New LSE rulebook for listed companies

United Kingdom

Introduction

Following the transfer of responsibility for listing from the London Stock Exchange to the Financial Services Authority, the Listing Rules in their new purple (some say, aubergine) cover are reassuringly similar to the old Yellow Book. But companies whose shares are traded on the main market of the London Stock Exchange now need to comply with another set of rules besides the Listing Rules.

Transfer of the competent authority

On 1st May 2000 the Financial Services Authority became the “competent authority” in the United Kingdom for the listing of securities in place of the London Stock Exchange. When wearing its “competent authority” hat, the Financial Services Authority is known as the UK Listing Authority (or “UKLA”). Now the UKLA, not the Stock Exchange, issues the Listing Rules and regulates companies’ admission to the Official List and their continuing eligibility for listing.

Admission to official listing on a stock exchange

Listing will not be granted to securities unless they are also admitted to trading on a recognised investment exchange (such as the London Stock Exchange), so an applicant must apply to a recognised investment exchange for admission to trading at the same time as it applies to the UKLA for listing. Admission to the Official List and to trading together constitute “official listing on a stock exchange”, as that was understood before the UKLA became the competent authority.

The Admission and Disclosure Standards

As a recognised investment exchange, the London Stock Exchange has obligations under the Financial Services Act 1986 to operate orderly markets. That entails having its own rules, despite the fact that these inevitably co-exist with the Listing Rules - which are no less rigorous and comprehensive than they were when the Exchange was the competent authority. The Exchange’s rules are known as the “Admission and Disclosure Standards”.

The Standards themselves run to only nine pages, including a glossary (the rest of the document comprises an introductory commentary on the Standards, and pro forma application forms for admission to trading). They concern the application and admission process, continuing requirements after admission, and the Exchange’s sanctions for non-compliance.

Admission

The document describes how, before formal application is made, applicants must have one or more meetings with the Company Services team at the Exchange, who will process the company’s application for admission to trading and remain responsible for maintaining the relationship after admission. The Company Services team provides a helpline for technical queries on 020 7797 1600. The timetable for admission must be agreed in advance with the Exchange, and contact must be made no later than the date of the company’s application to the UKLA for listing. The formal applications are considered daily between 9.00 am and 5.30pm. The applicant must have submitted the application, two copies of the documents relating to the issue (including any notice of meeting) and a copy of the relevant board resolutions by noon at least two business days before the application is to be considered. But there is no reviewing of listing particulars, prospectuses or circulars - that is all done by the UKLA.

Admission to trading does not follow automatically on obtaining UKLA approval - the Standards provide that the Exchange may refuse admission if it considers that the applicant’s situation is such that admission may be detrimental to the orderly operation of the Exchange’s markets or to the reputation of those markets as a whole, or if the applicant does not or will not comply with the Standards (or any special condition imposed by the Exchange). But to put this in context, now that there is scope for having listed status for shares traded on a recognised investment exchange other than the London Stock Exchange, the Exchange will not want to turn away business without good reason (and in fact the document indicates a readiness “in appropriate circumstances” to tailor the Standards to “reflect an individual company’s needs”).

Each company must appoint a director or senior employee as its “nominated representative” to act as the Exchange’s point of contact both during the admission process and on an ongoing basis, and to be available to answer questions and respond to requests. As a particular point, the nominated representative must be available before the markets open in the morning. Companies are encouraged to appoint additional nominated representatives from their advisers, such as their sponsors under the Listing Rules regime.

Disclosure requirements

Issuers admitted to the Exchange will remain subject to the continuing obligations under Chapter 9 of the Listing Rules, including the rules dealing with the dissemination of price-sensitive information. These rules, repeated almost verbatim, become the Disclosure Standards, and the same dispensations (such as for the confidential and restricted disclosure of impending developments or matters in the course of negotiation) apply. The obligation to notify “major new developments” (Rule 9.1 in the Listing Rules) is in a slightly modified form and applies only to certain categories of issuer, but this will not, of course, relax any issuer’s responsibility under Rule 9.1.

The Exchange has a Market Supervision team, which has primary responsibility for real-time monitoring of the markets. It is likely to be the Market Supervision team rather than the UKLA which contacts the issuer (by its nominated representative) if a breach is suspected, but the team liaises closely with the UKLA so as to minimise the risk of duplication. If an investigation is launched, the UKLA will take primary responsibility.

Notification to the Exchange’s Company Announcements Office in accordance with the Listing Rules is said to be “likely” to satisfy the Exchange’s requirements. As a matter of course it will not be necessary to make separate notifications under the Listing Rules and the Standards, although the Exchange reserves the right to require an announcement even where the UKLA does not. Of course, satisfying the Exchange does not necessarily satisfy the UKLA.

Suspension of listing by the UKLA will automatically mean a simultaneous suspension of trading on the Exchange.

Timetables

Generally, the Exchange must be informed of the timetable for any proposed action affecting holders’ rights (such as dividends, open offers, bonus issues, scrip dividends and early repayment of debt securities).

The Listing Rules no longer prescribe the timetable for open offers but merely require compliance with the recognised investment exchange’s requirements. The Standards simply reproduce the old Yellow Book timetable.

Compliance and enforcement

The range of sanctions available to the Exchange is broadly similar to those presently available to the UKLA in the Listing Rules (although the Financial Services and Markets Bill will when enacted enable the UKLA to fine for breach of the Listing Rules).

The Exchange’s ultimate weapons are suspension and cancellation of trading. As for the lesser sanctions, there is the possibility of censure (which may or may not be public) by the Exchange’s Company Disciplinary Committee. There is a final right of appeal to the Company Appeals Committee. If appropriate (and if the issuer agrees), the Exchange can privately censure an issuer without referring the matter to the Company Disciplinary Committee. There is no equivalent of the UKLA’s power to censure a director or to achieve a director’s removal by threatening or carrying out suspension or cancellation, but contravention of the Standards by its nominated representative (presumably including an additional representative who is not a director or employee of the issuer) can lead to sanctions against the issuer.

Copies

Copies of the Standards can be ordered from the Exchange or downloaded from its website at:

http://www.londonstockexchange.com/about/about_14.asp

For further information, please contact Peter Smith, partner, on 020 7367 2816 or by e-mail at pns@cms-cmck.com