The number of listed companies in the UK has fallen by approximately 40% since the peak in 2008. During the past 5 years, the UK has only accounted for roughly 5% of global IPOs. It is clear that there has been a need to make the UK more attractive for listing fast-growing companies.
With an emphasis on the technology sector, significant new UK Listing Rules came into effect on 3rd December 2021, with the primary objective of encouraging an increase in UK listings.
The following key changes were implemented:
reducing the amount of ‘free float’ (i.e. the number of shares an issuer is required to have in public hands) from 25% to 10%. This significant reduction is likely to reduce barriers for issuers, and encourage public listing;
allowing a targeted form of dual class share structures within the premium listing segment. The aim is to encourage innovative companies, particularly in the technology and life sciences sectors, to list on the public markets at an earlier stage. With a few exceptions, this rule introduces a conditional five-year exception to the current rule, which restricts votes on matters relevant to premium listing to holders of premium listed shares only. This enables the participation in voting of holders of unlisted weighted voting rights shares;
an increase to the minimum market capitalisation (“MMC”) threshold for both the premium and standard listing segments for shares in ordinary commercial companies from £700,000 to £30 million; and
rule changes that seek to reduce the administrative burden by allow for reliance on electronic copies rather than the delivery of multiple copies of documents to the Financial Conduct Authority (“FCA”).
Many of the companies being targeted by the new measure are founder-led. The reduced free float and dual share classes rules are likely to encourage founders to list at an earlier stage.
With an eye on investors, the increased MMC should be provide for greater clarity and trust about the types of company with shares admitted to different markets.
The new rules are intended to encourage both of sides of the marketplace. Companies are encouraged to list earlier and with greater ease. Investors are afforded greater protection due to the higher MMC, and increased choice.
The reforms address, and build on, a number of the recommendations made in the UK Listing Review and the Kalifa Review of UK FinTech. The FCA has also taken the opportunity to update and modernise some of its rules for listed companies. The FCA is also consulting on matters including the prospectus regime, secondary offerings and the structure of the listing regime generally in the UK, with feedback due in the first half of 2022.
London has invested heavily in encouraging innovation in the technology sector and regulators are seeking to pro-actively encourage innovation, particularly in emerging industries such as crypto-assets. It is hoped that the rules changes enable London to maintain its status a leading capital market for growing companies and provide additional security and a broadened landscape for investors.
Clare Cole, Director of Market Oversight at the FCA commented on the changes:
“We need to act to meet the needs of an evolving marketplace. These changes ensure the UK's markets maintain their reputation for dynamism, helping support the new types of companies seeking the investment that drives economic growth and by giving investors more choice with appropriate protection.
Over the last few months, we have moved quickly to address areas where our rules could be improved to encourage innovation in primary markets. By taking this agile approach, we are pleased that new IPOs in 2022 will be able to benefit from the revised rules”.
