Review of the UK Listing Regime – December 2020


Author: Neil Vickers


Chancellor Sunak has established the Hill Review to consider reforms to the FCA’s Listing Rules

It has not taken the UK Government long to look for possible areas of divergence from the EU’s regulatory landscape. The Hill Review aims to tailor the FCA’s Listing Regime more precisely to the needs of companies, investors and the UK equity markets, in particular to attract high growth companies in the technology, e-commerce and scientific sectors.

Lord Hill of Oareford, in charge of the review, plans to move quickly, and has begun with a call for evidence from market participants and others in the financial services industry. Whilst the review welcomes suggestions about improving the London equity markets in general, a number of specific questions have been posed which indicate the likely direction of travel. These are in summary:

Free float requirements

  • The Listing Rules require that, generally, not less than 25% of a company’s shares must on listing and subsequently be in the hands of the public.
  • Is the 25% threshold too high, is it too dilutive or difficult to achieve and therefore a deterrent?
  • Can potential liquidity concerns be resolved by other means?

Dual class share structures

  • Currently shares with different voting rights are not eligible to be FCA listed.
  • Should founders and others be permitted to retain control on IPO via weighted voting rights?
  • If permitted, what conditions might limit the use of such structures, should they be limited to certain sectors or size of company and should they be limited in time or to certain matters, such as on a takeover?
  • Would a dual class structure erode shareholder democracy to an unacceptable level?

Track record requirements

  • To be eligible for a Premium listing an applicant’s business must have a sustainable revenue model demonstrated by a three year track record.
  • Does this requirement prove to be an unnecessary barrier to certain types of company?
  • What kinds of flexibility could be offered as regards the track record requirements?

Prospectuses

  • Prospectuses are seen by many as lengthy and costly to produce, which may deter IPO applicants and those seeking secondary funding (in the latter case when significant information can already be public).
  • Are the situations, and thresholds, in which prospectuses are currently required appropriate?
  • Can the prospectus rules better reflect the needs of UK markets and issuers?
  • Can alternative measures protect the markets if prospectus exemptions are widened?

Dual and secondary listings

  • London wishes to attract more issuers who are already listed on overseas exchanges.
  • Are the high standards set by the UK eligibility rules unnecessarily deterring them?
  • Should UK regulators be more accepting of standards in other markets, and can changes in our listing regime be made to better accommodate dual listings?

Conclusion

The Treasury hopes that the review will produce a rapid set of recommendations which will boost the London equity markets now they will be no longer subject to EU regulation. Judging by the tone of the call for evidence, which ends on 5 January, the market should prepare for some significant reforms to the Listing Rules to be announced reasonably early in 2021.

Our Equity Capital Markets practice

Fladgate advises corporates, sponsors, nominated advisers and brokers on a wide range of IPOs and equity fundraisings. We help UK and overseas clients in multiple sectors, and have a strong track record in advising entrepreneurs, innovation and growth companies to list on the LSE Main Market and on AIM.

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