FCA Primary Market Effectiveness Review | Bryan Cave Leighton Paisner

Summary

Following the FCA’s consultation on the efficiency of the Primary Market, the FCA has published final rules regarding, among other things, free float and minimum market capitalization, which will come into effect on December 3, 2021.

A number of transitional provisions will apply, including allowing companies that have submitted a full submission to the FCA for a listing eligibility review by 4:00 p.m. on December 2, 2021 and certain shell companies to continue to use the threshold. minimum current market capitalization. of £ 700,000, against the new threshold of £ 30m, for an interim period.

Changes to the listing regime

The FCA is introducing the following changes to the listing rules with effect from December 3, 2021:

Minimum market capitalization for premium and standard quotes

FCA increases the minimum market capitalization (MMC) for listing shares of companies (excluding shares of closed-end funds or open-ended investment companies) from £ 700,000 to £ 30 million pounds sterling (compared to the £ 50 million initially offered). However, transitional provisions allow:

  • Admission applicants who have submitted a full application to the FCA for an enrollment eligibility review by 4 p.m. on December 2, 2021 to apply for enrollment based on the current MMC of £ 700,000. This is provided:
    • the request for an eligibility review has not been withdrawn or has lapsed;
    • the registration request is made no later than June 2, 2023 (i.e. within 18 months from the date of application of the new rules); and
    • the overall business proposal did not change significantly between submission and application for listing.
  • Shell companies (including PSPCs) that own existing listed shares prior to December 3, 2021 or that have recently canceled a listing and subsequently re-applied for listing following a reverse takeover may request a quote on the basis of an MMC of £ 700,000 provided that:
    • they have completed FCA submissions for a listing eligibility review and prospectus review by December 1, 2023 (i.e. giving these companies up to 2 years to find a target and begin the process of registering a new entity); and
    • whose applications for eligibility review and prospectus review have not been withdrawn or rendered obsolete.
  • Companies whose existing share classes were admitted to listing before December 3, 2021 and which continue to have at least one listed share class to register additional share classes on the basis of an MMC of £ 700,000, which is not limited in time.

The FCA does not intend to extend the transitional arrangements to applicants whose overall business proposition has undergone a material change during the transition period. If such a change has occurred, it will be treated as a new submission and the transitional provisions will not apply. This could include, for example, the exit of a founder or a material change in the directors or major shareholders of a company if they have significant influence or if the applicant is a shell company; or a significant change in the nature of the proposed activity (especially for start-ups).

In addition, when a case subject to the transitional arrangements has lapsed due to no substantive activity for three months, any new submission will be treated as new cases and not subject to the transitional arrangements.

Free float for premium and standard ads

FCA amends listing rules to reduce the free float requirement for premium and standard (minimum number of shares in public hands) quotes from 25% to 10% and to remove guidelines for changes related to the limit. floating previous.

Points to note:

  • This is a minimum and not an objective.
  • There should be at least two public shareholders to make sense of “public ownership”. The rules regarding persons who hold a participation of 5% or more of the shares which are not considered to be “shares in public hands” continue to apply.
  • Existing applicants should reflect their intention to use a lower free float level under the new rules in their eligibility submission and application for enrollment. This means that they will have to submit an updated listing rule eligibility checklist and include information on the free float level and number of shareholders in their listing request, in accordance with the relevant provisions of LR 3.3. 2 R to LR 3.3.4 R.

A targeted form of double class share structures (DCSS) within the premium listing

DCSS involves a class of shares that allows a shareholder (or a group of shareholders) to retain voting control over a company that is disproportionate to their economic interest in the company. FCA introduces a 5-year exception to the rule that restricts votes on premium listing matters to holders of premium listed shares only to eliminate the risk of an unwanted takeover in the early stages of listing from a company. This class of shares with weighted voting rights must meet the following conditions:

  • a maximum weighted voting ratio of 20: 1;
  • weighted voting rights are only available in two limited circumstances:
    • a vote on the removal of the incumbent as director, and
    • following a change of control, in connection with a vote on any matter (to operate as a powerful deterrent to a takeover); and
  • the weighted voting rights can only be held by the directors of the company (or the beneficiaries of the estate of such a director).

Balance sheet

The initial consultation document explored the possibility of making changes to the existing requirements regarding the financial side of listed companies. The FCA has received more convincing evidence to suggest that a broader review of this requirement is needed and, therefore, it will consider this topic as part of its work next year on the structure of the registration regime.

Other minor changes

The FCA has made other minor changes to the listing rules, disclosure guidelines and transparency rules, and prospectus regulatory rules, including clarifying certain rules and removing the need to file hard copies now that electronic copies are provided. These minor changes will take effect on January 10, 2022.

FCA Policy Statement with Final Rules

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Sara H. Byrd