UK: London Stock Exchange Launches High Growth Segment Of The Main Market

Last Updated: 7 May 2013
Article by Richard May and Sian E. Withey

The London Stock Exchange (the Exchange) has launched the High Growth Segment of the Main Market. The High Growth Segment allows fast growing businesses which intend in due course to seek a premium listing on the Official List but which do not yet meet the relevant eligibility criteria to be admitted to trading on a specially designed segment of the Main Market.

The launch of the High Growth Segment reflects the Exchange's determination to ensure that London remains an attractive capital raising venue for fast growing businesses. It also represents a clear response to the increased competition for such companies from other (primarily US) exchanges, and especially for those companies which might be deterred from seeking a premium listing by the "free float" requirement (i.e., the requirement that at least of 25% of the company's listed securities must be in public hands)1.

So has the empire struck back? Well, maybe. As regards the free float requirement, the launch of the High Growth Segment should be seen in the context of the recent proposals by the UK Financial Conduct Authority (the FCA) to introduce greater flexibility, by:

  • providing additional guidance on the circumstances in which it will be likely to relax the free float requirement in relation to companies seeking a premium listing; and
  • removing the requirement for a minimum absolute percentage free float for companies seeking a standard listing by basing the free float requirement for such companies solely on liquidity (in light of the number, nature and diversity of holders following admission)2.

While the High Growth Segment is a useful option for fast growing companies it is not entirely clear why a company would seek admission to the High Growth Segment when, following the implementation of the changes proposed by the FCA it would be able to obtain a standard listing with a lower free float and less burdensome continuing obligations (especially as regards significant transactions). As things stand, further rule changes seem likely, possibly involving the amendment of the eligibility requirements for standard listings to reflect the approach taken by the Exchange in relation to the High Growth Segment.

The High Growth Segment opened in late March 2013.

Regulatory Status

As the Main Market (of which the High Growth Segment is part) is a "regulated market" for the purposes of the Markets in Financial Instruments Directive, applicants will:

  • be required to prepare and publish a prospectus in accordance with the EU Prospectus Directive; and
  • be subject to the ongoing reporting and disclosure obligations set out in the EU Transparency Directive, including semi-annual reports, interim management statements and the obligation to announce inside information in accordance with the Disclosure and Transparency Rules issued by the FCA (the DTRs).

In addition, companies whose shares are admitted to the High Growth Segment will be required to comply with the:

  • High Growth Segment Rulebook (the Rulebook); and
  • Admission and Disclosure Standards, issued by the Exchange.

However, shares in companies admitted to the High Growth Segment are not admitted to the Official List. They are, however, admitted to trading. As a result, companies will not be required to comply with the Listing Rules issued by the FCA (the Listing Rules).

The key regulatory requirements are set out below.

Eligibility Criteria

To be eligible for admission to the High Growth Segment:

  • Incorporation: The company must be duly incorporated in the United Kingdom or in another member state of the European Economic Area (EEA). This requirement is intended to ensure that applicants will be subject to the investor protection regime mandated under EU law. It would, however, be possible for companies which are incorporated outside of the EEA to establish a new EEA incorporated holding company and for the shares in that holding company to be admitted to the High Growth Segment;
  • Activity: The company and its subsidiaries must comprise a trading business. For example, it cannot be an exploration focused mineral resources company or an investment entity;
  • Governance: The company must control the majority of its assets. This is similar to the requirement for premium listed companies (under LR6.1.4R);
  • Growth: The company must be able to demonstrate growth in audited consolidated revenue, prepared in a form consistent with that which will be adopted in its next published financial statements, of at least 20% on a CAGR basis over the previous three financial years;
  • Free Float: At least 10% (rather than 25%, as for listed companies (LR6.1.19R (premium listing) and LR14.2.2R (standard listing)) of the securities to be admitted must be in public hands;
  • Securities: The securities to be admitted must be equity shares;
  • Value: The value of the securities in public hands must be at least £30 million, of which the majority must be raised at admission by the issue or sale of new securities; and
  • Orderly Market: There must be a sufficient number of registered holders of the securities to be admitted to provide an orderly market in the securities following admission.

As mentioned above applicants must, in addition, prepare and publish a prospectus in relation to the securities to be admitted. This must be approved by the FCA or by the competent authority in another EEA State.

That prospectus must state that the company intends to apply for admission to the Official List in the future.

Finally, the company must have appointed a "Key Adviser" in relation to admission. The Key Adviser regime, which is described in more detail below, is loosely based on the sponsor regime for companies which have a premium listing on the Official List3.

Continuing Obligations

Free Float

As with listed companies, some of the eligibility criteria set out above are also continuing obligations (i.e., they must be complied with by the company while its shares are admitted to the High Growth Segment, and, if they are not, the company's admission may be cancelled). These include the free float requirement (as to which, see above).

Appointment of Key Advisers

In addition, the company is required to obtain the guidance of a Key Adviser to assist it where it (or any of its subsidiaries) proposes to enter into a significant transaction or where a significant event occurs, including any:

  • notifiable (i.e., major) transaction: For this purpose, the significance of the proposed transaction is, as with premium listed companies, assessed by reference to "class tests". A notifiable transaction is broadly equivalent to a Class 1 transaction under the Listing Rules)4;
  • related party transaction;
  • reverse takeover;
  • cancellation of admission;
  • further issue of shares, or repurchase of shares, of the same class as those admitted to the High Growth Segment; or
  • severe financial difficulty, including in relation to any associated restructuring, reconstruction or disposal.

Notifiable and Related Party Transactions

Unlike companies with a premium listing, while such transactions must be announced, notifiable transactions and related party transactions will not require shareholder approval.

However, as with premium listed companies, on a reverse takeover of a company whose shares are admitted to the High Growth Segment shareholder approval will be required and the admission of the company's shares will be cancelled (and it must reapply for admission).

Company Announcements

In addition to the general requirement to announce "inside information" to the market as soon as possible in accordance with the DTRs, and the requirement to announce significant transactions (as to which, see above), a company whose shares are admitted to the High Growth Segment will also be required to announce without delay:

  • the resignation, dismissal or appointment of any director;
  • any change in its accounting reference date, registered office address or legal name;
  • any decision to make any payment in respect of the shares specifying the net amount payable per security, the payment date and the record date;
  • the admission or cancellation of any of its shares;
  • any proposed or actual change in its capital structure and the results of any new issue of securities; and
  • details of all resolutions passed at a general meeting of the company other than resolutions concerning ordinary business passed at an annual general meeting.

Website

In addition, the company must maintain a website on which the following information in relation to it should be available:

  • a description of its business;
  • the names of its directors with brief biographical details of each and a description of their responsibilities, and details of any committees of the board of directors and their responsibilities;
  • details of its country of incorporation and main country of operation;
  • its current constitutional documents (e.g., its articles of association or by-laws);
  • details of any other exchanges or trading platforms on which it has applied or agreed to have any of its securities admitted or traded;
  • the number of securities in issue (noting any held as treasury shares);
  • details of any restrictions on the transfer of its securities;
  • its most recent annual financial report and any subsequent half-yearly, quarterly or similar reports;
  • the information in relation to corporate governance required by the Rulebook to be included in the company's annual financial report (as to which, see below);
  • all notifications to a RIS that it has made in the past 12 months;
  • taking into account any restrictions in relation to applicable securities laws, its most recent prospectus together with any circulars or documents sent to shareholders within the past 12 months; and
  • details of its key professional advisers (as might normally be found in a prospectus).

To a degree, this reflects the requirement for AIM quoted companies under Rule 26 of the AIM Rules.

Corporate Governance

Unlike a premium listed company, the company will not be required to "comply or explain" by reference to the Combined Code.

It must, however, include the following in its annual financial report:

  • details of the corporate governance code to which the company is subject and/or details of any corporate governance code or practices which it has voluntarily decided to apply;
  • a statement as to how it has applied the main principles set out in such code or practices; and
  • a statement as to which relevant provisions set out in code or practices it has complied with throughout the accounting period, or where it has not complied with the relevant provisions, an explanation of the same.

This is similar to the requirement for standard listed companies.

Responsibilities of Key Advisers

The Rulebook requires that companies appoint a "Key Adviser" with responsibility for advising them on admission and on certain material transactions (see above).

Firms that want to act as a Key Adviser must be approved by the Exchange. To do so, they must, among other things, be an authorised person that is included on the list of sponsors maintained by the FCA, demonstrate that they are competent to perform the role and have appropriate systems and controls in place to do so.

Footnotes

1 One illustration of this competition has been recent US efforts to attract "emerging growth companies" through the Jumpstart Our Business Startups Act 2012. For more information on the JOBS Act, see http://www.friedfrank.com/siteFiles/Publications/4-3-2012-%20TOC%20Memo-The%20Enactment%20of%20the%20Jumpstart%20Our%20Business%20Startups%20Act.pdf .

2 CP 12/2 (October 2012). See: http://www.fsa.gov.uk/static/pubs/cp/cp12-25.pdf. For more information on those proposals, see: http://friedfrank.com/siteFiles/Publications/10-22-2012-%20TOC%20Memo-%20Proposed%20changes%20to%20the%20UK%20listing%20regime-How%20do%20you%20control%20a%20controlling%20shareholder.pdf

3 See Chapter 8 of the Listing Rules.

4 See Chapter 10 of the Listing Rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.