On 7 March 2012, the Financial Services Authority (FSA) published its latest Quarterly Consultation Paper. Chapter 7 contains proposals concerning the definition of a “related party” under the Listing Rules and provisions relating to the role of the UK Listing Authority (UKLA) Helpdesk in providing guidance in relation to the Listing Rules and the Disclosure and Transparency Rules.
Listing Rule 11
Under LR 11, the definition of a related party includes a person who is (or was within the 12 months before the date of the transaction or arrangement) a “substantial shareholder”. The FSA Handbook defines a “substantial shareholder” as “any person who is entitled to exercise or control the exercise of 10% or more of the votes able to be cast on all or substantially all matters at general meetings of the company”. The FSA notes that in some circumstances investment banks may hold shares for relatively brief periods of time as a result of arranging or facilitating block trades between shareholders and other investors. Where the amount of shares being traded either taken alone or in conjunction with other holdings of the investment bank represent ten per cent or more of the voting rights of the issuer, this creates a related party relationship between the issuer and the investment bank. This triggers a series of obligations, as set out in LR 11, on the issuer, as well as on the bank, to identify further related party transactions and to ensure that the Listing Rule requirements for those are fully complied with. The FSA considers that these obligations are disproportionate in situations where the shares are held for only a very short period and as an incidental consequence of arranging transactions for other parties. As a result, the FSA is proposing to redefine “substantial shareholder” as set out in LR 11.1.4R so that where an authorised firm holds ten per cent or more of the voting rights of an issuer, subject to other conditions, these voting rights may be disregarded for the purpose of the related party definition in LR 11.1.4R.
The UKLA Helpdesk provides market participants with individual guidance and the UKLA has previously allowed requests for individual guidance to be made on a “no names” basis where the adviser does not wish to provide the identity of the issuer to which the query relates. Within the FSA this practice is unique to the UKLA. The FSA is proposing to no longer accept requests for individual guidance which are made on a “no names” basis. However, issuers and their advisers will still be able to make requests for individual guidance in writing, on a named basis which the UKLA, except in the case of simple queries, will respond to in writing within the current turnaround times. In cases of exceptional urgency, the FSA may receive requests orally and would retain a stand-alone telephone line for this purpose. The FSA is proposing to insert new guidance at LR 1.2.6G, DTR 1.2.5G and DTR 1A.2.5G to deal with this.
The deadline for comments on the Consultation Paper is 6 May 2012.
(FSA, Consultation Paper 12/5: Quarterly Consultation paper No.32, 07.03.12)