On 26 January 2012, the Financial Services Authority launched a consultation on proposed changes to the Listing Rules, the Prospectus Rules, and the Disclosure and Transparency Rules.  The proposals are intended to update the Listing Rules in certain respects and also to reflect recent changes in market practice.  The Listing Rules will also be updated to incorporate aspects of the UKLA’s Technical Notes.  

The consultation period closes on 26 April 2012. The FSA intends to publish feedback on the specific proposals in the consultation paper in summer 2012 with the implementation of the rules coming into effect shortly afterwards. 

Some of key changes proposed by the consultation paper are set out below.

Reverse takeovers

  • Takeovers of listed issuers – The existing FSA approach of not treating an acquisition of a listed issuer by another listed issuer as a reverse takeover is to be tightened.  In order to avoid an issuer obtaining a listing for which it would otherwise be ineligible by the “back-door”, it is proposed that the exemption be narrowed to a listed issuer acquiring another listed issuer in the same listing category.
  • Definition of reverse takeover – guidance on fundamental change in business – The FSA proposes new guidance on the definition of reverse takeover.  It considers that the following factors are indicators of a fundamental change in business: (i) the extent to which the transaction will change the strategic direction of the business, (ii) whether the business will be part of a different industry sector following completion of the transaction and (iii) whether the business will deal with fundamentally different suppliers and end users.  
  • Other changes - The proposals set out the circumstances where the FSA will generally be satisfied that a suspension will not be required upon the announcement or leak of a reverse takeover.  Some of the financial information eligibility requirements which apply where a listing is cancelled following the completion of a reverse takeover have been modified.  The exemption in LR 10.2.3R which provides that certain (small) reverse takeovers are to be treated as class 1 transactions is proposed to be deleted.
  • Consolidation and codification – It is proposed that the rules relating to reverse takeovers be consolidated, and the UKLA Technical Note on Reverse Takeovers be codified, into LR 5 (Suspending, cancelling and restoring listing and reverse takeovers).


  • Sponsor services – It is proposed that a number of amendments be made to LR 8.2.1R (When a sponsor must be appointed) to clarify when a sponsor appointment is required.  For example, under the proposed new rules: (i) where an issuer proposes to enter into a smaller related party transaction falling within LR 11.1.10R, the written confirmation that the transaction is fair and reasonable as far as shareholders are concerned must be provided by a sponsor (rather than by an independent adviser acceptable to the FSA) and (ii) where an issuer publishes a circular seeking shareholder approval for a related party transaction, the issuer will be required to appoint a sponsor to provide the confirmation required under LR 13.6 that the proposed transaction is fair and reasonable.
  • Role of sponsor – A sponsor will, in relation to the provision of a sponsor service, be required (i) to provide the FSA with any explanation or confirmation that the FSA reasonably requires for the purposes of ensuring that the Listing Rules are being complied with and (ii) to take all “reasonable steps” to ensure that any communication or information it provides to the FSA is, to the best of its knowledge and belief, accurate and complete in all material respects (and immediately inform the FSA of any information of which it becomes aware which materially affects the accuracy or completeness of information previously provided).  

    The FSA recognises in the consultation paper that it may be appropriate for the sponsor to rely on third party expertise in certain circumstances.  It states that, in this context, it would anticipate that “reasonable steps” would include ensuring that the relevant third party has been provided with information that, to the best of the sponsor’s belief, is accurate and complete in all material respects.  The FSA also states that it would be reasonable for the sponsor to discuss with the third party and, at the very least, to have knowledge of and understand the basis of any opinion or advice provided by the third party.

  • Principles for sponsors – The existing LR 8.3.5AR is to be amended so that a sponsor is required to notify the FSA of any failure by a company to comply with the Listing Rules or the Disclosure and Transparency Rules that the sponsor becomes aware of in connection with the provision of sponsor services.  

    A new sponsor principle will be added at LR 8.3.5BR to the effect that a sponsor must, in relation to a sponsor service, act with honesty and integrity.

    It is also proposed that a sponsor be required to notify the FSA if it becomes aware of any fact or circumstance relating to it or any of its employees engaged in the provision of sponsor services which, in its reasonable opinion, could adversely affect market confidence in the sponsor regime.

  • Identifying and managing conflicts – The FSA indicates that, while sponsors routinely consider conflicts in relation to taking on new clients and transactions (a client conflict check), it is concerned that sponsors may not be routinely identifying conflicts between their responsibilities to their client and their responsibilities to the FSA (a regulatory conflict check).  It is proposed that LR 8.3.7R be amended to recognise the need to take all reasonable steps to identify regulatory conflicts.  

    To the extent that it does not already occur, the FSA suggests in the consultation paper that sponsors will wish (i) to ensure that engagement letters explicitly recognise that the sponsor has regulatory duties that cannot be overridden and (ii) to provide training on regulatory conflicts to relevant members of staff.  

    It is proposed that the requirement to submit a conflicts declaration on appointment as a sponsor be dropped from the Listing Rules.  The rules will, however, be amended to clarify that the rules on conflicts apply prior to a sponsor providing a sponsor service and for so long as it continues to do so.


  • Supplementary circulars – Where a material change or material new matter has arisen following the publication of a circular but before the shareholder meeting convened to seek shareholder approval for a transaction, it is proposed that a listed company will be required, pursuant to a new LR 10.5.4R, to send a supplementary circular to shareholders if the material change or material new matter is considered to constitute necessary information to allow shareholders to make a properly informed decision on the matters to be voted upon.  

    The supplementary circular must be sent at least seven days before the shareholder meeting and, if necessary, the meeting should be adjourned so that shareholders can be given sufficient time to consider the new information before voting. 

    Under the proposals, the existing LR 10.5.2R, which requires further shareholder approval for any material change to the terms of a class 1 transaction or reverse takeover arising between publication of the circular and completion of the transaction, will be amended so that its application is restricted to material changes that arise after shareholder approval has been obtained but before completion.  This change is intended to remove the potential overlap between the new LR 10.5.4R and the existing LR 10.5.2R.

  • Break fees – The FSA proposes certain changes to LR 10.2 to clarify that it is the substance of an arrangement that is important rather than the legal form.  It also proposes to use the term “break fee arrangement” rather than “break fee”.  The changes highlight that if the purpose of an arrangement is that a compensatory sum will become payable by an issuer to another party (or parties) to a proposed transaction, and there is no independent substantive commercial rationale for the arrangement, it will be caught as a break fee arrangement.  To be caught, the issuer must be obliged to make the payment to or for the benefit of the other party to the failed transaction.  It is proposed that new guidance be set out at LR 10.2.6BG giving a non-exhaustive list of what types of arrangement will, and will not, constitute a break fee arrangement.
  • Class 3 transactions – The FSA proposes to remove the concept of a class 3 transaction - the notification requirements for class 3 transactions are to be deleted from LR 10.
  • Responsibility statements – It is proposed that responsibility statements in class 1 circulars will require the issuer and its directors to make the declaration (rather than just the directors).
  • Codification – Many of the other proposed changes in relation to transactions largely codify existing practice and reflect what is contained in UKLA Technical Notes. Most of these changes relate to LR 10 (Significant transactions), LR11 (Related party transactions) and LR 12 (Dealing in own securities and treasury shares).

Financial information

  • Financial information requirements – The changes set out in the consultation paper include proposals (i) to clarify the application of LR 6.1 in relation to track record requirements for issuers seeking a premium listing, (ii) to include detailed requirements in LR 13.5 for the disclosure of financial information for class 1 transactions and disposals of interests in undertakings that are not or have not been consolidated, (iii) to increase disclosure requirements for figures relating to synergy benefits on class 1 transactions and (iv) to widen the scope of LR 13.5.27 (financial information in class 1 circulars – acquisition of publicly traded companies) to allow targets admitted to certain multilateral trading facilities and investment exchanges (where the FSA is satisfied with the target’s accounting standards and the other standards of the MTF where the target is traded) to take advantage of reduced information requirements.
  • Codification – Many of the other changes being proposed in relation to financial information requirements largely codify existing practice and reflect what is contained in UKLA Technical Notes.

Externally managed companies

  • SPACs – The FSA consultation paper contains a couple of proposals relating to special purpose acquisition vehicles (SPACs) - that is, cash shells incorporated with the intention of acquiring, running and transforming target businesses to create value.  The FSA refers to the entities which concern it as “externally managed companies” because they outsource significant management functions to `advisory firms and their boards are comprised entirely of non-executive directors.  The proposals in this area are as follows.
  • Responsibility for prospectus and disclosure of share dealings – The FSA proposes to amend the Prospectus Rules and the Disclosure and Transparency Rules to make the principals of the advisory firm responsible for the prospectus and to clarify that they are also likely to be treated as persons discharging managerial responsibilities (PDMRs) for the purposes of the DTR rules on disclosure of share dealings.  
  • Standard listing – The FSA also proposes to amend LR 6 to provide that such companies cannot be premium listed in future.

Premium listing wider issues

The consultation paper also raises wider issues in relation the premium listing category super-equivalent standards.  Generally, the FSA asks market participants whether the premium listing standard, as set out in the Listing Rules, remains correctly positioned as a benchmark of high standards and whether there are specific enhancements to the Listing Rules that are desirable in terms of providing additional protections to investors.  The FSA indicates, by way of example, that consideration could be given to the following areas:

  • enhancing the rights of minority shareholders by giving them rights of veto over particularly important resolutions such as the election of directors,
  • re-instating/ strengthening the previous LR 3.12 requirements that set as conditions of listing that companies with controlling shareholders must be capable of carrying out their business independently of the controlling shareholder(s),
  • introducing a new free float requirement that effectively allows minority shareholders to determine the governance arrangements of the company, and 
  • strengthening the related party requirements/ disclosures.

View the FSA Consultation Paper (173 page pdf)
View the FSA Press Release (2 page pdf)

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