UK equity capital markets – the FCA’s proposed new Listing Rules

• Existing premium and standard-listed commercial companies. Commercial companies with premium-listed equity shares would transfer automatically to the new commercial companies category. However, equivalent standard-listed companies would not move automatically to this category. Following feedback, the FCA has decided to create a transition category for these companies, which would remain subject to the current standard Listing Rules. Those companies able to satisfy the eligibility criteria and continuing obligations could then elect to move to the new commercial companies category, if and when they wished to do so. This would be a straightforward procedure requiring the appointment of a sponsor and an announcement. The transition category would be closed to new applicants.
• Sovereign controlled companies. Equity shares of sovereign controlled companies would also be included in the commercial companies category, subject to derogations based on the current rules for these companies.

Other listing categories

• Overseas companies with a secondary listing in the UK. The FCA proposes to create a new category for non-UK companies that wish to maintain a secondary listing in the UK for their equity shares, but not be subject to the full (albeit much reduced) requirements of the new commercial companies category. This would replicate existing standard listing requirements. Existing overseas companies with a secondary listing on the current standard segment would move automatically to this category.
• Closed-ended investment funds. The FCA proposes to carry forward a separate category for the equity shares of closed-ended investment companies, with some rule changes. ‘C shares’ carrying voting rights prior to conversion could also be listed in this category. An FCA-approved circular and shareholder approval would continue to be required for certain transactions outside the published investment policy (≥25 per cent in size under the class tests, or ≥5 per cent related party transactions involving the investment manager). However, in a change from the current rules, shareholder approval would not be needed for a related party transaction within the scope of the investment policy. A sponsor fair and reasonable opinion would still be required for related party transactions ≥0.25 per cent in size under the class tests.
• Open-ended investment companies. The FCA intends to retain a separate category for open-ended investment companies, without significant changes to the current rules.
• SPACs and other shell companies. The FCA proposes to create a new category for the equity shares of SPACs and other shell companies based on its recently-introduced rules and guidance, but with a number of changes designed to ensure consistency of treatment and appropriate investor protections (outside the scope of this article). Existing SPACs and shell companies would move automatically to this category, with a three-year transitional period to comply with the new rules or to complete their operations.
• Other categories of security. The FCA intends to maintain separate categories, based on the current rules, for non-equity shares and non-voting equity shares; GDRs and other depositary receipts (including those in sovereign-controlled companies); debt and debt-like securities; securitised derivatives; and warrants, options and miscellaneous securities.

Sponsors

• Companies would be required to appoint a sponsor on application for listing, or for a subsequent reverse takeover, in the commercial companies, SPAC/shell companies and closed-ended investment funds categories. Companies would also need a sponsor for a secondary fundraising if this required a prospectus, a related party transaction requiring a fairness opinion, or when seeking guidance, modifications or waivers from the FCA on its rules (including the class tests).
• To expand the pool of potential sponsors, the FCA proposes to allow a wider range of factors demonstrating sponsor competence (including experience with other UK recognised investment exchanges) and to increase the lookback period for relevant experience from three to five years. The FCA requests views on its new sponsor competence rules by the earlier date of 16 February 2024, as it plans to implement these changes in advance of the new rulebook.

Proposals impacting all issuers

• A revised set of general Listing Principles would apply to all categories and there would be new provisions aimed at improving compliance, including a renewed emphasis on companies maintaining appropriate systems, controls and records to ensure compliance. To enable companies to ready themselves for these changes, the FCA proposes to apply a six-month transition period. Procedures and processes would remain for listing applications, cancellations, suspensions and transfers between listing categories, subject to minor changes.

The move away from a more prescriptive rulebook to a disclosure-based regime would represent a significant change for London’s main market. The FCA acknowledges this will result in a rebalancing of risk, with the possibility of more business failures as the price to be paid for deregulation. At the same time, it recognises that there are many factors other than the regulatory environment that influence a company’s choice of IPO venue. Nevertheless, the proposed changes may still provide a welcome opportunity for companies considering a London listing for whom the current rules are a barrier.

Client Alert 2024-013