The listing principles require a relevant issuer to:
FCA guidance has determined that the focus of this listing principle is on listed companies having adequate procedures, systems and controls in relation to:
The timely and accurate disclosure of information to the market is a key obligation of listed companies, and for these purposes FCA guidance provides that a listed company with a premium listing of equity securities should have adequate systems and controls to be able to ensure that:
In order to satisfy their obligations for dealing with inside information, the GC100 Guidelines (see section iii below) recommend that listed companies implement compliance procedures designed to:
In July 2013, in light of the imposition by the FCA of a financial penalty of £14 million on Prudential plc for failing to deal with it in an open and co-operative manner in breach of listing principle 6, the UKLA provided guidance on this listing principle, stating that the obligation under the principle is broader than simply requiring issuers to ensure that they deal with the FCA in an open and co-operative manner on ongoing matters. In particular, the principle also requires issuers to approach the FCA in relation to certain types of significant transactions (including, by way of example, reverse takeovers and Class 1 disposals by issuers in severe financial distress). The FCA advises that issuers who are unclear on the application of this listing principle to a transaction should consult the FCA “at the earliest possible stage”1.
This requires listed companies to operate appropriate training programmes for directors covering their obligations under the Listing Rules and the DTR.
This listing principle requires the listed company to take “reasonable steps”, and breach of this principle will therefore be assessed by the FCA by reference to an objective test.
In October 2015, the GC1002 published updated guidelines for establishing procedures, systems and controls to ensure compliance with the Listing Rules (the “GC100 Guidelines”). Compliance with these guidelines is not mandatory, but they do serve as useful “best practice” recommendations. In order to comply with listing principle 1, the GC100 Guidelines recommend that issuers ensure that:
Some issuers have sought to include compulsory acquisition or mandatory redemption provisions in their articles that would typically be triggered upon a transfer of shares to a new shareholder, which may cause the company to suffer, for example, a “pecuniary, tax, financial or other material disadvantage”5. Not surprisingly, the FCA has recommended6 that any such powers be considered carefully to ensure that they do not offend the “equality of treatment” principle. The FCA currently takes the view that a compulsory acquisition power is not likely to contravene the “equality of treatment” principle, where shareholders are selected according to a fully disclosed pre-set formula (rather than, for example, by management discretion). Any such power, however, would need to be properly defined and disclosed in the issuer’s circular or prospectus so as to enable shareholders to understand precisely the circumstances and manner in which it was intended to operate.
The FCA responded to market concerns by confirming that it would exercise enforcement powers “reasonably and proportionately” and that “in policy terms, the listing principles are not intended to apply different standards and processes to issuers than are expected under the existing rules”. Guidance in the Listing Rules confirms that the principles should be interpreted together with the underlying rules and guidance and that they are designed to assist issuers in identifying their obligations under the underlying rules. The FCA has also clarified that the principles do not expand the scope of the rules, particularly in the case of detailed provisions such as the DTR. Nonetheless, these general principles to the Listing Rules require issuers to take a broader view of their regulatory obligations and undoubtedly make it more difficult for any issuers wishing to circumvent the specific rules to do so without consequence. As directors of issuers are likely to be involved in establishing adequate systems and controls under the listing principles, they may be “knowingly concerned” in breaches of the Listing Rules (which include the listing principles) if any systems and controls are inadequate, and they may be held personally liable to disciplinary action for breach under FSMA.
The Disclosure Rules and Transparency Rules (the "Pre-MAR DTR") implemented the EU’s Market Abuse Directive (2003) and the Transparency Directive (2004) in the UK. The Disclosure Rules were first introduced in 2005, with the Transparency Rules following on 20 January 2007. The Pre-MAR DTR underwent significant changes on 3 July 2016 as a result of the introduction of the Market Abuse Regulation ("MAR") coming into force. These include:
Where relevant, this Part B will discuss the disclosure obligations that have been introduced by MAR and outline where these obligations differ from those under the pre-MAR DTR.
DTR 2 and 3 contain the main body of the Disclosure Guidance regulating both the disclosure of information to the market and the notification obligation of issuers, PDMRs, and their connected persons in relation to share dealings. DTR 1A, 4, 5 and 6 set out the Transparency Rules covering periodic financial reporting, vote holder/issuer notification rules and certain continuing obligations, and access to information. Finally, DTR 1B, 4 and 7 contain what are commonly referred to as the “FCA’s corporate governance rules”. These rules are discussed in more detail in this chapter.
The implementation of the Transparency Directive Amending Directive ("TDAD") on 26 November 2015 introduced a number of changes to the DTR including: an obligation on issuers to declare their home member state under DTR 6.4; extending the period within which half yearly reports must be published to three months after the end of the financial period and replacing the definition of "qualifying financial instrument" in DTR 5.3 to reflect the wording in the impending Transparency Directive.
Article 17(1) MAR provides that issuers must inform the public as soon as possible of inside information which directly concerns the issuer, unless Article 17(4) MAR applies (which allows the disclosure of inside information to be delayed in certain circumstances)8.
“Inside information” is information of a precise nature that:
For these purposes, information will be “precise” if it indicates a set of circumstances which exist or may reasonably be expected to come into existence (or an event that has occurred or may reasonably be expected to occur), where it is specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or that event on the prices of the financial instruments. The test therefore requires issuers to form a judgment on the likelihood of the circumstances taking place and whether there is sufficient certainty as to what will happen to enable the effect of the information to be measured.
Central to the operation of the “inside information” test is the issue of price sensitivity. In determining the likely price significance of information, Article 7(4) MAR states that an issuer should consider whether it is information that a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
Note that MAR extends the scope of the market abuse regime by providing specific definitions of inside information for commodity derivatives, emissions allowances and for persons charged with the execution of orders concerning financial instruments (and derivative instruments in relation to such products).
DTR 2.2.4G(2) indicates that there is no figure (percentage change or otherwise) that can be set for any issuer when determining what constitutes a significant effect on the price of the financial instruments, as this will vary from issuer to issuer. Guidance on the operation of the “reasonable investor test” requires an issuer to take account of the fact that the significance of information will vary between issuers and depend on a variety of factors, such as the issuer’s size, recent developments, and market sentiment about the issuer and the sector in which it operates. In addition, the issuer is to assume that a reasonable investor will make investment decisions relating to the investment to maximise his economic self-interest10.
Furthermore, any assessment should take into consideration the anticipated impact of the information in light of the totality of the issuer’s activities, the reliability of the source, and other market variables. Information that is likely to be considered relevant to a reasonable investor’s decision includes information that affects:
Subject to a very limited ability to delay disclosure, MAR provides that any required announcement must be made “as soon as possible”.
Guidance under the DTR (DTR 2.2.8G) requires the issuer’s directors to carefully and continuously monitor any changes in the company’s circumstances that may mean that an announcement is required. Compliance with the DTR will therefore require an issuer’s executive officers to monitor performance and give consideration to whether there has been a change in the company’s expectation as to its performance. They must call to the attention of the board any material change in expectation as soon as possible so that the board may review it and make a formal decision on any required announcement. The FCA has specifically reiterated the need for company directors to consider their general disclosure obligations (under Article 17(1) MAR) as regards to any potential inside information arising out of such regular monitoring of, for example, their companies’ cash flow position, available bank or finance facilities, and covenant compliance. When changes in the company’s circumstances are under consideration, a listed company should also consider consulting its financial advisers as early as possible.
Note that the FCA is not likely to regard the inability physically to convene a full board meeting as justifying a delay in releasing inside information. Most issuers can delegate authority to make “emergency” announcements to a small number of directors, who can quickly agree a course of action during a telephone meeting. Where an issuer is faced with an unexpected event, it may be able to issue a holding announcement.
Whilst, as a general rule, an issuer must announce all inside information in its possession as soon as possible, where it is faced with an unexpected and significant event, a short delay may be acceptable if necessary to clarify the situation (DTR 2.2.9G). The duration of any acceptable delay will depend on the circumstances in question. However, this will be judged by the FCA with the benefit of hindsight, so it will be important for an issuer to be able to demonstrate that it reacted reasonably and expeditiously to the event in question.
Guidance under the DTR states that an issuer should make a holding announcement where it believes there is a danger that inside information is likely to leak out before the facts and their impact can be confirmed. In such cases, the announcement should contain as much detail of the subject matter as possible, the reasons why a fuller announcement could not be made and an undertaking to announce further details as soon as possible (DTR 2.2.9G).
Where the issuer is unable or unwilling to make a holding announcement, trading of its securities may be suspended until it is in a position to make such an announcement (DTR 2.2.9G(3)). Note that an issuer whose trading is suspended must still comply with the applicable MAR. An issuer that is in any doubt about the timing of its disclosure obligations should consult the FCA at the earliest opportunity.
FCA guidance (DTR 2.2.10G) acknowledges that many issuers provide unpublished information to third parties such as analysts, employees, credit-rating agencies, finance providers and major shareholders, often in response to queries from such parties. Whilst accepting that the fact that information is unpublished does not in itself make it inside information, the guidance emphasises that any unpublished information which does constitute inside information may be disclosed only in accordance with the DTR, and issuers must ensure compliance at all times.
The general disclosure obligation under Article 17(1) MAR requires that an issuer must, for a period of five years following publication, post on its website all inside information that it is required to disclose publically. Note that this is a more onerous requirement than the equivalent obligation under Pre-MAR DTR 2.3.5R (which has now been repealed), which only required information to be published on the website for one year. ESMA's Final Report on the draft technical standards states that all information to be published on a website must appear in an "easily identifiable section of the website". The Law Society has clarified that issuers can comply with the requirement by posting the information on the section of their website that contains all of the regulatory information12. Under Article 17(10) MAR, ESMA is tasked with developing technical standards on the public disclosure of information which will be submitted to the Commission for eventual adoption. These draft standards are likely to provide further technical information regarding the publication of information on an issuer's website. ESMA published its Final Report on the draft technical standards on 28 September 2015 and it is currently with the Commission for approval.
Article 17(4) MAR an issuer may delay public disclosure of inside information so as not to prejudice its legitimate interests where:
MAR introduces a further requirement that an issuer must notify the FCA in writing of its decision to delay an announcement immediately after the information is disclosed to the public. The notification is made using an online form and must contain certain prescribed information such as the date and time of the decision to delay disclosure and the identities of the people responsible for making that decision. The draft technical standards published by ESMA also set out the requirements for the internal records that an issuer must maintain when delaying disclosure. MAR also requires issuers to provide a written explanation of the decision to delay but currently the FCA proposes that this information will only need to be provided upon request. In any event, it is essential that issuers keep clear and comprehensive records of any decisions to delay disclosure of inside information.
Whilst accepting that “delaying disclosure of inside information will not always mislead the public”, the FCA has emphasised that developing situations should be monitored in case a disclosure is required if circumstances change. This reinforces the guidance to the directors under DTR 2.2.8G to continuously monitor circumstances to ensure compliance with the DTR.
In applying Article 17(4) MAR, legitimate interests may, in particular, relate to the following nonexhaustive circumstances:
Pursuant to Article 17(11) MAR, ESMA published its final report on the guidance on the legitimate interests of issuers to delay inside information on 28 September 2015. In addition to the first two scenarios detailed above ESMA has also identified the following situations as ones in which the legitimate interests of the issuer could be prejudiced by the disclosure of information to the public:
ESMA has issued a non-exhaustive indicative list of the situations in which delay of disclosure of inside information is likely to mislead the public more particularly, where the inside information whose disclosure the issuer intends to delay is:
In any of these circumstances, immediate and appropriate disclosure is always necessary and mandatory however. As stated in the ESMA guidelines, there will be other circumstances where delay in disclosure would mislead the public.
The guidance given by the FCA is that a company should not be obliged to disclose “impending developments” that could be jeopardised by premature disclosure. Whether or not a company has a legitimate interest that would be prejudiced by the disclosure of certain inside information is an assessment which must be made by the company in the first instance. However, the FCA considers that other than in relation to “impending developments” or matters described above, there are unlikely to be other circumstances where delay would be justified15.
In November 2015 the FCA proposed removing this assertion in order to clarify that issuers could have a
legitimate reason to delay disclosure in other situations. Whatever the rationale, where an issuer decides to delay disclosure, it should follow the steps set out below.
In summary, and as a matter of good practice, an issuer considering delaying disclosure should:
Article 17(5) MAR replaces Pre-MAR DTR 2.5.5AR in relation to liquidity support but the content broadly remains the same: it may be appropriate to allow the delay of the disclosure of inside information by credit or financial institutions in order to preserve the stability of the financial system. The disclosure of inside information, including information which is related to a temporary liquidity problem and, in particular, the need to receive temporary liquidity assistance from a central bank or lender of last resort, may be delayed provided that:
The FCA will ensure that the disclosure is only delayed for a period as is necessary in the public interest and it shall evaluate, at least on a weekly basis, where the conditions above are satisfied. However, in the event of any leak of such information, an immediate disclosure would be required.
FCA guidance on Pre-MAR DTR 2.5.5AR (the equivalent provision to Article 17(5) MAR) explained that the provision is intended only to apply to liquidity support that is bespoke to the recipients, i.e., in terms of its duration, cost and the collateral requirements associated with it. It is not typically envisaged that the receipt of liquidity support provided by the Bank of England, where the support could be accessed on the same terms by all eligible market recipients (e.g., as part of a common liquidity facility), would constitute inside information. However, information that an issuer had accessed such a facility to a very significant extent could constitute inside information.
Depending on the circumstances, DTR 2.5.7G provides guidance which states that an issuer may be justified in disclosing inside information to the following persons:
Note that the above list of persons is not exhaustive. Selective disclosure to any of the above persons is not automatically justified in every circumstance, and issuers should bear in mind that the wider the group of recipients of inside information, the greater the likelihood of a leak, which would then trigger an announcement.
The FCA advises issuers not to provide inside information to journalists or others under an embargo that seeks to prevent them from using the information until it has been formally announced, as this essentially amounts to selective disclosure. Although selective disclosure is permitted, to persons owing a duty of confidentiality to the issuer, this does not contemplate inside information being given to journalists. The FCA has emphasised that in disclosing information to third parties under an embargo, an issuer risks losing control over the information as soon as the disclosure is made.
The practice of delaying disclosure of inside information until Friday evening when most RISs have closed for business (the “Friday night drop”) has also been criticised by the FCA. The FCA has emphasised that this practice is not allowed under the DTR—an issuer may delay the disclosure of inside information only where it is able to ensure the confidentiality of the information, and this is unlikely to be the case where inside information is disclosed to the press.
Where there is press speculation or market rumour concerning an issuer, the issuer should assess whether its general obligation to make an announcement has arisen under MAR 17(1). To do this, the issuer needs to assess carefully whether the speculation or rumour has given rise to a situation where the issuer has inside information.
If the press speculation or market rumour is largely accurate and the information underlying the rumour is inside information, then it is likely that the issuer can no longer delay disclosure pursuant to Article 17(4) MAR, as it can no longer ensure confidentiality of the inside information, and it should announce the inside information as soon as possible Article 17(7) MAR).
Conversely, the knowledge that the press speculation or market rumour is false is not likely to amount to inside information. However, the FCA has informally acknowledged that there is a possibility that the issuer’s knowledge that a particular piece of information or story is false could, in very limited circumstances, amount to inside information. Even if it does, the FCA expects in most cases that an issuer would be able to delay disclosure (often indefinitely) in accordance with the standard set by Article 17(4) MAR.
The FCA does not usually require an issuer to make a negative statement denying a wholly unfounded rumour. If the issuer does decide to make such a denial, it should consider doing so by making a formal announcement, and where a denial is likely to affect the share price, then a formal announcement would be best practice. The FCA also suggests that an issuer should announce a negative statement over a RIS in circumstances where it is concerned that reaction to a wholly unfounded rumour is resulting in a disorderly market.
The FCA is, of course, likely to contact an issuer or its advisers if there are rumours relating to it in the media, and it will expect a full justification for the issuer’s proposed course of action and confirmation of the issuer’s true position so that it can monitor developments properly.
The GC100 Guidelines recommend that issuers establish procedures designed to facilitate the identification, control and verification of inside information. Key recommendations include the following:
In order to ensure that inside information is identified, the GC100 Guidelines recommend that issuers:
The GC100 Guidelines recommend that, in dealing with inside information, issuers should:
Listed companies are under an obligation to take all reasonable care to ensure that any announcements made are not misleading, false or deceptive and do not omit anything likely to affect the import of the information.
In light of this, issuers should ensure appropriate verification of announcements, and responsibility for verifying and approving the text of announcements should be allocated. The obligation to announce inside information “as soon as possible” will inevitably preclude the undertaking of a lengthy verification process, but nonetheless, sufficient verification must be carried out to ensure the accuracy of an announcement. If the company is faced with an unexpected and significant event, a short delay may be acceptable if necessary to clarify the situation. Note that in these circumstances, a holding announcement may be required, particularly if there is risk of a leak.
Under Article 18(1) MAR issuers must compile lists of all persons who have access to inside information and who are working for them either (i) under a contract of employment or (ii) otherwise performing tasks through which they have access to inside information i.e. as advisers, accountants or credit rating agencies. Insider lists must be provided to the competent authority as soon as possible on request.
Under MAR, the requirements for the information to be included on the insider lists are more onerous than before. Now, the insider list must include, amongst other things, the dates and times on which access to the inside information was obtained, full names, National Identification Numbers, phone numbers and addresses of individuals.
The insider list must be updated promptly where the reason for including an individual on the list changes, where a new individual needs to be added to the list or where a person ceases to have access to inside information, and each update to the list shall specify the date and time when the change triggering the update occurred.
Issuers or any person acting on their behalf or on their account, shall take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of insider information. In circumstances where another person acts on behalf of the issuer to draw up and update the insider list, the issuer remains responsible for complying with Article 18 MAR.
Insider lists need to be kept by issuers, or any person acting on their account or behalf, for a period of at least five years from the date on which they are drawn up or updated.
Notification under Article 19(1) is only required once the PDMR has surpassed the de minimis threshold for disclosure of dealings of €5000 per calendar year. The threshold for disclosure is calculated by adding all relevant transactions within a year so it will be necessary to keep accurate records. Such notifications must be made to the FCA as competent authority promptly and in any event no later than three business days after the date of the transaction. The notification form is available on the FCA's website.
Issuers must notify all PDMRs of their obligations under Article 19 MAR in writing. PDMRs must notify the persons closely associated with them of their obligations under Article 19 MAR and keep a copy of this notification. Issuers are also required to keep a list of all PDMRs and persons closely associated with them.
PDMRs must not conduct any transactions on their own account or on behalf of a third party, directly or indirectly, relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them during a closed period, being the period of 30 calendar days before the announcement of an interim financial or year-end report which the issuer is obliged to make public.
For these purposes, a PDMR is defined as a person within an issuer who is:
Under MAR, a "person closely associated" ("PCAs") with a PDMR includes:
The FCA had previously provided guidance on what would be considered to be a body corporate "connected" with a PDMR17 and issuers had been advised to consider the level of control that the PDMR or its connected persons had within that body corporate. Under MAR, the definition of a body corporate that is considered a PCA is wider and it includes situations where either the PDMR or a PCA holds a managerial role or an economic interest in that body corporate in addition to situations where either the PDMR or a PCA exercises direct or indirect control over that body corporate.
Prior to MAR coming into force, the FCA had reported numerous breaches of the timeline and content requirements in respect of disclosures by PMDRs and their connected persons and it has said that it would consider taking public disciplinary action for serious breaches. Therefore it is essential to ensure that the MAR disclosure obligations are complied with and the guidance in DTR 3 followed. Note that these disclosure obligations supplement the requirements set out in Chapter 5 of the DTR (see paragraph D below for details).
Partial exemptions from the full requirements apply to certain issuers of the following types:
An annual financial report must be published within four months of the financial year-end to which it relates and must include:
Furthermore, the Listing Rules (LR 9.8) contain certain additional content requirements that include the following:
Note that there are additional content requirements for issuers incorporated in the UK.
LR 9.8.4(14) requires premium listed companies to include in their annual reports a statement made by the board of directors that the company has complied with the independence provisions in any agreements entered into with controlling shareholders and that so far as the company is aware, so did the controlling shareholder and each of its associates. To the extent that a company did not enter into a relationship agreement with its controlling shareholder when obliged to do so (further information in respect of which is discussed in paragraph G(iii) of this chapter) or there has been any noncompliance by either the company or the controlling shareholder, the annual report must include a statement that the FCA has been notified of that noncompliance and must provide a brief description of the background to and reasons for failing to enter into the agreement that enables shareholders to evaluate the impact of noncompliance on the listed company.
Such amendment stems from the proposals that all issuers with controlling shareholders are required to enter into agreements with such shareholders to ensure that they are capable of operating without undue influence from their major shareholders.
As mentioned earlier in this chapter, the FCA has noted that it is market practice for many issuers to retain their pre-Transparency Directive annual financial reporting procedures. Whilst announcing prelims, to be followed by the annual report and accounts two months later, is not strictly in keeping with the obligations under the DTR, the FCA has offered tentative guidance as to what issuers should do in these circumstances. Issuers still publishing prelims should include the information required by DTR 6.3.5(2)(b) (the information required for half-yearly reports to be reproduced in unedited full text) as if the prelim was an annual financial report. The FCA has urged issuers to then refer to the prelims when making the later release of the annual report and accounts.
Issuers that do not elect to issue prelims will still be required to publish inside information as soon as possible in line with their obligations under DTR 2.
A half-yearly financial report (no longer referred to as an “interim statement”) must be issued no later than three months23 after the end of the period to which it relates24 and must include:
In October 2008 the FSA commented on the need for companies to provide a description of the principal risks and uncertainties facing them in the next six months. The FSA stated that as companies gave significant thought to such risks in their annual reports, it would be acceptable for issuers to state in their half-yearly reports that the principal risks and uncertainties have not changed, to summarise those risks and to cross-reference the relevant sections of the annual reports containing a detailed explanation of these. Given the economic turbulence, however, issuers should think carefully about whether any new principal risks or uncertainties have arisen.
As stated above, listed companies are not obligated to publish preliminary statements. Where they choose to do so however, the Model Code previously prescribed a close period prior to the statement which ended once the preliminary statement is made. The FCA recognised that there was some confusion amongst issuers as to whether under MAR issuers that announce their preliminary results need to impose closed periods either before the preliminary results, the year-end report, or both. ESMA has subsequently clarified that where preliminary results are announced, the closed period ends with the announcement of the preliminary results.25 The European Commission has published a draft delegated regulation which clarifies a non-exhaustive list of share plan dealings which are permitted during close periods, and this remains broadly the same as dealings which were previously permitted under the Model Code. A further change under MAR is that premium listed companies will need to have "effective systems and controls" to ensure that PMDRs obtain clearance to deal in a company's securities at all times rather than only during close periods as is currently the case. The FCA is consulting on this issue, particularly in relation to the definition of "dealing" given that the existing definition of this term in the Model Code will be deleted. Once the FCA has published its final guidance issuers will need to incorporate the above changes into their share dealing codes.
In 2009, the changes to DTR 5 (as discussed below) widened the scope of the regime to cover those financial instruments that give rise to a similar economic effect to qualifying financial instruments. Following the implementation of TDAD, which came into force on the 26 November 2015, various amendments were made to DTR 5 as outlined above in section B of this chapter.
Subject to the exemptions described below, a person with an interest in the share capital of an issuer to which Chapter 5 of the DTR applies28 will be obliged to disclose its aggregated interest in shares that it holds as shareholder and shares it is deemed to hold through its direct or indirect holding of financial instruments (as discussed below) where its interest crosses the following thresholds:
Time limits for notification and manner of notification (DTR 5.8 and 5.9)
Disclosure to the relevant issuer must be made within two trading days in the case of UK issuers and four trading days in the case of non-UK issuers. The time limit runs from when the shareholder became aware or should have become aware of the relevant acquisition or disposal. Note that where a person has instructed a third party to effect the transaction, he will be deemed to have knowledge of the transaction no later than two trading days thereafter.
A notification in relation to shares admitted to a regulated market (e.g., the Main Market) must be made using Form TR1, available in electronic format at the FCA’s website (DTR 5.8.10R). The relevant holder must at the same time file a notification with the competent authority of the home member state of the issuer as well as with the issuer itself (DTR 5.9.1R).
The issuer must release details to a RIS as soon as possible on receipt of a notification and by no later than the end of the following trading day for UK issuers with shares admitted to trading on a regulated market and by no later than the end of the third trading day for other issuers.Interests to which the disclosure obligation applies (DTR 5.2)
DTR 5.2 sets out the types of shareholding that will potentially lead to a notification obligation. Both “direct” and “indirect” holdings of shares are covered by the disclosure regime. For example, the parent company of a subsidiary that holds shares will generally be an indirect shareholder, and the shares held by the parent will generally have to be aggregated with those held by its subsidiary when determining if a notification obligation arises. Interests held by family members are not generally aggregated when determining if a notification obligation has arisen, although the rules in relation to direct and indirect holdings should be examined in each case to ascertain if interests need to be aggregated.
In addition to shareholdings, notification obligations can arise from the holding of certain financial instruments. The defined list of financial instruments, which trigger a notification requirement previously included under DTR 5.3 has been removed following implementation of the TDAD in the UK. Now, under DTR 5.3, as amended, holders of financial instruments granting on maturity the unconditional right to acquire or discretion as to the right to acquire shares to which the voting rights are attached must make a notification. From June 2009, the definition of “financial instruments” was widened to include those financial instruments that give only an economic exposure to the underlying shares, without conferring voting rights (e.g., contracts for differences, or “CfDs”). Such instruments’ terms will be referenced to an issuer’s shares and will give the holder a long position on the shares, thereby potentially enabling the holder to gain an economic advantage in acquiring, or gaining access to, the underlying shares.
As a result, any person holding such a financial instrument, either directly or indirectly, must disclose its interest in the shares that it is deemed to hold by virtue of holding the financial instrument, where its interest crosses the threshold requirements set out in DTR 5.1.2R (i.e., in the case of a UK issuer, 3 percent of its voting rights and each whole percentage point thereafter).Principal exemptions from disclosure (DTR 5.1.3R)
The notification requirements of DTR 5.1.2 do not apply in the following cases:
In addition to the above, the following voting rights are to be disregarded for the purposes of determining whether a person has a notification obligation unless the holdings reach the 5 percent, 10 percent and higher thresholds29:
The amendments introduced in June 2009 created an exemption for financial instruments held by client-serving intermediaries, such as CfD writers, who do not attempt to intervene in or exert influence on the management of an issuer. This exemption is designed to reduce the number of meaningless disclosures from such intermediaries acting in client-serving roles and effectively providing only liquidity.
The "independence provisions” specified are undertakings that:
The election procedures are contained in LR 9.2.2ER and LR 9.2.2FR and provide that the election or re-election of any independent director must be approved by separate resolutions of: (i) the shareholders of the listed company; and (ii) the independent shareholders of the listed company (i.e., all shareholders other than any controlling shareholders). If the election or re-election of an independent director is not approved by both the shareholders and the independent shareholders but the listed company wishes to propose that person for election or re-election as an independent director, the listed company must propose a further resolution to elect or re-elect the proposed independent director, which, rather than being voted on within a period of 90 days from the date of the original vote, must be voted on within a period of 30 days from the end of such period and must be approved by the shareholders of the listed company by ordinary resolution.
Where as a result of changes in the ownership or control of a listed company, a person becomes a controlling shareholder, LR 9.2.2C requires that the listed company put in place an agreement with the controlling shareholder containing the independence provisions within six months of such event and has until the company’s next annual general meeting (except in circumstances where notice of the annual general meeting has already been given or is given within three months of the event) to amend its constitution to provide for the dual voting structure in relation to the election or re-election of independent directors. LR 13.8.17 requires that where a company has a controlling shareholder, a circular to shareholders relating to the election or re-election of an independent director must include details of any existing or previous relationship, transaction or arrangement that the proposed independent director has or had with the listed company, its directors, any controlling shareholder or its associates or a confirmation that there have been no such relationships, transactions or arrangements. It must also contain a description of: (i) why the listed company believes the proposed independent director will be an effective director; (ii) how the company has determined that the proposed director is independent; and (iii) the selection process that was followed.
Where the FCA has accepted a lower percentage of shares in public hands in accordance with LR 6.1.19R on the basis that the market will operate properly but the FCA considers that in practice the market for the shares is not operating properly, the FCA may revoke the modification in accordance with LR 1.2.1R(4).
The appropriate form for notifying the FCA of contact details is available on the FCA’s website.
A premium listed company may not issue equity shares pursuant to an open offer, placing, vendor placing or offer for subscription at a discount of more than 10 percent to the middle market price of the relevant shares at the time of announcing the terms of the offer or agreeing the placing unless the terms of the relevant offer or placing at that discount have been specifically approved by the issuer’s shareholders or the relevant offer or placing falls under a pre-existing general authority to disapply statutory pre-emption rights.
Premium listed companies proposing to issue equity securities for cash (or to sell treasury shares that are equity shares for cash) must do so pre-emptively unless:
Note that since 6 August 2010, this requirement to offer new shares on a pre-emptive basis has applied to overseas companies as well as UK issuers.
Communications with Security Holders (DTR 6.1.4R and DTR 6.1.7G to 6.1.15R)34 An issuer must ensure that all the facilities and information necessary to enable holders of shares and debt securities to exercise their rights are available in their home member states and that the integrity of data is preserved. Issuers may use electronic means to communicate with holders, provided that:
In addition, issuers are required to disseminate certain prescribed information, including the following:
Any change in the rights attaching to listed shares or other securities must be announced without delay. Any new loan issues and, in particular, any guarantee or security in respect of such issues must also be announced without delay.
The Listing Rules prescribe certain constraints on a premium listed issuer’s ability to impose sanctions on a shareholder who is in default in complying with a notice served by the issuer under section 793 of the Companies Act 200636.
These provide (amongst other things) that:
This does not apply to overseas issuers.
This requirement for shareholder approval does not apply to long-term incentive schemes that either:
The specific requirements will depend upon the percentage ratios of the acquisition or disposal compared to the company on a number of bases, encompassing asset value, profits, consideration and market capitalisation. Further details of the applicable class tests are set out in Appendix VI. In addition, industry-specific tests are encouraged, where relevant, to support these bases. The acquisition or disposal will be compared on all relevant grounds and will be classified as Class 2 or Class 1, where any one of the percentage ratios is greater than 5 percent but each is less than 25 percent or any percentage ratio is greater than 25 percent, respectively. The FCA can aggregate two or more transactions over a period of 12 months. The latest transaction will then be treated as incorporating the earlier aggregated transactions for the purposes of determining the level of disclosure and consent required.
In brief, Class 2 transactions require detailed particulars to be included in the press announcement; a Class 1 transaction requires an explanatory circular to be dispatched to shareholders and must be conditional upon the obtaining of members’ approval37.
The concept of Class 3 transactions was deleted from the Listing Rules with effect from 1 October 2012 on the basis that the rules served no additional purpose to the disclosure obligations of issuers under DTR 2.2. Market participants responding to the FCA’s consultation on the matter considered that the Class 3 notification requirements resulted in “immaterial information being disclosed to the market”.
In October 2012, the provisions relating to reverse takeovers in LR 10 were replaced with new provisions in LR 5.6R, applicable to both standard listed and premium listed issuers.
Issuers are under an obligation under listing principle 6 to deal with the FCA in an open and co-operative manner and, when a reverse takeover is contemplated, to approach the FCA at the earliest possible stage. The new provisions of LR 5.6R do not apply when an issuer proposes to acquire shares in a target in the same listing category.
Where the rules do apply, the FCA’s main concern is whether a suspension of the issuer’s shares is appropriate. The FCA will generally be satisfied that a suspension is not required in certain circumstances, including where the target is admitted to a regulated market or subject to a market with disclosure requirements that do not materially differ from the DTR.
In January 2009, the FCA addressed concerns relating to circulars sent out by issuers proposing to ratify or fix some action or inaction by their directors that has resulted in an actual or potential breach of law or regulation. The issue in question is whether or not removing an actual or theoretical liability of the directors could be viewed as a related party transaction under LR 11.1.5(3). Despite the FCA’s acknowledgement that the risk of such an unintended effect of the circular is remote, it has admitted that there will be instances where a proposed ratification resolution confers a clear benefit on a related party (such as a director) and that these should also be regulated by Chapter 11 of the Listing Rules.
As part of the changes made to the Listing Rules in May 2014 relating to controlling shareholders, LR 11.1.1C stipulates that in circumstances where: (i) a relationship agreement has not been entered into pursuant to LR 9.2.2AR(2)(a); (ii) a listed company or its controlling shareholder has not complied with its obligations under such agreement; or (iii) an independent director declines to support the statement required to be made in the company’s annual report relating to compliance with the independence provisions, the concessions relating to ordinary-course transactions and certain small transactions not being treated as related party transactions are suspended. The effect of such suspension is that any such transaction would require the approval of independent shareholders. The suspension will continue until the listed company publishes an annual report containing a clean compliance statement.
The issuer must notify a RIS of its intention to make a proposal to purchase any of its listed securities other than equity shares (and pending such notification, the company should ensure that no dealings take place on its behalf in such securities) and must provide the details of purchases of a certain size once made.
The Market Abuse Directive created a safe harbour for share buy-backs, and this safe harbour is more restrictive than the provisions of LR 12. In accordance with FCA guidance, the Listing Rules have been broadly drafted to allow issuers to choose whether to comply with the safe harbour or continue as they have in the past.
To fall within the safe harbour, issuers intending to repurchase shares under a general shareholder authority for on-market purchases in the UK must comply with the following:
Issuers are also restricted from selling their own shares during the buy-back period or repurchasing their own shares during either a close period or a period during which the issuer has decided to delay the disclosure of inside information.
On 20 October 2011, the European Commission published its legislative proposals to replace the “MAD” with a regulation on insider dealing and market manipulation “MAR” and a directive on criminal sanctions for insider dealing and market manipulation (“CSMAD”). As discussed above, MAR was adopted in June 2014 and will apply in all Member States including the UK from 3 July 2016 on which date MAD will be repealed.40 The provisions relating to share buy-backs (contained in Article 5 of MAR) are similar to those contained in MAD. In order for a share buy-back to fall within the MAR safe harbour, “the full details of the programme [must be] disclosed prior to the start of trading, trades [must be] reported as being part of the buyback programme to the competent authority and subsequently disclosed to the public, and adequate limits with regards to price and volume [must be] respected.”41 MAR is yet to be adopted, but once it is, it will apply from 24 months after its entry into force (on which date MAD will be repealed). By way of transitional provisions, MAR permits market practices which were in existence prior to its entry into force and which had been accepted by competent authorities to remain applicable until 12 months after MAR enters into force in July 2016. Of note, the UK Government has decided to exercise its discretion to not opt into CSMAD at the present time, although it may do so at a later date.
An issuer wishing to cancel the listing of any of its equity securities that have a premium listing on the Main Market must, subject to certain limited exceptions, obtain the consent of not less than 75 percent of the holders of the shares voting on a resolution to approve the cancellation and, if the company has a controlling shareholder, of more than 50 percent of the votes attaching to the shares of independent shareholders who voted on the resolution. This requirement does not apply: