The recent financial crisis coupled with the market globalisation has brought to light various concerns regarding the current UK Listing regime. In particular, market participants have raised concerns over the lack of clarity in the different market offered by the FSA, and the potential for confusion within the market. Furthermore, given the ever changing nature of global markets, it is of paramount importance that the UK listing regime strikes an appropriate balance between investor protection and competitiveness. The cumulative result of these concerns has led to a review by the FSA and a re-vamp of the current UK Listing regime, with the majority of the changes coming into effect on 6 April 2010. The purpose of these changes is to increase the flexibility of the market whilst creating a more level playing field for both UK and foreign companies.
The Changes
The most significant change will be to replace the current two-tiered primary and secondary listing regime with premium and standard listings. The current primary listing regime is available to both UK and overseas companies, and is the premium brand of the official list, to which the highest listing standards (also known as super-equivalent standards) apply. Secondary listing is only available for equity securities of overseas companies, and subjects companies to the minimum EU listing standards.
There will not be a substantive change in the requirements for a primary listing under the new regime, with the exception that overseas companies with a premium listing will be subject to more onerous obligations on corporate governance and pre-emption rights. There are however a number of significant changes to the secondary listing regime, the most prominent of which came into effect on 6 October 2009, and allows UK companies to apply for listing using the standard listing regime.
The practical effects of these changes to UK issuers will be that they are now faced with a choice of regime for listing their shares on the London Stock Exchange ("LSE"). The changes may also help to contribute to the attractiveness of the LSE as a listing venue for foreign companies. Seymour Pierce recently warned that the standard listing option may cause an exodus of companies from AIM, as companies are attracted to the lighter regulation than that of the premium route. Companies that use the standard listing route rather than AIM will be able to take advantage of the fact that there is no requirement for a Nomad or corporate adviser, no class-tests are required for transactions or related party transactions and companies will also be able to benefit from the prestigious status of the Official List. However, companies must still fulfil certain criteria in order to use the standard listing process, for example, companies must have a minimum market capitalisation; meet the 25% free float requirement; and publish a prospectus for certain events such as flotation and admission of securities over 10% in a rolling 12 month period.
As an alternative to premium listing, standard listing is a very attractive option, as companies are not required to have sponsors or class tests for transactions or related party transactions, the combined code is not applied as rigorously and pre-emption is not a requirement for overseas companies. However, one of the main disadvantages of standard listing for companies wishing to have a high profile or enhanced analyst coverage is that it does not provide the company with inclusion in the FTSE UK index series.
The attraction of standard listing for both overseas and UK companies is clear. Smaller companies that are looking to float but perhaps are unable to meet the super-equivalent standards may now opt for standard listing rather than list on AIM. Equally, companies that would like to move from AIM to the Official List but do not want the extra regulatory burden of the super-equivalent requirements are also now provided with a suitable option.
The new regime may also encourage companies to migrate between the primary and standard listing sectors, as companies will be allowed to migrate without cancelling their listing, provided that they comply with certain procedural requirements. For example, companies with a premium listing who do not derive sufficient benefit from their premium listing to justify the expense, or who decide that they wish to reduce their regulatory burden, may downgrade to the standard listing regime. Overseas companies with a premium listing may also now decide to switch to standard listing, as the premium listing regulations for overseas companies have been raised to match those of UK companies and are therefore now more onerous for them.
The effects of the revamp remain to be seen and will only truly come to light when the remaining provisions come into force on 6 April 2010. The LSE have tried to play down the potential for migration between the sectors stating that AIM has managed to attract a large number of international companies over the years, despite the standard listing route having always been available to overseas companies. The coming months will unveil how companies will react to the changes, and whether the predicted exodus will arise.
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