Last year, the number of new applicants seeking to list on the London Stock Exchange ("LSE") fell to a six year low following an increasingly common trend of companies seeking to list on US equity markets over the LSE. This drop in the performance and appeal of LSE resulted in the Financial Conduct Authority ("FCA") in the UK publishing a consultation paper on 20 December 2023 proposing a total overhaul of the current UK listing rules regime (the "Rules").
This will have significant implications for any company that currently lists or is considering listing its securities on LSE. The proposed changes will also have a significant impact on the rights and expectations of investors that hold securities listed on LSE as listed companies will be afforded enhanced freedom to enter into transactions, and will be subject to fewer constraints such as the need to obtain shareholder approval in advance of carrying out certain transactions.
Summary of Key Structural Changes
It is proposed that the current dual segment model employed by LSE which is comprised of the "Standard" and the "Premium" listing segments, will be abandoned in favour of a single listing category for equity shares in commercial companies (the "ESCC"). There will also be a number of separate categories for companies other than traditional commercial companies, for example, SPACs, closed-ended investment funds, and international companies incorporated outside of the EU with a primary listing somewhere other than in the UK (the "International Secondary Listings Category"), though it is expected that the vast majority of companies will transition to the ESCC category.
The International Secondary Listings Category is also expected to be popular as it will provide an option for companies that have a primary listing outside of the UK to gain exposure to the UK market via a secondary listing. The rules applicable to this category are expected to mirror those currently applicable to a Standard segment listing and will contain targeted rules tailored to a secondary listing. Specific guidance on the rules applicable to this category is due to be published in Q1 2024.
Summary of Key Technical Changes
It is expected that the net effect of the proposed changes will be to reduce the entry requirements needed for a company to become listed on the LSE in the first instance, and following that, to reduce the ongoing obligations that a listed company will need to comply with in order to maintain its listed status.
Proposals that will have a significant impact in bringing about this effect include those relating to:
- significant transactions, which will see the scope of what will constitute a significant transaction narrowed. In addition, companies will no longer need to seek shareholder approval before carrying out a significant transaction;
- the process applicable to a company engaging in a related party transaction which would no longer require the company to consult with a sponsor or seek the approval of independent shareholders to carry out the transaction; and
- the removal of limitations and restrictions previously placed on dual class share structures in relation to mandatory sunset provisions, and limitations on deviations in voting weight between shares.
Conclusion
While the proposals have been well received, how effective they are in promoting the growth of the LSE and making it an attractive destination for companies to list on will remain to be seen following the implementation of the final proposals later this year. It will also be worth considering whether the effect of the FCA's new proposals is tempered somewhat by the European Union's plans to make European stock exchanges more accessible as part of its proposed listing act.
The final consultation period for the new proposals is due to close on 22 March 2024 following which it is anticipated that the new rules would be adopted in the second half of 2024. We will continue to monitor developments in this area. For more information on the above, please contact Susanne McMenamin, Kevin Lavin or your usual Matheson contact.