Proposed Changes To UK Listing Rules

The Financial Services Authority ("FSA")1 recently launched a consultation paper proposing a number of amendments to the Listing Rules ("LR").2 The changes proposed by the FSA, the majority of which are technical in nature but which aim to take account of recent developments in market practices, focus on the following areas:

Reverse takeovers (LR Chapter 5); Sponsors (LR Chapter 8); Transactions (LR Chapters 10, 11, 12 and 15); Financial information (LR Chapters 6 and 13); and Externally managed companies (LR Chapter 5, DTR 3.1 and PR 5.5.3). The proposed amendments include an element of consolidation: all relevant material (including Technical Notes,3 some of which require updating) will be incorporated in the formal body of the LR. A number of the amendments also affect the Disclosure and Transparency Rules ("DTR") and the Prospectus Rules ("PR").

Reverse Takeovers (LR Chapter 5)

The proposals clarify the FSA's approach to reverse takeovers and which transactions are caught by the reverse takeover regime. In short, a reverse takeover under the LR is where a listed

issuer acquires a target where a percentage ratio (as calculated under the LR) is 100% or more (so, essentially, where the target is larger than the listed issuer), or which would result in a fundamental change to the business of the issuer. The proposals will consolidate the FSA's approach currently set out in LR 5 and 10 and the related LR Technical Note into a single section of the LR.

The concern is that reverse takeovers may be used as a 'back door' to secure a listing of a business which would otherwise be ineligible for listing (including an already listed company obtaining a premium listing). When a listed issuer completes a reverse takeover, its shares are usually cancelled from listing, and the newly-enlarged group must prepare a prospectus and satisfy the relevant eligibility requirements in order for its shares to be listed for trading. An acquisition by a listed issuer of another listed issuer's shares is not currently treated as a reverse takeover, and is exempt from the cancellation of shares from listing. The FSA proposes to tighten the exemption, which will apply only to the acquisition by a listed issuer of another issuer which is listed within the same listing category (that is, premium or standard listing).

However, in return, where the reverse takeover regime applies, the FSA has formally confirmed its practice – namely, to apply the rule proportionately. For example, the intention is to reduce some of the information requirements to avoid suspension, not always requiring a prospectus and modifying some of the financial information requirements.

The FSA will require issuers to contact the FSA as soon as possible after a reverse takeover is agreed or in contemplation, in order to consider whether suspension of the issuer's listing is appropriate. For issuers with premium listings, consistent with a theme of the proposed changes (see below), the FSA proposes that the issuer's sponsor should communicate with the FSA on behalf of the issuer. Further details are set out below.

Sponsors (LR Chapter 8)

The FSA proposes to increase the number of situations where the sponsor of an issuer (not the issuer itself) should communicate with the FSA. Consequently, the FSA also proposes to increase the number of situations where an issuer is required to appoint a sponsor. The FSA's proposals clarify its expectations of...