Changes to Listing Requirements across London Stock Exchanges
Changes to Listing Rules on Eligibility Criteria
In November 2020, the U.K.’s former European Commissioner for Financial Services, Lord Hill, was commissioned to lead a review of the U.K. listing regime. The objective of the review was to examine how the U.K. could enhance its position as an international destination for IPOs and improve the capital-raising process for companies seeking to list in London.
The results of the review were published on 3 March 2021 and with the FCA then launching a consultation on the proposed changes to the Listing Rules over that summer. Following the closure of the consultation, in December 2021, the FCA published a policy statement (PS21/22) confirming its amendments to the Listing Rules, with a view to removing barriers to listing and to protect and enhance market integrity.
The key changes include:
- Increasing the minimum market capitalisation (MMC) threshold for both the premium and standard listing segments for shares in ordinary commercial companies from £700,000 to £30 million.
- Allowing a targeted form of dual class share structures within the premium listing segment to encourage innovative, often founder-led companies onto public markets sooner and so broaden the listed investment landscape for investors in the U.K.
- Reducing the amount of shares an issuer is required to have in public hands (i.e., free float) from 25% to 10%, reducing potential barriers for issuers created by current requirements. This applies both at the time of listing and as a continuing obligation.
The £700,000 cap was introduced in 1984, but it had remained unchanged due to it being enshrined in EU legislation. Given economic growth since then, this was considered to be very much out of date. The idea in raising the minimum market capitalisation is to give investors more confidence in the quality of companies which have been admitted on each segment of the Main Market.
With regard to the dual class share structures, the Listing Rules previously only allowed for a ‘one share, one vote’ structure. This change will bring the U.K. Listing Rules more in line with the markets in the United States, Hong Kong and Singapore, which already allow a dual class share structure. The aim of this change is to encourage founder-led companies to list and ensure that the founder still retains some element of control over the company.
The FCA has also made a number of minor changes to the Listing Rules, Disclosure Guidance and Transparency Rules, and the Prospectus Regulation Rules, to simplify the rules and reflect current practices, which came into force on 10 January 2022.
Changes to AQSE Rules Applicable to SPACs
AQSE have also recently introduced changes to the rules applicable to Special Purpose Acquisition Companies (SPACs) planning to list on the AQSE’s Access segment.
The new term “enterprise company” is set to replace the SPAC definition within the rules, and to be eligible for admission, an enterprise company must raise a minimum of £2 million by or at the time of admission, have an expected market capitalisation of no more than double its net tangible assets, and have a minimum free float of 25%. The effect of these rule changes is that the route to market in London for micro-cap shell companies (unable to meet these fundraising requirements, or, in the case of the Standard list, the new minimum market capitalisation threshold) is now effectively closed, at least across the principal London markets.
Overall, while micro- to small-cap companies have had their avenues to market in London closed off, the intentions of both the FCA and AQSE (in line with the objectives of Hill’s review) are to bolster London as a competitive listing location alongside other key financial centres. These rule changes should hopefully achieve this.
Armstrong Teasdale’s Capital Markets team are experienced in all types of public company work, involving AIM and the Main Market of the London Stock Exchange, as well as the AQUIS Growth Market.
This publication is provided by Armstrong Teasdale Limited for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to Armstrong Teasdale’s U.K. Capital Markets team.