International secondary listing category

The FCA’s upcoming reform of the listing regime will consign to history the familiar premium and standard segments.  Companies aiming for London as their primary listing will find a ready home on the new commercial companies category.  But what about companies for which London would be one of multiple, international listings? 

In this blog we consider the proposed international commercial companies secondary listing category (the secondary listing category), a new option aimed at exactly this type of issuer that will be established by the new draft UK Listing Rules (the UKLR). Which issuers will it attract, and what requirements will apply?

Starting point – standard requirements

The proposed secondary listing category builds on the existing requirements for the standard segment: applicants will need to meet the same eligibility requirements and comply with the same continuing obligations as at present on standard (and, in keeping with this approach, no sponsor will be required).  In addition, however, companies will need to comply with a number of further conditions designed to ensure that the category is open only to those with a genuine secondary listing. 

A ‘genuine’ secondary listing – which companies will not be eligible?

• International companies only: A key restriction is that the category is not open to UK incorporated companies. International groups with a UK plc as their topco will not be eligible, even if all other requirements are met.  UK plcs that wish to include London as one of multiple listings will have to apply to the commercial companies category – and as that category contains no alleviations for companies complying with ongoing obligations elsewhere, taking this route is likely to mean onerous duplicative requirements.  UK plcs currently on the standard segment (as a primary or secondary listing) are expected to be mapped to the arguably less desirable ‘transition’ category when the standard segment disappears (see below).
• Qualifying home listing: To be eligible, a company must have shares of the same class admitted to trading on an overseas regulated, regularly operating, recognised open market that is subject to IOSCO oversight.  This qualifying home listing must be subject to the rules applicable to that primary market without dispensation or modification by virtue of the applicant’s country of incorporation, and the company must be in ongoing compliance.  This may be of particular note to companies with a primary listing on the NYSE or Nasdaq, where non-US issuers are eligible for a more lenient regime as ‘foreign private issuers’ (FPIs).  It is common, however, for companies to elect to comply with the more stringent listing standards for US domestic issuers: clarification that this voluntary compliance with US domestic standards is sufficient for UK secondary listing category eligibility would be welcome. 
• Place of central management and control:  Another factor that may exclude some international groups is the requirement that an applicant’s place of central management and control must be situated either in its country of incorporation or in the country of its qualifying home listing.  If a company is run from a third jurisdiction, it will not be eligible.  This may cause difficulties for international groups where the jurisdiction of incorporation of the listed parent was selected for tax efficiency, but the place of central management and control for the business is neither in the jurisdiction of incorporation nor qualifying home listing, e.g. FPIs listed in the US. 

FTSE inclusion

A key question for some issuers is whether a London listing will make them eligible for inclusion in the FTSE UK Index Series.  For companies on the secondary listing category, the answer is expected to be no: FTSE has indicated that at present it expects the commercial companies and closed-ended investment fund categories to replace premium as those eligible for inclusion. Companies on the secondary listing category will still, as is the case for current standard segment, be eligible for inclusion in the FTSE Global Equity Index Series (FTSE GEIS).

It is worth noting that it is the category chosen for a London listing - and not the fact that a company has a primary listing elsewhere - that is relevant here.  FTSE’s FAQs contemplate the inclusion in its UK Index Series of a company with a London listing as one of multiple listings if all other inclusion criteria are met.  To be eligible for the UK Index Series, a company would need not only to move from the secondary listing category to the commercial company category, but also to meet FTSE’s UK nationality conditions.

What happens to companies that are not eligible for the secondary listing category?

Companies currently listed on the standard segment will be ‘mapped’ to one of the new categories by the FCA before the UKLR comes into force. Issuers that are not eligible for the secondary listing category – for example because London is their primary listing - can expect to be mapped to the transition category, which will essentially replicate requirements that apply to the current standard segment.  This will include all UK plcs on the standard segment because, as noted above, UK plcs are ineligible for the secondary listing category.  Transition has been proposed as a ‘closed’ category: issuers will be mapped to it where necessary when the UKLRs come into force, but it will not be possible for further companies to apply to join or to transfer to it in future. Interestingly, this means that if a company in the transition category undertakes a reverse takeover, it will not be able to re-apply for admission to that category on completion of the transaction and would instead need to transfer. A modified transfer process will be available to companies mapped to transition that wish to move to either the commercial companies or secondary listing category, but this more streamlined process cannot be used if the company is undergoing a significant change to its business (or has done so in the last 18 months). 

Although the FCA has not set an end-date for the transition category, it has indicated that it will keep its existence under review and may seek to wind it down in the medium term if few issuers remain and it considers it to be no longer necessary.  This uncertainty is clearly undesirable for issuers. 

No substantive changes for GDRs

As a final note, currently another option for international companies seeking liquidity on the London market is to issue global depositary receipts (GDRs).  These instruments will be largely unaffected by the reforms: GDRs will continue to have their own listing category in the new regime.  Although the reforms will remove the possibility of GDRs representing debt securities and will limit GDRs over shares to non-UK companies only, these changes reflect the way the GDR category is used.  As such the amendments are not expected to impact issuers in practice.