Changes to the Listing Rules and the Model Code

United Kingdom

The FSA has announced changes to certain Listing Rules applicable to listed investment companies only, as well as a significant change to the Model Code on Directors' Dealings which will affect all listed companies.

Amongst the changes being made to the Listing Rules for investment companies are:

  • Limit on cross-holdings - investment companies will not be allowed to invest more than 10 per cent of their gross assets (as at the time of the investment) in fellow listed investment companies (including listed investment trusts) unless those companies have a stated policy that allows them to invest not more than 15 per cent of their gross assets in other listed investment companies (including listed investment trusts).
  • Risk factors in all listing documents - investment companies will be required to include certain risk-related information in listing particulars or equivalent offering documents, including an explanation of the risk factors specific to the issuer, its industry, its investment policy and the securities it proposes to issue.
  • Changes to investment policy - prior shareholder approval must be obtained in respect of any material change to the stated investment policy of an investment company (including an investment trust).
  • Increased board independence - to ensure the independence of the investment company's board from the investment manager, the Listing Rules will provide that no more than one representative of an investment company's investment manager can be appointed to the company's board and that he or she must be subject to annual re-election by shareholders. Also, the chairman of the board must be free of conflicts of interest and independent of the investment manager. This will mean that not only must the chairman not be an officer, partner, employee or professional adviser of the investment manager or a company in its group: he or she must not be on the board of another investment company managed by the same investment manager or by another company in its group.

With respect to the Model Code, the definition of "dealing" is being amended to include the "entering into of any contract for differences or any other contract the purpose of which is to secure a profit or avoid a loss by reference to fluctuations in price of any securities of the company". This change is being made to ensure that the controls on directors' dealings in shares keep up with market developments.

All the changes to the Listing Rules will come into force on 1 November 2003 with the exception of those relating to increased board independence, which will come into force on 1 April 2005. The change to the Model Code will come into force on 1 December 2003.

The Policy Statement containing the changes is available online at http://www.fsa.gov.uk/pubs/policy/ps164.pdf

For further information, please contact Gary Green (Corporate Partner) at [email protected] or on +44 (0) 20 7367 2111 or Simon Howley (Corporate Professional Support Lawyer) at [email protected] or on +44(0) 20 7367 3566.