FCA Updates the Listing Rules – Out With the Old, in With the New

On 2 December 2021, the Financial Conduct Authority ("FCA") announced some material changes to the Listing Rules in its policy statement PS21/22; these are summarised below.

The FCA has sought to strike a balance between maintaining high standards of investor protection and removing barriers to companies listing in the United Kingdom. The changes (and certain transitional arrangements) came into force on 3 December 2021, and largely reflect the reforms suggested in the FCA’s consultation paper CP21/21 published on 1 July 2021.

Reduced free float requirement for the premium and standard listing segments

The free float requirement for shares in public hands has been reduced from 25% to 10% for the premium and standard listing segments, both on an initial listing and continuing basis.

The FCA has confirmed that it will not grant concessions below 10%.

Increased minimum market capitalisation ("MMC") threshold for the premium and standard listing segments

The MMC threshold for listing shares in companies (excluding shares in closed-ended investment funds or open-ended investment companies) for the premium and standard listing segments was increased from £700,000 to £30 million (lower than the £50 million initially proposed).

This change will also apply to depositary receipt listings, but investment companies seeking admission to listing will continue to be subject to the existing £700,000 MMC threshold.

Issuers already admitted to listing are not affected by the change.

For companies unable to meet the £30 million MMC threshold, the FCA suggests that the growth markets offered by AIM or AQSE may be appropriate alternatives.

Dual class share structure ("DCSS") for the premium listing segment

The new DCSS only applies to operating companies (as opposed to investment companies) seeking an initial premium listing, rather than to issuers with a premium listing. It involves a class of shares that allows a shareholder (or group of shareholders) to retain voting control over an operating company that is disproportionate to their economic interests therein, and imposes the following conditions:

• a maximum weighted voting ratio of 20:1;
• weighted voting rights can only be held by directors of a company or, following any such director’s death, the beneficiaries of their estate;
• shares are converted to ordinary shares upon transfer to anyone other than a beneficiary of the director’s estate; and
• weighted voted rights will only be available:
  • on a vote on the removal of the holder as a director at any time; or
  • following a change of control of the company, in relation to a vote on any matter.

In addition, the FCA has implemented the following limitations to seek to protect shareholders:

• a mandatory time-based sunset period of five years post-listing; and
• the requirement for issuers seeking to extend their DCSS arrangement and weighted voting rights for longer than five years to pass a shareholder vote to move to the standard listing segment or cancel their listing.

The FCA believes that these limitations minimise the risk of a hostile takeover in the early stages of listing and provide an effective safeguard against the entrenchment of weighted voting rights and the permanent exposure to moral hazard by minority shareholders.

In our view, the implications of introducing the DCSS within the premium listing segment may be far reaching. There are complex ramifications for the application of the Takeover Code with weighted voting rights, particularly where multiple holders of enhanced voting rights choose to leave a company’s DCSS pool, or the holders' departure could cause the remaining DCSS class to cross a regulatory threshold. The impact and complexity stemming from the introduction of DCSS within the premium listing segment remains unclear.

It should also be noted that more fulsome DCSS arrangements or “golden share” structures remain permissible on the standard listing segment.