Joint Working Party responds to FCA discussion paper on the structure of the London Stock Exchange listing regime

The FCA paper sought views, amongst other things, on its proposal to create a single, unified listing segment for equity shares in commercial companies.

The JWP is made up of senior corporate lawyers from the CLLS and Law Society who specialise in equity capital markets.

In short, whilst the JWP welcomes the flexibility proposed in the discussion paper, its view is that London's competitive position as a listing jurisdiction has been diminished in recent times and that bold reforms are required to make London more attractive against increasingly popular listing venues, such as Amsterdam and New York. The Response notes that the overall objective of making London a more attractive jurisdiction to list is unlikely to be met as the proposals in the discussion paper would expand the regulation of existing, standard-listed companies. The JWP suggests that there is therefore a strong case for implementing minimum listing requirements in accordance with EU Directives.

The key provisions of the Response can be summarised as follows:

Single segment regime

The JWP is supportive of a single segment regime for equity shares. However, its preference would be for a single, unified segment without any opt-in further obligations. The Response suggests that categorising continuing obligations into separate groups (i.e. mandatory and supplementary) introduces additional complexity and risks perpetuating a two-tier market in practice. Additional thought should be given to whether elements of the proposed supplementary regime could instead be addressed through other means- such as disclosure- in line with other jurisdictions.

The Response also highlights that the success of what is effectively a "two-tier" format would be reliant on the approach taken to it by FTSE Russel. A single, unified segment would enable FTSE Russell to determine its own, single set of eligibility criteria for indexation across that segment.

Eligibility criteria

The JWP fully supports the adoption of a disclosure-based approach with the aim of increasing access to capital markets for a wider range of companies. The FCA's proposed removal of the revenue track record, 3-year historical financial information and clean working capital statement are all endorsed. The Response further sets out which of the current Listing Rules (see FCA listing regime) should be retained as eligibility criteria and/or continuing obligations and which would be better served through prospectus disclosure.

The JWP highlights arguments both for and against retaining LR 6.4 (independence business as main activity), 6.5 (independence of business from controlling shareholders) and 6.6 (operational control over its main business activity) and encourages the FCA to consider these carefully before reaching any conclusion.

Premium Listing Principles

The JWP agrees that Premium Listing Principles should be extended to apply to all single segment companies and does not consider that any specific changes to them would be necessary.

Dual class share structures

The JWP thinks there is merit in exploring additional and broader forms of dual class share structures compatible with a single segment, potentially on the condition that such structures would be subject to a five-year sunset period.

The JWP considers that the dual class share regime recently introduced in PS 21/22 (please see our ECM Hub Insight published last year for our analysis of PS 21/22) to be too narrow and overly restrictive, placing London at a competitive disadvantage to its more flexible peers. The Response highlights for example, that Paris, Frankfurt and Amsterdam all implement EU minimum standards for dual class share regimes- London should not impose any more stringent criteria.

Threshold for Class 1 transactions

Some members of the JWP propose that the significant transactions regime be removed altogether, due to its overly broad application and complexity. If the significant transaction regime were to be retained, the JWP would support its being simplified and the threshold for Class 1 transactions being significantly increased. Otherwise, listed companies will continue to find themselves at a material disadvantage to private buyers (including PE bidders) in competitive M&A situations, the execution risks associated with having to prepare a circular, running a general meeting notice period and requiring shareholder approval making them a much less attractive bidder.

Transition arrangements

Under the JWP's preferred route of a single listing segment, transition arrangements would not need to be considered for premium listed companies, as all issuers of equity shares in commercial companies currently listed on the premium segment would move across to the new listing segment. In the case of the FCA's proposed single, "two-tier" segment regime, the JWP would like further clarity on the proposal that shareholder votes could be used to determine whether supplementary continuing obligations are appropriate for a premium listed company.