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Christopher Bernard | Bloomberg LawAmendments to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules – FSA Consultation Paper CP12/2 of Jan. 2012 The UK Financial Services Authority (FSA) has published a consultation paper proposing amendments to the UK Listing Authority (UKLA) Listing Rules (LR) that are intended to reflect changes in market practices. The consultation covers a range of topics including the treatment of reverse takeovers and certain other transactions, the responsibilities of sponsors, the financial information required for premium listings, and new rules for "externally managed companies." The FSA also acknowledges recent debates regarding the premium listing regime and invites suggestions on how the regime can be improved to strengthen investor protections. In addition, the FSA is proposing to incorporate material from other sources such as its Technical Notes1 into the Listing Rules. This should provide for ease of reference and avoid confusion by ensuring that all relevant guidance is available in one place.
Reverse TakeoversCurrently, when an issuer undertakes a reverse takeover, its shares are delisted and the enlarged group must prepare a new prospectus and satisfy the eligibility requirements for listing. In some cases, however, the issuer is exempted from these requirements. The consultation paper seeks to clarify which transactions should be subject to the reverse takeover regime, while ensuring that the applicable rules are proportionate and clear and reflect current practice. — Scope The proposals are intended to prevent reverse takeovers from being used as a "back-door" route to listing by companies that do not meet the eligibility requirements. Currently, an acquisition of one listed company by another is not treated as a reverse takeover. The FSA proposes to narrow this exemption so that only acquisitions of a listed issuer by another listed issuer in the same listing category will avoid being treated as a reverse takeover. — Proportionality Where the reverse takeover regime does apply, the FSA proposes to make its provisions more proportionate. For example, the FSA proposes to reduce the information requirements that must be met in order to avoid a suspension and to reduce the financial information eligibility requirements after a listing is cancelled. — Consolidation and Codification Requirements relating to reverse takeovers, including those provided in a 2010 Technical Note, would be consolidated in the Listing Rules, and several current practices would be codified.
SponsorsThe FSA is also proposing changes to clarify the requirements of sponsors acting for premium listed companies. Sponsors are responsible for ensuring that companies understand the regulatory framework of a premium listing and for providing the UKLA with assurance that issuers are complying with their obligations. The FSA believes that the Listing Rules should clearly set out scope and nature of the sponsor's role and enable the UKLA to monitor and supervise sponsors effectively. — Scope The FSA proposes to amend LR 8.2.1R to clarify that a sponsor would be deemed to be providing a "sponsor service" whenever they are obliged to provide a key confirmation or assurance to the FSA. Sponsors would also be required to be appointed for additional services, including providing confirmations that related party transactions are fair and reasonable as well as appointments required by the proposed new reverse takeover rules. In addition, all communications between a sponsor and the FSA in connection with the sponsor services would be considered to fall within the definition of sponsor services and therefore subject to the Principles for Sponsors set out in LR 8. — Roles and Responsibilities With regard to the roles and responsibilities of sponsors, the FSA is proposing four key changes:
Financial InformationWith regard to the financial information that companies must provide when seeking a premium listing or that premium listed companies must include in shareholder circulars, the FSA is proposing to amend the Listing Rules to reflect existing market practice, some of which is covered in the Technical Notes. The FSA has also made a number of additional proposals, including:
TransactionsThe FSA has proposed a number of changes with regard to various types of transactions, most of which codify existing practice and have been addressed in the Technical Notes. The key changes include:
Externally Managed CompaniesThe FSA notes the recent development of what it refers to as "externally managed companies" that have listed in the UK. These special purpose acquisition companies (SPACs) are essentially cash shells incorporated for the purpose of acquiring, managing, and transforming target companies to create value. Significant management functions are outsourced to offshore advisory firms. Even though only a few of these companies currently exist, the FSA is concerned that more listed companies may adopt this structure, which will make it more difficult for shareholders to hold management accountable. Since management functions are performed by the offshore advisory firm, they are not subject to the shareholder protections afforded by the UK listing regime. The FSA therefore believes that these companies should not be eligible for a premium listing. The FSA is proposing two principle changes to the Prospectus Rules (PR), the Disclosure and Transparency Rules, and the Listing Rules to address these concerns:
Premium ListingsThe consultation paper acknowledges that the quality of the premium listing standard has been the subject of recent debate, including concerns regarding the free float of foreign companies and the effectiveness of governance arrangements. A number of stakeholders have stated publicly that the free float requirements should be used to ensure effective corporate governance arrangements and protect minority investors. Some investors, who are required by the terms of their investment mandates to purchase shares that are included on FTSE indices, have raised similar concerns regarding non-UK issuers. The FSA notes that the free float requirements in the Listing Rules are derived from Article 48 of the Consolidated Admissions and Reporting Directive3 and are intended to address issues of liquidity rather than governance. It is therefore not appropriate for the FSA to use the rules to determine whether a specific issuer is suitable for listing. The FSA also points out that the UK Corporate Governance Code, which is the source of governance standards for listed issuers, is the responsibility of the Financial Reporting Council. With regard to the FTSE indices, the FSA maintains that it is up to FTSE International Limited and not the regulator to determine the criteria for inclusion.4 Nevertheless, the FSA is seeking feedback on whether the premium listing regime should be enhanced in order to strengthen investor protections. By way of example, the FSA considers whether:
Next StepsThe consultation period will close on 26 April. With respect to all issues other than changes to the premium listing regime, the FSA intends to publish the responses with a policy statement in the summer and to implement rules soon thereafter. The FSA will consider the responses to its consultation on premium listing with a view to developing specific options or proposals for a paper to be published later in the year. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
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