Takeover Panel consults on removal of the restriction on anonymous order book dealings

Rule 4.2(b) of the Code currently provides that, during an offer period, an offeror and persons acting in concert with it must not acquire an interest in any target securities through an anonymous order book system (such as the Stock Exchange Electronic Trading Service), or any other means, unless it can be established that the seller/counterparty is not an exempt principal trader connected with the offeror.

Rule 4.2(b) underpins Rule 38.2 of the Code: a specific prohibition on an offeror dealing in offeree shares with a connected exempt principal trader. Accordingly, during the offer period, an exempt principal trader connected with an offeror is prohibited from selling target company shares to the offeror.

Rationale for the deletion of Rule 4.2(b)

The PCP proposes that Rule 4.2(b) of the Code should be deleted for the following reasons: 

• The Code Committee of the Takeover Panel has found that, in effect, Rule 4.2(b) has made it difficult for a bidder to purchase target company shares in the market at the prevailing market price as it is not practicable for each exempt principal trader which is connected with the bidder to cease any activities that may result in sell orders being entered into the anonymous order book.
• The Code Committee is confident in the high degree of compliance with Rule 38.2 and Rule 4.2(b) by offerors, persons acting in concert with them and connected exempt principal traders. Breaches have been inadvertent and not resulted in adverse outcomes for target shareholders.
• As anonymous order book systems are used for high frequency dealings, and given their regulatory oversight, the Code Committee considers it low-risk that an exempt principal trader would agree to any arrangement enabling bidder to purchase target shares at or below the offer price where it had acquired those shares at or above the offer price.

In the light of the above, the Code Committee believes that the burden imposed by the Rule 4.2(b) restrictions are disproportionate to the benefits of using such means to ensure compliance with Rule 38.2 of the Code. 

No dilution of the underlying principle and additional amendments in the PCP

The Code Committee is keen to re-emphasise the continuing importance of: (a) the general prohibition in Rule 38.1 of the Code on an exempt principal trader assisting a connected offeror or offeree company; and (b) the specific restriction in Rule 38.2 on an offeror-connected exempt principal trader knowingly dealing with them in target shares during the offer period.

The PCP additionally proposes minor amendments to Rule 4.2(a) and consequential amendments to Rule 38.2 making it clear that, provided that neither the offeror nor the principal trader is aware of the identity of its counterparty, dealings through an anonymous order book system would not breach the prohibition.

PCP Implementation

The Code Committee has asked for any comments on the PCP by 18 March 2022, after which it will consider responses before publishing its Response Statement (setting out the final text of the Code amendments) in Spring 2022. Those amendments will likely come into effect one month following publication of the Response Statement.
PCP 2022/1 (and details of how you can submit your comments on it) can be found here.