UK: Changes To The AIM Rules For Nomads

Last Updated: 7 February 2014
Article by Mark Howard and Jodie Dennis

Following a review of the AIM Rules for Companies and AIM Rules for Nominated Advisers by the London Stock Exchange plc (the "LSE"), the LSE has issued a consultation proposing various amendments to these rulebooks.

Though the proposed changes to the AIM Rules for Nominated Advisers are largely administrative in nature or aimed at aiding clarity, there are a number of substantive amendments which we have sought to bring to your attention in this article.

For further information on the proposed changes to the AIM Rules for Companies, please click here.

1. Eligibility rules on change of control

The LSE proposes to clarify that upon a change of control of a Nomad, a new nominated adviser application is required to be made to the LSE. In the LSE's view, Nomad status should not be regarded as a licence that can be sold or transferred, instead it is granted specifically to a firm in its current form. It is proposed that Nomad Rule 11 be amended to clarify that the LSE will consider the identity of the new controller when determining the eligibility of the Nomad firm in relation to its new nominated adviser application. The LSE has stated that, in particular, it will consider the ability of the new controller to satisfy the requirements set out in Nomad Rules 1-3 in its own right.

In addition, it is proposed that Nomad Rule 11 be amended so as to include details of the matters which a Nomad must notify to the LSE where such matters may affect it continuing to be a Nomad. For the avoidance of doubt, this includes a change of control of the Nomad.

2. Continued eligibility for Qualified Executives

In order to receive and retain a nominated adviser's licence, the Nomad firm is required to retain adequate staff and, in particular, a minimum requirement of four Qualified Executives ("QEs"). This requirement helps to ensure that the Nomad firm has sufficiently experienced staff with an appropriate knowledge base. One of the criteria for retaining QE status ties to the number of relevant transactions lead by the QE within a set time period. Deal flow has slowed down in recent years and in this context these requirements have become increasingly challenging to meet.

The LSE has noted that it recognises "it is important to retain the experience and knowledge of those who have practised as a QE for a number of years and are actively involved in providing corporate finance advice to AIM companies".

With this in mind, the LSE has proposed to amend Nomad Rule 4 so that:

2.1. existing QEs will remain eligible provided they have acted in a lead corporate finance capacity on at least three relevant transactions in the last five years (thus lengthening this from the current three year period); and

2.2. individuals with over five years continuous experience as a QE and who are actively involved in a corporate finance advisory role, in relation to AIM in particular, shall remain eligible provided they have acted in a lead corporate finance role on at least one relevant transaction in the last five years.

These amendments add welcome flexibility to the AIM Rules for Nominated Advisors, which without such amendment may unduly penalise QEs for market conditions which are beyond their control.

3. Other Proposed Amendments

The LSE has proposed a number of other amendments, the majority of these being administrative or simple clarifications, these are summarised briefly below:

3.1. The LSE proposes to clarify their approach to the requirement that a new QE application is required when an individual joins another Nomad firm or a firm that is a nominated adviser applicant.

3.2. The LSE is also proposing to clarify in Nomad Rule 5 that both an existing QE and a QE applicant can cite the same relevant transaction (for the purposes of QE eligibility) where they can demonstrate that they have each been involved in such transaction to an appropriate extent.

3.3. Nomad Rule 4 shall be amended to make it clear that if an individual ceases to be an employee of a Nomad, or the firm ceases to be a Nomad, then that individual shall also cease to be a QE. Any such individual in this position will be required to make a new application for QE status.

3.4. Nomad Rule 30 (Moratorium on acting for further AIM companies) shall be amended so as to expand the circumstances in which a Nomad may be restricted by the LSE from acting for additional AIM companies until a certain situation is resolved. It is proposed that the amended Nomad Rule 30 shall include:

3.4.1. a possible change of control; or

3.4.2. a change in the Nomad's financial position; or

3.4.3. a change in its operating position,

that may affect its ability to act as a Nomad.

3.5. Numerous other minor amendments, including, changing references from the "FSA" to the "FCA", following establishment of the Financial Conduct Authority in 2013.

4. A welcome change

Generally, the proposed changes to the AIM Rules for Nominated Advisers should be welcomed. The key substantive change to the continuing eligibility provides much needed flexibility for Nomads and is a logical one given the economic climate over the last 3-5 years. Responses to the LSE's proposals should be submitted by 3 March 2014, with the amendments to the AIM Rules expected to be implemented later this year.

For further information on the proposed amendments to the AIM Rules for Nominated Advisers, see AIM notice 38 and the Consultation Document.

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.

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Mark Howard
Jodie Dennis
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