We have updated the note to reflect publication of the above on 5 November 2013.
Listing in the UK: options for overseas companies
Practice note setting out the options for non-UK companies considering listing equity securities in the UK.
The UK has for some time been a popular place for non-UK companies to secure a public market for their securities. Joining a market in the UK brings access to a wide investor base and raises a company’s international profile. The UK offers a range of markets with different levels of regulation and prestige.
The UK adopted a revised listing regime in April 2010 following a lengthy review (see Legal update, Listing regime review: FSA publishes amendments to the Listing Rules (www.practicallaw.com/6-500-2557)). This regime involves a more onerous regime for overseas companies which opt for the top level of listing in the UK (a premium listing) as regards disclosure of their corporate governance compliance and pre-emption rights.
This note gives some background to the UK listing regime and then considers the options now available for overseas trading companies wanting to access the London market. It also summarises the entry requirements for the main markets and the continuing obligations that will apply once a company joins a market.
The UK listing regime
The Official List
If a company wants a listing in the UK it will have to apply to the Financial Conduct Authority (www.practicallaw.com/5-107-5761) (FCA) (the regulator of the UK listing regime) to join the Official List (www.practicallaw.com/0-107-6918). It will also have to apply to join a market such as the Main Market (www.practicallaw.com/0-107-6800) of the London Stock Exchange (www.practicallaw.com/2-107-6795) (LSE) or the ISDX Main Board operated by ICAP Securities & Derivatives Exchange (ISDX) (www.practicallaw.com/4-511-5131).
As the UK's regulatory authority responsible for listing, the FCA sets and administers the criteria governing admission to the Official List. Its listing regime is comprised of three parts, stemming from EU Directives:
Listing Rules (www.practicallaw.com/7-107-6774): these set out the basic conditions which need to be satisfied if a company's securities are to be eligible for admission to the Official List. They also set out additional requirements when a company seeks a premium listing for its shares (see Premium or standard listing).
Prospectus Rules (www.practicallaw.com/7-200-9260): these implement the EU Prospectus Directive (2003/71/EC) and require a prospectus to be published when securities are to be admitted to a regulated market (www.practicallaw.com/5-200-9275) or offered to the public.
Disclosure Rules (www.practicallaw.com/0-200-9273) and Transparency Rules (www.practicallaw.com/8-209-4960) (DTRs): these implement the EU Market Abuse Directive (2003/6/EC) and the EU Transparency Directive (2004/109/EC) and set continuing obligations for securities admitted to a regulated market (and, in certain cases, a prescribed market).
Premium or standard listing
The Official List is divided into two listing segments: "premium" and "standard". To obtain a premium listing (www.practicallaw.com/0-501-4233), a company must comply with the listing requirements imposed by EU legislation and also with more onerous "super-equivalent" standards set by the FCA and included in the Listing Rules. To obtain a standard listing (www.practicallaw.com/8-501-4234), a company has to comply with the requirements imposed by EU legislation.
It is only possible to admit equity shares to a premium listing. Other securities such as securities convertible into equity shares and depositary receipts can only have a standard listing. The Official List makes it clear what type of listing a company has. Under the Listing Rules, a company cannot describe itself as having a premium listing or make any suggestion that this is the case if it has a standard listing.
For further details on the differences between the two types of listing, see Practice note, Differences between a premium and standard listing of shares (www.practicallaw.com/2-501-7607). This note sets out the additional entry requirements that apply where a company is seeking a premium listing and the more extensive continuing obligations. Also see, Article, The standard listing regime: a third way? (www.practicallaw.com/7-504-2379).
Alternatives to listing
As an alternative to joining the Official List, companies can access capital in the UK through certain Exchange-regulated markets. In this case the company's securities are "quoted" rather than "listed" and so do not need to comply with the full listing regime requirements. The most well-known of these markets is AIM (www.practicallaw.com/8-107-6392), the LSE's junior market. Another alternative is admission to trading on the ISDX Growth Market, a market operated by ISDX. Certain elements of the listing regime still apply, such as the requirement in the Prospectus Rules for a company to publish a prospectus if it is offering shares to the public regardless of the market it is joining.
The High Growth Segment (HGS), a segment of the Main Market, was launched in March 2013, following a consultation with market participants (see Legal update, High Growth Segment: final rulebook (www.practicallaw.com/3-525-4764)). The HGS is intended to offer a new route to the UK IPO market for EEA high growth companies and to act as a launch pad for companies seeking a full premium listing in the future. The HGS is intended to complement the UK's existing markets, including AIM and the premium segment of the Main Market. For further background on the HGS, see Practice note, Introduction to the High Growth Segment (www.practicallaw.com/7-525-8411).
Considerations for overseas companies
Choice of UK market
Against this regulatory background, an overseas company wishing to use a UK market for its shares or certificates representing shares has the following options:
An Official List premium listing of equity shares on the LSE: a listing of shares on the LSE's Main Market where the issuer has to meet the UK's highest listing standards (referred to as super-equivalent standards as they are higher than the minimum standards prescribed by the EU directives referred to above). There are three categories within the premium listing segment: equity shares issued by commercial companies, equity shares issued by closed-ended investment funds and equity shares issued by open-ended investment companies.
An Official List standard listing of shares on the LSE: a listing on the LSE's Main Market where the issuer has to meet minimum EU standards for listing (this was formerly known as a secondary listing).
An Official List standard listing of global depositary receipts (GDRs) on the LSE's Main Market.
An Official List standard listing of GDRs on the LSE's Professional Securities Market (www.practicallaw.com/5-200-9280) (PSM).
Admission to AIM: admission to trading of shares on AIM, the LSE's junior market, which is more lightly regulated than the Main Market and has less onerous entry requirements.
An Official List listing of equity (premium or standard listing) or depositary receipts (standard listing) on the ISDX Main Board.
Admission to trading of equity or depositary receipts on the ISDX Growth Market.
Factors to consider in choice of market
A company will have to decide which of the available markets it wishes to join. Relevant factors in making this choice are:
The desirability of raising the company's profile in the jurisdiction. If a company is carrying on business in a particular country, being listed on that country's stock exchange may be a way of raising the company's profile. Being listed on the Main Market will give the company the most status and recognition in the UK.
Profile of companies listed on that exchange. Considering the profile of other companies listed on the relevant exchange may indicate whether the market is suitable for the company seeking a listing. A number of companies admitted to AIM are smaller companies and many have a short trading record (so they cannot meet the more stringent criteria for a Main Market listing). Some larger companies may, however, decide to seek admission to AIM because of the "lighter touch" post admission regime.
Entry requirements of a particular market (see below). A company must consider whether it can meet the entry requirements of the market on which it wishes to list.
Level of regulation/degree of disclosure required by a particular market (see below). Higher levels of regulation normally mean that the company will incur a higher cost in complying with the requirements. However, higher levels of regulation will have a positive impact on investor confidence.
Accounting requirements. If a company wants to join a market that is a regulated market, the financial information in the prospectus will have to be prepared in accordance with International Financial Reporting Standards (IFRS) (www.practicallaw.com/9-107-6725) as adopted by the EU (subject to certain exceptions). Also the periodic financial information it has to publish will have to be prepared in accordance with IFRS.
Index inclusion. A company with shares admitted to trading on the Main Market of the LSE is potentially eligible for the FTSE UK Index Series including the FTSE 100 index. This brings greater liquidity and creates a basis for portfolio trading by both active and passive investors.
The type of investors it wishes to access. Some markets, such as the LSE's Professional Securities Market (PSM), are aimed at institutional investors only. If a company wants to reach a wide retail base of shareholders, it should consider listing is shares on the Main Market or AIM.
Listing shares or depositary receipts
Depositary receipts (www.practicallaw.com/6-107-6091) (DRs) are certificates that represent ownership of a certain number of a company’s securities, usually shares. They can be listed and traded on a market independently from the underlying securities (for further information on DRs, see Practice note, Depositary receipts (www.practicallaw.com/5-382-8556)). DRs are typically traded in US dollars and are issued by a depositary bank. Several forms of DRs can be listed and traded in London including Global Depositary Receipts (GDRs) and American Depositary Receipts (ADRs). DRs can, subject to certain conditions, be admitted to the standard listing segment of the Main Market, the PSM, AIM, the ISDX Main Board and the ISDX Growth Market.
Non-UK issuers from emerging markets often chose to admit DRs to the Main Market (rather than seek a premium listing of shares) as the DRs will be listed under a less onerous regime and this form of security brings a number of advantages to holders. DRs are usually quoted and pay dividends in currencies that are attractive to international investors such as dollars or Euro. They will also usually be settled in central depositaries such as Euroclear or Clearstream.
Markets and types of security eligible for admission
Listing or quotation
Name of market
Type of market
Main Market of the London Stock Exchange
ISDX Main Board
Main Market of the London Stock Exchange
Convertible securities and warrants
ISDX Main Board
Convertible securities and warrants
Not a regulated market
Convertible securities and warrants
Not a regulated market
ISDX Growth Market
Convertible securities and warrants
Not a regulated market
Premium and standard listings on the Main Market of the LSE
Comply with requirements in LR2
The admission criteria set out in chapter 2 of the Listing Rules (LR 2) include:
The company must be incorporated according to the relevant laws of its place of incorporation and be acting in conformity with its constitution.
The shares must conform with the law of its place of incorporation, be authorised by the applicant's constitution and have any necessary statutory or other consents.
The shares must be admitted to trading on a regulated market for listed securities operated by a Regulated Investment Exchange (www.practicallaw.com/2-107-7115) (RIE) (such as the Main Market of the LSE).
The shares must be freely transferable and free from any liens or restrictions on the right of transfer.
The market capitalisation of the shares to be listed must be at least £700,000.
The applicant must apply to list the whole class of the shares for which admission is sought.
Prepare a prospectus
The company must produce a prospectus in accordance with the Prospectus Rules. The prospectus must be approved by the FCA and published. If another EEA State is the issuer's home state (www.practicallaw.com/9-107-6693), the prospectus will be approved by the competent authority in that state and can then be "passported" into the UK (see further Practice note, Listing requirements and the prospectus (www.practicallaw.com/4-107-3994)).
The historic financial information in the prospectus covering the last three financial years must be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. For companies incorporated outside the EU, the accounts must be prepared in accordance with IFRS or with that country's national accounting standards provided these have been accepted as equivalent to IFRS. The standards of the US and Japan have been treated as equivalent since 1 January 2009 (see Legal update, Equivalence of third country GAAPs to IFRS as adopted by the EU: documents published in Official Journal (www.practicallaw.com/9-384-4757)). Under transitional arrangements, the standards of China, Canada, South Korea and India are also treated as equivalent for financial years starting before 1 January 2012. On 22 December 2011, the European Commission published the text of a delegated regulation to provide that the standards of Canada, South Korea and China are treated as equivalent from 1 January 2012 and to extend the transitional equivalence status of the standards of India until 31 December 2014 (see Legal update, Commission delegated regulation regarding the equivalence of IFRS to certain third country national GAAPs (www.practicallaw.com/1-517-0666)). The delegated regulation must still be formally approved by the Council and published in the Official Journal. Where a country's standards are not equivalent the accounts must be restated.
A prospectus drawn up in accordance with the legislation of a non-EEA country in which an issuer has its registered office can, in certain circumstances, be approved by the competent authority of that issuer's home state. The European Securities and Markets Authority (ESMA) will assess the laws and regulations on securities and prospectuses of certain third countries and, in accordance with a framework it has adopted, publish a list of additional information that must be included in a "wrap" to a prospectus from such country in order for it to meet the requirements of the Prospectus Directive. So far, ESMA has published such a statement in relation to Israel (for further details, see Legal update, Prospectus Directive: ESMA framework for third country prospectuses and statement on Israeli equivalence (www.practicallaw.com/8-505-3937)). ESMA has also published an updated opinion (www.practicallaw.com/4-525-3250) setting out the framework for assessing such third country prospectuses (for further details, see Legal update, Prospectus Directive: revised ESMA framework for third country prospectuses (www.practicallaw.com/7-525-3244)).
For further details on the prospectus requirements, see:
At least 25% of shares in public hands
A sufficient number of shares must be distributed to the public in one or more EEA states by the time of admission (LR 6.1.19R and LR 14.2.2R). A sufficient number is deemed to be 25% of the shares for which admission is sought (LR 6.1.19R(3) and LR 14.2.2R(3)). Shares held by directors and their connected persons, by trustees of the company's share plans or pension scheme, by persons with board appointment rights and those holding an interest of 5% or more do not count as shares in public hands (LR 6.1.19R(4) and LR 14.2.2R(4)).
The FCA will not admit shares of a company incorporated outside the EEA to the Official List unless it is listed in its country of incorporation unless the FCA is satisfied that the absence of the listing is not due to the need to protect investors (LR 6.1.21R/ LR 14.2.4R).
Additional requirements for a company seeking a premium listing
Historical financial information
There are additional requirements in LR 6 including that the company's historical financial information must:
Cover at least three years.
Be the latest accounts for a period ended not more than six months before the date of the prospectus and not more than nine months before the listing date.
Be consolidated accounts for the applicant and all its subsidiary undertakings.
Have been independently audited or reported on in accordance with the standards set out in item 20.1 of Annex I of the Prospectus Regulation and not be subject to a modified report (subject to certain exceptions).
The applicant must take all reasonable steps to ensure that its auditors or reporting accountants (as applicable) are independent and obtain written confirmation that they comply with independence guidelines issued or approved by their national accountancy or auditing bodies (LR 6.1.3R(2)).
The historical financial information must represent at least 75% of the company's business for the three year period and put prospective investors in a position to make an informed assessment of the business (LR 6.1.3BR).
Control of assets and independence
The applicant must be able to show that it controls the majority of its assets and has done so for at least the last three years and that it will be carrying on an independent business as its main activity (LR 6.1.4R). There are special rules for mineral companies (LR 6.1.8R - 6.1.10R) and scientific research based companies (LR 6.1.11R - 6.1.12R).
Sufficient working capital
An applicant has to show that it and its subsidiary undertakings have sufficient working capital available for the group's requirements for at least the next 12 months from the date the prospectus is published (LR 6.1.16R). The statement cannot be qualified in any way. Note that a company applying for a standard listing that is producing a prospectus to which Annex III applies also has to include a working capital statement in the prospectus in accordance with the Appendix to the Prospectus Rules. This can be qualified however.
The FCA may dispense with the working capital requirement in the Listing Rules where the applicant's business is entirely or substantially banking, insurance or similar financial services (LR 6.1.18G).
The constitution of the company and the terms of its equity shares must be compatible with electronic settlement through a system such as CREST (www.practicallaw.com/1-107-6017) (LR 6.1.23R). Although there is no equivalent requirement in the Listing Rules in respect of a standard listing, Rule 1.7 of the LSE's Admission and Disclosure Standards (www.practicallaw.com/3-501-7876) (which apply to companies with securities admitted to any of the LSE's markets other than AIM) provides that to be admitted to trading, securities must be eligible for electronic settlement. For further details on this requirement in relation to overseas securities, see Practice note, An introduction to CREST: Overseas securities (www.practicallaw.com/5-508-0697).
A company with, or applying for premium listing of equity shares, must have a sponsor (www.practicallaw.com/9-107-7292) to guide the company through the listing process and on certain occasions when its shares are listed (LR 8). For further information about the role of a sponsor see Practice note, Listing Rules: role of a sponsor (www.practicallaw.com/5-203-5632).
Eligibility criteria: main differences between a premium and a standard listing of equity shares
This comparison was taken from FAQs published by the FSA in March 2010 on the then new listing regime (see Legal update, UKLA listing regime FAQs (www.practicallaw.com/0-501-7364)) and has been updated to reflect the changes to the Listing Rules that took effect on 1 October 2012 (see Recent and proposed changes to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules: Changes to the Listing Rules made since 1 July 2005 (www.practicallaw.com/4-107-4026)).
Prospectus Rules (PR)
Minimum market capitalisation
Free transferability of shares
Requirement for audited historic financial information
Premium: LR 6.1.3R
Standard: PR apply
Requirement for three year historic financial information
Yes (covering 75% of business)
Premium: LR 6.1.3R and LR 6.1.3BR
Requirement for control over majority of assets for the prior three year period
Premium: LR 6.1.4R
Requirement for unqualified working capital statement
Premium: LR 6.1.16R
Standard: PR App 3.1
Requirement for shares in public hands
Premium: LR 6.1.19R
Standard: LR 14.2.2R
Requirement to appoint sponsor
Premium: LR 8.2
Continuing obligations: premium and standard listing
Disclosure of inside information (DTR 2)
The company will be subject to chapter 2 of the Disclosure and Transparency Rules (DTR 2) and have to disclose and control the circulation of inside information. This means that the company has to notify an RIS (www.practicallaw.com/3-107-7129) as soon as possible of any inside information (www.practicallaw.com/8-200-9269) which directly concerns the company. In brief inside information is information that is likely to have a significant effect on the price of the company's financial instruments. The company must also publish such information on its internet site (if it has one) by the following business day. There are very limited circumstances in which an issuer can delay the disclosure of inside information.
For further details on DTR 2, see Practice note, Disclosure Rules: disclosure and control of inside information (www.practicallaw.com/3-203-2677).
Periodic financial information (DTR 4)
An annual financial report including audited financial statements prepared in accordance with IFRS, a management report and responsibility statements by the persons responsible at the company (DTR 4.1).
A half yearly financial report covering the first six months of the financial year including a condensed set of financial statements, an interim management report and responsibility statements (DTR 4.2).
An interim management statement in a fixed window during the first six months and second six months of the financial year (DTR 4.3). If the company reports quarterly, it will be taken as satisfying the requirements of DTR 4.3.
Where a company has depositary receipts admitted to listing and not shares, it will have to comply with DTR 4.1 but not DTR 4.2 or DTR 4.3 (DTR 4.4.7R).
Note that (with certain exceptions) companies incorporated in Switzerland, the US or Canada do not have to comply with these requirements. This follows the FSA accepting that the requirements in these countries are equivalent to the DTR requirements (see the FCA website, Equivalence of non-EEA regimes) as permitted pursuant to DTR 4.4.8R.
Notification of shareholdings (DTR 5)
Again if the UK is its home state, the company will be subject to chapter 5 of the Disclosure and Transparency Rules (DTR 5). DTR 5 relates to the acquisition or disposal of major shareholdings and voting rights and requires major holders to notify the company when their holding or deemed holding reaches a certain size. DTR 5 also imposes certain requirements on companies including that they make monthly notifications to the market with details of their issued share capital.
For non-UK companies, the notification thresholds and time limits for notification are less stringent than for UK companies. Companies incorporated in the USA, Japan, Israel or Switzerland are exempt from DTR 5 as they are deemed to have a regime equivalent to that set out in DTR 5 (see the FCA website, Equivalence of non-EEA regimes). For further information on DTR 5, see Practice note, Notification of major shareholdings under the Disclosure and Transparency Rules (www.practicallaw.com/5-384-7258).
Access to information (DTR 6)
DTR 6.1 sets out certain information requirements for companies whose home state is the UK. These include that the company must treat its shareholders equally (DTR 6.1.3R) and ensure that they have the facilities and information necessary to exercise the rights attached to their shares (DTR 6.1.4R) and appoint proxies for voting (DTR 6.1.5R). A company must notify the FCA and the relevant market when it wants to amend its constitution (DTR 6.1.2R).
Note that companies incorporated in Switzerland do not have to comply with parts of DTR 6.1 as the FSA accepted that the Swiss requirements are equivalent to the DTR requirements (see the FCA website, Equivalence of non-EEA regimes).
Corporate governance requirements (DTR 7)
DTR 7.2 sets out requirements for a company to include a corporate governance statement in its directors' report explaining the corporate governance code to which it is subject or which it has voluntarily decided to apply. The company must also describe its internal control and risk management arrangements. Under DTR 1B.1.5R, DTR 7.2 only applies to UK companies but has been extended to overseas companies by LR 9.8.7AR and LR 14.3.24R. Companies with a premium listing are subject to additional corporate governance requirements under LR 9 (see below).
Admission and Disclosure Standards
A company with securities admitted to any of the LSE's markets (except AIM) has to comply with the LSE's Admission and Disclosure Standards. These contain requirements on disclosure of information and communications with the LSE on top of the requirements in the Listing Rules and the DTR.
Additional continuing obligations for companies with a premium listing
Listing Principles (LR 7)
A company with a premium listing of equity shares has to comply with the Listing Principles (www.practicallaw.com/4-200-9247) in LR 7. These are broadly drafted and are intended to ensure that companies pay due regard to the fundamental role they play in maintaining market confidence and ensuring fair and orderly markets. They are also designed to assist companies in identifying their obligations and responsibilities under the Listing Rules and the DTRs.
The Listing Principles are as follows:
Principle 1: A listed company must take reasonable steps to enable its directors to understand their responsibilities and obligations as directors.
Principle 2: A listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.
Principle 3: A listed company must act with integrity towards holders and potential holders of its listed equity shares.
Principle 4: A listed company must communicate information to holders and potential holders of its listed equity shares in such a way as to avoid the creation or continuation of a false market in such listed equity shares.
Principle 5: A listed company must ensure that it treats all holders of the same class of its listed equity shares that are in the same position equally in respect of the rights attaching to such listed equity shares.
Principle 6: A listed company must deal with the FCA in an open and co-operative manner.
For more details on the Listing Principles, see Practice note, The Listing Principles (www.practicallaw.com/1-200-8555).
Continuing obligations including corporate governance requirements (LR 9 and DTR 7)
A company that has a premium listing of equity shares must comply with LR 9 which sets out a number of continuing obligations that apply once a company is admitted to the Official List. These include:
The company must have a share dealing code in place restricting share dealings by directors and certain senior executives that is at least as rigorous as the Model Code (www.practicallaw.com/7-107-6854) (LR 9.2.8R and LR 9.2.9G).
The company must notify changes in its capital structure and also changes to the board (LR 9.6.4R and LR 9.6.11R).
LR 9 also contains certain requirements on financial information to be published by companies which are in addition to the requirements in DTR 4. For example if a listed company publishes any unaudited financial information in a class 1 circular (www.practicallaw.com/0-107-5909) or a prospectus or any profit forecast or profit estimate it will have to republish these when it next announces financial information and report against actual performance for the relevant period (LR 9.2.18R).
There are certain modifications of the general obligations in LR 9 for overseas companies including that they do not have to comply with certain detailed disclosure requirements in their annual accounts. These modifications are not as extensive as they were before the introduction of the revised listing regime in April 2010. For example until April 2010 such companies did not have to include a statement about their compliance with the UK Combined Code (www.practicallaw.com/9-107-5943) but instead had to disclose whether or not they had complied with the corporate governance regime in their own jurisdiction. However from April 2010 an overseas company:
Has to include a statement in its annual accounts of how it has applied the Main Principles set out in the UK Corporate Governance Code (www.practicallaw.com/2-502-1888), in a manner that would enable shareholders to evaluate how the principles have been applied (LR 9.8.7R). It must also state whether it has complied with the relevant provisions set out in the UK Corporate Governance Code and explain where it has not so complied. This means overseas companies are subject to the same disclosure requirements as UK companies.
Has to comply for the first time with the provisions regarding offering pre-emption rights to existing shareholders (LR 9.3.11R).
There are also corporate governance requirements set out in DTR 7.2 which, as described above, apply to both companies with a premium and with a standard listing. An overseas company with a premium listing which complies with the requirements above regarding the UK Corporate Governance Code will be taken to have complied with certain requirements of DTR 7.2 (see LR 9.8.7AR).
An overseas company with a premium listing proposing to issue equity securities for cash or to sell treasury shares that are equity shares for cash must first offer these to existing shareholders in proportion to their shareholdings other than in certain circumstances, including where shareholders have agreed to the provisions being disapplied (LR 9.3.11R and LR 9.3.12R).
Significant transactions (LR 10)
Under the Listing Rules a company with a premium listing has to notify shareholders of certain transactions and give them the opportunity to vote on the larger ones. LR 10 applies to "significant transactions" and sets out the different types of transactions and how and when shareholders should be notified (see Practice note, Listed and public company issues: acquisitions (www.practicallaw.com/1-200-7730) and Article, Continuing obligations (www.practicallaw.com/2-384-2686)). There are also rules regulating transactions with a related party (www.practicallaw.com/7-107-7132) such as directors and significant shareholders and in certain circumstances requiring these to be approved by independent shareholders (LR 11).
Continuing obligations: main differences between a premium and a standard listing of equity shares
This comparison is taken from FAQs published by the FSA in March 2010 on the new listing regime (see Legal update, UKLA listing regime FAQs (www.practicallaw.com/0-501-7364)) and has been updated to reflect the changes to the Listing Rules that took effect on 1 October 2012 (see Recent and proposed changes to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules: Changes to the Listing Rules made since 1 July 2005 (www.practicallaw.com/4-107-4026)).
Requirement for a sponsor
Yes (in specified circumstances)
No, unless it proposes to transfer to a premium listing
Premium: LR 8.2
Listing Principles apply?
Premium: LR 7
Corporate governance requirements
Comply or explain against the UK Corporate Governance Code
Include corporate governance statement in directors' report
Compliance with Model Code
Premium: LR 9.2.7R
Significant transaction (class test) rules apply
Premium: LR 10
Related party transaction rules apply
Premium: LR 11
Obligation to disclose inside information as soon as possible
DTR 2 for both
Obligation to maintain an insider list
DTR 2 for both
Major shareholding notification regime applies
DTR 5 for both
Requirement for persons discharging managerial responsibilities to disclose deals
DTR 3 for both
Requirement to offer pre-emption rights
Not under Listing Rules but company law may impose such a requirement
Premium: LR 9.3.11R
Prospectus required for further issues
Yes (in certain circumstances)
Yes (in certain circumstances)
PR 1.2.3R for both
Requirement for annual report and accounts
DTR 4 for both
Requirement for half yearly reports
DTR 4 for both
Requirement for interim management statements
DTR 4 for both
Listing of depositary receipts
Listing depositary receipts on the Main Market
One option for an overseas company is to apply to list depositary receipts representing shares on the Main Market of the LSE. Depositary receipts will have a standard listing and the relevant requirements for listing are set out in chapter 18 of the Listing Rules (LR 18). This includes requirements both relating to the company and to the depositary that holds the relevant shares and issues the receipts.
Summary of requirements compared to requirements for listing shares
The requirements are broadly the same as those in LR 2 relating to shares. Note that:
The depositary receipts will have a standard listing so the additional requirements applicable to companies with a premium listing will not apply. This means, for example, the issuer does not need a sponsor.
The company will have to prepare a prospectus as it is applying to admit securities to a regulated market. The prospectus must comply with the minimum disclosure requirements of the "GDR Schedule", set out in annex 10 of the Prospectus Regulation (809/2004). If the GDRs have a denomination of less than EUR 100,000, the issuer must also include a summary setting out the essential characteristics of, and any risks associated with, the issuer and the GDRs. The summary disclosure requirements are set out in PR 2.1.
For further information on listing GDRs, see Practice note: Depositary receipts: Admission to listing and trading in London (www.practicallaw.com/5-382-8556).
Financial reporting obligations
The issuer will have to prepare its annual report in accordance with DTR 4.1 and publish this within four months of its year end.
It does not have to comply with the other periodic reporting rules in DTR 4 (so there is no need to publish a half yearly report or an interim management statement).
An applicant for admission to listing of depositary receipts must comply with LR 3, although in addition to the normal requirements it must also submit a letter to the FCA explaining how it satisfies the requirements in LR 2 and LR 18.2 and must also keep a copy of the executed deposit agreement for six years after the admission of the relevant securities.
Listing depositary receipts on the Professional Securities Market
Another option for a company listing depositary receipts is to apply to list these on the LSE's Professional Securities Market (PSM). The PSM is the LSE's market for the listing of specialist securities, including debt, depositary receipts and convertible securities. It is not a regulated market so the company will not have to prepare a prospectus in order for the certificates to be admitted to listing provided they are not being offered to the public. One of the main differences for issuers choosing to list depositary receipts on the PSM is that they do not have to prepare financial information to IFRS or an equivalent standard.
Summary of requirements compared to requirements for listing shares
The requirements are broadly the same as those in LR 2 relating to shares. Note that:
The depositary receipts will have a standard listing so the additional requirements applicable to companies with a premium listing will not apply. This means, for example, there will not be any need for a working capital statement or a sponsor.
The company will have to prepare listing particulars for approval by the FCA in accordance with chapter 4 of the Listing Rules. Issuers of depositary receipts are not required to report historical financial information to IFRS or an EU approved equivalent standard either in listing documents or as a continuing obligation requirement, as the FCA allows these issuers to use their domestic accounting standards. For further information on listing GDRs, see Practice note: Depositary receipts: Admission to listing and trading in London (www.practicallaw.com/5-382-8556).
Financial reporting obligations
The company does not have to comply with the periodic financial reporting requirements in DTR 4. In accordance with the Listing Rules, it must publish its annual report within six months of its year end. This can be prepared in accordance with local GAAP rather than IFRS.
An applicant for admission of DRs must comply with LR 3, although in addition to the normal requirements it must also submit a letter to the FCA explaining how it satisfies the requirements in LR 2 and LR 18.2 and must also keep a copy of the executed deposit agreement for six years after the admission of the relevant securities.
Admission to AIM
A company wishing to join AIM must comply with the procedure set out in the AIM Rules for Companies (www.practicallaw.com/1-203-1160) (AIM Rules). The main requirement is that the company must be "appropriate" for market. This judgement is made by the company's nominated adviser (www.practicallaw.com/9-107-6886) (nomad) who plays a key role in the admission process (see further Practice note, AIM: the role of the nominated adviser and broker (www.practicallaw.com/7-201-4997)).
A company applying to AIM must:
Appoint and retain a nomad at all times (Rule 1, AIM Rules). The nomad is responsible to the LSE for assessing the appropriateness of a company for AIM and for advising and guiding an AIM company on its responsibilities under the AIM Rules.
Appoint and retain a broker at all times (Rule 35, AIM Rules). This may be the same firm as the nomad and must be a securities house that is a member of the LSE. The broker must try and match bargains notified to it in order to ensure that investors are able to trade their chosen stocks at the earliest opportunity.
Have shares which are freely transferable and eligible for electronic settlement (Rules 32 and 36, AIM Rules).
Admit all, and not some only, of the shares in the particular class to be admitted (Rule 33, AIM Rules).
Prepare an admission document (Rule 3, AIM Rules). This must include all relevant information prescribed by the AIM Rules including information on the company and its activities, financial information covering the latest three financial years and any projections and details of all directors. If shares are being offered to the public, it must prepare a prospectus (which may also serve as the admission document) in accordance with the Prospectus Rules.
If the company's business has not been independent and revenue-earning for at least two years, the directors of the company or any group company and the substantial shareholders (broadly, anyone holding an interest, directly or indirectly, in 10% or more of the class of security to be admitted, or 10% or more of the voting rights relating to the company) and their associates or any applicable employees must enter into a one-year lock up from the date of admission of the securities (Rule 7, AIM Rules).
For further details of the AIM admission requirements, see Practice note, AIM: admission requirements (www.practicallaw.com/3-107-3999).
The table below highlights the main differences in the admission criteria for the Main Market and AIM.
Minimum 25% shares in public hands (premium and standard listing).
No minimum shares to be in public hands.
Normally historic financial information for a three-year period is required (premium listing only).
No trading record requirement.
Pre-vetting of prospectus by the FCA (premium and standard listing).
Admission documents not pre-vetted by the LSE or the FCA unless the offering involves an offer to the public and therefore requires a prospectus in accordance with the Prospectus Rules.
Sponsors needed for certain transactions (premium listing only).
Nomad required at all times.
Minimum market capitalisation of £700,000 for shares (premium and standard listing).
No minimum market capitalisation.
Fast-track admission route
There is a fast-track admission route (also known as the AIM designated market route) available for companies with shares that have already been listed for at least 18 months on the top tier or main board of the Australian Securities Exchange, Deutsche Borse Group, Johannesburg Stock Exchange, NASDAQ, NYSE, NYSE Euronext, NASDAQ OMX Stockholm, the Swiss Exchange, the TMX Group or the Official List. For details see Practice note, Fast track to AIM (www.practicallaw.com/1-203-2230).
Continuing obligations for AIM companies
The continuing obligations for an AIM company are similar to those of a company admitted to the Main Market but not as onerous. Also AIM is not a regulated market meaning certain provisions imposed by EU law do not apply to companies admitted to AIM (for example the obligations in the Market Abuse Directive to disclose inside information to the market as soon as possible and to keep lists of those with access to inside information). The main continuing obligations are:
An AIM company must notify an RIS without delay of any new developments which are not public knowledge concerning a change in its financial condition, its sphere of activity, the performance of its business or its expectation of its performance, which, if made public, would be likely to lead to a substantial movement in the price of its AIM securities (Rule 11, AIM Rules).
An AIM company must also notify an RIS without delay of certain events set out in Rule 17 including:
Any share dealings by directors.
Any changes to the holding of a significant shareholder (being a shareholder holding 3% or more of any class of security (excluding treasury shares)) that increases or decreases such holding through a single percentage. AIM companies that are not UK companies are not subject to the notification of major shareholdings rules in DTR 5 but the LSE encourages AIM companies incorporated in a jurisdiction that does not have similar provisions to DTR 5 to include provisions in their constitutional documents requiring significant shareholders to notify the company of relevant changes in their shareholdings in similar terms to the DTRs (Guidance Notes to Rule 17, AIM Rules).
The resignation, dismissal or appointment of any director.
Any material change between its actual trading performance or financial condition and any profit forecast, estimate or projection included in its admission document or otherwise made public on its behalf.
Any decision to make any payment in respect of its AIM securities.
The resignation, dismissal or appointment of its nomad or broker.
Any change in the AIM company's legal name or registered office.
An AIM company must maintain a website which makes available, free of charge, certain information in accordance with Rule 26 of the AIM Rules. In particular, overseas companies should note that they are required to have a statement on the website explaining that the rights of shareholders might be different from the rights of shareholders in a UK incorporated company. The company must also make available on the site specified detailed information on the company and its advisers including its latest annual report, circulars sent to shareholders within the last 12 months and current constitutional documents.
There are restrictions on directors and applicable employees dealing in the company's securities during a close period.
For further details of continuing obligations for AIM companies, see Practice note, AIM: continuing obligations (www.practicallaw.com/4-503-2895).
Financial reporting obligations
AIM companies must produce half yearly reports including at least a balance sheet, an income statement, a cash flow statement and comparative figures for the corresponding period in the preceding financial year.
The report must be published within three months of the end of the relevant period (Rule 18, AIM Rules).
Annual reports must also be produced and an AIM company incorporated in an EEA country, the Channel Islands or the Isle of Man must present its report in a accordance with International Accounting Standards (IAS) if it is a parent company. If it is not a parent company it can choose to prepare and present such financial information either in accordance with IAS or with the accounting and company legislation and regulations that are applicable to it because of its county of incorporation. An AIM company incorporated elsewhere has a choice between IAS, US GAAP, Canadian GAAP, Australian IFRS and Japanese GAAP.
AIM companies are not subject to the UK Corporate Governance Code but there are non-binding guidelines on corporate governance applicable to AIM companies. These are:
Guidelines issued by the Quoted Companies Alliance.
The corporate governance and voting guidelines for smaller quoted companies published by the National Association of Pension Funds (NAPF)
For further details of the corporate governance regime that applies to AIM companies, see Practice note, Corporate governance and AIM companies (www.practicallaw.com/6-202-2295).
The rules on disclosure of corporate transactions are not as onerous as the ones for Main Market companies. However:
An AIM company must notify an RIS without delay as soon as the terms of a substantial transaction is agreed (Rule 12, AIM Rules). A substantial transaction is one that exceeds 10% in any of the specified class tests.
An AIM company must also notify an RIS without delay of a transaction with a related party that exceeds 5% in any of the same class tests (Rule 13, AIM Rules).
An AIM company will have to obtain shareholder approval before it:
Enters into a transaction that amounts to a reverse takeover (Rule 14, AIM Rules). A reverse takeover is an acquisition (or series of acquisitions in a 12 month period) that exceeds 100% in any of the class tests or results in a fundamental change of business, board or voting control.
Makes any disposal which, when aggregated with any disposals in the previous 12 months, exceeds 75% in any of the class tests (Rule 15, AIM Rules).
Admission to ISDX
ISDX is an independent stock exchange that markets itself as an alternative to the London Stock Exchange for small and mid-cap companies. It is possible to admit shares, debt securities and GDRs to ISDX.
ISDX offers two options:
The ISDX Main Board: a primary market for established companies who are seeking admission to the Official List and a presence on an EU regulated market. As with joining the Main Market of the LSE, the company will have a choice of a premium or a standard listing.
The ISDX Growth Market: a recognised investment exchange aimed at smaller and medium sized enterprises. There is a simpler admission process as shares will be admitted to this market in accordance with the ISDX Growth Market Rules for Issuers. A fast-track admission procedure to the ISDX Growth Market is available to issuers from AIM and the Access Market of the Munich Stock Exchange (Bayerische Boerse).
For further information, see the ISDX website.
On 2 October 2012, the FSA published consultation paper CP12/25 which set out proposals for changes to the Listing Rules aimed at enhancing the effectiveness of the Listing Regime. The consultation paper built on the initial discussion of the wider issues around the quality and suitability of the premium listing regime considered in consultation paper CP12/2. The FSA proposed changes in areas which the FSA considered key to ensuring better aligned behaviour, both in relation to eligibility requirements and, where appropriate, on a continuing basis (see Legal update, Listing rules: consultation on proposed amendments and feedback on CP12/2 (CP12/25) (www.practicallaw.com/6-521-6474)).
Following the consultation in CP12/25, on 5 November 2013, the FCA published feedback, near final rules and a further consultation on enhancing the effectiveness of the Listing Regime (CP13/15). These include the following:
Eligibility. The FCA intends to remove the requirement for an applicant for a premium listing to control the majority of its assets and is instead adopting an independence test, together with new supporting guidance.
Free float. The FCA is proposing to replace LR 6.1.20G with new LR 6.1.20AG to state that the FCA may accept a free float below 25% if the market will operate properly because a large number of the securities are sufficiently distributed to the public. The draft new guidance also sets out factors that the FCA will take into account when making this assessment. The FCA proposes that if it has accepted a lower percentage but it transpires that the market does not in fact operate properly, it may revoke the modification (LR 9.2.15AG and LR 14.3.2AG). The FCA also confirmed how certain securities will be treated for the purposes of the calculation for both premium and standard listed companies, including that it will exclude securities that are locked up for over 180 days when it runs the free float test (LR 6.1.19R and LR 14.2.2R(4)(f)).
Listing Principles. The FCA is adopting its proposals to make certain Listing Principles applicable to standard issuers, to rename the others "Premium Listing Principles" and to introduce additional Premium Listing Principles.
Controlled premium companies. Companies that are seeking or which have a premium listing and that have a controlling shareholder will be subject to additional initial and ongoing obligations. The FCA is consulting on a revised package of proposals including:
a new definition of "controlling shareholder" (broadly this would capture persons interested in 30% of the company (either on an individual basis or when aggregated with the interests of their concert parties and affiliates);
a requirement for a controlled premium company to have a dual voting structure for the appointment of independent directors (LR 9.2.2DR);
a requirement for a controlled premium listed company to have a relationship agreement with its controlling shareholder(s) containing certain mandatory terms (LR 6.1.4BR(1)); and
sanctions for a breach of the relationship agreement requirements. In this regard, the FCA is proposing that, all transactions with the controlling shareholder (including ordinary course and small transactions) will normally become subject to independent shareholder approval (LR 11.1.1CR).
Constitutional requirements. The FCA is amending the Listing Rules to require that a premium listing applicant's constitution will allow it to comply with new LR 9.2.22R which provides that where a shareholder vote is needed due to certain Listing Rules applicable to premium listed companies, the vote must be decided by a resolution of the holders of premium listed shares (new LR 6.1.28R).
Although the FCA indicated that it had finalised its thinking in relation to a number of the matters discussed in CP13/15, it did not confirm when those changes will come into effect as it views them as a package of measures to be considered in conjunction with the related provisions on which it is still consulting. The deadline for responses to the consultation on those new or amended provisions is 5 February 2014. Depending on the feedback received, the FCA intends to publish its feedback in the first half of 2014 and implement the full and final package of rules by the middle of 2014. For further details on the feedback statement and the consultation, see Legal update, Listing rules: consultation on proposed amendments and feedback on CP12/25 (CP13/15) (www.practicallaw.com/5-540-1127).