 2024 will (where the securities have not been admitted to listing prior to 29 July 2024) be treated as an ‘in-flight applicant’ under the new rules.
If you have any questions about the content of this article, please get in touch with Orit Rioumine Gold from our capital markets team.
