A wide-ranging review of the UK Listing Regime by Lord Hill was published on 3 March, timed neatly to coincide with the Budget. The aim is to radically improve the competitiveness of UK as a listing venue and is part of Rishi Sunak's Big Bang 2.0 for the City. Some of the proposed rule changes would require primary legislation by the Government and the current timeframe for that is uncertain. However, a large number of the key recommendations are aimed at the FCA and the FCA has stated that, subject to consultation feedback and FCA Board approval, it will seek to make relevant rule changes by late 2021.
It is an open secret that the UK has fallen well behind other listing locations such as Singapore, Hong Kong and the US, accounting for only 5% of global IPOs between 2015 and 2020. The aim of the Hill recommendations is to redress that balance and make the UK an attractive place to list, with a particular focus on companies that are part of the new economy - fintech, biotech and founder-led businesses - and facilitating SPACs.
We think that the implementation of these recommendations by the FCA and the Government will be a positive move and will be well received by the market.
In summary, Lord Hill's key recommendations on amendments to the UK listing regime are to:
- Allow dual-class share structures in the LSE's premium listing segment, thereby allowing directors (in particular, founders) to have enhanced voting rights on certain decisions, with the following safeguards to maintain high corporate governance standards: (i) a maximum duration of five years; (ii) a maximum weighted voting ratio of 20:1; (iii) a requirement that a holder of B class shares be a company director; (iv) voting matters being limited to ensuring the holder is able to: (1) continue as a director; and (2) block a change of control of the company while the dual class share structure is in force; and (v) limitations on the transfer of the B class shares.
- Reduce free float requirements (from 25% to 15%) and allow companies to use other measures to demonstrate liquidity (for large cap companies this could be demonstrating that they have a minimum: (i) number of shareholders; (ii) number of publicly held shares: (iii) market value of publicly held shares; and (iv) share price to support a liquid market, and for smaller cap companies this could be having in place an agreement with an FCA authorised broker to use its best endeavours to find matching business if there is no registered market maker on the relevant market). The current definition of "shares in public hands" should be reviewed. Updates could include increasing the threshold above which investment managers and institutional investors are excluded from contributing towards the free float (from 5% to 10%).
- Liberalise the rules regarding SPACs by revising the Listing Rules that can require trading in the shares of a SPAC to be suspended on the announcement of a potential acquisition, whilst also providing additional protections for investors at the time of the acquisition, such as a shareholder vote on whether or not to make the acquisition and a right to redeem their initial investment prior to the completion of the acquisition.
- Facilitate forward-looking information provision by issuers in prospectuses by amending the director and issuer liability regime.
- Amend the premium listing requirement for historical financial information to cover at least 75% of an issuer’s business so that it only applies to the most recent financial period within the three-year track record.
- Broaden the revenue earning relaxations currently applicable to scientific research-based companies to cover a wider range of high growth, innovative companies across a variety of sectors.
- Review the FCA COBs rules relating to the inclusion of unconnected research analysts in an IPO process, which in practice mean an extra seven days being added to the public phase of the process.
- Review the rules regarding further capital raisings with a view to facilitating a quicker and more efficient process of raising capital for existing listed companies and more easily involving retail investors.
- Empower retail investors by considering how technology can be used to improve retail investor involvement in corporate actions and their undertaking of an appropriate stewardship role.
- Review the prospectus regime, including considering: (i) treating admission to a regulated market and offers to the public separately; (ii) amending the prospectus exemption rules (iii) using alternative documentation, where appropriate and possible; (iv) whether prospectuses drawn up under other jurisdictions’ rules can be used to meet UK requirements.
- Rebrand and reposition the LSE’s standard listing segment to increase its appeal to companies of all sizes and types.