UK Listing Reforms: international listed companies

Following publication of CP23/31  in late December 2023 (see our briefing), the Financial Conduct Authority (FCA) has now issued draft listing rules for, amongst other things, the new "International Commercial Companies Secondary Listing" category. 

Companies which are not incorporated in the UK and have a recognised overseas listing will be able to seek a secondary listing in London on a bespoke category of the Official List.

The consultation period for these rules closes on 2 April 2024 (one week after the consultation period for CP23/10).

Additional requirements - eligibility

The rules for the new category are broadly based on the existing standard listing segment requirements. However, there are a number of key additions to the eligibility requirements for companies seeking a listing on this category:

• UKLR 14.2.1R - the applicant must be an overseas company i.e. a non-UK incorporated company.

• UKLR 14.2.4R - the applicant's place of central management and control (undefined) must be in its country of incorporation or the country of its qualifying home listing.

• UKLR 14.2.5R - to be listed a company must have a qualifying home listing, be capable of being traded on the market of the home qualifying listing and the application must relate to the same class of shares.

The FCA has also added a power for it to require confirmations from the applicant regarding these requirements and also seek the following further confirmations: 

• UKLR 14.2.6G - the FCA may require the board to confirm that it is compliant and has at all times been compliant with the rules of the market of the qualifying home listing.

• UKLR 14.2.8G - if an applicant's qualifying home listing is not in its country of incorporation, the FCA may require an explanation of the reasons for establishing that listing elsewhere.

Qualifying home listing

A qualifying home listing is a listing of equity shares admitted to trading on an overseas regulated, regularly operating, recognised open market, which is subject to oversight by a regulatory body that is a signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (or pursuant to which the issuer is subject to direct oversight by such regulatory body). The issuer must also be subject to the rules applicable to that market without dispensation or modification by virtue of the applicant's country of incorporation.  

The term "regulated, regularly operating, recognised open market" is not defined and is not one used in legislation, but in our view, would include the main boards of the New York Stock Exchange (NYSE), the Toronto Stock Exchange and the Australian Securities Exchange.

Central management and control

The central management and control aspect of the requirements is likely to be the one which companies will focus on in deciding whether to make a response to the consultation. The intention of this requirement seems to be a policy decision to preclude UK businesses with an overseas topco from using the new secondary listing category to secure a London listing, where their primary listing is elsewhere. However, it could stop legitimate international businesses from listing in London.  It is not unusual for a company to have its listing, place of incorporation and management HQ in three different jurisdictions.

Companies will also want to consider whether additional guidance would be helpful regarding what is meant by central management and control as this appears to be a term of art rather than a definition.  

Additional requirements - continuing obligations

A few additional (but uncontroversial) continuing obligations have been added to the existing secondary listing segment requirements, regarding the additional eligibility requirements and the applicant's compliance with its home listing rules.

• UKLR 14.3.1R - has been expanded to ensure that a listed company complies with the additional eligibility requirements outlined above.

• UKLR 14.3.2R - a listed company must comply with the applicable rules of the - market of its qualifying home listing at all times.

• UKLR 14.3.3R - a listed company must notify the FCA as soon as possible if it no longer complies with the continuing obligations above.

Suspension

As trailed by the FCA, UKLR 14.3.4R includes an obligation on a company to notify the FCA as early as possible if trading in its securities on its qualifying home listing has been suspended or where admission of those securities has been cancelled, to discuss whether a suspension or cancellation of listing under UKLR 21 is appropriate, although this is currently in LR5. Again we do not believe that this will be controversial.

Other obligations

Other obligations including the provision of documents to the FCA, TCFD reporting and gender diversity reporting are substantially unchanged.

Reverse takeovers

The provisions regarding reverse takeovers have been incorporated into UKLR 14, as opposed to the current provisions which are set out in LR5.  There is still no obligation to seek shareholder approval where a company listed in this category does a reverse takeover.  However, the rules clarify that the applicant (or its sponsor if it has one)  must consult with the FCA before a reverse takeover is announced or upon a leak that a reverse takeover is in contemplation, to discuss whether a cancellation is appropriate on completion of the reverse takeover. Where a cancellation is appropriate the applicant can apply for readmission as a new applicant on completion of the reverse takeover.  

A number of new rules and guidance will be introduced regarding the cancellation of the London listing of the securities on completion of a reverse takeover. The new rules also set out guidance as to when a cancellation would not be required e.g. the target’s shares are listed on the international commercial companies secondary listing category or where the target is listed on a different listing category and the FCA is satisfied that the enlarged entity will be eligible for the international commercial companies secondary listing category and an announcement of certain information is made.

FTSE Russell

FTSE Russell has now confirmed that companies with shares admitted to the international commercial companies secondary listing category will not be eligible for inclusion to the FTSE UK Index series which was expected, given that the obligations will be consistent with those on the current standard listing segment. If, however, a company with a secondary listing in London transfers from the international secondary listing category to the equity shares commercial companies category, it will then become eligible for FTSE inclusion.

Conclusion

In conclusion, we do not think that the revised rules for the international commercial companies secondary listing category should be controversial and it should be relatively easy for international listed companies with a primary listing elsewhere which currently have a standard listing to comply with them without significant additional requirements or burden. They should also be attractive to other international companies who seek access to the London market.

This category will not be available to UK incorporated companies with an overseas listing e.g. on NASDAQ or the NYSE as the FCA do not want UK companies to use this route to access the London market. It is clear from the rules that the FCA wants UK incorporated companies to have a listing on the equity shares for commercial companies category if they want a London listing.