FCA makes Listing Rules changes to enhance the effectiveness and accessibility of the UK public markets

FCA makes Listing Rules changes to enhance the effectiveness and accessibility of the UK public markets

On 2 December 2021, the Financial Conduct Authority ("FCA") published Policy Statement PS21/22: Primary Market Effectiveness Review, summarising the feedback received on, and building on the proposals within, its Consultation Paper CP21/21 released back in July which reviewed the effectiveness of UK primary markets. PS21/22 contains the FCA's final changes to the Listing Rules, as well as details of transitional arrangements where applicable.

Consultation Papers CP21/21 and CP21/10 (the latter focusing on changes to the Listing Rules regarding special purpose acquisition companies – for the full article see Changes to the Listing Rules - SPACs | Stephenson Harwood) form part of the FCA and HM Treasury's work - which include a consultation on the UK Prospectus Regime and changes to UK MIFID's conduct and organisational requirements - aimed at delivering a framework that is fair, outcomes‑based and improves the efficiency of the UK markets, while maintaining the highest regulatory standards. They followed the UK Listing Review and the Kalifa Review of UK FinTech, which highlighted specific elements of the UK's listing regime that act as barriers to companies listing and made specific recommendations for improving the regime. For anyone unconvinced about the need for action, the UK Listing Review noted that the number of listed companies in the UK had fallen by around 40% from a 2008 peak, whilst the UK only accounted for a mere 5% of IPOs globally between 2015 and 2020.

The final changes set out in PS21/22 are specifically targeted at reducing barriers and costs for companies considering listing on the London markets, without compromising on high standards on market transparency and integrity.

What are the changes?

In summary, the final changes to the Listing Rules comprise:

Applying to the premium listing segment only

  • Permitting a targeted and time-limited form of dual class shares structure ("DCSS") within the premium listing segment, which would, for a period of up to 5 years from the date of listing, allow one or more founder shareholders of a premium-listed company to retain voting controls that are disproportionate to their economic interest in respect of the following matters: (i) on any vote to remove the holder of specified weighted voting shares as a board director; and (ii) on voting on any matter following a change in control (i.e. serving as a significant deterrent to a takeover)

Applying to both the premium and standard listing segments

  • Reducing the required level of shares that must be in public hands at listing (the 'free float' requirement) from 25% to 10%
  • Increasing the minimum market capitalisation (the "MMC") listing threshold for companies other than funds from £700,000 to £30 million (with transitional provisions for existing applicants and listed shell companies)
  • Minor modernisation to the Listing Rules, Disclosure Guidance and Transparency Rules, and Prospectus Regulation Rules

What is the FCA hoping to achieve?

In short, the FCA hopes that these changes lead to enhanced attractiveness of the UK primary markets. More specifically:

  • that the introduction of DCSS, coupled with the reduction in the free float requirement, will encourage private companies to consider listing at an earlier stage; and
  • by increasing the MMC threshold, there will be a reduction in the incidences of misconduct or poor compliance by smaller listed companies.

The majority of the changes came into force on 3 December 2021; the minor modernisation to the Listing Rules, the Disclosure Guidance and Transparency Rules and the Prospectus Regulation Rules will come into force on 10 January 2022.

This Policy Statement did not provide feedback on responses received to the discussion of the functioning of the listing regime (chapter 3 of CP 21.21)- further feedback and indications on the next steps as part of this wider consideration of the UK's listing regime's purpose and structure has been ear-marked for the first half of 2022.

The full Policy Statement is available here.


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