On October 26, 2017 the Financial Conduct Authority (FCA) published Policy Statement PS17/22 - Review of the effectiveness of primary markets: Enhancements to the Listing Regime.
PS17/22 sets out changes to the Listing Rules in a number of areas as summarised below, and follows on from CP17/4 which was published in February 2017.
Clarifications to Chapter 6 of the Listing Rules
In Chapter 2 of CP17/4 the FCA proposed various changes to Chapter 6 of the Listing Rules, intended to make the relevant provisions clearer and more transparent. The proposed changes included:
- splitting the existing independence provisions in LR 6.1.4R into three distinct provisions to set out more clearly what an applicant has to demonstrate to meet the criteria;
- redrafting and clarification of the financial track record requirements;
- removing references to the FCA’s ability to waive the requirement for a clean working capital statement and to waive the financial track record requirements (on the basis that, in practice, they do not waive these requirements); and
- new and amended technical notes in relation to the rules in this area.
The FCA confirms that, in light of the feedback received, it has finalised the rules as presented for consultation subject to minor clarificatory amendments.
In response to queries from some respondents about the removal of references to its ability to waive working capital/financial track record requirements, the FCA notes that this does not mean that its waiver power has been removed (as there is still a general ability for it to modify or dispense with rules under LR 1.2.1R) and that a new applicant would therefore still be able to seek a waiver, although it is noted that past experience suggests this would be highly unusual.
Concessionary routes to premium listing
In Chapter 3 of CP17/4 the FCA consulted on:
- minor amendments to the existing concessionary routes to listing for mineral companies and scientific research-based companies arising from the proposed re-ordering and amendment of LR 6;
- a new concessionary route to listing for certain types of property company; and
- new and amended technical notes in relation to the rules in this area.
The FCA notes that feedback on the proposals was supportive and it has therefore finalised the rules as presented in the consultation.
Classifying transactions for premium listed issuers
In Chapter 4 of CP17/4, the FCA proposed:
- certain changes to the profits test set out in Annex 1 to LR 10 – namely that premium listed issuers should be permitted, in each case without the need to consult the FCA in advance: (i) to disregard an anomalous profits test result of 25 per cent or more when all the other applicable class test results are below 5 per cent; and (ii) in limited circumstances to make specified adjustments to the figures used to calculate the profits test if the classification would otherwise be anomalous and above 25 per cent; and
- moving certain guidance on the figures used for classification from technical note UKLA/TN/302.1 into the rules.
The FCA has finalised the revised rules as presented in the consultation. It also notes that, at this stage, it does not propose to issue further guidance on the meaning of “anomalous” (as its view is that sponsors are familiar with making judgments on whether the result of any class test is anomalous), but that it will monitor the situation when the new requirements are introduced and may produce further guidance should it identify the need in the future. It is also noted that sponsors can, as currently, seek guidance from the FCA if in doubt as to how any of the rules or guidance applies in a particular situation.
In the consultation the FCA had also asked whether there were any other possible enhancements respondents felt could be made to the calculation of the profits test or alternative profit measures that should be used either in conjunction with or in place of the profits test. However, since there was no agreement from stakeholders on which alternative profit measures to use instead of, or in conjunction with, profit before tax, the FCA is not planning to make any further changes to these rules at this stage.
Suspensions of listing for reverse takeovers
In Chapter 5 of CP17/4 the FCA proposed removing the rebuttable presumption of suspension in relation to reverse takeovers other than for shell companies (i.e. issuers whose assets consist wholly or predominantly of cash or short-dated securities or whose predominant objective is to undertake an acquisition or a merger or a series of acquisitions or mergers). Given the positive feedback received on these proposals, the FCA has finalised the rules as presented in the consultation.
Next steps
The new rules will take effect from January 1, 2018.
Companies seeking admission to premium listing after January 1, 2018 should prepare any submission regarding their eligibility on the basis of the new requirements as presented in PS17/22.
(FCA, Policy Statement – PS17/22, 26.10.17)