Reed Smith Client Alerts

The UK Financial Conduct Authority has published new rules aimed at encouraging more companies to list in London, especially growth companies. The new listing rules came into effect on 3 December and reduce the 'free float' requirement (the minimum percentage of shares a listed company must have in public hands) from 25 per cent to 10 per cent. The changes also allow limited dual-class share structures within the premium listing segment, enabling directors to have weighted voting rights on resolutions to remove them (or on any resolutions, after a change of control) for up to five years after listing. The quid pro quo for these concessions is an increase in the minimum market capitalisation required for companies (other than funds) on listing, from £700,000 to £30 million (less than the £50 million originally proposed by the FCA). This change also applies since 3 December, but there are transitional arrangements for companies in the process of listing, and existing listed shell companies, such as SPACs.

Autoren: Delphine Currie James F. Wilkinson Edmund Tyler

The three main changes in effect from 3 December are as follows:

  • The FCA has reduced the minimum percentage of listed equity shares a company must have in public hands at all times (i.e. not held by directors, holders of five per cent or more and certain others) from 25 per cent to 10 per cent. The FCA anticipates that this will remove a perceived barrier to listing in the UK, when compared with other regimes, without necessarily resulting in a significant reduction in liquidity. 
  • On listing, a premium listed company (other than a fund or a sovereign controlled commercial company) can now have a dual-class share structure, with a separate class of unlisted shares held only by directors (or, on death, their heirs). These shares can carry ordinary voting rights and, in limited circumstances, weighted voting rights of up to 20 times the votes of a listed share. The enhanced rights only apply on a shareholder resolution to remove the director or, following a change of control (in over 50 per cent of the company's voting rights), on any shareholder resolution. The rights can last for a maximum of five years, and provide a window for the board to grow the company further in the public arena while benefiting from some protection from removal, or an unwelcome takeover. The previous rules meant it was only practical for standard listed companies to have dual-class share structures of this kind, so this represents a significant change for London's top tier listing regime.
  • For a company to be eligible for a premium or standard listing of shares, it must have a minimum market capitalisation of £30 million. This is a substantial increase above the long-standing previous minimum of £700,000, but less than the £50 million originally proposed by the FCA. The requirement only applies when the company is first listed, or on re-listing after a reverse takeover, so existing listed companies will be largely unaffected. There are also exceptions for companies that applied to the FCA for a listing eligibility review before the rule change, and existing listed SPACs and other shell companies that seek an FCA eligibility review in relation to a de-SPAC acquisition and re-listing by 1 December 2023. The rule also does not apply to listed funds (and the £200,000 minimum market capitalisation for listed debt remains unchanged).

In July, FTSE Russell launched a consultation on whether it should alter (or how it should apply) its ground rules for entrance to the FTSE UK Index Series in light of the FCA's proposed changes. The outcome of this consultation is still awaited, but the index provider's eventual decision may also be an important factor in determining the success of the new rules.

Although the changes are unlikely to satisfy all market participants, they may nevertheless provide a welcome opportunity for some growth companies considering a London listing for whom the previous rules were a barrier. For companies that cannot meet the revised criteria for a premium listing, a standard listing (where a wider range of dual-class share structures is possible), or admission to AIM (which does not specify a minimum market capitalisation or free float) or the AQSE Growth Market, remain alternatives.