UK Listing Rule Reforms

UK Listing Rule Reforms – proposed new listing categories

The FCA published an updated draft of the proposed new UK listing rules (UKLR) on 7 March 2024 which included the second tranche alongside the original first tranche that was published in December 2023.

We previously reported on the first tranche of the draft UKLR (including the accompanying consultation paper CP23/31) and in particular its impact on companies currently listed or considering a listing on the Standard Segment of the Main Market (Standard List). The second tranche of the UKLR provides further detail on the proposed new transition category for companies currently listed on the Standard Segment which are not tracked to an alternative category. It also provides further detail on the proposed new categories for shell companies and international companies with a secondary listing in the UK. In general, these provisions are consistent with the proposals set out in the consultation paper that was published in December alongside the first tranche of the UKLR.

There has been no further update on when the UKLR sourcebook will come into force, but it is expected to be the beginning of the second half of 2024 (and two weeks after the final UKLR sourcebook is published).  

On 26 April 2024 the FCA published Primary Market Bulletin 48, that consults on proposed changes to the FCA Knowledge Base to reflect the proposed changes to the listing regime. In this recent bulletin, the FCA confirms that it is proposing to send out notifications to issuers from mid-May 2024 informing them of the category that the FCA expects their securities to be mapped to (should the proposals be implemented). Issuers who believe that they have been incorrectly allocated will have four weeks to revert to the FCA.

The draft UKLR provides for 11 listing categories (five are new categories and six are retained categories from the current listing rules). Below we provide a summary of the key features and transitional arrangements in respect of the five new proposed categories.  

Equity shares (commercial company) (ESCC) category – UKLR 5

This single listing category is intended to be the main category for commercial companies.

Existing companies currently listed on the Premium Segment of the Main Market (Premium List) will automatically be mapped to the ESCC category. Companies listed on other listing categories (e.g. Transition or Shell categories summarised below) will be able to apply to transfer to the ESCC category when appropriate and a modified eligibility process will apply.

The eligibility criteria for the ESCC category will be less onerous than for the current Premium List, for instance, the requirement of three years historical financial information and a clean working capital statement will no longer apply. The requirement for a minimum expected market capitalisation of £30m will however remain.

The continuing obligations will also be significantly reduced. An announcement will only be required on significant transactions (over 25%) or for related party transactions. No shareholder vote will be required for related party transactions or significant transactions (although will continue to be required on reverse takeovers).

A reduced sponsor regime will apply to this category.

Transition category – UKLR 22

Current Standard List companies (or those that were applying for a listing on the Standard List before the commencement date of the UKLR (known as ‘inflight’ applicants)) will automatically be mapped to this category unless they are eligible for admission to the Shell or International Secondary Listing categories (see below) (in which case they will not be eligible for the Transition category).

This category will be closed to new applicants and a company listed on this category will not be eligible for re-admission to it on completion of a reverse takeover. It would need to be admitted to the ESCC category (where it meets the eligibility criteria) or another market such as AIM or Aquis or be unlisted.

A sponsor is not required for this category unless the company is applying to transfer to a listing category that requires a sponsor (e.g. ESCC).

An ‘inflight’ applicant will have one year from the date on which the UKLR sourcebook comes into force to complete its entry to the Transition category (provided there has not been a material change to the applicant’s overall business proposition).

Companies on this category will be subject to the current listing rules applicable to Standard List companies.
There is currently no fixed end date for this category although the FCA has noted that it may seek to remove it as issuer numbers reduce.

There will be a modified eligibility process for transfer from the Transition category to the ESCC although it is understood that the requirement for a minimum expected market capitalisation of £30m will remain.

International Secondary Listing – Equity shares (international commercial companies secondary listing) category – UKLR 14

A company will be mapped to this category if it is an overseas company (being a company incorporated outside the UK) with a ‘qualifying home listing’. The FCA have proposed this separate category to seek to accommodate non-UK incorporated companies where either domestic company law or rules flowing from their primary listing venue may make it more difficult to meet certain requirements proposed for the ESCC category.  

This category will not apply to UK incorporated companies with a primary listing abroad as the FCA is keen to avoid this category being an open choice for commercial company issuers simply seeking to avoid certain rules of the ESCC category that they would be capable of meeting.

A ‘qualifying home listing’ is a listing of equity shares admitted to trading on an overseas regulated, regularly operating, recognised open market. There is no specific list provided although it is expected to include overseas exchanges that the FCA considers to be equivalent to the FCA regime (e.g. NYSE, TSX and ASX).

If an applicant’s qualifying home listing is not in its country of incorporation, the FCA may require an explanation of the reasons for establishing that listing elsewhere.

Unlike the Transition category, this category will be open to new applicants. The eligibility and continuing obligations generally replicate current Listing Rule 14 for Standard List companies with some additional requirements (for example, that once listed, the company must continue to comply with the applicable rules of the market of its qualifying home listing). The sponsor regime will not apply to this category.

Shell and SPACs category – UKLR 13

Companies will be mapped to this category from:

• a current Premium Listing of SPACs and cash shells (pursuant to current Listing Rule 6); or 
• a current Standard Listing of SPACs and cash shells (pursuant to current Listing Rule 14)

provided they meet the UKLR 13 “shell company” definition. If they do not meet that definition, they will be mapped to the Transition category instead. A shell company for the purposes of UKLR 13 is defined as an issuer whose (a) assets consist solely or predominantly of cash or short-dated securities; or (b) predominant purpose or objective is to undertake an acquisition or merger, or a series of acquisitions or mergers.

UKLR includes provision for an “initial transaction” (as opposed to reverse takeover). Board and shareholder approvals will be required for an initial transaction. A shell company’s constitution must provide that if the company does not complete an initial transaction within 24 months of the date of admission (which may be extended by 12 months by public shareholder approval) it will cease operations and distribute funds to shareholders. There is also a requirement that binding arrangements are in place with an independent third party to protect the funds raised. 

A sponsor will be required at the following times: at admission, on an initial transaction and where the company is applying for new shares to be admitted to listing.

Existing listed shell companies will have a transitional period of three years to either complete their operations or make the necessary changes to comply with the proposed additional requirements for companies in the Shell category excluding the obligation to ‘ring fence’ investor funds reflecting that it would be impractical to implement this retrospectively. The three-year transitional period will start from the date the UKLR come into force. For in-flight applicants admitted to the Shell category (which must occur within one year of the UKLR implementation date), the transitional period may be shorter than three years.

Non-equity shares and non-voting equity shares category – UKLR 16

This category will automatically retain companies with a current Standard Listing of non-equity shares and non-voting equity shares in current Listing Rule 14.

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