Developments in the London listing markets: New UK Listing Rules and other developments25 September 2024

Our previous articles in relation to developments in the London listing markets can be found here.

New UK Listing Rules

The Financial Conduct Authority (“FCA”) published its long-awaited new Listing Rules on 11 July 2024, which came into effect on 29 July 2024. The aim of the new regime is to attract more companies to list in the UK and bring the UK listing regime into step with other international exchanges such as NASDAQ.

New ‘equity shares (commercial companies)’ category

A cornerstone of the new regime is the replacement of the premium and standard listing segments with a new single equity shares (commercial companies) category (“ESCC”). Companies which were listed on the premium segment have now been automatically transferred to the ESCC and standard listed companies have been automatically transferred to the transition category (where they were not eligible for any other category). The transition category effectively maintains the status quo in terms of ongoing obligations for companies that were previously standard listed and is closed to new listing applications. The FCA has not yet set an end date for the transition category nor a deadline for issuers to transfer out of the category. It has said that any decision to wind it down at a future date will consider the number of issuers that remain listed there and it will publicly consult before removing the category and provide sufficient time for any remaining issuers to consider their options. Companies in the transition category can apply to transfer to the ESCC under a modified transfer process set out in the new Listing Rules (which will require appointment of a sponsor).

Key changes

Following two consultations, the new Listing Rules include many of the major changes proposed by the FCA which we covered in our March briefing on the Listing Rules, such as:

• the removal of the requirement for new companies looking to list on the Main Market, to have a three-year financial and revenue-earning track-record and ‘clean’ working capital statement;
• the removal of the profits class test; and
• no shareholder consents or publication of circulars being required prior to significant transactions being undertaken (except for reverse takeovers).

We have highlighted a few main areas of note under the new regime, particularly where the FCA revised the initial proposals for the new Listing Rules, following feedback in the various consultations:

Sponsors

As proposed, there are changes to the role for sponsors in the new regulatory framework, as commercial companies, shell companies and closed-ended investment funds will be required to have a sponsor at IPO, but the continuing obligations of sponsors will primarily relate to specific transactions such as proposed reverse takeovers and large related party transactions. The FCA published proposed amendments to its technical notes in April 2024 to address the requirements for sponsors and published final versions of most of its guidance relating to sponsors, reflecting the final Listing Rules, in late September 2024.

Significant shareholders

The new Listing Rules have removed the requirement to have mandatory relationship agreements for significant shareholders, but disclosure of any controlling shareholders is still required and companies must still show that they can carry on business independently of the controlling shareholder. The new Listing Rules do, however, provide that where a controlling shareholder proposes a shareholder resolution which any director feels is intended to circumvent the proper application of the Listing Rules, the circular accompanying the notice of meeting which contains the proposed resolution must set out a statement by the board of the director’s opinion on the resolution. The FCA has also removed previous guidance contained in the old Listing Rules on the exercise of improper influence of controlling shareholders.

Dual class share structures

The original proposals for dual class share structures provided that enhanced voting rights would be restricted to being held by directors, employees and individual shareholders. However, under the new Listing Rules, institutional investors such as venture capital funds and private equity firms are allowed to hold shares with enhanced voting rights, bringing the UK Listing Rules on a par with some of the equivalent markets in the US. Institutional shareholders may only hold enhanced voting rights for a maximum of 10 years, unlike natural persons who may hold them indefinitely. No new shares carrying weighted voting rights can be issued post-IPO.

Continuing Obligations

As noted above, under the new Listing Rules, significant transactions (defined as transactions where any of the percentage ratios¹ are 25% or above) no longer require shareholder approval or publication of a circular (although reverse takeovers still do). Instead, certain disclosures must be notified – the final version of the Listing Rules saw some adjustments to the timing and content of such disclosures. Related party transactions do not require shareholder approval or a circular but large related party transactions (where any of the percentage ratios are 5% or more) require notification which includes a “fair and reasonable” opinion from a sponsor. More generally, companies listed on the ESCC are required to adopt the UK Corporate Governance Code on a comply or explain basis and are required to obtain shareholder approval of certain other transactions, including some share buybacks, adoption of certain employee share schemes and cancellation of the listing.

Commentary

It will be interesting to see how the new simplified, disclosure-based Listing Rules are received in practice and whether they enhance London’s competitiveness and result in increased numbers of companies looking to list in London. While the new Listing Rules should certainly make London a more attractive place to list, the AIM market also remains an option for companies to consider, particularly growth companies that are looking for even greater flexibility. Previously, growth companies looking to list in the UK have weighed up the merits of the standard list and the AIM market. With the removal of the standard list option and increased flexibility in the eligibility tests and continuing obligations on the ESCC (but noting the £30m minimum market capitalisation that applies to the ESCC), it will be interesting to see whether these growth companies now gravitate more towards the ESCC with its greater prestige or the lighter regulated AIM market.

Other developments

The following recent developments are also briefly worth noting: