UK: Recent Changes to the Listing Rules

Last Updated: 9 July 2002
Article by Alex Firth

On 18 October 2001 the board of the Financial Services Authority ("FSA") approved the introduction of the United Kingdom Listing Authority ("UKLA") Guidance manual. The Guidance Manual provides guidance relating to the FSA acting as "competent authority" under and pursuant to the Financial Services and Markets Act 2000 (the "Act") (i.e. the UKLA). The Guidance manual together with the Listing Rules forms the UKLA Sourcebook. This is also known as the "Purple Book".

A revised version of the Purple Book came into effect on the 15th April 2002.

The principal changes to the Purple Book are:

Rules and Guidance on the dissemination of regulatory information through the newly appointed channels – the "Regulatory Information Services"

There has been a change to the way in which regulatory announcements of listed companies can be disseminated. Previously, they were obliged to issue regulatory announcements by submitting them to the Company Announcements Office, which in turn published the announcements through the Regulatory News Service. However, the FSA wished to open up this area to competition. As a result, companies may now use one of several Primary Information Providers ("PIPs") to disseminate regulatory news.

The following "Regulatory Information Services" are listed in Schedule 12 of the Listing Rules and are FSA approved PIPs:

  • Regulatory News Service provided by the London Stock Exchange
  • Newslink Financial provided by Newslink
  • PimsWire provided by Pims
  • PR Newswire Disclose provided by PR Newswire
  • Business Wire Regulatory Disclosure provided by Business Wire
  • FirstSight provided by Waymaker
  • Hugin Announce provided by Hugin ASA

The PIPs then disseminate the news to Secondary Information Providers ("SIPs") e.g. Reuters and Bloomberg, who in turn will make the news available to market users.

Rules requiring notification to the market that documents lodged with the UKLA can be inspected by the public at the UKLA's Document Viewing Facility

A new rule 9.32 has been inserted into the Listing Rules. The Document Viewing Facility ("DVF") has been introduced in respect of documents required to be sent to the UKLA under Rule 9.31. Rule 9.32 imposes an obligation on companies to notify the market (without delay) that these documents are available for inspection at the DVF. Previously companies were only required to send two copies of the relevant document to the UKLA under Rule 9.31.

New guidance on Rule 3.6(a)

Rule 3.6(a) and 3.6A relate to the conditions that must be met by a company to be listed.

Rule 3.6(a) states that the applicant must be carrying on as its main activity (either on its own or through one or more subsidiaries), an independent business supported by its historic revenue earning record and which gives it control over a majority of its assets and must have done so for at least three years (the three year period is subject to limited exception).

Rule 3.6A allows the UKLA to admit securities that cannot comply with the requirements of Rule 3.6(a) where it is satisfied that such admission is desirable in the interests of the applicant and investors and that investors have the necessary information available to arrive at an informed judgement concerning the applicant and the securities for which listing is sought.

The amended Purple Book provides new guidance in section 3 of Guidance Note No. 06, (which is found in Appendix 4) on the additional information to be included in listing documents for securities admitted under Rule 3.6A in an attempt to improve consistency and promote comparability.

For some companies the requirement to furnish the UKLA with its historic revenue earning record may not be appropriate. This is particularly true of young companies in new and volatile industry sectors. Chapter 25 of the Listing Rules was introduced to cater for innovative high growth young companies. It allows them to list without having to adhere to the requirements of Rule 3.6 (a) by virtue of being less than 3 years old. However, similar businesses with over a three year revenue earning record may have been considered ineligible for listing under a strict interpretation of the Listing Rules.

The UKLA have consequently adopted an approach whereby applicants which are unable to meet the particular requirements of paragraph 3.6(a) may nonetheless be eligible for listing provided they include in their listing documents certain additional information and comply with certain continuing obligations (which are largely based on Chapter 25).

Section 3.1 sets out the list of factors that the UKLA will take into account when determining whether an applicant complies with paragraph 3.6(a).

Section 3.1:

"The business of an applicant that has been in existence for three years or more but which demonstrates one or more of the following characteristics may not satisfy the criteria in paragraph 3.6(a) requiring the business of an applicant to be supported by its historic revenue earning record:

  • a listing document that places significant emphasis on the development or marketing of products or services for which there is little evidence in the issuer’s historic revenue earning record;
  • evidence that the value of the business on admission will be determined, to a significant degree, by reference to future developments for which there has been little evidence to date in the historic revenue earning record presented in the listing document;
  • an absence of evidence supporting a record of consistent revenue or profit growth throughout the historic revenue earning record presented in its listing document;
  • evidence that the business of the applicant has undergone a significant change in its scale of operations during the revenue earning record which resulted in significant increases in revenue and/or profits or whether the listing document indicates that the applicant is expected to undergo such a change;
  • evidence that the applicant is or has been loss-making or generating negative operating cash flows during the whole or part of the track record period;
  • evidence that the relationship between the value of the business and its revenue or profit earning record is significantly different from those of similar companies in the same sector; or
  • evidence of unusual levels of research and development expenditure or unusual levels of capital expenditure."

These characteristics are not exhaustive. The Guidance explains that these criteria are often evident in early stage businesses or in businesses that have spent a significant period developing products which they are yet to profit from. In such cases it is likely that the marketing undertaken by the applicant’s advisers before admission will be geared very much towards the prospects for the development of the applicant’s products and markets for which there may have been little actual evidence during the track record period. For such an applicant it may be in the interests of the applicants and investors that it be admitted to listing if the information that investors may reasonably require to make an informed decision on the securities will be available.

If paragraph 3.6(a) is not satisfied, the applicant will have to rely on the exercise of discretion under paragraph 3.6A. Section 4 of Guidance Note No. 06, provides guidance on the additional disclosure requirements that may be applied by the UKLA in exercising this discretion to admit securities to listing under paragraph 3.6A and whether additional information should be disclosed or additional continuing obligations should be imposed.

Having taken into account the factors set out above and any other relevant considerations drawn to the attention of the UKLA by the sponsor or the issuer in relation to the issuer’s application to the Official List, it may impose additional requirements and may require any of the following further disclosure requirements as described in the Appendix to the Guidance Note to be included in the issuer’s listing document:

These are:

Conditions for listing - The financial record for the period of existence of a business activity must be presented for up to three years and the latest accounts, if any, must be in respect of a period ended not more than six months prior to the date of the listing particulars.

The UKLA reserves the right to require the presentation to it of material such as market research, financial projections and road show presentations to assist it assess the eligibility of an applicant. This information may be shared with the UKLA’s independent expert advisers.

Non-financial operating dataThere are stringent rules relating to the use of non financial operating data in listing particulars.

Listing Particulars – Introduction of a section entitled "Business development and prospects", being a detailed explanation of the issuer’s business plan and strategic objectives and the introduction of another separate prominent section, entitled "Risk factors".

The listing particulars must also give a full description of each of the new applicant’s products and services the development of which may have a material effect on the future prospects of the company.

The UKLA may also impose the continuing obligations set out in the Appendix to the Guidance Note.

These are:

Quarterly reporting - the issuer must prepare and publish a report on its activities for each quarter of each financial year; and

Non-financial operating data - Where the issuer’s listing particulars contain non-financial operating data as key measures of the development of the company’s business, the issuer must include comparative data for all such figures in its subsequent quarterly and half-yearly reports and in the annual financial statements, unless otherwise agreed by the UKLA

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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