October 2009

The Financial Services Authority (FSA) has published amendments to the Listing Rules which restructure the listing regime of the main market of the London Stock Exchange into two segments – Premium and Standard. Under the new regime, issuers with a Premium Listing will be required to comply with 'premium' or 'super-equivalent' standards while issuers with a Standard Listing need only comply with the less onerous EU minimum standards.

Historically, companies listed on the main market had to comply with premium or super-equivalent Primary Listing requirements. The exception to the requirement was in respect of overseas companies which had a primary listing elsewhere. Such Secondary Listed companies needed to comply with less stringent Secondary Listing requirements. In 2005, changes to the Listing Rules extended the scope of the Secondary Listing regime to cover all overseas companies listed on the main market regardless as to whether or not they had a primary listing elsewhere. This resulted in a differentiated approach to applicable listing standards and caused uncertainty amongst market participants as to applicable listing standards for main market companies. It was also seen as prejudicial to the interests of UK companies who had no way of taking advantage of the less stringent Secondary Listing structure. By bringing in the latest Listing Rule changes, the FSA has sought to clarify its position as to which listing standards apply to companies within each segment.

In summary, the principal changes to the Listing Rules are as follows:

• the creation of two listing standards - Premium and Standard;
• all Premium Listed companies (including overseas companies) must comply with super-equivalent standards, including a requirement to 'comply or explain' against the UK's Combined Code on Corporate Governance;
• all Standard Listed companies must comply with EU minimum listing standards including the requirement to provide a corporate governance statement together with a description of internal control and risk management systems;
• Standard Listings will be available to UK companies and not just to overseas companies (as was the case prior to the Listing Rule changes); and
• the establishment of a simplified procedure allowing companies with an equity listing to transfer from one segment to another without the need to cancel their listings.

In its commentary on the changes, the FSA has said that the new approach will ensure equality of treatment between companies listed in the same segment regardless of their country of origin or operation. At the same time the FSA has acknowledged that to be effective, the new regime will need to be supported by an extensive educational campaign, the principal purpose being to raise awareness as to how the new structure will work. Whilst the new rules will be effective from 6 April 2010, the current Secondary Listing (or renamed 'Standard Listing') Regime, previously only available to overseas companies, was extended to include applications from UK companies from 6 October 2009. Companies historically categorised as 'Secondary Listed' companies will now be referred to as 'Standard Listed' companies under the restructured regime.

It will be interesting to see whether this new form of listing for UK companies attracts issuers who might previously have chosen to access capital via AIM. While the requirements for a Standard Listing are less onerous than those for a Premium Listing, they will remain significantly more demanding than admission to AIM, both in terms of the listing process and the continuing obligations. If AIM can recover its confidence and its position as one of the world's leading markets for emerging companies, as has been the case in recent years, it seems unlikely AIM will be threatened by issuers preferring a Standard Listing. What seems more likely is that if investors show confidence in Standard Listings, the typical Standard Listing issuer will be one that might previously have looked towards a Premium Listing rather than admission to AIM. This view is compounded by the fact that the tax treatment for both Premium and Standard Listings will be the same.