initial public offers: a guide to the uk listing...

Initial Public Offers:A guide to the UK listing regime

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IPO Group

Clifford Chance has a specialist IPO focus group comprising of lawyers drawn from both our corporate and capital markets practiceswho are experienced in advising companies, sponsors, shareholders and directors on London listings, including on the US aspects ofthese transactions.

For advice on listing a company in the UK, please call your usual Clifford Chance contact or any of the following members of our IPO group:

Mark Carroll (020) 7006 1705 John Connolly* (020) 7006 2096 Adrian Cartwright (020) 7006 2774 Robert Trefny* (020) 7006 2180 Lee Coney (020) 7006 1281 Chris Walton* (020) 7006 4477 Steven Fox (020) 7006 4827 George T. Hacket** (49) 697199 3103Iain Hunter (020) 7006 1892David Lewis (020) 7006 1903Patrick Sarch (020) 7006 1322Simon Sinclair (020) 7006 2977Simon Thomas (020) 7006 2926

To email, please use [email protected].

* US Qualified Partners** Austrian and US Qualified Partner

The primary intention of this guide is to provide a valuable point of reference for the directors,executives and shareholders of a company seeking admission of its shares to the Official List and totrading on the London Stock Exchange’s Main Market. The guide identifies legal and practical issuesthat commonly arise on IPOs, including where, as part of the offer, it is intended to access the UScapital markets.

Section 1 contains a discussion of some of the advantages and possible disadvantages of a listing.Section 2 provides an introduction to the concept of listing and explains the role of the FCA and theExchange in the listing process.

Sections 3-11 are most relevant to UK and overseas companies contemplating a Premium listing ofshares. Section 3 contains practical guidance on the procedure for obtaining a Premium listing. Weaddress the basic eligibility conditions which a company must satisfy before it is able to apply for aPremium listing of its shares (section 4), the methods by which a company may choose to come to themarket (section 5) and the offer documentation itself (section 6). This guide also considers theunderwriting process and the issues surrounding the publicity and marketing which will accompanyany IPO (sections 7 and 8 respectively). The potential liabilities which may arise on listing are discussedin section 9.

The continuing obligations to which a company with a Premium listing will be subject are discussed insection 10 of the guide. This section also considers the disclosure of dealings in shares of a companyby directors and other persons and the statutory market abuse regime.

4 Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

Introduction

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The guide is relevant to both UK and non-UK companies seeking admission of their shares to theOfficial List. The particular issues which arise for non-UK companies seeking a listing of their shares inLondon are discussed in section 11. Standard listings are also discussed in this section.

There are specific provisions which apply to specialist companies seeking a Premium listing of theirshares. Both the listing and continuing obligations requirements which apply to investment entities areconsidered in section 12 and those which apply to other types of specialist issuers, such as miningcompanies, are set out in section 13.

Whilst the key focus of this guide is on a company seeking a Premium listing of its shares on theOfficial List, there are also separate sections on the admission of GDRs to the Official List (section 14)and the admission of securities to AIM, the Exchange’s junior market (section 15).

In Appendix 1 of this guide you will find a “quick reference guide” which compares and contrasts thekey eligibility and continuing obligations requirements for Premium, Standard, GDR and AIM issuers.

Definitions of words and expressions used in this guide are contained in the Glossary at the back of this guide.

This guide does not purport to be comprehensive or to render legal advice. The position is stated as at 23 May 2014.

Copyright Clifford Chance LLP: 2014All rights reserved

Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP

Con

tent

s Page

1. Why list? 8

2. The listing process 12

3. Preparing for listing 18

4. Basic conditions for listing and trading 28

5. Methods of listing 36

6. The Prospectus 44

7. Underwriting 56

8. Marketing and publicity issues 62

9. Possible liabilities arising on a listing 68

10. Continuing obligations for listed companies 74

11. Standard listings and listings of equity shares by non-UK companies 86

12. Listing an Investment Entity 90

13. Specialist Issuers 96

14. Listing Global Depositary Receipts 102

15. Admission to AIM 108

Appendix 1 Quick reference guide to key eligibility requirements and continuing obligations requirements for Premium, Standard, GDR and AIM issuers 118

Glossary 122

Index 128

Why list?

1.1 Advantages1.2 Disadvantages

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A company contemplating an IPO needs to consider theadvantages of obtaining a UK listing and compare them to boththe possible disadvantages of maintaining a listing and the benefitsof any alternative transactions that may be available to it. Thissection identifies some of the key advantages and disadvantages.

1.1 Advantages

1.1.1 Access to additional equity and debt capitalPrivate companies are restricted in the offers of securities they canmake to the public. Raising equity funds from the public by way ofan IPO can be used to expand operations, increase workingcapital or reduce borrowings. In addition, the establishment of amarket for the company’s securities, and the broader shareholderbase following a public issue, will enhance the company’sprospects of raising additional capital in the future.

1.1.2 Corporate image enhancedThe UK is internationally recognised for its high standards ofregulation and supervision. Providers of finance will generally lookmore favourably on providing capital or lending to UK listedcompanies due to the extent of the reporting requirements and thecontrols placed on listed companies by the FCA and the Exchange.

1.1.3 Increased liquidity of capital investmentListing facilitates the realisation of investment and enablesshareholders to reduce their level of investment in the company atthe time of, and following, listing. The liquidity of the secondarymarket is also important in order to enable the company to raiseadditional capital in the future on favourable terms.

1.1.4 Growth not limited by cash resourcesOnce listed, a company’s securities will be more attractive to otherparties as consideration for mergers and acquisitions. Acompany’s capacity to grow and diversify is likely to increase, as itwill be less constrained by its cash resources.

1.1.5 Attraction and retention of key personnelA listed company may be in a better position to attract and retainkey personnel by being able to offer marketable shares in thecompany, or options over such shares, as part ofremuneration packages.

1.1.6 Improved corporate governance UK listed companies are subject to stringent corporategovernance requirements laid down in the UK CorporateGovernance Code. Improved corporate governance practicesgenerally mean better decision making which is valued by theinvestor community. Listed companies must also be mindful of theviews of the Investor Protection Committees (“IPCs”). This is anumbrella term for organisations such as the Association of BritishInsurers and the National Association of Pension Funds. Theseorganisations represent the interests of their members who arelarge institutional shareholders. Whilst the various guidelinesissued by the IPCs do not have the force of law, listed companiesgenerally tend to follow them rather than risk being criticised fornot following best practice.

1.1.7 Inclusion in FTSE UK indicesA company must have a Premium listing of its shares to be eligiblefor inclusion in the FTSE UK series of indices. Additional eligibilityrequirements are contained in the “Ground Rules for theManagement of the FTSE UK Index Series” which, in brief, requirethe company’s shares to have a sterling denominated price on theStock Exchange Electronic Trading Service (SETS), the companyto be deemed to have UK nationality by the FTSE NationalityCommittee and certain liquidity requirements to be met.

To qualify for inclusion in the FTSE UK Index Series, a UKincorporated company is required to have a minimum free floatof 25 per cent. In contrast, a company which is notincorporated in the UK, is required to have a free float greater


1. Why list?

than 50 per cent. and to publicly acknowledge adherence to theprinciples of the UK Corporate Governance Code, pre-emptionrights and the UK Takeover Code, as far as practicable. TheFTSE Nationality Committee will then take into account certainorganisational and other factors in determining a company’squalification for index inclusion.

If a company is eligible for inclusion, its market capitalisation willdetermine which index it will feature in. Inclusion in these high profileindices raises a company’s own profile and attracts investmentsfrom tracker and benchmark funds tied to the FTSE indices.

1.1.8 Visibility and awarenessThe financial press tend to focus more on the products,positioning and transactions of listed companies. In addition, alisted company’s annual report, half yearly results, interimmanagement statements and press releases are likely to generategreater interest.

Awareness of the listed company is also raised within thesecurities industry itself, with market analysts, industry researchanalysts and the company’s own corporate broker payingparticular attention to the company’s strategy and performance.

1.2 Disadvantages

1.2.1 Dilution of control of existing ownersAn IPO may result in the dilution and possible loss of control forthe existing owners. Depending on the extent of the dilution, therisk of takeover may be increased.

1.2.2 Additional responsibilities of directorsDirectors of a company publishing a Prospectus as part of an IPOare personally liable for the completeness and accuracy of

information contained in the Prospectus. They also assumeadditional ongoing responsibilities as directors of a listed publiccompany. Furthermore, to the extent that the IPO is intended toaccess US or other international capital markets, the companyand its directors will be exposed to potential liability under the lawsof those jurisdictions.

1.2.3 Greater disclosure of informationAn important consequence of listing is the greater requirement fordisclosure of information and its wider distribution. This includesboth inside information and general commercial information.

1.2.4 CostsThe initial costs of conversion to a public listed company (whichfrequently entails a corporate reorganisation), underwriting fees andbrokerage, corporate advisory, accounting and legal fees, listingfees and share registry costs can be substantial. There will also beincreased continuing expenses as a result of the listing andenhanced disclosure and corporate governance requirements.

1.2.5 Management timePreparing a company for an IPO is likely to take, as a rule ofthumb, four months from the first meeting with advisers. The workinvolved in preparing a company to come to market is very timeconsuming and key executives will find much of their time takenup with the IPO process. These individuals will need to try andbalance the management of the IPO process whilst continuing torun the company.


Section 1: Why list?

11

Section 1: Why list?


The listing process

2.1 What is “listing”?2.2 The role of the FCA2.3 Listing segments2.4 The role of the London Stock Exchange2.5 Quick Reference Guide

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2.1 What is “listing”?

“Listing” describes a two part process which requires both anapplication to the FCA for admission of a company’s securities tothe Official List and an application to a recognised investmentexchange (“RIE”), such as the Main Market of the London StockExchange, for admission of such securities to trading.

For the purposes of this guide, unless otherwise specified,references to a company applying for a “listing” or to a “listed”company are references to a company which is applying foradmission of its shares, or whose shares are already admitted, tothe Official List and to trading on the Exchange’s Main Market forlisted securities.

2.2 The role of the FCA

The FCA sets and administers the criteria governing admission tothe Official List. The Listing Rules published by the FCA govern theadmission of securities to listing and the FCA is responsible forvetting and approving applications for admission to the Official List.

The FCA also publishes the Prospectus Rules. Together with theFinancial Services and Markets Act 2000 (“FSMA”), these rulesset out the circumstances in which a company is required to

prepare and publish a prospectus and the contents requirementsof any such prospectus. Each EEA Member State has its ownprospectus rules. These rules are all broadly consistent as they arederived from the EU Prospectus Directive.

A prospectus will always be required where a company is seekingadmission of its equity securities to listing as, subject to some limitedexceptions, the Prospectus Rules require a prospectus to beprepared in any case where a company is making an application foradmission to trading of its securities on a Regulated Market in theUK. A prospectus must be in the form prescribed by the ProspectusRules and must be approved by the FCA prior to its publication.

2.3 Listing segments

A company seeking admission of securities to the Official Listmust decide the segment of the Official List to which it will seekadmission. This will depend in part on the type of securities whichthe company is seeking to have admitted.

There are two segments, Premium and Standard within which acompany can choose to list. The listing categories are as set outin the diagram below.


2. The listing process


ListingSegment

SecuritiesCategory

ApplicableListingRulesChapter

Debt anddebt likesecurities

DebtSecuritiesAsset-backedsecuritiesConvertiblesecuritiesPreferenceShares(specialistsecurities)

EquityShares

ClosedEndedInvestmentFunds

Shares SecuritisedDerivatives

EquityShares

Open EndedInvestmentFunds

EquityShares

CommercialCompanies

GDRs Misc.securities

OptionsWarrants

LR6

Premium Standard

LR15 LR16 LR14 LR18 LR17 LR19 LR20

2.3.1 Premium ListingA Premium listing is, as the name implies, the “premium brand” ofthe Official List. To obtain a Premium listing, a company must complywith not only the minimum requirements for listing imposed byrelevant EU legislation (“EU Directive minimum requirements”)but also with the more onerous “super equivalent” admissionstandards imposed directly by the FCA. These dual requirements areset out in Chapters 2 and 6 of the FCA’s Listing Rules (and areconsidered in more detail in section 4.1 of this guide).

The Premium listing segment comprises of equity shares issuedby commercial companies, together with other equity sharesissued by closed and open ended investment entities.

A Premium listing is available to both UK and overseas companiesseeking a listing of equity shares. This guide concentrates on acompany wishing to secure a Premium listing of equity shares onthe Official List. The Listing Rules as they apply to issuers of equityshares are modified for investment entities and the considerationsfor an investment entity seeking a Premium listing of its equityshares are set out in section 12 of this guide. In addition, modifiedeligibility requirements apply to certain specialist issuers, such asmineral companies and scientific research based companies. Themodifications which apply to these types of companies are set outin section 13 of this guide.

Section 2: The listing process

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2.3.2 Standard ListingThe Standard listed segment comprises of five securitiescategories: (i) shares (both equity and non-equity); (ii) GDRs;(iii) debt and debt like securities; (iv) securitised derivatives; and(v) a further miscellaneous category for other securities which donot fall within the previous categories. These categories aredescribed in further detail below.

The Listing Rules prohibit a company that does not have aPremium listing from describing itself or holding itself out as havinga Premium listing.

(a) Shares (equity and non-equity)Both non-UK and UK incorporated companies may seek aStandard listing of shares. The requirements for a companyseeking a Standard listing of shares are set out in Chapter 14of the Listing Rules. Standard listings are considered in section11 of this guide.

(b) Global Depositary Receipts Non-UK companies may have their GDRs admitted to theOfficial List. GDR issuers must comply with the requirementsof Chapter 18 of the Listing Rules. Section 14 of this guidelooks at the issues to be considered by a companyconsidering a listing of GDRs.

(c) Debt and debt like securitiesIssuers of debt securities must comply with the requirementsof Chapter 17 of the Listing Rules. Both UK and overseascompanies may seek admission of debt securities to theOfficial List.

(d) Securitised DerivativesIssuers of securitised derivatives must comply with therequirements of Chapter 19 of the Listing Rules. Both UK andoverseas companies may seek admission of securitisedderivatives to the Official List.

(e) Miscellaneous SecuritiesThis listing category exists for Standard listed securities thatcannot be classified within one of the other Standardcategories. This category mainly consists of listed options andwarrants. Such securities must comply with Chapter 20 of theListing Rules.

2.3.3 Migration between listing categoriesThe Listing Rules include an express administrative mechanism forissuers wishing to transfer their category of equity shares listingfrom a Standard listing of shares to a Premium listing (and viceversa) or between the different categories of Premium listings. Thismechanism enables issuers to transfer between certain categorieswithout having to cancel their listing and re-apply for a new listing.The migration mechanism only applies to companies with a listing ofequity shares. Prior shareholder approval will be required both for aninvestment company wishing to migrate in and out of the Premiumsegment and for a company (regardless of which category its sharesfall within) migrating from the Premium to Standard segment.

2.4 The role of the London Stock ExchangeBefore the FCA will grant admission to the Official List, thesecurities must be admitted to trading by a recognised investmentexchange (“RIE”), such as the Exchange. The Exchange sets itsown criteria for admission to trading to its markets and makes itsown securities trading rules.

The Exchange operates five separate markets:

2.4.1 The Main MarketThe Main Market is the Exchange’s flagship platform. It is aRegulated Market which is an important categorisation as many ofthe obligations imposed by EU Directives such as the MarketAbuse Directive, the Transparency Directive and the ProspectusDirective, only apply to issuers with securities admitted to trading



on a Regulated Market. Accordingly, such issuers are subject tohigher standards of regulation than those with securities admittedto an Exchange-regulated market, such as the AlternativeInvestment Market.

2.4.2 The Specialist Fund Market (“SFM”)The SFM is a dedicated market for specialist investment funds. Itis a Regulated Market but securities admitted to the SFM are noteligible for admission to the Official List. For further informationabout the SFM, see section 12.4.3 of this guide.

2.4.3 The Alternative Investment Market (“AIM”)Launched in 1995, AIM is the junior market of the Exchange. It isan Exchange-regulated market as opposed to a RegulatedMarket. Broadly speaking, this means that companies admitted toAIM are exempt from many of the requirements of the MarketAbuse Directive, the Transparency Directive and the ProspectusDirective. Securities admitted to trading on AIM are not eligible foradmission to the Official List. Section 15 of this guide looks indetail at the admission requirements for AIM and the continuingobligations to which an AIM issuer will be subject.

2.4.4 The Professional Securities Market (“PSM”)The PSM is a highly specialised Exchange-regulated market forcompanies wishing to raise debt capital. GDRs may also be listed

on the PSM. Securities admitted to trading on the PSM must alsobe admitted to the Official List. A detailed consideration of thePSM is outside the scope of this guide.

2.4.5 High Growth Segment (“HGS”)The HGS is aimed primarily at high growth, trading companiesthat intend in due course to seek admission to the Official List, butthat do not currently meet the applicable eligibility criteria.Companies seeking admission to the HGS must be EEAincorporated and the regime only applies to the equity shares ofsuch companies. The HGS is a Regulated Market but securitiesadmitted to trading on it are not eligible for admission to theOfficial List. In keeping with the intention that the HGS act as astepping stone for companies on route to admission to the OfficialList, its rulebook borrows heavily from the FCA’s Listing Rules.

2.5 Quick Reference Guide

Set out in Appendix 1 to this guide is a quick reference guidewhich compares the key eligibility requirements and continuingobligations requirements which apply to a company with aPremium listing, a company with a Standard listing of shares,a GDR issuer and a company with securities admitted to AIM.



17Initial Public Offers: A guide to the UK listing regime, Clifford Chance LLP


Preparing for listing

3.1 Professional advisers3.2 Preliminary steps3.3 Preparation3.4 Legal review, due diligence and verification3.5 Timetable3.6 Approval, filing and publication of the Prospectus3.7 Admission becoming effective3.8 Costs

19

The time taken to complete the listing of shares in a company willvary from case to case. There are a number of steps in theprocess and documents to be prepared.

3.1 Professional advisers

The first step will be the instruction of professional advisers. Theappointment of a high quality team of professional advisers is akey requirement for a successful listing. The team will guide thecompany to a successful listing, avoiding pitfalls along the way.

Factors to be considered in making these appointments includeexperience in similar transactions, the size of the fees and thelikelihood of a lasting working relationship being establishedbetween the company and the adviser. This last point is ofparticular importance as a newly listed company will generallyneed on-going assistance from professional advisers and sorelationships are generally extended beyond the initial listing.

Each adviser has specific responsibilities.

3.1.1 Legal advisers to the companyThe legal advisers to the company advise the company oncompliance with applicable legal requirements of the IPO and withrespect to the contents of the Prospectus. Particular issuesaddressed by the legal advisers to the company will be theimplementation of any corporate reorganisation that is necessaryprior to the IPO, the legal review, due diligence and verificationprocess (see section 3.4), amendment or drafting of appropriateconstitutional documents, advice on employee incentives andadvice on the form and terms of the underwriting arrangements.Usually they will also have principal responsibility for draftingthe Prospectus.

If the offer includes an offer or placing of securities into the US (a“US Offer”) or other non-UK jurisdiction, legal advisers to the

company with the ability to offer the full range of legal advicerequired (such as Clifford Chance) will enable the company toensure that UK, US and other relevant legal requirements arecomplied with. Where the offer includes a US Offer, the company’sSponsor (see section 3.1.2) will typically require the legal advisersto the company to issue a “10b-5 disclosure letter” to theSponsor to the effect that nothing has come to the attention of thelegal advisers that would cause them to believe that theProspectus contains an untrue statement of a material fact oromits to state a material fact necessary in order to ensure that thestatements in the Prospectus are not misleading. Sponsors oftenrequire their own legal advisers to issue a 10b-5 disclosure letteras well as the legal advisers to the company. In order to be able toissue this disclosure letter, significant due diligence, includingmeetings with management and a documentation review, willneed to be conducted by the legal advisers to the company (seesection 3.4) and various disclosures must be included in theProspectus to comply with the UK listing requirements and tomeet the extensive disclosure requirements generally expected ofissuers offering securities in the US.

3.1.2 SponsorA Sponsor is typically an investment bank with a significantpresence in the UK. The role of the Sponsor is determined by therequirements of the Listing Rules and is explained in section 4.1.5.The company may appoint more than one Sponsor although theListing Rules require that where joint Sponsors are appointed, oneSponsor must take primary responsibility for contact with the FCA.However, the FCA will hold both Sponsors jointly responsible forcompliance with the Listing Rules. In general, the Sponsor’s mainroles are to assist the company in preparing for listing (and in sodoing will co-ordinate the efforts of the other professional advisersand the production of the Prospectus), to liaise with the FCA and,usually, to underwrite and market the issue.


3. Preparing for listing

3.1.3 Global Bookrunner/Underwriters/Stabilising ManagerIPOs commonly take the form of simultaneous offers in differentcapital markets which are underwritten by a group of investmentbanks (the “Underwriters”) that use “bookbuilding” techniquesto effect an underwriting of the offer.

While the titles used for marketing purposes by the Sponsor(s)and participating Underwriters can vary, the “GlobalBookrunner” is usually the Sponsor and it will oversee thebookbuilding process whereby the Underwriters go into themarket and assess potential demand from investors prior topricing. The Underwriters ask potential institutional investors toindicate the number of shares they would be prepared to take upand at what price on the basis of the information set out in a“Pathfinder” or “Price-Range” Prospectus. This is the processby which the book of demand is built. A Pathfinder Prospectusdoes not state the offer price, and in such a Prospectus the offerprice and all numbers derived from the offer price are representedby “blobs” or a statement that such figures are yet to bedetermined. A Price-Range Prospectus sets out a price rangewithin which the offer price is expected to be set and all numbersin the Prospectus derived from the offer price are calculated byreference to the mid-point of the offer price range.

The Pathfinder or Price-Range Prospectus used to bookbuild theoffer may or may not be approved by the FCA. Whether anapproved or unapproved Pathfinder or Price-Range Prospectus isused in the bookbuilding process will depend, in part, on howwidely the Global Bookrunner wishes to distribute the Pathfinderor Price-Range Prospectus and will also determine whatdocument is required to be published by the company once theissue price and size of the offer have been determined.

Following an active marketing campaign focused on investors(known as the ’roadshow’), the book is closed and the Global

Bookrunner and company (and, if relevant, any major sellingshareholders) agree the issue price and the size of the offer on thebasis of the book. Once the issue price and size of the offer aredetermined, the company will need to publish these details. If, asis most common, an unapproved Pathfinder or Price-RangeProspectus was used to bookbuild the offer then the issuer willneed to publish a Prospectus containing the issue price and sizeof the offer which has been approved as a Prospectus by theFCA. If an approved Pathfinder or Price-Range Prospectus wasused in the bookbuilding process then, once the issue price andsize of the offer have been determined, the company may chooseto publish these details by means of a pricing statement, which isusually a simple one page document. However, if the actual offerprice set is outside of the price range specified in the Price-RangeProspectus then a Supplementary Prospectus will need to beprepared. Unlike a pricing statement, a SupplementaryProspectus will need to be approved by the FCA prior topublication and, once approved, will need to be filed with the FCAand published in the same manner as the approved Prospectus(see section 3.6).

For a short while after the commencement of trading in the shares, itmay be desirable to effect stabilisation transactions in the company’sshares so as to maintain the price at a level which would nototherwise prevail. In order to avoid breaching the market abuseregime, this stabilisation activity must be conducted in accordancewith the Stabilisation Regulation (see section 7.3). The Prospectuswill need to disclose that stabilisation activity may occur and identifywho is to act as the “Stabilising Manager”, i.e. the person who isto act as a central point of enquiry for the FCA in respect of all thestabilisation activity undertaken in connection with the offer. This willtypically be the lead Underwriter.

Underwriting, bookbuilding and stabilisation are explained in moredetail in section 7.


Section 3: Preparing for listing

21

3.1.4 Legal advisers to the SponsorThe legal advisers to the Sponsor will advise it in its capacity asthe underwriter and will generally prepare and advise the Sponsoron the underwriting agreement. They will also advise the Sponsorin respect of the steps that need to be taken to ensure that theSponsor discharges its obligations to the FCA and protects itselffrom liability so far as possible.

If the offer includes a US Offer, the Sponsor will usually also seek a10b-5 disclosure letter from its legal advisers in addition to the 10b-5 disclosure letter issued by the legal advisers to the company.In these circumstances, the legal advisers to the Sponsor will alsoneed to engage in substantial due diligence mirroring and reviewingthe work done by the company’s own legal advisers.

3.1.5 Reporting AccountantsThe Reporting Accountants will provide a “long form report”.This is a private report, made available only to the transactionteam, reviewing the company’s history, business and management,which can also form a basis for the preparation of the Prospectus.The Prospectus Rules require a Prospectus to include financialinformation about the company and its group for the last threeyears up to the end of the company’s latest audited accounts (seesection 6.5.1(g)). This financial information must be independentlyaudited or reported on by the Reporting Accountants as towhether or not, for the purposes of the Prospectus, it gives a trueand fair view in accordance with applicable auditing standards.

The Reporting Accountants will also review and report (in significantdetail) on the company’s working capital requirements, accountingpolicies, the basis of, and any calculations used in, any profit forecastand the adequacy of the company’s financial reporting procedures.

The Reporting Accountants will, for the purpose of the duediligence process, provide comfort letters relating to certainfinancial information contained in the Prospectus. In order tosatisfy its regulatory obligations under the Listing Rules, theSponsor will seek confirmation from the Reporting Accountantsthat specified financial information contained in the Prospectushas been properly extracted from the Reporting Accountants’reports and, if applicable, has been correctly calculated. TheReporting Accountants will also report on any significant change inthe financial or trading position of the company and its group.

If the offer includes a US Offer, the Reporting Accountants willneed to issue additional comfort letters (known as “SAS 72letters”) to satisfy customary requirements of Underwriters inconnection with offers extended into the US. Generally, in order toissue these SAS 72 letters with the appropriate level of assuranceon specified financial statement line items, the most recentfinancial statements included in the Prospectus must be as of adate and for a period ended not more than 135 calendar daysprior to the date of issue of the SAS 72 letters1. This requirementmay affect the timing of the offer and/or the financial statementsincluded in the Prospectus.

3.1.6 BrokersThe broking role will inevitably be undertaken by the broking armof one of the Underwriters. The broker’s responsibilities willinclude giving advice on market conditions and potentialdemand for the company’s shares, advising on the strategy tomarket the IPO including the timing, pricing, method and terms,and advising on FCA or Exchange requirements both before andafter listing.


1 The SAS 72 letters are issued at various stages of the transaction. They are usually issued on the date of the Prospectus, the date of listing and, if relevant, on closing of anyover allotment option.


3.1.7 Other advisersIPOs generally require the appointment of some or all of thefollowing: public relations advisers, registrars to maintain thecompany’s share register, depositary banks (in the case ofofferings by non-UK companies in the form of global depositoryreceipts (“GDRs”)), bankers to receive applications for shares,valuers and printers.

3.2 Preliminary steps

Before admission to the Official List, legal review procedures mustbe completed to ensure that the company and its professionaladvisers are satisfied that the company is suitable for listing and thatthe Prospectus contains all necessary information and disclosures.

If a company is incorporated in the UK, it will not be able to offerits securities to the public unless it is a public company and a UKincorporated company which is a private company will need to re-register as a public limited company prior to the IPO. The re-registration procedure involves the company passing a specialresolution that it be re-registered, and altering its articles ofassociation so that they comply with the requirements applicableto public companies. The nominal value of the company’s allottedshare capital must not be less than the £50,000 authorisedminimum (although only a quarter need actually be paid up). Abalance sheet must be submitted, which must not have beenprepared more than seven months prior to the date of submission,along with an auditor’s unqualified report on the balance sheetand an auditor’s statement confirming that at the balance sheetdate, the company’s net assets were not less than the aggregateof its called up share capital and undistributable reserves.

Between the balance sheet date and the date on which theapplication for re-registration is submitted to the Registrar ofCompanies, there must have been no change in the company’sfinancial position which has resulted in the company’s net assets

becoming less than the aggregate of its called up share capitaland undistributable reserves.

If, therefore, the company has sustained losses, it may not bepossible to re-register the company. If that is the case, it may benecessary to create a new holding company and to list the newholding company instead. This will first involve a share for shareexchange with the shareholdings in the original company beingreplicated in the new holding company in order to avoid stampduty and capital gains tax being payable on the transfer of shares.Tax clearances will be applied for to ensure that the shareexchange is not subject to tax.

A new holding company structure may also be used so that thelisted entity is resident in a different jurisdiction which may havetax and administrative advantages.

3.3 PreparationThe requirements of the Listing Rules must be met beforeadmission to the Official List will be granted (see section 4 fordetails). The FCA must be satisfied that the company complieswith the basic conditions for admission and the proceduralrequirements of the Listing Rules and also that it is generallysuitable for a listing. The conclusion reached by the FCA will bebased on the draft Prospectus and any contact made between itand the company or its professional advisers.

The preparation and verification of the Prospectus is usually themost time consuming part of the listing process. The contentsrequirements of the Prospectus Rules for a Prospectus arediscussed in more detail in section 6. Successive drafts must besubmitted to the FCA for comments on compliance with theProspectus Rules. Any uncertain points may be clarified by writtensubmission to the FCA and possible amendment tothe Prospectus.



23

3.4 Legal review, due diligence and verification

3.4.1 Legal review and due diligenceThe purpose of the legal review and due diligence procedures is to:

(a) identify any legal issues concerning the company, its businessor its industry or concerning the directors, proposed directorsor senior management which may need to be reflected in theProspectus. Identification and disclosure of such issues willminimise the risk of those persons responsible for theProspectus incurring civil or criminal liability;

(b) assist in the drafting of the Prospectus, helping the companyto ensure that all material information is included and that theProspectus is accurate, complete and not misleading; and

(c) collect information on the company and its business inpreparation for the formal verification exercise.

Although the legal review may take different forms depending onthe circumstances (and, in particular, whether there is to be a USOffer), some or all of the following procedures may be involved:

(a) the Reporting Accountants will be commissioned to conductan investigation and produce a long form report on thecompany for the benefit of the directors of the company andthe Sponsor. Additional work may be needed to support thecompany’s statements in the Prospectus on working capitaland any profit forecasts; and

(b) the legal advisers to the company together, if appropriate, withother specialists, will conduct, among other things, a review ofimportant corporate records and organisational documents,including minutes of meetings of shareholders, the board ofdirectors or key committees of the board of directors; significantcontracts with lenders, customers or other persons; materialleases; and important pending litigation or threatened legaldisputes with others, including government agencies. Where the

company operates in a heavily regulated industry, the legalreview is also likely to encompass a review of theregulatory environment.

A “due diligence” investigation of the company and its business willnormally be conducted by the Sponsor and other syndicatemembers, the legal advisers to the company and the legal advisersto the Sponsor who will conduct interviews with the company’smanagement and undertake documentary due diligence. Where theoffer includes a US Offer (see section 5.6), this exercise is the basison which both the legal advisers to the company and the legaladvisers to the Sponsor will provide their 10b-5 disclosure letters.There is no prescribed routine or checklist for such an investigation;rather, its elements usually are discussed and agreed on in advancein light of the nature of the particular offer. However, areas to begiven attention will vary as additional information about the companycomes to light. The company generally will be expected to set up aphysical or virtual data room to facilitate documentary due diligence.

It is also customary to furnish questionnaires to officers and directorsof the company to confirm certain statements included in theProspectus concerning, among other things, their educational andprofessional background, their remuneration, their holdings of thecompany’s shares and their interests in transactions withthe company.

3.4.2 VerificationThe legal advisers to the company generally will also organise averification exercise to check the accuracy and completeness ofthe information, other than financial information, contained inthe Prospectus.



The legal review, due diligence and verification have an importantpurpose, in particular:

(a) they provide a means of checking the accuracy andcompleteness of information and the basis for expressions ofopinion and expectation proposed to be contained in theProspectus; and

(b) the written responses, supporting evidence and sourcematerials are retained to provide a record of these matters.A record may be important in establishing a defence of“reasonable belief” in the event of any claim by an investorunder English law against the company and its directorsand/or the Sponsor for loss arising from a false or misleadingstatement in the Prospectus. For US law purposes, theholding of due diligence meetings with senior management ofthe company and the legal review of documentation may beimportant to the Sponsor and the Underwriters in establishinga defence of “due diligence” in the event of any claim by aninvestor under US law for any loss suffered as a result of amaterial misstatement in, or omission from, the Prospectus.

3.5 Timetable

The timetable should be produced by the Sponsor at an earlystage in the process and should be kept under constant review.

The Prospectus Rules impose a specific timetable for the formalapproval of the Prospectus. In particular, on an IPO, the draftProspectus and other draft documentation must be provided tothe FCA at least 20 clear business days in advance of the plannedapproval date of the Prospectus. In practice, the draft Prospectuswill be submitted to the FCA much earlier than the 20 businessdays’ deadline (although the FCA does require the draftProspectus to be in substantially complete form).

The timetable for the application for admission to listing to beapproved is set out in the Listing Rules and requires certaindocuments, known as the “48 hour documents” which includethe approved Prospectus and any Supplementary Prospectus,along with a completed application for admission of the securitiesto listing, to be provided to the FCA at least two business daysprior to the date on which the FCA is to consider theadmission application.

Other features of the IPO or the company’s circumstances mayhave an impact on the timetable, for example the date of thecompany’s latest audited accounts. These must generally be as ofa date and for a period ended less than 135 calendar days prior tothe date of the SAS 72 letter if the offer involves a US Offer wherea SAS 72 letter is to be given and not less than six months prior tothe date of the Prospectus if the shares are to be admitted to theOfficial List.

In the case of a straightforward IPO, a minimum of three monthsfrom the time of the first meeting of all the advisers should beallowed to complete the IPO. An indicative IPO timetable whichshows the key workstreams involved in the preparation for an IPOis set out on page 26. Common factors which can extend ordelay the timetable include corporate reorganisations, issuesarising out of the due diligence process, changing marketconditions and the complexities involved in preparing a three yeartrack record for the business.

3.6 Approval, filing and publication of the Prospectus

Once the draft Prospectus has reached a form which satisfies therequirements of the FCA, the FCA will give an informal indicationof its approval signalling that a final form may be submitted forformal approval. A Prospectus may not be published until it hasbeen approved by the FCA.



25

Following approval of the Prospectus, it must be filed by thecompany with the FCA and made available to the public as soonas practicable. Where there is an offer to the public, theprospectus must be made available to the public at least sixbusiness days before the end of the offer.

A company may make the Prospectus available to the public in anumber of ways. In particular, it may be published by any of thefollowing means:

(a) insertion in a national newspaper;

(b) making hard copies of the Prospectus available to the publicat the company’s or the Sponsor’s offices, free of charge;

(c) publication in an electronic form on the company’s or itsSponsor’s website; or

(d) publication on the website of the FCA.

Where the company chooses to publish the prospectus by eitherof the means referred to in paragraphs (a) or (b), it must alsopublish it electronically.

Typically, hard copies of the Prospectus are made available fordistribution. If the company chooses to publish the Prospectussolely by the means referred to in either paragraph (c) or (d) abovethen it must on request, and free of charge, deliver a hard copy ofthe Prospectus to an investor.

The FCA publishes on its website a list of all Prospectusesapproved by it over the previous 12 months specifying where eachsuch Prospectus may be obtained, including where applicable, ahyperlink to the Prospectus on the company’s website.

For a discussion of restrictions and guidelines relating to websitepublication of offer documents, in particular with respect to USsecurities law restrictions, see section 8.3.

3.7 Admission becoming effective

Forty eight hours before the hearing of the listing application, finalcopies of all 48 hour documents must be submitted to the FCA.Additional documents will also be required to be submitted on themorning the application is to be considered by the FCA. Assumingthe application is in order, admission will be granted followingthe hearing.

Admission to the Official List becomes effective on the publicationof the announcement to that effect by the FCA after which tradingin the shares of the company on the Exchange will be permitted.

3.8 Costs

Initial listing and annual listing charges are levied by the Exchangebased on market capitalisation. In the case of the initial charge,market capitalisation is calculated by reference to the issue price ofthe shares listed. In the case of the annual charge, marketcapitalisation is calculated as at 30 November in the preceding year.

Other fees associated with the listing will include those of the FCA,professional advisers, marketing and printing costs and anyunderwriting or placing commissions. Such fees will be dependenton the size and complexity of the transaction and, in the case ofcommissions, pricing negotiations with the Global Bookrunner andUnderwriters and the level of risk perceived to be assumed bythe Underwriters.



2 From 6 October 2014 the standard settlement cycle is to be reduced to T+2 (trade date plus two business days)

Roadshow/Bookbuilding(up to 2 weeks)

Stabilisation30 days

Blackout period (1-2 weeks)(publication of research

prohibited)

Pre-marketing (up to 1-2 weeks)

DraftingAnalyst

presentation

Analystsprepareresearch

Final DD CompletedDue diligence process (substantially completed)


Indicative IPO timetable

Pathfinder prospectus publishedOpinions/comfort letters agreed Accountants’ supporting reports

substantially agreed

Pricing/allocationApproved prospectus publishedUnderwriting agreement signedOpinion/comfort letters signed

Settlement andClosing T+32

Opinion/comfortletters repeated

Drafting, verification and regulatory review of prospectus

Preparation of underwriting agreement and supportingopinion/comfort letters

Work on accountants’ supporting reports (e.g. working capital,financial reporting procedures, long/short form reports)

Presentation toAnalysts

Announce Intention to Float Analysts’ research published

Start of process Confirm eligibility with FCA

Basic conditions for listing and trading

4.1 Admission to the Official List4.2 Admission to trading4.3 Grey market trading

29

As outlined in section 2, a company seeking to have its shareslisted must apply to both the FCA for admission to the Official Listand the Exchange for admission to trading.

4.1 Admission to the Official List

The Listing Rules published by the FCA set out certain basicconditions which must be satisfied for a company’s securities tobe eligible for admission to the Official List. These basic conditionsderive from EU legislation and are referred to in this guide as“EU Directive minimum requirements”. The Listing Rules alsoimpose additional specific requirements to be satisfied where thecompany is seeking a Premium listing of equity securities. Theseare commonly known as “super equivalent” requirements as theygo beyond EU Directive minimum requirements. The mainconditions which must be fulfilled are:

(a) the securities must be issued by a body corporate;

(b) the company must be in compliance with applicable legal andregulatory requirements;

(c) the company must have published a Prospectus which hasbeen approved by the FCA;

(d) there must be an appropriate public distribution of thecompany’s shares;

(e) the company must appoint a Sponsor;

(f) the financial information must satisfy certain standards; and

(g) the company must have an appropriate trading history.

The last three conditions referred to above are super equivalentFCA imposed admission requirements.

It should be noted that the FCA may make listing subject to anyspecial conditions which it considers necessary to protect investors.

4.1.1 Securities of a body corporateMost types of securities are eligible for listing, provided that theyare issued by a body corporate which is operating in accordancewith its constitutional documents.

4.1.2 Legal and regulatory complianceA company seeking admission to the Official List must be in compliancewith its governing legislation and its constitutional documents.

The provisions of a company’s constitutional documents must alsocomply with certain requirements set out in the Listing Rules, inparticular, that the shares to be listed must be freely transferable.

4.1.3 Preparation of a ProspectusIn order to be listed a company must prepare a Prospectus whichmust be approved by the FCA prior to publication; this is requiredbecause of the application to admit the shares to trading on theExchange and will apply irrespective of whether the offer includesan offer of shares to the public. The Prospectus must bepublished in accordance with the requirements of the ProspectusRules (see section 3.6).

The contents requirements for a Prospectus are summarised insection 6.5.

4.1.4 Public distribution of sharesFrom the time listing becomes effective, at least 25 per cent. ofthe class of shares to be listed must be (and remain) in the handsof the public in one or more EEA states, and if the shares are alsolisted in a non-EEA state, the public in that other state.


4. Basic conditions for listing and trading

In calculating the number of shares held by the public, shares heldby the following persons are generally excluded:

(a) directors of the company or its subsidiaries;

(b) persons connected to these directors (including spouses andcivil partners and children under 18);

(c) trustees of the group’s pension funds or employeeshare schemes;

(d) a person who has a right under any agreement to nominate aperson to the board of the company; and

(e) persons in the same group as the company who are interestedin five per cent. or more of the shares of the relevant class.

In addition, shares subject to a lock-up period of more than 180days will be excluded from the free float calculation.

A percentage lower than 25 per cent. may be permitted by theFCA if it considers that the market will still operate properly in viewof the large number of shares of the class in existence and theirbroad distribution.

In determining whether to accept a free float of lower than 25 percent, the FCA will consider whether shares of the same class(even though they are not listed) are held in non-EEA states, thenumber and nature of the public shareholders and, in relation to aPremium listing (commercial companies), whether the expectedmarket value of the shares in public hands at admission exceeds£100 million.

4.1.5 Appointment of Sponsor

A company seeking a listing must appoint a Sponsor. Sponsorsare typically investment banks and stockbrokers, but can be

financial advisers, accountants or legal advisers who have beenapproved by the FCA. A Sponsor will initially review the company’scapital requirements and assess its suitability for listing, includingon which market to list the company’s shares.

The Sponsor has a key role in advising on and co-ordinating thelisting of the company’s shares, in addition to liaising with the FCAand the Exchange. At the start of the IPO process the Sponsor willsubmit an “eligibility letter” to the FCA setting out how thecompany satisfies all the substantive eligibility requirements andidentifying any potential eligibility issues upfront in order that theycan be addressed at an early stage of the process.

In particular, under the Listing Rules the Sponsor must not submitto the FCA any application for listing on behalf of a companyunless it has come to a reasonable opinion, after having made dueand careful enquiry, that:

(a) the company has satisfied all the requirements of the ListingRules relevant to an application for listing. The Sponsor willtake a pro-active role here and will undertake detailed duediligence to satisfy itself in this regard;

(b) the company has satisfied all applicable requirements of theProspectus Rules;

(c) the directors of the company have established procedures toenable the company to comply with the Listing Rules and theDTRs on an ongoing basis;

(d) the directors of the company have established procedureswhich provide a reasonable basis for them to make properjudgements on an ongoing basis as to the financial positionand prospects of the company and its group; and

(e) the directors of the company have a reasonable basis onwhich to make the working capital statement.


Section 4: Basic conditions for listing and trading

31

The Sponsor must also take reasonable steps to satisfy itself thatthe directors of the company understand their responsibilities andobligations under the Listing Rules and the DTRs. In addition, theSponsor must ensure that all matters known to it which, in itsreasonable opinion, should be taken into account by the FCA inconsidering both the application for listing and whether theadmission of the company’s shares would be detrimental toinvestors’ interests have been disclosed with sufficient prominencein the Prospectus or otherwise in writing to the FCA.

The Sponsor will also assist the company with the marketing ofthe IPO.

4.1.6 Standard of financial informationThe company must have published three years’ consolidatedaccounts. The accounts must have been independently audited orreported on in accordance with auditing standards applicable inan EEA state or equivalent. The accounts must be in respect of aperiod ended not more than six months before the date of theProspectus and not more than nine months before the date theshares are admitted to listing.

The FCA may modify or dispense with the requirement for threeyears’ accounts so long as it is satisfied that to do so is desirablein the interests of investors and that investors will still have thenecessary information available to arrive at an informed judgmentabout the company and its securities.

Generally speaking, the audit opinion in relation to the company’saccounts for the three preceding financial years must be without“modification” (i.e. it must be unqualified).

Additional accounting requirements may need to be satisfied ifthere is a US Offer, such as the requirement that the accountants

audit or review financial statements as of a date and for a periodended not more than 135 days prior to the date of the SAS 72letter (in order to enable them to provide a SAS 72 letter).

4.1.7 Nature and duration of business activitiesThe company’s three year historical financial information mustrepresent at least 75 per cent. of its business and put prospectiveinvestors in a position to make an informed assessment of thebusiness. In determining what amounts to 75 per cent. of thecompany’s business, the FCA will consider the size, in aggregate,of all the acquisitions made by the company in the precedingthree year period.

However, even where the company’s business has been inexistence for the requisite three year period, the existence of oneor more of the following characteristics may mean that it fails tosatisfy this eligibility condition:

(a) where the strategy of the business places significant emphasison the development or marketing of a product or servicewhich has not formed a significant part of the company’shistoric financial information;

(b) where the value of the business on admission will bedetermined, to a significant degree, by reference to futuredevelopments rather than past performance;

(c) where the relationship between the value of the business andits revenue or profit earning record is significantly different fromthose of similar companies in the same sector;

(d) where there is no record of consistent revenue, cash flow orprofit growth throughout the historic revenue earning record;

(e) where the business has undergone a significant change in itsscale of operations during the period of the historic financialinformation; or



(f) where there are significant levels of research and developmentexpenditure or significant levels of capital expenditure.

The FCA may modify or dispense with this eligibility condition (andtherefore disregard the characteristic which causes the companyto fail the eligibility condition) where it is satisfied that to do so isdesirable in the interests of investors and that investors still havethe necessary information available to arrive at an informedjudgment about the company and its securities. In addition, theFCA must be satisfied that there is an overriding reason for thecompany seeking a listing on the Official List, rather thanadmission to another market, such as AIM, more suited to acompany without a historic revenue earning record.

4.1.8 Independent businessThe company must also be able to demonstrate that it will becarrying on an independent business as its main activity (the“independence test”).

The FCA has published guidance on the application of theindependence test which sets out a non-exhaustive list of factorsthat would indicate that the company does not satisfy theindependence test. Such factors include situations where themajority of revenue generated by the company is attributable tobusiness conducted directly or indirectly with a controllingshareholder (see below) of the company; where the company doesnot have strategic control over the commercialisation of its productsand/or its ability to earn revenue; where the company cannotdemonstrate that it has access to financing other than from acontrolling shareholder; or, where the company’s business consistsprincipally of holdings of shares in entities that it does not control,including entities where it is only able to exercise negative control.

As part of the company’s ability to demonstrate that it satisfies theindependence test, the FCA also requires that an applicant for

admission of shares to a Premium listing that has a “controllingshareholder” (broadly, any party who exercises or controls on theirown or with any persons with whom they are acting in concert, 30per cent. or more of the shares in the company) enter into a bindingagreement with that shareholder. The agreement must containundertakings (the “independence provisions”) that:

a) transactions and arrangements between the controllingshareholder (and/or any of its associates) and the company willbe conducted at arm’s length and on normal commercial terms;

b) neither the controlling shareholder nor any of its associates willtake any action that would have the affect of preventing thecompany from complying with its obligations under the ListingRules; and

c) neither the controlling shareholder nor any of its associates willpropose or procure the proposal of a shareholder resolutionwhich is intended (or appears to be intended) to circumventthe proper application of the Listing Rules.

4.1.9 Other conditionsThe expected aggregate market value of all securities to be listedmust exceed £700,000, except where securities of the same classare already listed. It is highly unlikely, however, that a listing wouldbe viable for such a small company, at least on the Exchange’sMain Market for listed securities.

The company’s shares must be admitted to trading on theExchange and must generally be freely transferable, free from allliens and any restriction on the right of transfer (although this doesnot prohibit contractual restrictions accepted by individualshareholders e.g. lock-up arrangements). If shares of a particularclass are to be listed, then all shares in that class must be listed.

The shares must also be eligible for electronic settlement and, forthis purpose, an application will have to be made to Euroclear UK



33

& Ireland in advance of the IPO. Only shares created under thelaws of England and Wales (and certain other limited jurisdictions)can be held or transferred in CREST directly. This means thatmost non-UK incorporated issuers seeking a Premium listing oftheir shares must appoint a depositary to hold the issuer’s shareson trust and issue the shareholders with depositary interests(“DIs”). The DIs represent an interest in the company’s underlyingshares but, as the DIs are themselves securities created underEnglish law, they can be held and transferred through CREST,thereby satisfying the relevant eligibility condition in the ListingRules. DIs are distinct from global depositary receipts or “GDRs”.GDRs are discussed in section 14.

The directors must be satisfied that the company and itssubsidiaries have sufficient working capital for their presentrequirements (i.e. for at least 12 months from the date of publicationof the Prospectus). The Prospectus Rules require the inclusion inthe Prospectus of a statement by the company that, in its opinion, ithas sufficient working capital for its present requirements (a “clean”working capital statement) or, if it cannot make a clean statement,how it proposes to obtain the additional working capital. However,in order to satisfy the working capital eligibility condition foradmission to the Official List set out in the Listing Rules, theProspectus must contain a clean working capital statement.

The eligibility conditions considered in this section 4.1 are variedfor mineral companies and scientific research based companies.Further information can be found about this in section 13. TheListing Rules also contain separate eligibility conditions forinvestment funds, venture capital trusts and issuers of debtsecurities, depositary receipts and securitised derivatives. Forfurther information on listing an investment entity, see section 12.

The company will need to provide the FCA with contact details ofa director or senior employee nominated by it to act as the first

point of contact with the FCA in relation to the company’scompliance with the Listing Rules and DTRs.

4.2 Admission to trading

In addition to applying to the FCA for admission to the Official Listin accordance with the Listing Rules, a company will also have toobtain admission to trading for the shares it wishes to list. TheExchange has its own criteria which must be satisfied prior to theExchange granting admission to trading. Once admitted totrading, the Exchange also imposes its own disclosure and otherrequirements on companies and these are outlined in sections10.11 and 10.12.

To obtain admission to trading, a meeting with the Exchange mustbe held and an admission timetable agreed. This must occur nolater than 10 business days before the company wishes theExchange to consider its application for admission. The applicationfor trading must relate to all securities in the class issued orproposed to be issued. All future issues in the same class mustalso become the subject of an application for trading.

The Exchange may impose special conditions on admission andthese must be complied with, along with the requirements of othersecurities regulators which regulate the company or any otherstock exchange on which the company’s securities are (or are tobe) traded.

The Exchange requires a company to nominate a director orsenior employee to act as the Exchange’s point of contact, beforeand after admission. This is so that rapid communication can bemade to discuss admission, trading, disclosure or regulatorymatters which may arise. The Exchange also encourages acompany to appoint a nominated representative, e.g. its broker orfinancial adviser, in addition to the company contact to help withday to day enquiries.



The application for trading is usually to the Main Market butinnovative technology and healthcare companies may also applyfor admission to techMARKTM and techMARK mediscienceTM

respectively. These are specialist segments of the Main Marketintended to promote to the market the profile of companies withinthose segments.

Admission to trading on the Exchange will only become effectiveonce announced through the Exchange’s website. On admission,the Exchange will invoice the company for the admission fee.

4.3 Grey market trading

Notwithstanding the fact that a company cannot have its sharesadmitted to trading on the Exchange until it has first had its sharesadmitted to the Official List, the rules of the Exchange permit“grey market trading” to take place in the shares of a companyseeking to have its shares admitted to trading on the Exchangebefore such shares have been admitted to trading, provided

certain conditions are met. Grey market trading, also known as“when issued dealing”, describes trading in shares prior tothose shares being admitted to the Official List and before officialtrading on the Exchange commences. While the shares may betraded on the Exchange, the trades are subject to admission tothe Official List and, if the shares are not ultimately admitted to theOfficial List, all grey market trades are void and must be unwound.

It is usual in an IPO for a period of grey market trading to occur.Grey market trading will not commence until after the offer priceand full allocation details have been publicly announced by thecompany. Grey market trading allows the Underwriters who arecommitted to take up a tranche of shares under the IPO to sellsome or all of those shares prior to unconditional tradingcommencing. The risk of the shares not being admitted to listingand the trades being declared void is, in practice, limited. Theperiod of grey market trading also provides a useful indicator ofmarket appetite for the offer.



Methods of listing

5.1 Introductions5.2 Placings5.3 Intermediaries offers5.4 Offers for sale and/or subscription5.5 International offers5.6 US Offers

37

This section discusses some of the methods by which a company’sshares may be brought to the market for the first time, namely:

(a) introductions;

(b) placings;

(c) intermediaries offers; and

(d) offers for sale and/or subscription.

The section also describes methods of accessing the importantUS capital markets. As mentioned in section 4.1.3, whichevermethod is chosen, a Prospectus will be required.

5.1 Introductions

Where a company’s shares are already widely held with at least25 per cent. of the shares being in public hands, those sharesmay be “introduced” to the market without the issue of newshares or any marketing of existing shares.

As an introduction raises no funds, there are no underwritingcosts. It is the most simple and cost effective method of listing,assuming the company does not wish to raise any capital.Introductions are commonly used in respect of companiesdemerged from their parent companies and by companiesseeking a Standard listing of their shares in circumstances wheretheir shares are already listed in another jurisdiction.

5.2 Placings

The most common means by which a company’s shares may bebrought to the market for the first time is by way of a placing.A placing is a marketing of shares to a selected and limited groupof, usually institutional, investors.

It is standard practice for any institutional placing to involvebookbuilding. This involves the Global Bookrunner, assisted by theUnderwriters, marketing the shares before the price at which theyare to be offered or the size of the offer has been determined. In abookbuilt offer, a Pathfinder or Price-Range Prospectus would bemade available to institutional investors at the time of launch of theIPO. The Pathfinder or Price-Range Prospectus used to bookbuildthe offer may or may not be approved by the FCA. Whether anapproved or unapproved Prospectus is published at this time willdetermine what document must be published once the final sizeof the offer and the offer price are determined.

Following launch, the marketing period commences and, on thebasis of responses from potential institutional investors during themarketing period, the final size of the offer and the offer price areagreed by the company and the Underwriters. Once thisinformation is known, the company will be required to publishthese details. If an unapproved Pathfinder or Price-RangeProspectus was used to bookbuild the offer then the company willbe required to publish a Prospectus containing details of the sizeof the offer and the offer price. This Prospectus will need to beapproved by the FCA prior to publication.

5.3 Intermediaries offers

An intermediaries offer is similar to, and often combined with, aplacing. It consists of a marketing of new or existing securities bymeans of an offer by, or on behalf of, the company tointermediaries for them to allocate to their own, usually private,clients. In practice, intermediaries only apply for shares they havealready placed. An intermediaries offer allows a company todistribute the shares to a wider shareholder base than is generallythe case with a placing.


5. Methods of listing

5.4 Offers for sale and/or subscription

An offer for sale and/or subscription is made by a company’sSponsor to the public (commonly known as a “retail offer”) andto institutional investors. The shares being offered may be existingshares held by current shareholders (in the case of an offer forsale) and/or new shares (in the case of an offer for subscription).Offers for sale and/or subscription are normally underwritten.

5.5 International offers

Companies will offer shares to investors who are located bothinside and outside their domestic markets. Several trends havecontributed to the attraction of selling shares in a number ofmarkets simultaneously. Sometimes a company’s capitalrequirements cannot be met by the domestic stock markets aloneand therefore it needs to offer shares into other foreign markets. Inaddition, some markets may value the company’s shares morehighly than the domestic market, perhaps because of the industryor sector the company operates in. Moreover, the age of globaltrading has led companies to seek a global shareholder base.

More generally, offering securities on international capital marketsleads to an enhanced corporate profile and publicity for thecompany and its products and facilitates access to otherinternational sources of finance. Further, in recent years, investinginstitutions and banks have promoted offers in a number ofinternational markets simultaneously, which has facilitated thediversification of companies across national borders.

International offers of this type could be structured using any ofthe methods outlined in sections 5.2 to 5.4. Often, the offer will bebookbuilt by a group of investment banks and placed, largely withinstitutional investors in the major capital markets. This may be

combined with a public offer in the company’s home market.Alternatively, but less commonly, the offer could involvecontemporaneous public offers to investors in two or morejurisdictions. International offers will involve the laws of severaljurisdictions and these must be observed and reconciled. Section5.6 discusses some of the common issues arising where a UKIPO involves a US Offer.

5.6 US Offers

The US market is the largest source of capital in the world and it isincreasingly common for issuers to undertake offerings in the US.

In order for securities to be offered in the US or to US persons,either (i) a registration statement needs to be filed with the SEC(the regulator of securities markets in the US) or (ii) an exemptionfrom the registration requirement must apply. If registration isrequired, the securities may not be sold until the SEC hasdeclared the registration statement “effective”. Once effective,securities can be sold freely in the US (i.e. through a US publicoffer). In addition, an effective SEC registration is a prerequisite tolisting equity securities (in the case of a non-US company, often inthe form of American Depositary Receipts, or ADRs) on a USsecurities exchange.

Companies that conduct US public offerings of securities or listtheir securities on a US national securities exchange are requiredto file periodic reports with the SEC pursuant to the Exchange Actafter their effective registration and become subject to theobligations and restrictions in relation to corporate governance setout in the US Sarbanes Oxley Act of 2002 and related rules andregulations (“Sarbanes Oxley”). Accordingly, many US offers bynon-US companies are structured to take advantage of anexemption from the US securities registration requirements.


Section 5: Methods of listing

39

The most commonly relied upon exemption in the case of IPOs ofshares to be listed in the UK is the so called “private placement”exemption. The two US federal securities exemptions that aremost often relied on to offer and sell securities to US investors insuch private placements (that is, not requiring registration of thesecurities with the SEC) are Rule 144A and section 4(a)(2) of theSecurities Act, which are discussed below. Rule 144A permitsresales of unregistered securities to an unlimited number ofqualified institutional buyers. Section 4(a)(2) requires that offersand sales be made in such a manner that they are not considereda public offer.

The relevant restrictions on publicity to be observed when relyingon any of the exemptions are also discussed below.

Sarbanes Oxley does not apply to companies that have onlyoffered and sold securities to US investors in reliance on Rule144A or section 4(a)(2).

If a large enough number of US investors become record holdersof the equity securities of a non-US company, however, thecompany may become subject to SEC registration requirements.Specifically, non-US companies may be required to register aclass of equity securities with the SEC under the Exchange Actbased upon the size of the company and the nature of its shareownership, both globally and within the United States. A non-UScompany is generally required to register a class of equitysecurities if: (1) it has over $10 million in assets as of the end of itsfiscal year; (2) the number of its record holders is either 2,000 orgreater worldwide, or 500 persons who are not accreditedinvestors or greater worldwide; and (3) the number of its USresident holders is 300 or more. Rule 12g3-2(b) under the

Exchange Act provides an automatically available exemption fromthis registration requirement if the company meets thefollowing conditions:

n it is not required to file periodic reports as a result of a publicoffering of securities in the US, a listing on a national securitiesexchange or any other voluntary registration under theExchange Act;

n it maintains a listing of the relevant equity securities on one ortwo exchanges in a non-U.S. jurisdiction(s) that comprise morethan 55 per cent. of its worldwide trading volume (its “PrimaryTrading Market”); and

n it publishes in English on its website (or through an electronicinformation delivery system generally available to the public inits Primary Trading Market) material items of information thatit has (a) made public or been required to make publicpursuant to the laws of its home country, (b) filed with theexchange in its Primary Trading Market on which itssecurities are traded and which has been made public bythat exchange, or (c) distributed or been required todistribute to its security holders.

5.6.1 Offers not requiring an SEC Registration StatementRule 144A ResalesThe primary avenue used to add a US Offer to a UK listing isthrough use of Rule 144A. Rule 144A of the Securities Act permitsresales of securities to US institutional investors to be madewithout being subjected to the registration requirements of theSecurities Act, if the US institutional investors who are being soldthe securities are “qualified institutional buyers” or “QIBs” assuch term is defined in Rule 144A.



It is important for the Underwriters and the company to establishthat a US investor clearly falls within the scope of the QIBdefinition before they make any sale to such investor, otherwisethe exemption from the SEC registration requirements may notapply. Typically, the Underwriters retain a list of their investorclients that have confirmed their QIB status previously.

If the securities are proposed to be resold into the US to QIBs inreliance on Rule 144A, the company generally must agree toprovide at any time certain information to any QIB, or prospectivepurchasers of the securities from a QIB, on the request of thecurrent holder of the securities (the “144A InformationRequirement”). This information includes statements about thecompany’s business, products and services and the company’sfinancial statements for the two preceding financial years. Thisrequirement should be easily met, as compliance with the UKlisting requirements will provide the company with the informationnecessary to meet the 144A Information Requirement.

An advantage of offering securities in reliance on Rule 144A ascompared to a private placement under section 4(a)(2) is that Rule144A allows relatively unrestricted resales of the securities amongQIBs without registering the securities with the SEC2, whichpermits the creation of an active institutional secondary market forthe securities in the US (although a US listing is not permitted) andsignificantly enhances the attractiveness of these securities asinvestment opportunities. A large number of non-US companieshave taken advantage of Rule 144A and successfully placedshares in this market since the introduction of Rule 144A in 1990.

Section 4(a)(2) Private PlacementsA less often used alternative to a Rule 144A offer is a direct privateplacement by the company to investors under section 4(a)(2). Asection 4(a)(2) private placement involves a placement to a limitednumber of sophisticated investors in the US. While the precisestandards and procedures involved in a US private placementvary, in many cases, a private placement involves potential sales


Who is a QIB?

The definition of “qualified institutional buyer” includes:

(a) institutions such as pension funds, investment companies,financial institutions (other than banks), partnerships andindustrial companies that own or have investment discretionover US$100 million of qualifying securities;

(b) banks and savings and loan associations that own or haveinvestment discretion over US$100 million in qualifyingsecurities and have a net worth of at least US$25 million; or

(c) registered broker dealers that own or have investmentdiscretion over at least US$10 million in qualifying securities.

Advantages of a Rule 144A offer

Compared to SEC registered offers in the United States, Rule144A offers have the advantages of avoiding:

(a) the time consuming process and costs associated withSEC registration;

(b) the ongoing US periodic reporting requirement;

(c) potential US GAAP reconciliation requirements (which wouldnot apply to companies that prepare financial statements inaccordance with IFRS as issued by the IASB); and

(d) the applicability of Sarbanes Oxley.

2.“Restricted securities” acquired in private transactions from the issuer or an affiliate of the issuer are subject to one year minimum holding period. If the issuer is a publicreporting company in the US, the minimum holding period is six months.


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to a larger universe of investors referred to as “accreditedinvestors”. The standard for being considered an accreditedinvestor is easier to achieve than the test of whether an investor isa QIB. In order to ensure that section 4(a)(2) may be relied on,however, the investor is required to provide an “investor letter” tothe company to confirm the investor’s status. Such a letter istypically not required of investors in Rule 144A offers.

Section 4(a)(2) “placements” are most often used where theSponsor or the company are aware of a few US investors who arenot QIBs (rendering Rule 144A unavailable for sales to them) butwho would like to purchase shares in the IPO. Section 4(a)(2)placements are often viewed as a less advantageous method thanRule 144A because of:

(a) the need to collect investor letters from each US investor;

(b) the need to limit the number of investors for legal and riskmanagement reasons; and

(c) tight restrictions on resale other than those made outside theUnited States, for example over the Exchange.

Restrictions on publicityIf the company is relying on the section 4(a)(2) exemption, therecan be no “general solicitation” or “general advertising” in theUS by the company or any person acting on its behalf.

In the past, the US federal securities laws also prohibited any formof general solicitation or general advertising in the US inconnection with an offering of securities conducted pursuant toRule 144A. Prior to 23 September 2013, the existence of anygeneral solicitation or general advertising in the US would haveprevented the company and other transaction participants frommaking a valid private offering to QIBs in the US.

However, since 23 September 2013, general solicitation or generaladvertising in the US is now permitted by US federal securities lawfor resales of securities made in reliance on Rule 144A because ofthe amendments to Rule 144A made pursuant to the JumpstartOur Business Startups Act of 2012 (the “JOBS Act”).

US market practice, however, continues to avoid generalsolicitation in Rule 144A offerings because persons participating inthe US Offer remain subject to potential liability under Rule 10b-5of the Exchange Act for any material misstatements or omissionsin a general solicitation or general advertising communication (seesection 3.1.1 for further details) and may also be subject to liabilityunder equivalent US state security law. In light of the foregoing,the company should refrain from engaging in any such activityabsent further discussion with its US legal advisers.

Activities conducted outside the United States would generally notbe considered general solicitation or general advertising as long asthey are conducted in a manner reasonably designed to avoid thedissemination of information in the United States and are notundertaken for the purpose of conditioning the market in the US.Other than potential “roadshow” meetings with permissibleofferees in the US that have been pre-screened in advance andinvited to such meetings, activities in the United States that couldbe construed as marketing of the securities should be avoided.These restrictions are meant to ensure that only a targeted groupof sophisticated US investors is sold the securities.

5.6.2 Regulation SIn order to prevent securities nominally offered outside the USfrom immediately being sold into the US without complying withdisclosure requirements that would otherwise apply, the USsecurities laws include requirements designed to limit the



immediate flow of securities into the US following a nominal non-USoffer. In effect, the regulatory regime provides that regardless ofthe jurisdiction where a securities offer occurs or of the citizenshipof the purchasers of the securities, offers must either be registeredwith the SEC or exempt from the registration requirements of theSecurities Act (as discussed in section 5.6.1).

Regulation S provides guidance as to the characteristics of an“offshore” offer that will be considered by the SEC to be exemptor excluded from SEC registration because it occurs outside theUnited States. The requirements of Regulation S differ dependingon the nature of the offer and the company; however for the vastmajority of non-US companies which do not have a “substantialUS market interest” in their securities, the only requirements foran offer to be conducted in accordance with Regulation S are:

(a) the absence of any “directed selling efforts”, referring to anyactivity intended to condition, or which could reasonably beexpected to have the effect of conditioning, the market for thesecurities being offered in the US; and

(b) that offers and sales must be made in “offshoretransactions”, meaning that no offer may be made to aperson in the US and either:

(i) the buyer must be outside the US at the time the buy orderis originated; or

(ii) the transaction must be executed on the physical tradingfloor of a non-US securities exchange.

A properly structured Rule 144A offer of securities or a section4(a)(2) private placement can be made in the US at the same timeas an offer of the same securities outside of the US in reliance onRegulation S without violating the requirement of Regulation S thatno “directed selling efforts” take place with respect to thesecurities in the US.

5.6.3 Investment Company Act issuesFor a non-US company that may be treated as an “investmentcompany” under US rules, it is critical to establish the availability ofan exemption from the investment company registrationrequirements under the US Investment Company Act of 1940, if itwishes to offer securities in the US.

The US Investment Company Act regulates entities commonlyunderstood to be investment companies (such as unit investmenttrusts, collective investment schemes, mutual funds and the like)but may also apply to so called “inadvertent” investmentcompanies that have a large percentage of their assets insecurities holdings, including minority interests in othercompanies, joint venture interests and treasury instruments.

US legal advisers to the issuer should seek to establish theavailability of an exemption from the US Investment Company Actrequirements at an early stage in the process, as in particularcases resolution of the issues may be complex and timeconsuming. The presence of Investment Company Act issues alsomay indicate that US tax issues under the “passive foreigninvestment company” or “PFIC” rules need to be addressed.



The Prospectus

6.1 FSMA, the Prospectus Rules and the requirement for a Prospectus6.2 General obligation of disclosure in the Prospectus6.3 Format of the Prospectus6.4 Responsibility for the Prospectus6.5 Information required to be disclosed in the Prospectus6.6 Equivalent information6.7 Omission of information from the Prospectus6.8 Display documents6.9 Supplementary Prospectus6.10 Advertising 6.11 Right of withdrawal6.12 US requirements6.13 “Passporting” the Prospectus6.14 Prospectus drawn up in accordance with third country laws

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The preparation and completion of the Prospectus is key to thesuccess of the IPO. The principal requirements of FSMA and theProspectus Rules regarding form, content and means ofpublication of the Prospectus are outlined below.

6.1 FSMA, the Prospectus Rules and the requirement fora Prospectus

The Prospectus Rules, together with FSMA, set out thecircumstances in which a company must prepare a Prospectus.The contents of the Prospectus Rules are governed by therequirements of the EU Prospectus Directive and the ProspectusDirective Regulation. The primary aim of the Prospectus Directiveis to create a regime which enables companies to offer or“passport” their securities throughout the EEA using a singleProspectus approved by a single regulator, without the need foradditional approvals or clearances in other member states (seesection 6.13 for further discussion of passporting).

Subject to limited exemptions, FSMA and the Prospectus Rulesrequire a company which is either:

(a) making an offer of securities to the public in the UK; or

(b) making an application for the admission to trading of securitieson a Regulated Market in the UK, such as the Exchange,

to prepare a Prospectus in the required form.

A company seeking admission of its shares to the Official List forthe first time will need to publish a Prospectus on the basis thatthe application for admission will be accompanied by anapplication for admission of such shares to trading on aRegulated Market in the UK and, in the case of an IPO, noexemptions will be available.

The Prospectus must be approved by the “competentauthority” of the company’s “home state” before publication.For a UK incorporated company issuing equity securities orapplying for the admission of its equity securities to trading on aRegulated Market, its home state will be the UK. The UKcompetent authority responsible for the approval of Prospectusesis the FCA and, accordingly, it will be the FCA which reviews andapproves the company’s Prospectus. For non-EEA issuers ofequity securities, determination of the home state can be moreproblematic. This is considered in further detail in section 11.3.

6.2 General obligation of disclosure in the Prospectus

The Prospectus Rules set out the content requirements for aProspectus. FSMA also requires other material information,whether or not falling under the headings specified in theProspectus Rules, to be disclosed. Most importantly, FSMArequires that the Prospectus contains the following:

“the information necessary to enable investors to makean informed assessment of (a) the assets and liabilities,financial position, profits and losses, and prospects of theissuer of the securities; and (b) the rights attaching tothose securities” (the “informed assessment test”).

This information must be presented in a form which iscomprehensible and easy to analyse, and must be preparedhaving regard to the particular nature of the shares andthe company.

6.3 Format of the Prospectus

The Prospectus Rules permit a company to draw up theProspectus either as a single document or three separatedocuments known as the “registration document”, the


6. The Prospectus

“securities note” and the “summary” (a “tripartiteProspectus”). The contents requirements for the Prospectus willbe the same in either case, save that the company must dividecertain required information between the registration documentand the securities note where a tripartite Prospectus is prepared.

The registration document must contain information relating to thecompany. The securities note will contain information concerningthe shares for which the company seeks admission. See section6.5 for a description of the detailed information required to beincluded in the Prospectus.

The summary must be in non-technical language and conveyconcisely certain “key information” relevant to the securities that,when read with the rest of the Prospectus, must be an aid toinvestors in considering whether to invest in the securities. Inparticular the key information must include the essentialcharacteristics of, and risks associated with, both the company andthe shares. The summary must follow a prescribed format and mustnot exceed 7 per cent. of the length of the Prospectus or 15 pages,whichever is the longer. It must contain a warning which includeslanguage to the effect that it should be read as an introduction tothe Prospectus and that any decision to invest should be based onconsideration of the Prospectus as a whole. Where a companyprepares the Prospectus as a single document it must also containa summary in the form referred to in this paragraph.

Based on current market practice, companies issuing equitysecurities in an IPO generally prepare a single Prospectus ratherthan a tripartite Prospectus. A Prospectus is valid for 12 monthsfrom its date of publication, subject to updating by way of aSupplementary Prospectus on further non-exempt issues ofshares being made within the 12 month period. The advantage ofpreparing the Prospectus as three separate documents is likely inpractice to be relevant principally to debt issuers conducting

repeat offer programmes which anticipate issuing additional debtsecurities in the 12 months following admission. This is on thebasis that, for each issue of debt securities during the 12 monthperiod from approval of the initial registration document, they willonly need to prepare a new securities note and summary (subjectto any updating of the registration document which may berequired) rather than prepare a new Prospectus.

6.4 Responsibility for the Prospectus

Under the Prospectus Rules, the company and its directors(including proposed directors) have primary legal responsibility forthe Prospectus. In addition, any person who has authorised anypart of the contents of the Prospectus will incur liability for thatpart of the Prospectus. This will include the ReportingAccountants in respect of their reports on the historical and anypro forma financial information in the Prospectus.

The Prospectus Rules lay down the minimum disclosurerequirements for the registration document and securities note. Inboth the registration document and the securities note, adeclaration is required by those responsible for the relevantdocument in the following terms:

“that, having taken all reasonable care to ensure that such isthe case, the information contained in [the registrationdocument – in the case of the registration document where atripartite Prospectus is prepared] [the prospectus – in the caseof the securities note or where a single Prospectus is prepared]is, to the best of their knowledge, in accordance with the factsand contains no omission likely to affect its import”.

The Prospectus will include a responsibility statement in the aboveform from the company, its directors and any proposed directorsof the company taking responsibility for the entirety of theProspectus. In addition, the Reporting Accountants will be


Section 6: The Prospectus

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required to make a responsibility statement in the Prospectus inrespect of those parts of the Prospectus for which they willtake responsibility.

In the summary contained in the Prospectus (see section 6.3above), the warning is required to contain a statement that civilliability attaches to those persons who are responsible for thesummary but only if the summary, when read together with theother parts of the Prospectus, is misleading, inaccurate orinconsistent or does not provide the key information required inorder to aid investors when considering whether to invest in thecompany’s securities.

A list of all those persons responsible for the Prospectus and thenature of potential liabilities arising on listing are set out in section 9.

6.5 Information required to be disclosed in the Prospectus

The Prospectus Rules specify the minimum disclosurerequirements for a Prospectus and set out the information whichmust be included in each of the registration document and thesecurities note. The content requirements set out in theProspectus Rules are also supplemented by the EuropeanSecurities and Markets Association (“ESMA”) Recommendations.These provide additional guidance on the nature and extent of thefinancial information to be included in the Prospectus and containadditional information requirements for specialist issuers.

Where the company elects to prepare a single rather than atripartite Prospectus, it is free to decide the order in which therequired information appears in the Prospectus and it need notsegregate the information required to be included in theregistration document and the securities note in the manner inwhich a company preparing a tripartite Prospectus would berequired to do so. By way of example, a company preparing a

single Prospectus is likely to combine under a single “RiskFactors” heading those risk factors specific to the company or itsindustry (see section 6.5.1(f)) and those risk factors specific to theshares (see section 6.5.2(a)).

Set out below is a summary of the broad range of informationwhich is required to be disclosed in the registration documentand the securities note, or in the case of a single Prospectus,the Prospectus.

6.5.1 Registration document(a) Persons responsible, auditors and other experts

The names and addresses of the directors and any expert towhom a statement or report included in the Prospectus hasbeen attributed, must be disclosed. The names, addressesand qualifications of the auditors who have audited thecompany’s accounts for the last three financial years must alsobe disclosed.

(b) The company and its capital

Details of the place of incorporation, registered and head officeof the company and its principal objects must be recorded,together with a summary of the company’s constitution. Thegroup structure, details of significant subsidiaries andinformation on the capital structure of the company and itsgroup over the preceding three years must be disclosed.

The names of persons who control the company and theproportion of voting capital held must be detailed, along withdetails of any person holding a notifiable interest in thecompany’s capital (generally three per cent. or more). Thecompany must also disclose details of any controllingshareholder and describe the measures in place to ensure thatany such control cannot be abused.



Details of any transactions with related parties3 entered into inthe period covered by the historical financial information up tothe date of the Prospectus must also be disclosed.

Details of each material contract, other than contractsentered into in the ordinary course of business, entered intoin the two years preceding the date of the Prospectus mustbe provided. Information must also be included about anyother agreement (not being a contract entered into in theordinary course of business) entered into at any time whereany member of the group is subject to any obligation orentitlement which is material to the group as at the date ofthe Prospectus.

(c) The group’s operations and interests

The Prospectus must give a description of the group’soperations and principal activities with information on theproducts or services sold or performed together with abreakdown of total revenues over the last three financial yearsby category of activity and geographical market.

Details of the group’s interests in property, plant andequipment and, where material, research and developmentand patents and licences must be provided along withinformation on the group’s capital resources.

(d) Operating and Financial Review (“OFR”)

The OFR must provide a description of the company’s financialposition, changes in financial condition and results ofoperations for each financial year and interim period reportedon in the Prospectus. It should also include information on thecauses of material changes from period to period in the

financial information to the extent necessary for anunderstanding of the company’s business as a whole.

(e) Recent developments and prospects

Information on the trend of the group’s business since thelast annual accounts (including significant trends inproduction, sales and stocks and the state of the order book)and recent trends in costs and selling prices must beincluded in the Prospectus.

Information on the group’s prospects for at least the currentfinancial year, relating to the financial and trading prospects(including all special trading factors or risks not mentionedelsewhere) must also be given.

Where a profit forecast or estimate is given, the principalassumptions must be stated and the forecast or estimatemust be examined and reported on by the ReportingAccountants or auditors. When a company has made astatement other than in a previous Prospectus that wouldconstitute a profit forecast or estimate if made in theProspectus, and that statement is still outstanding at the timeof publication of the Prospectus, the company must state inthe Prospectus whether such forecast or estimate is stillcorrect or explain why it is no longer valid if that is the case.

(f) Risk factors

Prominent disclosure of risk factors specific to the company orits industry must be disclosed in a section headed “RiskFactors”. In the context of a UK listing that also features a USOffer, the risk factors are subject to various rules of practice,including that the discussions should not be overly generalisedand should not contain mitigating language.


3.“Related party” transactions are defined in IAS 24 (Related Party disclosures) and cover, among other things, any transaction with a party that controls or is controlled by anymember of a company’s group, an associate of any group company or any joint venture in which any group company is a venturer. It also includes transactions with keymanagement personnel of any group company (which would include any director or other person having authority and responsibility for planning, directing and controlling theactivities of a group company) and spouses and children of any such person.


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(g) Assets, liabilities, financial position and profits and losses

The Prospectus must contain audited historical financialinformation on the company and its group covering the latestthree financial years and the audit report in respect of eachyear. The financial information contained in the Prospectusmust be prepared in accordance with IFRS. For non-EUissuers, the financial information must be prepared inaccordance with IFRS or in accordance with their nationalaccounting standards where such standards have beendeemed equivalent to IFRS4.

The Reporting Accountants will be required to report on thehistorical financial information in the Prospectus and to statewhether or not such information gives a true and fair view, inaccordance with applicable accounting standards. This reportis commonly known as the “short form report”.

The accounts for the last two years must be presented andprepared in a form consistent with the standards to beadopted in the company’s next published annual financialstatements. For an EU issuer, this will be IFRS as, once listed,it will be required to report in IFRS.

In addition, in circumstances where a company is seeking aPremium listing and its Prospectus will be dated more thannine months after the end of its last audited financial year, thecompany will be required to include in its Prospectus interimfinancial information covering at least the first six months of thefinancial year. This is necessary in order to satisfy both theeligibility requirement in the Listing Rules that the lastpublished audited financial information must not be more thansix months old and the content requirement in the Prospectus

Rules that where the Prospectus is dated more than ninemonths after the end of the last audited financial year, it mustcontain interim financial information covering at least the firstsix months of the financial year. The interim financialinformation must include comparative statements for the sameperiod in the prior financial year.

If the audited financial information is prepared in accordancewith national accounting standards, it must include at leastthe following:

(i) balance sheet;

(ii) income statement;

(iii) cash flow statement;

(iv) a statement showing changes in equity; and

(v) accounting policies and explanatory notes.

Details of dividends per share over the last three years andsignificant changes in the financial or trading position of thegroup since the end of the last financial period for whichaudited or interim financial information was published mustalso be stated.

(h) Management and employees

The names and functions of the directors and senior managersmust be given together with their management expertise andexperience. Details must be provided of any insolvencyproceedings in respect of companies or partnerships of whichany director or senior manager is at the date of the Prospectus,or was within the preceding five years, a member of theadministrative, management or supervisory body or a partner.


4.Japanese, Canadian, South Korean, Chinese and US GAAP are all considered equivalent to IFRS for the purposes of the Prospectus Directive and the Transparency Directive.Transitional equivalence status has also been granted to Indian GAAP until 31 December 2014.


Information on directors’ and senior managers’ remunerationand benefits must be set out together with details of anypotential conflicts of interest between such persons’ privateinterests and those of the company.

Details of board practices and directors’ service contractswhere these provide for benefits on termination must beprovided, along with a statement as to whether or not thecompany complies with its country of incorporation’s corporategovernance regime. For a UK incorporated company, astatement of compliance with the UK Corporate GovernanceCode (formerly the Combined Code) will be required (seesection 10.8). If the company does not comply with any suchregime then it must include an explanation in the Prospectus.

Details of the number of employees must be disclosed alongwith, where possible and if material, a breakdown of personsemployed by category of activity and geographic location.

(i) Specialist issuers

Certain types of issuer will be required to include additionalinformation in the Prospectus. In particular, propertycompanies and shipping companies will be required to includean expert valuation of their respective property or shippingassets. Mineral companies are required to include details ofreserves in any Prospectus, along with an independentexpert’s report. Specific content requirements also apply toProspectuses prepared by start up companies and scientificresearch based companies. See section 13 for furtherinformation on specialist issuers.

6.5.2 Securities note(a) Risk factors

There must be prominent disclosure of the risk factors materialto the shares offered in order to assess the market riskassociated with the shares in a section headed “Risk Factors”.

(b) Working capital and indebtedness

The Prospectus must contain a statement by the companythat, in its opinion, it has sufficient working capital for itspresent requirements or, if not, how it proposes to obtain theadditional working capital needed. If the company is unable togive a “clean” working capital statement (i.e. that it hassufficient working capital) then it will not satisfy the eligibilityconditions for admission to the Official List (see section 4.1.9).

A statement of capitalisation and indebtedness must beprepared as of a date no earlier than 90 days prior to the date ofthe document. This information must be presented in a tabularformat setting out current and non-current debt (distinguishingbetween guaranteed and unguaranteed and secured andunsecured indebtedness) and shareholders’ equity.

(c) The shares and the offer

A description of the type and class of shares must be included,together with a summary of other rights (including votingrights) attaching to the shares.

Details of the conditions to which the offer is subject, thetimetable and the categories of investors to whom the sharesare being offered must each be disclosed and, if known,whether major shareholders or management of the companyintend to subscribe in the offer. The document must alsodescribe any pre-determined preferential treatment to begranted to certain classes of investors (including friendsand family).

Information must be given on pricing, or where pricing is yet tobe established, the method for determining price and theprocess for disclosure of the price. Details must also beincluded about any selling shareholder as well as informationabout the underwriting, stabilisation and dealing arrangements.



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6.6 Equivalent information

Where certain information required to be included in theProspectus is inappropriate to the company’s activities, legal formor to its shares, the Prospectus must contain informationequivalent to that required.

6.7 Omission of information from the Prospectus

FSMA allows the FCA to authorise the omission of informationfrom a Prospectus in the following limited circumstances:

(a) where disclosure would be contrary to public policy;

(b) where disclosure would be seriously detrimental to thecompany, provided the omission would be unlikely to misleadthe public with regard to any facts or circumstances which areessential for them to make an “informed assessment”(see section 6.2); or

(c) where the information is only of minor importance to the offeror application for admission to trading and would be unlikely toinfluence any “informed assessment”.

6.8 Display documents

The Prospectus Rules require certain information regarding thecompany to be made available for public inspection, including:

(a) the company’s memorandum and articles of association;

(b) all reports, letters, and other documents, historical financialinformation, valuations and statements prepared by any expertat the company’s request any part of which is included orreferred to in the Prospectus; and

(c) the last two years’ consolidated audited accounts.

The registration document must state where these documentscan be inspected, either in physical or electronic form.

6.9 Supplementary Prospectus

A Supplementary Prospectus must be prepared if, during theperiod between when the Prospectus has been formally approvedby the FCA and before the offer closes or trading in the newsecurities commences, the company becomes aware of asignificant new factor, material mistake or inaccuracy relating tothe information included in the Prospectus.

For these purposes, “significant” means significant in the contextof the informed assessment test set out in section 6.2. TheSupplementary Prospectus must contain details of the new factor,mistake or inaccuracy and must be submitted to the FCA forapproval prior to publication.

6.10 Advertising

The Prospectus Rules require that any advertisement relating toan offer of securities to the public or to an application foradmission to trading must not be issued unless it states that aProspectus has been or will be published and indicates whereinvestors will be able to obtain a copy of it and it is clearlyrecognisable as an advertisement. The information in theadvertisement must not be inaccurate or misleading and must beconsistent with information contained in the Prospectus.

Any written advertisement must also contain a bold and prominentstatement to the effect that it is not a Prospectus but anadvertisement and that investors should not subscribe for anyshares referred to in the advertisement except on the basis ofinformation in the Prospectus. Any unapproved Pathfinder orPrice-Range Prospectus will be treated as an advertisement andmust comply with these requirements.



6.11 Right of withdrawal

FSMA sets out certain circumstances in which an investor whohas agreed to buy or subscribe for shares on the basis of aProspectus may withdraw his acceptance.

Where a company issues an approved Pathfinder or Price-RangeProspectus that does not include the final offer price and amount of the securities that are to be offered to the public thenit must either:

(a) include in the Prospectus the criteria and/or conditions inaccordance with which the final offer price and amount ofsecurities will be determined or, in the case of price, themaximum price; or

(b) it must permit an investor who has agreed to take up securitiesin such circumstances to withdraw his acceptance at any timebefore the end of the two business days after the date onwhich the FCA is informed in writing of such information.

In addition, an investor will have a right of withdrawal where aSupplementary Prospectus has been published and, prior to itspublication, that investor has agreed to buy or subscribe forshares. In that instance, the investor has two business days5 fromthe date of publication of the Supplementary Prospectus towithdraw that acceptance.

An issue may arise if a company announces the offer price and/ornumber of securities by means of a Supplementary Prospectus,thereby triggering a right of withdrawal. Whilst this may not be ofconcern in an institutional offer where subscriptions may becapable of being confirmed after pricing and publication of aSupplementary Prospectus, it may be of concern where the offer

involves a retail offer to the public. Where an approved Pathfinderor Price-Range Prospectus has been issued, retail investors arelikely to have been asked to confirm their subscriptions prior to thedate of publication of the Supplementary Prospectus andconfirmation of the final offer price. A retail investor may decide towithdraw his acceptance for any reason. For example, if the finalissue price is set above the maximum price stated in thePathfinder or Price-Range Prospectus, this could trigger such adecision. However, in that example, on the assumption that theoffer would only be priced above the maximum price range if theoffer was over subscribed, it is unlikely that there would be anyproblem placing any such “rejected” shares elsewhere.

As discussed in section 6.9, the requirement to publish aSupplementary Prospectus can be triggered at any time prior totrading in the securities commencing in the event that a significantnew factor, material mistake or inaccuracy relating to theinformation included in the Prospectus is discovered. It is likely thatif a Supplementary Prospectus is required to be published withintwo business days prior to admission, admission would need to bedelayed until the right of withdrawal period had expired.

6.12 US requirements

If a US Offer is made to US investors in reliance on section 4(a)(2)or Rule 144A of the Securities Act (see section 5.6), the offerdocument to be used in the United States will generally need toinclude certain information in order to conform to US disclosurestandards. This is usually achieved either by including the requireddisclosures in the Prospectus or by wrapping additional pages,which include the additional disclosures, around the Prospectus foruse in connection with the US Offer (known as the “US Wrap”).


5.Issuers may extend the withdrawal period beyond two business days. However, it is unlikely that any issuer would want to extend the withdrawal period given the potentialdisruption to the offer caused by an investor’s right of withdrawal.


53

The offer document to be used in the United States will need toinclude a detailed explanation and analysis of the company’shistorical financial results, usually in a year to year comparativeformat, which traditionally was referred to as a “Management’sDiscussion and Analysis” (or “MD&A”) in which significanttrends in the results of operations (including revenues, expensesand profits or losses) of the company and its consolidatedsubsidiaries for the past three financial years and the latest year todate interim period are highlighted. The period to periodcomparisons either include or are accompanied by a discussion ofthe key factors that drive the company’s financial performance.The MD&A also includes information on the company’s liquidityand capital needs and the methods by which the company hasmet and will meet such needs and an analysis of the company’soff-balance sheet transactions (if noteworthy).

Following the introduction of the requirement for an OFR in the EUthrough the Prospectus Directive, and the increased harmonisationof US MD&A disclosure requirements with EU Prospectus Directiveoperating and financial review requirements (see section 6.5.1(d)),this section is now generally written in order to satisfy both US andEU/UK requirements and is referred to as the OFR.

If the issuer is a bank, the US offering document would also containso called “Guide 3” information, which includes average balancesheet and other statistical data, while the offering document forother specialised or regulated issuers such as insurancecompanies, oil and gas companies and property companies wouldalso typically contain specific additional disclosures.

The offer document will also contain disclosure that is specificallyrelevant to US investors, such as information relating to UStaxation, restrictions on transferability, differences in accountingprinciples and certain legends required by US federal and statesecurities laws.

6.13 “Passporting” the Prospectus

The Prospectus Directive allows a company which has a Prospectusapproved by the competent authority of its home state (provided it iswithin the EEA) to use that same Prospectus to offer its shares to thepublic, or seek admission to trading of its securities, in any othermember state of the EEA (a “host state”), subject only to the hoststate being provided with copies of the following:

(a) the Prospectus; and

(b) a certificate of approval issued by the competent authority ofthe company’s home state stating that the Prospectus hasbeen drawn up in accordance with the Prospectus Directive.

The host state may also require the summary contained in theProspectus (but not the registration document or securities noteelements) to be translated into its official language.

To illustrate this, consider the situation of a French company thathas prepared a Prospectus in relation to a listing of its shares onNYSE Euronext Paris and which now wishes to undertake aPremium listing of its shares on the Official List. Under theProspectus Directive, it could use the Prospectus prepared inconnection with its listing on NYSE Euronext Paris and which wasapproved by the French competent authority, the AMF, in order tosatisfy the eligibility condition in the Listing Rules that a companymust prepare a Prospectus to achieve admission to the OfficialList. It would of course still need to satisfy the other eligibilityconditions set out in the Listing Rules (see section 4) but inrespect of the Prospectus, the Prospectus Rules prevent the FCAfrom taking any steps to approve the Prospectus so long as it isprovided with a copy of the Prospectus, a certificate of approvalfrom the AMF and an English translation of the Prospectussummary. The same considerations would apply to a UK companyseeking to use an FCA-approved Prospectus to “passport” itssecurities into another member state.



6.14 Prospectus drawn up in accordance with thirdcountry lawsWhere a company registered in a non-EEA state has drawn up aprospectus in accordance with the legislation of that country, theFCA may approve the prospectus for the purposes of theProspectus Rules if it is satisfied that the prospectus has beendrawn up in accordance with international disclosure standardsand that the information requirements, including the financialinformation, are equivalent to the requirements under FSMA, theProspectus Directive Regulation and the Prospectus Rules.

This provision is particularly useful for companies with a listing innon-EEA jurisdictions that are seeking admission to the Official Listas, subject to FCA approval, they may be able to use their existingprospectus rather than prepare a new Prospectus pursuant to theProspectus Rules. The FCA has stated that it will apply thisdiscretion on a case-by-case basis.



Underwriting

7.1 Underwriting Structures7.2 The Underwriting Agreement7.3 The Over-allotment option

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7.1 Underwriting Structures

The most common underwriting structure used in UK IPOs is thebookbuilding structure. Traditionally, this was only used in the USand in debt and international equity transactions, but it is now thenorm, even in a purely domestic UK transaction. Under thisstructure, the Global Bookrunner and the Underwriters market theoffer to investors using a Pathfinder or Price-Range Prospectusand before the exact offer price is known.

The Global Bookrunner and Underwriters use the Pathfinder orPrice-Range Prospectus to obtain expressions of interest frominstitutions which indicate the likely level and price at which theywould participate. At the end of the marketing period, the priceand size of the offer are determined and published. Orders for theshares are then confirmed, the shares are allocated and tradingbegins. Since sales to investors are usually confirmed immediatelyafter pricing, the risk to the Underwriters is limited to the periodfrom pricing to cash settlement with investors.

On bookbuilt transactions, Underwriters will make a severalcommitment (so that each Underwriter is responsible for its owncommitment only) although they will often agree to be obliged topurchase pro rata to their commitments up to a certain amount(e.g. 10 per cent. of the underwritten shares) if one or moredefaults. If a default occurs in respect of more than that amount,the Underwriters are not obliged to cover it and may terminate theunderwriting agreement. This will leave the company withremedies against the defaulting Underwriter pursuant to the termsof the underwriting agreement.

7.2 The Underwriting Agreement

Usually, the underwriting agreement will be executed at the time ofpublication of the approved Prospectus although theUnderwriters’ underwriting commitment will not commence until

pricing is determined (in the case of an approved Price-Range orPathfinder Prospectus).

The underwriting agreement used in either a bookbuilt or a fixedprice structure has the following key provisions:

7.2.1 ConditionsThere will be a clause specifying the precise conditions whichneed to be satisfied before the agreement becomes unconditional.A key condition will be the admission of the securities to theOfficial List and admission to trading on the Exchange eachoccurring and becoming effective. Another key condition is thedelivery of a certificate from a duly authorised officer of thecompany that, to the best of his knowledge and belief, there hasbeen no material adverse change in the condition, financial orotherwise, of the company since the execution of the underwritingagreement. This certificate usually goes on to say that no eventhas occurred which would make any representations andwarranties contained in the underwriting agreement incorrect in amaterial respect and that the Prospectus does not contain anymaterial inaccuracies or omissions.

For the Underwriter, an important condition may be force majeure,which is covered in more detail in section 7.2.5.

Other conditions will include a number of fairly mechanicalmatters, such as a provision that the company and/or sellingshareholder(s) must have delivered certified copies of all theprincipal documents relating to the offer to the Underwriter so thatit can check that these are in order and legal opinions as to thecompliance by the issuing entity with applicable laws.

7.2.2 The commitment to take sharesThe next key clause in the underwriting agreement is likely to bethe one imposing the commitment on the Underwriters to


7. Underwriting

subscribe for or to purchase the shares. Shares will be acquired atthe offer price less any commissions, such as management,underwriting and selling commissions.

7.2.3 Warranties/IndemnitiesIn an offer of shares, the company and, sometimes, sellingshareholders will be expected to provide comfort to theUnderwriters relating to the state of the company and theaccuracy of information contained in the Prospectus. Directors arealso likely to be asked to provide representations and warranties.

Examples of the most common representations and warrantiesthat the company will be expected to provide are in relation to:

(a) the accuracy of the information contained in the Prospectus;

(b) the accuracy and correct presentation of the financialstatements which will form part of the Prospectus;

(c) the fact that the company is duly incorporated and has thecapacity to enter into all relevant agreements;

(d) the fact that there is no material litigation outstanding againstthe company (other than as may be disclosed in theProspectus); and

(e) that there has been no material adverse change in thecompany’s circumstances since the date of the lastaudited accounts.

In addition, the company will be expected to agree to indemnifythe Underwriters for, amongst other things, any loss incurred bythem as a result of any misstatement or omission in theProspectus or as a result of a breach of any other representationsand warranties given by it in the underwriting agreement.

These provisions generally provide the major source of discussionduring the negotiation of the underwriting agreement. The

Underwriters will view the warranties and indemnities not only as arisk allocation exercise but also as an important part of the duediligence process. These should obviously be reviewed by thecompany very carefully. There are often instances wherediscussions over the ambit of a particular warranty will lead toadditional disclosures in the Prospectus.

7.2.4 Selling restrictionsIt is usual for Underwriters to undertake in the underwritingagreement to sell the shares only in accordance with the sellingrestrictions which will be set out in the agreement. Theserestrictions will set out the circumstances in which the shares maybe sold in jurisdictions other than the UK. These provisions arealso important for the company. It will not want the Underwritersto do anything which imposes liabilities or obligations on thecompany in other jurisdictions, for example, a registrationobligation in the US. If there is a US Offer, the Underwriters will berequired by the selling restriction provisions in the agreement tooffer and sell the securities only to persons whom theUnderwriters reasonably believe to be QIBs, accredited investorsor persons permitted to purchase the securities in offshoretransactions in reliance on Regulation S.

7.2.5 Force Majeure/TerminationThis area is concerned with what happens if disaster strikesduring the underwriting period – for example, war breaks out orthere is a stock market collapse. The Underwriter will argue that itis being paid its commission for taking a usual “market risk” butnot for agreeing to take shares in all circumstances, regardless ofa sudden disaster.

If the Underwriters require the right to terminate their underwritingobligations in such a case they need to include a force majeureclause in the underwriting agreement. Such a clause would besubject to negotiation but in broad terms would specify the force


Section 7: Underwriting

59

majeure events – for example, “such a change in the condition(financial or otherwise), prospects or earnings of the group or innational or international financial, political or economic conditionsas would or might in the opinion of the Underwriters be likelymaterially to prejudice the offer” – and go on to provide that insuch a case the Underwriters can terminate the agreement.

In periods of difficult market conditions, there will be much morefocus on the circumstances in which the Underwriter mayterminate its underwriting obligations and these provisions arelikely to be the subject of extensive negotiation.

7.2.6 Lock-upsRestrictions on new issues of shares are normally imposed on thecompany and, if relevant, on sales of existing capital by any othersignificant shareholders, to maintain a stable after-market.

The directors and senior management of the company are alsolikely to be subject to lock-up provisions in respect of any sharesowned by them for a prescribed period after admission of theshares to the Official List.

7.3 The Over-allotment option

One of the principal features and advantages of bookbuilding isthat the offer price is fixed at a level which should reflect demandmore accurately. This generally has the effect of reducing thelikelihood of large movements in the company’s share priceimmediately following the offer period.

However, the process can never be an exact science and there isa risk (in part due to the inherent uncertainty in the processbecause the ultimate size and pricing of the offer is not knownuntil the end of the bookbuilding process) that the post-offerdemand for the shares will exceed supply or vice versa leading tovolatility in the price. Thus, a price stabilisation mechanism which

may be incorporated into the offer has developed to counteractthis volatility. There are also other ways of seeking to secure astable after-market, such as under-allocating shares to encouragepurchasers in the after-market to balance sales in that period byinvestors keen to make a quick profit, but the price stabilisationmethod is the most common.

This mechanism enables the lead manager to “over-allot” whenallocating shares following the pricing of the offer; that is, allocatemore shares to investors than are actually being offered.Alternatively, the Underwriters may effect transactions whichstabilise or maintain the market price of the shares at a level whichmight not otherwise prevail.

If an Underwriter over-allots, it will find itself with a short positionbecause it will be committed to delivering more shares than it hasto sell. One way for an Underwriter to cover this short position isfor it to borrow shares from an existing shareholder. TheUnderwriter will use these borrowed shares to settle the IPO atclosing. The Underwriter will then need to return shares to thelender pursuant to the stock borrowing arrangements. One way inwhich an Underwriter could do this is for it to purchase shares inthe market and give them to the lending shareholder. However, theattractiveness of doing this, or its ability to do it, will depend onthe market price relative to the original offer price.

To protect itself against the risk of the market price being abovethe offer price, the manager can take an option from the companyor, more commonly, a selling shareholder to call for the issue orsale of further shares in the company at the offer price. This isknown in the market as a “Greenshoe” (so called because it isbelieved to have been first used in connection with an offer ofshares in an American company known as the GreenshoeCompany) or “over-allotment option”. Price stabilisation(accompanied by an over-allotment option) helps to avoid



pronounced movements in the share price immediately followingthe offer. In addition, if there is a strong demand for the shares, thecompany can benefit from this by raising additional proceeds inthe offer to the extent that the Greenshoe option is granted by thecompany (as the over-allotment option will be exercised).

Given the pricing techniques used in IPOs, the stabilisation ofoffers is very important. Some jurisdictions have complex rulesaffecting the ability to stabilise transactions, which will necessitatediscussions with the regulators in advance to arrive at a workablemethod on an international basis.

FSMA imposes penalties in cases of market abuse (see section9.6) and, on the face of it, stabilisation activities by the StabilisingManager and the Underwriters would be likely to constitutemarket abuse. However, FSMA expressly provides that certain

conduct does not amount to market abuse if it conforms with therelevant provisions of the Stabilisation Regulation. This is an EUregulation which details the procedures which must be followedby the Stabilising Manager and the Underwriters in order for anystabilisation activity carried out by them to benefit from a“safe harbour” from claims against them for market abuse.Stabilisation activities could also constitute the UK criminaloffences of insider dealing and market manipulation set out in theCriminal Justice Act 1993 and the Financial Services Act 2012respectively but, so long as such activities are conducted incompliance with the Stabilisation Regulation, the StabilisingManager and the Underwriters will have a defence againstcharges of insider dealing or market manipulation in respect ofsuch stabilisation activities.



Marketing and publicity issues

8.1 Legal restrictions on marketing and publicity8.2 The publication of brokers’/analysts’ research8.3 Internet offers8.4 Document clearance

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There are a number of important legal issues in relation to themarketing activities carried on before, during and after the IPO. Inparticular there are stringent and complex legal restrictions thatgovern the type of information that can be released, the timing ofits release and the form in which it is released.

The restrictions and procedures apply to the company and itsdirectors, other officers, employees and advisers (including PRadvisers). It is extremely important that the restrictions arecomplied with, as failure to do so can lead to both civil and criminalliability being imposed on those responsible for the publication ofthe information or for the omission of material information.

8.1 Legal restrictions on marketing and publicity

The principal UK statutory restrictions are imposed by FSMA andthe Financial Services Act 2012 (“FS Act”). Section 21 of FSMAprovides that (subject to certain exemptions) no person other thanan authorised person may issue a “financial promotion”(essentially any communication inviting or inducing persons toengage in investment activity) unless its contents have beenapproved by an authorised person. A person who contravenes thissection is liable to criminal sanctions and, in addition, agreementsentered into following an unlawful communication, such as aninvitation to subscribe for shares, are potentially unenforceable.

The Sponsor, as a person approved by the FCA, will be anauthorised person and so may approve the issue of, or itself issue,any “financial promotion”. In doing so, it must comply with theFCA’s Conduct of Business Sourcebook which, among otherthings, requires the authorised person to be able to show that thecommunication is fair, clear and not misleading. Any publicationproposed to be issued in connection with the company’s businessor the proposed IPO must be carefully examined to ascertainwhether it constitutes a “financial promotion” and is thereforesubject to the relevant restrictions.

Issuers must also bear in mind the restrictions on advertisingcontained in the Prospectus Rules (see section 6.10).

Section 89 of the FS Act makes it a criminal offence to make astatement which is false or misleading in a material particular, or todishonestly conceal material facts, with the purpose of inducing(or being reckless as to whether it may induce) another person toenter into or refrain from entering into a “relevant agreement” orto exercise or refrain from exercising a right conferred by a“relevant investment”. A “relevant investment” includes sharesand a “relevant agreement” includes an agreement to purchase orsubscribe for shares.

Under section 90 of the FS Act, it is a criminal offence to doanything which may create a misleading impression as to themarket in, or the price or value of, any relevant investments. Anoffence may be committed where an individual makes amisleading impression recklessly as well as in circumstanceswhere it is made intentionally.

There are also restrictions imposed under the general lawconcerning liability for misrepresentation or misstatement (includingunder the Misrepresentation Act 1967, the Fraud Act 2006 and thetort of deceit) and under codes of practice relating to advertising.

In connection with any offer of securities outside the US (includinga listing in the UK), parties must ensure that there are no“directed selling efforts” that could jeopardise the company’sability to rely on Regulation S, regardless of whether there is a USOffer contemplated.

Furthermore, as discussed in section 5.6, if there is a US Offer,additional restrictions on publicity may be required. If the companyis relying on the section 4(a)(2) exemption, there must be no“general solicitation” or “general advertising” by the company


8. Marketing and publicity issues

or any person acting on its behalf. If the company is relying on theRule 144A exemption, US market practice likewise calls for theavoidance of any general solicitation or general advertising.

While SEC rules provide some guidance in defining andinterpreting the terms “directed selling efforts”, “generalsolicitation” and “general advertising”, the broad nature of theguidance means that the company and parties involved in the USOffer must be vigilant and implement appropriate protections toensure that no advertisements, articles, seminars or othercommunications are initiated with US investors during the offer.

Typically, the legal advisers to the company will provide USpublicity guidelines to the company. These guidelines aredesigned to help prevent the possibility of the parties engaging inactivities that could constitute “general solicitation”, “generaladvertising” or “directed selling efforts”. Usually the guidelinesapply from the day when the company first decides to access theUS capital markets until 40 days after the actual initial sale of thesecurities to US investors (or the closing date).

8.2 The publication of brokers’/analysts’ research

An issue arising from the preparations for listing is the need toregulate the publication, content and distribution of research notesissued by those brokers that are connected with the company orthe Underwriters (for example, by virtue of being part of the samegroup of companies as the Underwriter) and which are known as“connected brokers”.

So far as broking reports and circulars are concerned, these shouldbe produced independently of the company so that the companyhas no control over them (even if they are prepared by connectedbrokers) and cannot normally be regarded as responsible for the

information in them. However, the company should seek to reduceany risk that it might be responsible for them by:

(a) ensuring that any information that is provided to the broker isinformation that is already in the public domain;

(b) following agreed document clearance procedures beforeproviding any information to a broker; and

(c) not approving the research.

The position regarding connected brokers is more difficult than forindependent brokers because of the potential for conflicts ofinterest to exist for the broker. In addition, the closer to thepublication of the company’s Prospectus that the research note ispublished by a connected broker, the greater will be the risk thatan investor may claim that the research note comprises part of theoffer material of the company and therefore that the investor reliedon the research note in making its decision whether or not toinvest. Although it is market practice for connected brokers topublish research on the company prepared by their ownindependent analysts, and for the connected brokers to acceptliability for the research, the research may be perceived in themarket as being informed and this increases the risk of reliance byinvestors on statements in the research.

If the company or its directors actively take part in thepreparation of the research note, there is also a risk that theymay be subject to criminal liability under the FS Act or under theFraud Act 2006 for false or misleading statements in theresearch note which are not corrected in the Prospectus orwhich create a misleading impression as to the market in, orprice or value of, the company’s shares. The connected broker isusually asked to submit a draft of the research note to thecompany and the Sponsor to enable the company to check the


Section 8: Marketing and publicity issues

65

accuracy and consistency of factual statements but no commentshould be given by the company or its advisers on the opinionsexpressed in the research note (save where any factualinformation on which an opinion is based is incorrect).

In order to assist in distancing the company from any researchpublished by its brokers, a blackout period is usually established,during which it is agreed that the connected broker will not publishresearch notes on the company or the issue.

The FSA (the predecessor to the FCA) consulted on theintroduction of mandatory blackout periods in 2003 but concludedthat it would leave the decision as to whether to impose ablackout period to individual firms. In practice, a blackout period isusually established which begins approximately two weeks beforepublication of the Prospectus and ends 40 days after admission.

Where the IPO includes a US Offer, the distribution of researchinto the United States ahead of the offer is generally prohibited. Inthe case of Rule 144A offers, distribution is technically permissibleif made to QIBs who have a pre-existing relationship with thedistributing investment bank (and the investment bank’s internalpolicies permit the distribution to QIBs). However, distribution ofresearch into the US in such circumstances creates a risk ofpotential liabilities under the US anti-fraud rules and is thereforeallowed only in exceptional circumstances. The legal advisers tothe Sponsor will typically provide a memorandum to the company,the Sponsor, the Underwriters and the research analystsexplaining the restrictions relating to the distribution of researchreports to US investors during the offer period.

8.3 Internet offers

While exactly the same matters discussed above need to beconsidered for offers and documents, including press releases,made available via the internet, there are additional considerationsto be taken into account when deciding whether and how tomake offers and documents available on-line. Theseconsiderations apply no matter in which jurisdiction the materialhas been placed or stored on the internet. What is of primarysignificance is who is able to access offer-related material. This isparticularly important as the Prospectus Rules allow a company tomake the Prospectus available to the public by means ofpublication on its, or its Sponsor’s, website (see section 3.6). Inaddition, a company may choose to make other material relatingto the offer, such as press releases, available on the internet.

If the material can be accessed by UK investors, the financialpromotion provisions of FSMA discussed in section 8.1 will applyand the company must ensure compliance with all the attendantregulations or face possible criminal and civil liability. However, anequally significant concern is ensuring that persons outside the UKare unable to access the web-based material unless it is intendedto be offered in, and complies with, the laws of those otherjurisdictions from which the material is accessible. In particular,from a US securities law perspective, materials made available viathe internet without restrictions on access can be viewed as thefunctional equivalent of a continuous press release into the US,which may raise significant concerns.

To guard against access by persons outside the jurisdictions inwhich the offer is intended to be made, a series of internetfirewalls and/or other precautions should be taken.



While it may not be possible to prevent absolutely persons fromaccessing information by disguising or misrepresenting theircountry of residence or similar information, the adoption ofprocedures reasonably designed to prevent such access shouldprovide a degree of protection to a company, and any suchaccess premised on fraud or misrepresentation is unlikely to beviewed as the company having targeted investors outside theintended offer jurisdictions.

8.4 Document clearance

In order to ensure compliance with the legal constraints on therelease of information, a system for co-ordinating and vetting allcompany information before release should be establishedbetween the company, the Sponsor and the other advisers. Thisshould extend to:

(a) material to be issued to any source, for example employeesor the public at large or material to be posted on thecompany’s website;

(b) existing material that is to be used on an ongoing basis suchas corporate fact sheets; and

(c) new material such as advertising or presentations or any newmaterial to be posted on the company’s website.

It is common practice for someone within the company to act as a“clearing house” for all such information. Furthermore, in relationto incoming queries which might impact on the IPO (for examplefrom the press, employees or analysts) reference should be madeto that person.

The persons responsible for the clearance procedures must:

(a) ensure that no information is published which contradicts oris inconsistent with anything expected to be said inthe Prospectus;

(b) review and verify each document or other information toensure that it is true and is not misleading, either in theselection or omission of certain matters; and

(c) obtain legal advice in each case to ensure that the documentdoes not constitute a “financial promotion” or “directed sellingefforts”, if there is a US Offer, “general solicitation” or “generaladvertising” in the US (see section 8.1) or that, if it doesconstitute a financial promotion, and it is appropriate, thecontent of the document is approved by the company’s financialadvisers for that purpose and carries the necessary rubric.


Restricting access to offer-related materials

A company should ensure that:

(a) any document connected with the offer containsdisclaimers setting out the jurisdictions in which the offer ismade, legends indicating the restrictions applicable to theoffer and disclosure that the offer is not directed at thoseresident in other jurisdictions;

(b) documents posted on the web only include informationrelevant or targeted to investors in the jurisdictions in whichthe offer is made, and not in any language other than isrelevant to those jurisdictions;

(c) “click through” mechanisms, IP filters, password protectionsor other security measures are adopted in order to restrictor prohibit access to persons from jurisdictions where theoffer is not intended to be made;

(d) so far as is possible, site entry is limited on search enginesand hypertext links;

(e) emailings are not made, or are not made to email addresseswhich have not been verified as relating to persons withinthe offer jurisdictions;

(f) the server is maintained in a jurisdiction where the offer isintended to be made; and

(g) checks are made on applications to ensure that applicationshave not originated from other jurisdictions.


Possible liabilities arising on a listing

9.1 Persons responsible for the Prospectus under English law9.2 Civil liability9.3 Sharing liability9.4 Criminal liability9.5 Minimising the risk of liability for the Prospectus9.6 Market abuse9.7 Grey market trading9.8 Companies selling into non-UK jurisdictions

69

Offers of shares are regulated in all significant jurisdictions by,among other things, imposing potential liability on thoseresponsible for the offer. This section outlines some of the areaswhere liability may arise, principally under English law.

9.1 Persons responsible for the Prospectus under English law

Anyone responsible for the Prospectus may incur civil and/orcriminal liability for any omission from, or misstatement in,the Prospectus.

The persons responsible for the Prospectus (or, as noted below,part of the Prospectus) are determined by the Prospectus Rulesand are:

(a) the company and any other person offering the securities;

(b) the company’s directors at the time the Prospectus is published;

(c) those who have authorised themselves to be named in theProspectus as directors or are named as having agreed tobecome directors either at or after admission;

(d) those who have stated their acceptance in the Prospectus ofresponsibility for, or for any part of, the Prospectus; and

(e) those who have authorised the contents of, or any part of,the Prospectus.

Selling shareholders will not be responsible for the Prospectus underEnglish law so long as the company is required to take responsibilityfor the Prospectus under the Prospectus Rules, the Prospectus hasbeen drawn up primarily by the company and the sellingshareholders are making the offer in association with the company.

9.2 Civil liability

Under English law, civil liability for the Prospectus may arise underFSMA or general law.

9.2.1 FSMASection 90 of FSMA provides that the persons responsible for theProspectus are liable to pay compensation to a person who hasacquired any of the company’s shares and suffered loss in respectof them as a result of an untrue or misleading statement in, or anomission from, the Prospectus. Liability extends not only inrespect of an original acquiror of shares but potentially tosubsequent purchasers.

There are some exemptions from liability to pay compensation.A person responsible for the Prospectus will not incur liabilityunder section 90 if the court can be satisfied that, at the timewhen the Prospectus was submitted to the FCA, the personreasonably believed, having made such enquiries (if any) as werereasonable, that the statement was true and not misleading, orthat the matter the omission of which caused the loss wasproperly omitted. The person also has to have continued in thatbelief until the shares were acquired (unless the shares wereacquired before it was reasonably practicable to bring a correctionto the notice of potential investors), or has to have made everyreasonable effort to notify potential investors of the correctionbefore the shares were acquired. Alternatively, the person has tohave continued to believe that the statement was true or had beenproperly omitted following admission to the Official List and theshares were acquired after such a lapse of time that, in thecircumstances, the person ought reasonably to be excused.

No person can be required to pay compensation solely on thebasis of the summary in the Prospectus unless, when read withthe rest of the Prospectus, it is misleading, inaccurate orinconsistent or does not provide the key information required inorder to aid investors when considering whether to invest in thecompany’s securities (see section 6.3 above).


9. Possible liabilities arising on a listing

9.2.2 General lawIn addition to the statutory remedy under FSMA, in the event thatthe Prospectus proves to be inaccurate or incomplete, thedirectors may also be liable for misstatement, misrepresentation,breach of the directors’ duty to exercise the degree of skill andcare that may reasonably be expected from persons in theirposition, or pursuant to breach of contract under, for example, aservice agreement or an underwriting agreement.

9.3 Sharing liability

Liability is shared among those persons listed in section 9.1. Thismeans that an investor may sue, for example, any of the directorsand if the investor’s claim is successful that director may be liablefor the full amount. The director however has a statutory right ofcontribution from others who are responsible for the Prospectus(e.g. co-directors and the company).

9.4 Criminal liability

Criminal liability in connection with the Prospectus may arise underthe FS Act, the Theft Act 1968 or the Fraud Act 2006.

9.4.1 FS ActSection 89 applies to a person who makes a statement which thatperson knows to be false or misleading in a material particular andto a person who dishonestly conceals any material facts, orrecklessly makes a statement, which is false or misleading.

A person to whom section 89 applies is guilty of an offence if theperson makes the statement or conceals the facts for the purposeof inducing, or is reckless as to whether it may induce, anotherperson to purchase shares.

It is also an offence under section 90 of the FS Act for any personto do anything which creates a false or misleading impression asto the market in, or the price or value of, the securities in questionif that person intended to create that impression and, by doing so,

intended to induce another person to deal in those investments orto refrain from doing so.

An offence may be committed under section 90 where a personis reckless as to whether they have created a false or misleadingimpression, as well as in circumstances where they didso intentionally.

The penalty for contravention of sections 89 and 90 may includeimprisonment and/or a fine.

9.4.2 Theft Act 1968The Theft Act 1968 makes it an offence punishable byimprisonment for a person to falsify an account, or to make use ofa falsified account in giving information.

If either of these offences is committed by a company with adirector’s consent or connivance, he or she and the company areguilty of the offence.

The Theft Act 1968 also makes it an offence (punishable withimprisonment) for a person to publish or concur in publishing awritten statement which they know is or may be misleading, falseor deceptive in a material particular if it is with the intent to deceivethe company’s members or creditors about its affairs.

9.4.3 Fraud Act 2006To fall within the fraud offence established by the Fraud Act 2006,behaviour must:

(a) be dishonest (dishonesty being measured according to theordinary standards of reasonable and honest people; ifbehaviour would be regarded as dishonest by such people,the next test to be satisfied is that the person concerned mustrealise his or her actions were dishonest according to thosestandards); and


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(b) be intended to secure either a gain for the person concerned(or another) or to cause loss, or expose another to the risk ofloss, of money or any other property.

No gain or loss need actually be suffered for a fraud offence to becommitted. Two of the ways in which the offence can becommitted are relevant in the context of liability for the Prospectusand should therefore be borne in mind by directors:

(a) Fraud by false representation (section 2 Fraud Act 2006): it is anoffence to make a false representation by words or conduct asto any fact, law or state of mind of any person whether expressor implied, either knowing that the representation is false ormisleading, or being aware that it might be (note that the victimof the representation need not actually rely upon it); and

(b) Fraud by failure to disclose information where there is a legalduty to do so (section 3 Fraud Act 2006): legal duties canderive from statute (e.g. the provisions governing companyprospectuses under FSMA), contract, custom of a trade ormarket or from a fiduciary relationship.

There is explicit recognition in the Fraud Act 2006 that a corporatebody may commit the offence of fraud and it is further providedthat any director, manager, secretary or other similar officer of thecompany (or any person purporting to act in such a capacity) willalso commit the relevant offence if the company’s offence isproved to have been committed with the consent or connivanceof that individual (section 12 Fraud Act 2006). This is ofimportance to directors as it may lead to the risk of prosecutionfor those who merely acquiesce in, as opposed to positivelypromote, dishonest conduct by their company.

The penalty for breach of the Fraud Act 2006 is imprisonmentand/or an unlimited fine.

9.5 Minimising the risk of liability for the Prospectus

9.5.1 Due diligence and verificationTo minimise the risk of civil or criminal liability, a considerableamount of time will be spent on due diligence and in verifying theaccuracy and reasonableness of all statements of fact and opinionin the Prospectus and all inferences which may be drawn fromthose statements. Section 3.4 contains a further discussion ofthese processes.

9.5.2 InsuranceIt is possible that some liability may be covered by an existingdirectors’ and officers’ policy and this should be checked.Alternatively, the company may wish to insure against the potentialcivil (but not criminal) liabilities for the Prospectus. This is agrowing market; the cover provided may be limited and relativelyexpensive. Insurance is in any case no substitute for proper duediligence and verification.

9.6 Market abuse

Under FSMA, there are two broad descriptions of behaviour inrelation to traded securities which may be considered to bemarket abuse:

(a) the misuse of certain information which is not publicly availableto the market (“insider dealing”); and

(b) conduct likely to distort the price of financial instruments orcreate a false or misleading impression as to the market orprice of those securities (“market manipulation”).

“Behaviour” includes dealing in securities, disseminatinginformation and managing investments, and it covers actions andomissions (such as failure to make a required disclosure).

The FCA has issued a Code of Market Conduct which givesguidance on the application of the market abuse regime and



includes descriptions of behaviour that would be likely toconstitute market abuse and specifies certain types of behaviourthat do not amount to market abuse (known as “safe harbours”).The FCA has power either to impose unlimited financial penaltiesor publicly censure a person if that person has engaged in marketabuse or has taken any action requiring or encouraging anotherperson to do so.

Due to the complexity of this area of regulation and the broadscope of the market abuse regime, the company’s financial andlegal advisers should be consulted if there is any doubt abouttaking, or not taking, a particular course of action.

9.7 Grey market trading

The market abuse provisions in FSMA apply both to dealings inshares admitted to trading on a Regulated Market and to dealingin shares which are the subject of an application for admission tolisting. Accordingly, trading on the grey market through theExchange is subject to the market abuse provisions and,therefore, persons trading shares in the grey market with, forexample, inside information, or trading based on misleadinginformation in the Prospectus, could expose those responsible toliability under the market abuse regime.

9.8 Companies selling into non-UK jurisdictions

Whenever a company is making an offer available to persons in anon-UK jurisdiction, it is important to consider the restrictionsimposed by the regulators of securities offerings in suchjurisdictions and the potential liabilities associated with offers andsales in such jurisdictions. In the US, for example, Section 10(b) ofand Rule 10b-5 under the Exchange Act are the primaryprovisions of the US federal securities laws that impose potentialliability on issuers, Underwriters, sellers and potentially other

parties associated with an offer for the content of an offerdocument. Rule 10b-5 makes it an offence for any person tomake an untrue statement of material fact or omit to state amaterial fact necessary in order to make the statements made, inlight of the circumstances under which they were made, notmisleading, in connection with the purchase or sale of anysecurity. The rule also makes it an offence for any person toengage in any practice or course which would operate as a fraudor deceit or to employ any device, scheme or artifice to defraud inconnection with the purchase or sale of any security.

Any offer of securities to a US investor must be conducted withoutviolating Rule 10b-5 or the other anti-fraud provisions of the USfederal securities laws. In view of the US legal liabilityconsequences resulting from a breach of Rule 10b-5, 10b-5disclosure letters from both the legal advisers to the company andto the Sponsor and Underwriters are typically sought by theSponsor and Underwriters participating in a Rule 144A offer. Thedisclosure letter confirms that nothing has come to the attention ofthe legal advisers that would cause them to believe that theProspectus contains an untrue statement of a material fact oromits to state a material fact necessary in order to make thestatements in the Prospectus not misleading, and constitutes animportant piece of evidence of the Sponsor and Underwritershaving conducted due diligence with respect to the company.

In order to be able to issue this disclosure letter, extensive duediligence, including meetings with senior management anddocumentation review, needs to be conducted by the legaladvisers to the company and the Sponsor and Underwriters. Therequirement for delivery of a 10b-5 disclosure letter will result insignificant involvement of the legal advisers’ US legal teams.



Continuing obligations for listed companies

10.1 Listing Principles10.2 Disclosure of “inside information”10.3 Obligation to maintain an insider list10.4 Additional DTR disclosure obligations10.5 Financial Reporting10.6 Liability for published information10.7 Listing Rules: Key Continuing Obligations10.8 Corporate governance10.9 Sanctions for breach of the Listing Rules and the DTRs10.10 Prospectus Rules10.11 Continuing requirements of the Exchange10.12 Compliance with the admission standards of the Exchange10.13 FSMA

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Once a company is listed, it will be subject to the continuingobligations imposed on listed companies by, among others, the FCAand the Exchange. The key continuing obligations imposed by theFCA can be found in the Listing Rules and the DTRs. Theseobligations are intended to allow investors to deal in shares with thebenefit of up to date information on the company and its securitieswhilst also ensuring even and fair treatment towards all investors.The principal requirements which apply to a company with aPremium listing of shares are outlined in this section. Refer to section11 for details of the continuing obligations that apply to Standardlisted issuers and for any exemptions or modifications which apply toa non-UK company with a Premium or Standard listing of shares.

10.1 Listing Principles

Chapter 7 of the Listing Rules sets out two Listing Principles(applicable to all listed companies) and six Premium ListedPrinciples, which the FCA believes reflect the fundamentalobligations of Premium listed companies. These principles aredesigned to ensure adherence to the spirit as well as the letter ofthe Listing Rules in the interests of promoting a fair and orderlymarket. The directors and the company must have regard to theListing Principles and the Premium Listed Principles in theirapplication of the Listing Rules and the DTRs.


10. Continuing obligations for listed companies

Listing Principle 1A listed company must take reasonable steps to establish and maintain adequate procedures, systems andcontrols to enable it to comply with its obligations

Listing Principle 2 A listed company must deal with the FCA in an open and co-operative manner

Premium ListingPrinciple 1

A listed company must take reasonable steps to enable its directors to understand their responsibilities andobligations as directors


A listed company must act with integrity towards holders and potential holders of its premium listed shares


All equity shares in a class that has been admitted to premium listing must carry an equal number of voteson any shareholder vote


Where a listed company has more than one class of equity shares admitted to premium listing, theaggregate voting rights of the shares in each class should be broadly proportionate to the relative interests ofthose classes in the equity of the listed company


A listed company must ensure that it treats all holders of the same class of its listed equity shares that are inthe same position equally in respect of the rights attaching to those listed equity shares


A listed company must communicate information to holders and potential holders of its listed equity securitiesin such a way as to avoid the creation of a false market in those listed equity shares

Listing Principle 1 is particularly important in the context of thecompany’s general obligation of disclosure of inside information(see section 10.2). The company and its directors must ensurethat systems are in place to enable them to identify whether anyobligations arise under Listing Rule 10 (Significant Transactions)and Listing Rule 11 (Related Party Transactions) and to ensure therelease of timely and accurate information to the market inaccordance with their disclosure obligations. Premium ListingPrinciple 6 also reinforces the general obligation of disclosure ofinside information to the market.

Premium Listing Principle 1 puts the onus on the company toensure that its directors are properly educated about theircontinuing obligations as directors of a listed company.

10.2 Disclosure of “inside information”

A key continuing obligation, which can be found in Chapter 2 ofthe DTRs, is to notify a relevant regulatory information service(“RIS”) as soon as possible of any “inside information” whichdirectly concerns the company.

Notifiable developments may relate to a change in the company’sfinancial condition, performance of its business or performanceexpectations and major new developments in the business.

A company will be permitted to delay disclosure of insideinformation to the market in limited circumstances, provided thatthe omission would not be likely to mislead the public and thecompany is able to ensure the confidentiality of the information.Other than in relation to impending developments or matters

under negotiation, there are unlikely to be other circumstanceswhere a delay would be justified.

Where a company has an internet site, it must ensure that allinformation announced via a RIS is available on its internet site bythe end of the next business day and that, for a period of one yearfollowing publication, all such information is posted on its website.

10.3 Obligation to maintain an insider list

Chapter 2 of the DTRs also requires companies to compile andmaintain lists of those persons working for them who have accessto inside information, whether this access is on a regular oroccasional basis. The list must also include details explaining whya person is on the list and the list must be updated wheneverthere is a change in the explanation of why a person is on the list,when any new person not already on the list has access to insideinformation and to indicate the date on which a person already onthe list ceases to have access to inside information. Every insiderlist must be kept for at least five years from the date on which it isdrawn up or updated, whichever is the later.

The company must ensure that persons on the list acknowledgethe legal and regulatory duties which follow from having access toinside information and that such persons are aware of the sanctionsfor the misuse or improper circulation of such information.

It is not necessary for the company to maintain a list of all personsworking for another firm or company or acting on its behalf solong as it records the name of the principal contact(s) at that firmor company and has made effective arrangements for that firm orcompany to:

(a) maintain its own insider list of persons acting for the companywith access to inside information about the company; and

(b) provide a copy of such list to the company as soon aspossible on request.


“Inside information” is information which is precise, not generallyavailable to the public, which relates directly or indirectly to thecompany and which if made public would be likely to have asignificant effect on the price of the company’s shares.

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If requested to, a company must provide a copy of its insider listto the FCA. A failure to compile and/or maintain an insider listwould be treated as a breach of the DTRs, the sanctions for whichare discussed in section 10.9.

10.4 Additional DTR disclosure obligations

Chapter 3 of the DTRs requires “persons dischargingmanagerial responsibilities” (“PDMRs”) within the company(and persons connected with them) to notify the company of anytransaction by them in shares, derivatives or other financialinstruments relating to the company’s shares within four businessdays of the transaction taking place. The company has to discloseto the FCA any transactions of which it is notified as soon aspossible and in any event, not later than the next business dayfollowing receipt of such notification.

The obligation to report transactions may therefore extend beyondthe board members and companies will need to identify thosepersons falling within the definition set out in (b) above.

In addition to these obligations, Chapter 5 of the DTRs and theListing Rules specify a number of other matters requiring publicdisclosure, such as information regarding major interests in thecompany’s shares and changes in the composition of the board,including the appointment of any new directors.


Subject to certain limited exceptions, no information requiringpublic disclosure pursuant to a continuing obligation may bedisclosed to any third party in advance of its public release.

10.5 Financial Reporting

Chapter 4 of the DTRs sets out the key financial reportingobligations which apply to a listed company whose home state isthe UK.

10.5.1 Annual financial report and accountsA listed company must publish its annual financial report andaccounts (audited by independent accountants) no later than fourmonths after the end of the relevant financial period. The annualfinancial report must include the company’s audited financialstatements, a management report and a responsibility statementmade by those persons responsible for the report within the issuer.

The persons responsible for the report will be required to statethat, to the best of their knowledge:

(a) the financial statements give a true and fair view of the assets,liabilities, financial position and profits and losses of thecompany; and

(b) the management report includes a fair view of the developmentand performance of the business of the company and adescription of the principal risks and uncertainties it faces.

Notwithstanding this statement, statutory liability for the informationincluded in the annual financial report lies with the issuer ratherthan the persons responsible (see section 10.6 below).

In addition to the requirements of DTR 4, the Listing Rules specifythat the annual financial report must include certain matters suchas details of significant contracts and details of long termincentive schemes.

A PDMR is a person who is:

(a) a director of the company; or

(b) a senior executive of the company who has regular accessto inside information relating, directly or indirectly, to thecompany and who has power to make managerialdecisions affecting the future development and businessprospects of the company.


UK listed companies are also required to prepare a strategicreport. The strategic report must contain a fair review of thebusiness of the company and a description of the principal risksand uncertainties facing the company. The review must present abalanced and comprehensive analysis, consistent with the sizeand complexity of the business, of:

(a) the development and performance of the business of thecompany and its subsidiaries during the financial year; and

(b) the position of the company and its subsidiaries at the end ofthe financial year.

The strategic report must also include, to the extent necessary foran understanding of the development, performance or position ofthe business, information about:

(a) factors likely to affect the future development, performanceand position of the company’s business; and

(b) environmental matters, employees and social, community andhuman rights issues.

In addition, the report must contain:

(a) information on the company’s strategy and business model; and

(b) details of the number of men and women on the board, insenior management and in the business as a whole.

There is a “safe harbour” provision whereby a company need notdisclose information about impending developments or matters inthe course of negotiation if the disclosure would, in the opinion ofthe directors, be seriously prejudicial to the interests of the company.

In addition, if the IPO includes a US Offer pursuant to Rule 144A,the company will thereafter need to satisfy the 144A InformationRequirement but need not become subject to US public companyreporting requirements (see section 5.6).

10.5.2 Half yearly reportsChapter 4 of the DTRs requires a half yearly report to be publishedno later than two months6 after the end of the period to which itrelates. The report must include a condensed set of financialstatements, an interim management report and a responsibilitystatement (similar to that required for the annual financial report).

10.5.3 Interim management statements7

DTR 4 also requires listed companies to prepare interim (quarterly)management statements if they do not already publish quarterlyfinancial reports. The interim management statements are notrequired to contain any financial statements but must provide anexplanation of material events and transactions that have takenplace during the relevant period and their impact on the financialposition of the company, along with a general description of thefinancial position and performance of the company during therelevant period.

10.6 Liability for published information

Section 90A FSMA provides that a company with securitiesadmitted to trading on a UK market (e.g. the Main Market of theLondon Stock Exchange) or which has the UK as its home statewill be required to compensate persons who (i) have acquired,continue to hold or disposed of their securities in reliance oninformation published via a RIS, or published by other meanswhere the availability of such information has been announced via


6.When amendments to the Transparency Directive are implemented, this period will be extended to three months. There is a long stop date of 26 November 2015 for suchchanges to come into effect.

7.When amendments to the Transparency Directive are implemented, the requirement to publish interim management statements will be abolished. There is a long stop date of26 November 2015 for such changes to come into effect.


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a RIS and (ii) who have suffered loss in respect of such securitiesas a result of an untrue or misleading statement in suchinformation, or as a result of the dishonest omission of any matterrequired to be included in such information.

Liability is based on civil fraud concepts; a person dischargingmanagerial responsibilities (“PDMR”) in the company must knowthat a statement is untrue or misleading or be reckless as towhether that was the case or must know that the omission is adishonest concealment of a material fact. For these purposes,PDMRs are the directors of the company (or persons occupyingthe position of directors, by whatever name they are called).Certain other persons could also be PDMRs, but, importantly, theterm is defined differently from the definition used for the purposesof DTR 3 (see section 10.4) and does not expressly refer to seniorexecutives with access to inside information and power to makemanagerial decisions.

A company may also be liable where an investor acquires, continuesto hold or disposes of securities and suffers loss as a result of anydishonest delay in publishing information. The company will only beliable where a PDMR acted dishonestly in delaying the publication ofthe information. A PDMR’s conduct will only be regarded asdishonest if it is regarded as such by a person who regularly tradeson the market in question and the PDMR was aware (or must betaken to have been aware) that it was so regarded.

The regime protects the company from other forms of liability forpublished information or delay in publishing information save in alimited number of circumstances (for example civil liability formarket abuse).

The statutory liability regime for companies ensures that aninvestor acquiring, holding or selling shares in the market can onlysue the company (and not the directors or, for that matter,

auditors directly). However, if the company has to paycompensation to such an investor, the company can seek torecover this amount from a director whose knowledge,recklessness or dishonest concealment gave rise to this loss. Inaddition, these provisions do not rule out the possibility that adirector could be liable to an investor or a third party incircumstances where the director assumes a duty of care to suchperson and acts in breach of such duty.

10.7 Listing Rules: Key Continuing Obligations

10.7.1 Pre-emptionA listed company proposing to issue equity shares for cash mustfirst offer those securities to its existing shareholders in proportionto their existing shareholding.

10.7.2 Meetings of shareholdersA listed company is required to inform all its shareholders of theholding of meetings which they are entitled to attend. Thecompany must also ensure that shareholders are given theopportunity to vote in person or by proxy.

Any information or facilities necessary to enable shareholders toexercise any other rights, including those in respect of thepayment of dividends and the issue, exchange or repayment ofsecurities, must also be made available by the company.

10.7.3 Requirement to carry on an independent businessA listed company must carry on an independent business as itsmain activity at all times. As part of this requirement, where thecompany has a controlling shareholder, it must have in place at alltimes a legally binding agreement with that shareholder whichcontains a number of “independence provisions” designed toensure that the company can operate independently of its controllingshareholder (see section 4.1.8). These rules can be found in Chapter9 of the Listing Rules and were introduced on 16 May 2014.



Transitional provisions apply to existing companies with a premiumlisting as at 16 May 2014. Such companies have until 16 November2014 to ensure that a compliant “controlling shareholderagreement” is put in place or that any existing arrangements witha controlling shareholder are amended to comply with therequirements of Chapter 9.

Where, after admission, a person acquires a controlling stake in acompany, the company will have a period of not more than sixmonths to put in place a controlling shareholder agreement.

A premium listed company is required to notify the FCA withoutdelay if it no longer complies with the independence provisions setout in the controlling shareholder agreement, or if it becomes awarethat the controlling shareholder is not complying with theindependence provisions in that agreement.

The company must also include a statement in its annual reportfrom the board confirming that, where required, the company hasentered into a controlling shareholder agreement. Where no suchagreement has been entered into, the annual report will need tocontain a statement that the FCA has been notified of the non-compliance, together with a brief description of the reasons for thecompany’s failure to enter into such an agreement. Where anagreement is in place, the board will also need to confirm that theindependence provisions in the agreement have been compliedwith or, if this is not the case, include a description of the reasonsfor non-compliance and a statement that the FCA has been dulynotified of it. Where any of the company’s independent directorsdecline to support any of the relevant statements then this must bestated in the annual report.

Enhanced oversight measures will apply where a company or itscontrolling shareholder is not in compliance with independence

provisions. In particular, where (i) the company is not in compliancewith the independence provisions set out in the controllingshareholder agreement, (ii) the company becomes aware that thecontrolling shareholder is not complying with such provisions, or (iii)any independent director fails to support the statement in relation tosuch arrangements required to be included in the company’s annualreport, then all transactions with the controlling shareholder willbecome subject to prior independent shareholder approval,regardless of the size of the transaction. In other words, theconcessions in Chapter 11 (related party transactions) regardingtransactions in the ordinary course of business, small transactionsand smaller related party transactions will be suspended (seesection 10.7.5).

Where a company has a controlling shareholder, it will also needto ensure that the election and re-election of any independentdirector is approved by both the shareholders of the company andthe independent shareholders of the company (i.e. excluding thecontrolling shareholder). If such approvals are not obtained thenthe company cannot propose a further resolution to elect or re-elect the proposed independent director until 90 days after thedate of the original vote. Any such further resolution must bevoted on within 30 days from the end of that 90 day period butmay be passed by a single vote of the shareholders of thecompany (i.e. including the controlling shareholder).

A company having a controlling shareholder as at 16 May 2014 hasuntil the date of its next annual general meeting to comply with theprovisions described above regarding the election of independentdirectors, save where notice of the company’s annual generalmeeting has already been given or is given within a period of threemonths from the event that resulted in the company acquiring thecontrolling shareholder. In this instance, the company will have untilits following annual general meeting to ensure compliance. Similar



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provisions apply to a company that acquires a controllingshareholder after 16 May 2014.

10.7.4 Significant transactions by listed companiesChapter 10 of the Listing Rules governs the acquisition anddisposal of shares and assets by listed companies. It classifiesthese transactions according to the size of the transaction relativeto the company itself, using a number of “percentage ratio tests”.Such tests are based on the gross assets, profits, considerationand gross capital of the company. Modified tests exist fortransactions by certain types of listed companies such as propertycompanies, mineral companies and scientific research basedcompanies to reflect the specialist nature of their businesses. Forfurther information on specialist issuers, see section 13.

Depending on the ratio, the company may have to send a circularto shareholders to convene a meeting to obtain shareholderapproval or issue an announcement. Where an acquisition amountsto a reverse takeover of another company (i.e. the ratio amounts to100 per cent. or more or the transaction otherwise results in afundamental change in the company’s business, board or votingcontrol), trading in the company’s securities will be cancelled and,following shareholder approval of the transaction, the company willneed to re-apply for listing if the shares are to be re-listed.

10.7.5 Related party transactionsChapter 11 of the Listing Rules governs transactions with relatedparties. A related party is:

(a) a person who controls or controlled within the last 12 monthsthe exercise of 10 per cent. or more of the votes able to becast on all or substantially all matters at general meetings ofthe company (“substantial shareholder”);

(b) a director or shadow director (either current or within the last12 months) of the company or its subsidiaries;

(c) a person exercising significant influence over the company; or

(d) an associate of (a) to (c).

In relation to a director, substantial shareholder or personexercising significant influence who (in each such case) is anindividual, “associate” covers (i) family members; (ii) the trustees ofany trust of which that individual or his family members arebeneficiaries; and (iii) any company in which such individual or hisfamily are able to exercise 30 per cent. or more of the voting rightsat a general meeting or have the ability to appoint or removedirectors holding a majority of voting rights at board meetings.

In relation to a substantial shareholder or person exercisingsignificant influence which is a company, “associate” coverssubsidiary and holding companies and any company whosedirectors are accustomed to act in accordance with the relevantentity’s directions.

A “transaction with a related party” for these purposes includes:

(a) a transaction (other than a transaction in the ordinary course ofbusiness) between a company (or any member of its group)and a related party;

(b) an arrangement (other than a transaction in the ordinarycourse of business) where the company (or any member of itsgroup) and a related party each invests in, or provides financeto, another undertaking or asset; or

(c) any other similar transaction or arrangement (other than atransaction in the ordinary course of business) between thecompany (or any member of its group) and another person thepurpose and effect of which is to benefit a related party.

If a company (or any member of its group) proposes to enter intoa transaction with a related party, the company must obtain the



approval of its shareholders prior to entering into the transaction(or if it is expressed to be conditional on such approval, prior tocompletion of the transaction) and ensure that the related partyabstains from voting on the relevant transaction.

Exemptions to the requirement to obtain the prior approval ofshareholders in general meeting for a related party transactionapply where the transaction is classified as a small transaction orsmaller related party transaction.

10.7.5 Dealings by PDMRsThe Model Code is annexed to Chapter 9 of the Listing Rules andconstrains the freedom of certain individuals to deal in thecompany’s shares (or other securities whose price is determinedby reference to the company’s shares).

The Model Code applies to PDMRs (see section 10.4) withinthe company.

The Model Code gives guidance for the establishment of anagreed procedure for share dealings by PDMRs. It provides aminimum standard of good practice against which companiesshould measure their own dealing codes. It goes beyond theconstraints imposed by both the criminal legislation prohibitinginsider dealing contained in Part V of the Criminal Justice Act1993 and the civil legislation prohibiting market abuse contained inFSMA. A company must require that its PDMRs comply with acode of dealing no less exacting than the Model Code.

Under the Model Code, PDMRs are prohibited from dealing for aminimum period prior to an announcement of regularly disclosedinformation, whether or not the information constitutes insideinformation (e.g. the financial results of a company) (a “closeperiod”). Dealing is also prohibited at any time when any matterexists which constitutes inside information in relation to the

company. PDMRs should also seek to prohibit dealings bypersons connected with them and by investment managers actingon their behalf when the company is in a close period.

10.7.6 Cancellation of listingA company that wishes the FCA to cancel its Premium listing mustfirst issue a circular to shareholders and obtain the approval ingeneral meeting of not less than 75 per cent. of the votes of thoseshareholders voting on the resolution.

Where a company has a controlling shareholder (see section4.1.8), cancellation also requires the approval of a majority of thevotes of the independent shareholders voting on the resolution.

10.8 Corporate governance

10.8.1 The UK Corporate Governance CodeThe UK Corporate Governance Code (previously known as theCombined Code) consists of principles of good corporategovernance and a code of best practice.

The Listing Rules require that both UK incorporated companies andoverseas companies provide in their annual report and accounts anarrative on how they have applied these principles and astatement as to whether or not they have complied with the Codeprovisions. If any of the Code provisions have not been compliedwith throughout the whole of the accounting period a companymust give an explanation of the reasons for non-compliance.

The main features of the Code include:

(a) Directors – every company should be headed by an effectiveboard. The board should provide entrepreneurial leadership ofthe company within a framework of prudent and effectivecontrol. The board should be of an appropriate size and, ingeneral, at least half of the directors, excluding the chairman,



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should be independent non-executives. Circumstances whichwould indicate a lack of independence include if the director:has been an employee of the group within the last five years;has had a material business relationship with the company inthe last three years; receives additional remuneration from thecompany apart from a director’s fee; participates in thecompany’s share option scheme or is a member of thepension scheme; holds close family ties with any of thecompany’s advisers, directors or senior employees; has crossdirectorships or significant links with other directors;represents a significant shareholder; or has served on theboard for more than nine years.

(b) Directors’ remuneration – a formal, transparent procedurefor developing policy on executive remuneration and fixingdirectors’ remuneration packages should be put in place. Asignificant proportion of executive directors’ remunerationshould be linked to corporate and individual performance. Aremuneration committee of the board should have delegatedresponsibility for setting remuneration for all executive directorsand the chairman.

(c) Committee of the board – each board should create anddelegate appropriate, published, authority to: (i) an auditcommittee (see (e) below); (ii) a remuneration committee (see(b) above); and (iii) a nominations committee (to conduct theprocess for appointments to the board). The audit andremuneration committees should comprise only independentnon-executive directors and the nominations committee shouldcomprise a majority of independent non-executive directors.

(d) Relations with shareholders – companies should be preparedto enter into a dialogue with institutional shareholders basedon the mutual understanding of objectives. Whilst recognisingthat most shareholder contact is with the chief executive or

finance director, the chairman and the other non-executivesshould maintain sufficient contact with major shareholders tounderstand their issues and concerns. In particular, the boardshould appoint one of the non-executive directors to act asthe “senior independent director”, available to shareholderswhere contact through the chairman, chief executive orfinance director has failed to resolve concerns or where suchcontact is inappropriate. The board should use the AGM tocommunicate with investors and encourage their participation.

(e) Accountability and audit – a sound system of internal controlto safeguard shareholders’ investments and the company’sassets should be maintained. A formal, transparent arrangementfor considering the application of financial reporting and internalcontrol principles and for maintaining an appropriate relationshipwith the company’s auditors should be established through theformation of, and delegation to, the audit committee. The boardshould at all times present a balanced and understandableassessment of the company’s position and prospects.

10.8.2 DTR 7DTR 7 contains some additional corporate governancerequirements. DTR 7.1 requires a listed company to have an auditcommittee and sets out various requirements relating to thecomposition and function of the committee and the disclosureswhich it must make. The FCA has confirmed that compliancewith specified provisions of the Code will satisfy the requirementsof DTR 7.1.

DTR 7.2 requires a listed company to include a corporategovernance statement in its directors’ report and sets out theinformation which must be disclosed in that statement. Broadlyspeaking, compliance with the Code will satisfy the requirementsof DTR 7.2.



10.9 Sanctions for breach of the Listing Rules and the DTRs

If the FCA considers that the company, any PDMR or personsconnected with PDMRs are in breach of their obligations undereither the Listing Rules or the DTRs, it may impose a penalty onsuch person of such amount as it considers appropriate. Inaddition, if the FCA considers that any person who was at thematerial time a director of the company was “knowinglyconcerned” in the breach, he or she may also incur liability. TheFCA has the discretion to issue a public censure against a personrather than imposing a financial penalty.

In certain circumstances, the FCA may decide that it is notappropriate to bring formal disciplinary proceedings against arelevant party, as appropriate. Where, for example, the breach ofthe Listing Rules by a listed company is minor or a director hastaken immediate and full remedial action, the FCA may decide toissue a private warning to that person.

In addition, if the FCA considers that the company hascontravened the Listing Rules or the DTRs, it may, if thecircumstances warrant it, cancel or suspend the company’slisting. A suspension of listing will also result in the suspension oftrading of the company’s shares on the Exchange.

10.10 Prospectus Rules

Where a company proposes to issue any further shares, it willneed to consider whether a Prospectus will be required underFSMA and the Prospectus Rules. Where the share issueconstitutes an offer of shares to the public in the UK or involves anapplication for admission of the shares to trading on a RegulatedMarket in the UK, a Prospectus will be required unless a relevantexemption is available.

There are certain exemptions from the requirement to prepare afurther Prospectus. For example, an offer to qualified investorsonly of shares representing, over a period of 12 months, less than10 per cent. of the class of shares already listed would not requirea Prospectus. An offer of shares to existing shareholders by wayof a rights issue or open offer would, however, in the majority ofcases, require the preparation of a Prospectus.

Where a Prospectus is required to be prepared in connection witha subsequent issue of shares and the company has published aProspectus within the previous 12 months, the company may usethat earlier Prospectus, subject to updating, for the new issue.

10.11 Continuing requirements of the Exchange

After admission, there are continuing requirements of the Exchangeto be met. In particular, the Exchange requires that companiespublish all price sensitive information on a timely basis and inaccordance with the rules of their relevant competent authority. ForUK listed companies, this means the continuing obligationscontained in the Listing Rules and the DTRs published by the FCA.

The Exchange must be kept informed of any timetables fordividends, bonus issues, scrip dividends or other action affectingthe rights of holders of existing securities. There are also specificrules for determining the “ex” date and posting of documents foropen offers.

10.12 Compliance with the admission standards ofthe Exchange

The Exchange’s Admission and Disclosure Standards includecompliance procedures. These procedures are aimed at ensuringthe integrity and orderly operation of the market and a companymust, on request, provide the Exchange with such information as



85

it reasonably requires for such purpose or to verify whether theAdmission and Disclosure Standards are being met. TheExchange can make additions to, dispense with or modify theapplication of the Admission and Disclosure Standards inappropriate circumstances.

In certain circumstances, the Exchange will suspend trading of acompany’s securities, including:

(a) when the listing of securities is suspended;

(b) where the ability of the Exchange to ensure the orderlyoperation of its markets is or may be temporarily jeopardised;

(c) on request by a company, approved by the Exchange.

If trading has been suspended, the Exchange may imposeconditions prior to resumption of trading. In any event, thecompany must still comply with the Admission and DisclosureStandards during a suspension. The Exchange may also cancelthe right of any company to have its securities traded.

Subject to the appropriate procedures being followed, where acompany has contravened any Admission and DisclosureStandard, the Exchange may either censure the company privatelyor publicly, impose a fine, make an order that the issuer makerestitution to any person (in circumstances where the issuer hasprofited from a breach of the Exchange’s rules at that person’sexpense) or cancel the right of the company to have its securitiestraded on the Exchange. These actions are subject to rights ofappeal, which are set out in the Exchange’s Admission andDisclosure Standards.

10.13 FSMA

FSMA contains detailed provisions dealing with market abuse andfinancial promotions. Breach of these provisions can trigger civiland criminal liability.

A failure to disclose information in a timely and appropriatemanner can amount to market abuse, aside from being a possiblebreach of Chapter 2 of the DTRs. Dealing in a company’ssecurities while in possession of inside information can alsoamount to market abuse and a breach of the insider dealing laws.It is therefore necessary to ensure that the manner, form andtiming of necessary disclosures are considered at the same timeas transactions or other developments occur with which thecompany is connected.

Further, while there are certain exemptions for listing applications,Prospectuses and communications with shareholders, anycommunication by a company (by whatever means) with thepublic should also be scrutinised to ensure that thecommunication is either not a financial promotion or, if it is, either(i) an exemption is available or (ii) the communication is approvedby an authorised person, such as an investment bank. Asmentioned in section 8.1, breach of the financial promotionprovisions can give rise to civil and criminal liability and could alsolead to a transaction being unenforceable, so it is prudent to haveany communications with the public, including shareholders,carefully checked by legal advisers to the company and, ifnecessary, approved by an authorised person.



Standard listings and listings of equity shares by non-UK companies

11.1 Standard listings of shares11.2 Listings of equity shares by non-UK companies11.3 Application of the Prospectus Directive and the Prospectus Rules to non-UK companies

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11.1 Standard listings of shares

A Standard listed issuer of shares is subject to EU Directiveminimum requirements only and not the FCA’s super equivalentlisting standards (although see section 11.1.2 below regardingcompliance with the Listing Principles). Both UK incorporatedcompanies and overseas companies are eligible to apply for aStandard listing.

11.1.1 Conditions for listingLike a company seeking a Premium listing of shares, a companyseeking a Standard listing must satisfy the basic eligibilityconditions set out in Chapter 2 of the Listing Rules. In particular:

(a) the securities must be issued by a body corporate;

(b) the company must be in compliance with applicable legal andregulatory requirements; and

(c) the company must have published a Prospectus which hasbeen approved by the FCA.

In addition, upon listing becoming effective, at least 25 per cent. ofthe class of shares to be listed must be (and remain) in the handsof the public in one or more EEA states, and if the shares are alsolisted in a non-EEA state, the public in that other state.

However, a number of the admission conditions applicable toPremium issuers (see section 4.1) do not apply to Standardissuers. In particular, a company seeking a Standard listing ofshares is not required to:

(a) appoint a Sponsor (see section 4.1.5);

(b) confirm that the group has sufficient working capital for thecompany’s present purposes (i.e. for at least the 12 months fromthe date of publication of the Prospectus) (see section 4.1.9); or

(c) satisfy the admission condition relating to the nature andduration of its trading history (see section 4.1.7).

11.1.2 Continuing obligationsIn general, the continuing obligations for companies with aStandard listing in London are less onerous than those for acompany with a Premium listing. If a company is in any doubt asto whether, or to what extent, a continuing obligation applies, theFCA must be consulted at an early stage.

The Listing Rules exempt a company with a Standard listing fromcompliance with a significant number of the continuingobligations which would otherwise apply to a company withshares admitted to the Official List. Historically, companies with aStandard listing of shares have not been required to comply withthe Listing Principles. However, in May 2014, the FCA amendedand updated the Listing Principles to create two ListingPrinciples, applicable to all listed companies, and six PremiumListed Principles, applicable to companies with a Premium listing(see section 10.1). As such, a company with a Standard listing isnow required to take reasonable steps to establish and maintainadequate procedures, systems and controls to enable it tocomply with its obligations (Listing Principle 1) and to deal withthe FCA in an open and co-operative manner (Listing Principle 2).

Notwithstanding that compliance with the Listing Principles wasnot required prior to 16 May 2014, it was generally marketpractice for Standard listed issuers of shares to commitvoluntarily to comply with a number of Listing Rules (including theListing Principles) or AIM Rules provisions that do not technicallyapply to them. In particular, a number of Standard listed issuersof shares have stated their intention in their Prospectus:

n in the event of a delisting, to seek the consent of not less than75 per cent. of its shareholders voting in person or by proxy;

n to adopt a share dealing code no less exacting than theModel Code;

n in the case of those issuers having moved from AIM to aStandard listing, to continue to adhere to the AIM Rules


11. Standard listings and listings of equity sharesby non-UK companies

relating to substantial transactions, related party transactions,reverse takeovers and fundamental change of business; and

n to comply (or explain any non-compliance) with the UKCorporate Governance Code.

These statements by Standard listed issuers can be viewed as away of addressing criticisms levied at the Standard listing regimethat investors have very little protection where, for example, acompany undertakes a large transaction or related partytransaction or seeks to delist its shares. However, it should berecognised that the comfort derived from such statements islimited. The FCA will not monitor or enforce a company’scompliance and the board has the freedom to change its positionon these matters, although any such change is likely to havenegative ramifications for investor relations.

A company with a Standard listing must consider its obligationsunder the DTRs. As a company with shares admitted to trading ona Regulated Market in the UK, it will be subject to the obligation tonotify a RIS as soon as possible of any inside information whichdirectly concerns it (see section 10.2).

See the quick reference guide set out in Appendix 1 of this guidefor more details on the key eligibility requirements and continuingobligations requirements which apply to a company seeking aStandard listing.

11.2 Listings of equity shares by non-UK companies

There are very few exemptions and modifications in the ListingRules for non-UK incorporated companies (referred to in theListing Rules as “overseas companies”) seeking to list equityshares, or with equity shares already listed on the Official List.

A non-UK company seeking a Premium listing on the Official Listmust satisfy the same basic conditions as a UK incorporated

company (see section 4). A non-UK company will be able todemonstrate compliance with the accounts condition in the ListingRules (see section 4.1.6) where its previous three years’ accountshave been prepared in accordance with auditing standardsapplicable in an EEA State or equivalent.

With very limited exceptions, a non-UK company with a Premiumlisting in London is required to comply with the same continuingobligations that a UK listed company is required to comply withunder the Listing Rules and the DTRs, including compliance withthe Listing Principles and the Premium Listing Principles. Anyexemptions or modifications are set out next to the rules theyapply to.

Only a number of small differences remain for overseas issuers.Notably, in DTR 5 (vote holder and issuer notification rules) thereare different thresholds for UK incorporated issuers and non-UKincorporated issuers. In addition, the requirements of DTR 7.1 tohave an audit committee (see section 10.8.2) only apply to UKincorporated issuers.

As a general rule, where the Listing Rules refer to a requirement inlegislation applicable to a UK incorporated listed company, anoverseas company must comply with that requirement so far asinformation available to it enables it to do so and compliance isnot contrary to the law in its country of incorporation. The FCAmay require written confirmation from an independent legaladviser as to whether compliance with a particular requirement iscontrary to the law of the company’s country of incorporation.

Finally, where the shares of a non-EEA company are not listed inits country of incorporation, or in the country in which the majorityof its shares are held, the FCA will only approve the listing(whether Premium or Standard) if it is satisfied that the absence ofsuch a listing is not due to the need to protect investors.


Section 11: Standard listings and listings of equity shares by non-UK companies

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11.3 Application of the Prospectus Directive and theProspectus Rules to non-UK companies

It is important to consider the application of the ProspectusDirective and the Prospectus Rules to non-UK companies. Thekey considerations are set out below:

11.3.1 Determination of “home state”Where a company is making an offer of securities to the public oran application for admission to trading on a Regulated Marketwhich will require the preparation of a Prospectus, it is importantto identify that company’s home state as it will be the competentauthority of that home state which has the responsibility forapproving any Prospectus prepared by the company(see section 6.1).

A non-EEA company issuing shares may already have unwittinglychosen its home state for the purposes of the ProspectusDirective. Subject to limited qualifications, where after31 December 2003, a non-EEA company has either made anoffer of shares to the public in a member state (determined byreference to the definition of “public offer” in the national law ofthat member state at the time the offer was made) or has appliedfor admission of its securities to trading on a Regulated Market ina member state, the member state in which the offer to the publicis made, or in which the Regulated Market is located, will be thatcompany’s home state.

Choice of home state can be important to a non-EEA issuerbecause a number of discretions exist under the ProspectusDirective which may be exercised differently by differentcompetent authorities and different member states. For example,competent authorities of different member states will have differingrules regarding the language(s) in which the Prospectus must bedrawn up.

This is a complicated area and any company with concerns aboutthis should speak to its legal advisers.

11.3.2 Prospectus drawn up in accordance with thirdcountry legislationAn issuer incorporated in a non-EEA state may be able to use aprospectus drawn up in accordance with its home country’slegislation when seeking admission to the Official List if the FCA issatisfied that the prospectus has been drawn up in accordancewith international disclosure standards and that the informationrequirements, including the financial information, are equivalent tothe requirements under FSMA, the Prospectus DirectiveRegulation and the Prospectus Rules. Where this is not the case,the company will be required to draw up a Prospectus inaccordance with the Prospectus Rules.


Section 11: Standard listings and listings of equity shares by non-UK companies

Listing an investment entity

12.1 What is an “Investment Entity?”12.2 What is a Closed Ended Investment Fund?12.3 Why list a CEIF?12.4 Which market?

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12.1 What is an “Investment Entity?”

An investment entity can take various forms in the UK, the mostcommon being:

(a) Closed Ended Investment Fund (“CEIF”): a body corporate(such as a company or limited liability partnership), usuallyestablished offshore, which invites subscriptions from investorsfor its shares, partnership interests or other securities;

(b) Investment Trust: a company rather than a trust, approved forthe purposes of acting as an investment trust by HM Revenue& Customs pursuant to the Corporation Tax Act 2010 (“CTA2010”), which must be listed on the Main Market;

(c) Open Ended Investment Company (“OEIC”), known also in theUK as an “Investment Company with Variable Capital” or“ICVC”. OEICs are companies which are established andoperated as OEICs under FSMA and associated regulations,and are authorised and regulated by the FCA; and

(d) Traditional unit trust schemes authorised and regulated bythe FCA.

In practice, the only investment entities that are regularly listed onthe Exchange are Investment Trusts (which are required underCTA 2010 to be listed) and CEIFs (which make up the majority ofrecent listings). This section therefore focuses on CEIFs, althoughthe Listing Rules described below (as they apply to CEIFs) applyequally to Investment Trusts.

12.2 What is a Closed Ended Investment Fund?

CEIFs most commonly take the form of a limited company, usuallyincorporated in an offshore jurisdiction, although they may alsotake other corporate forms which offer participants limited liability,such as a limited liability partnership. Consistent with the FCAdefinition of an “Investment Entity”, the essence of a CEIF is that itinvests and manages its assets, being pooled funds contributedby subscribers for its securities, with a view to spreadinginvestment risk. CEIFs are typically established at the initiative ofinvestment management firms, who conceive the investmentobjective and strategy and then manage and invest the assetspursuant to an investment management agreement with the CEIF.

12.3 Why list a CEIF?

The advantages and disadvantages of a listing set out in section 1of this guide apply largely also to a CEIF. An entity whose corebusiness is the collection and investment of capital will clearlybenefit from the influx of capital on an IPO, with the potential forfurther fundraising from public market participants. On the otherhand, the more prescriptive corporate governance requirementsand increased regulatory and public scrutiny may be a concern forinstitutional investors and the investment manager, who oftenplace some value on unfettered control and discretion.

12.4 Which market?

The appetite of the manager and prospective investors forincreasing market access and profile, whilst maintaining a measureof control, often determines the choice of market for a CEIF.

12.4.1 Main MarketThe Main Market is widely regarded as one of the most prestigiousvenues for CEIF listings. A CEIF seeking admission of its shares tothe Premium segment of the Official List and to trading on theMain Market must comply with the same basic conditions for


12. Listing an investment entity

The FCA defines an “Investment Entity” as:

“an entity whose primary object is investing and managingits assets with a view to spreading or otherwise managinginvestment risk.”

admission to listing set out in Chapter 2 of the Listing Rules as anyother entity (see section 4.1 of this guide in relation to the basicconditions). For example, a CEIF seeking a listing is likely to berequired to publish a Prospectus that has been approved by theFCA (or equivalent EEA authority), its expected marketcapitalisation must be at least £700,000 and its shares must befreely transferable.

However, the Listing Rules as they apply to issuers of equityshares are modified in relation to CEIFs by Chapter 15 of theListing Rules. Notably, the requirement for a three year trackrecord does not apply (perhaps unsurprisingly, given that manyCEIFs seeking a listing are likely to be newly formed companies),although the requirements to demonstrate sufficient workingcapital, to ensure that at least 25 per cent. of the shares are inpublic hands and to appoint a Sponsor do apply. The continuingobligations referred to in section 10 (including those in relation tosignificant and related party transactions and statements relatingto compliance with the Code) also apply, subject to certainmodifications and additional requirements.

In addition, Chapter 15 requires that a CEIF must (amongstother things):

(a) be able to act independently of its investment manager.Specifically, a majority of the board of the CEIF must not bedirectors, employees, partners, officers or professionaladvisers of (or to) the investment manager, its affiliates or anyentity managed by it. Those members of the board that do fallwithin these categories must be subject to annual re-electionby the shareholders. This is intended by the FCA to strengthenshareholder protection by making boards accountable toshareholders rather than the investment manager;

(b) invest and manage its assets in a way which is consistent withits object of spreading investment risk;

(c) not undertake any trading activity itself (or through asubsidiary) that is significant in the context of its group as awhole, although this does not prevent investee companieswithin the CEIF’s investment portfolio from conducting tradingactivities and nor does it prevent the CEIF taking a controllingstake in investee companies. A CEIF that carries on a tradingactivity (either itself or through a subsidiary) that is significant inthe context of its group as a whole is unlikely to be regardedas spreading risk appropriately;

(d) not invest more than 10 per cent., in aggregate, of the value ofits total assets at admission in other listed CEIFs unless theythemselves have published investment policies to invest nomore than 15 per cent. of their total assets in other CEIFs. It isgenerally accepted that the spreading of risk requires rulesagainst concentration as a result of listed CEIFs investing inother listed CEIFs;

(e) have a published investment policy setting out the CEIF’spolicies relating to asset allocation, risk diversification andgearing and including maximum exposures. This must besufficiently precise and clear to enable assessment of theinvestment opportunity, identification of how risk spreading isto be achieved and assessment of the likely impact of anychange to the investment policy. The CEIF must invest andmanage its assets in accordance with its published investmentpolicy and obtain shareholder approval before making anymaterial changes to it; and

(f) in the case that the CEIF seeking a listing is a “feeder” fund(i.e. it invests all of its assets in another fund; the “master”fund) the CEIF need not control or direct the master fund butmust ensure that the master fund’s investment policies areconsistent with the CEIF’s published investment policy andprovide for spreading investment risk, and that the masterfund in practice invests and manages its investments in a way


Section 12: Listing an investment entity

93

that is consistent with the CEIF’s published investment policyand spreads investment risk.

In terms of regulation, the rules that apply to CEIFs that wish tolist on the Main Market are more prescriptive relative to the rulesof the other UK markets available to CEIFs. This means thatthose other markets may be more attractive to CEIFs that do notrequire the profile, liquidity or exposure afforded by a listing on theMain Market.

12.4.2 Alternative Investment Market AIM is targeted at smaller companies that are seeking to grow, buthas in recent years been popular with CEIFs as well. This isbecause the initial listing requirements and ongoing obligationsunder the AIM Rules are significantly less onerous than thoseunder the Listing Rules. See section 15 of this guide for a detaileddescription of the requirements for admission to AIM. The keydifferences for CEIFs admitted to AIM as opposed to those listedon the Main Market are that:

(a) there is no requirement that a majority of the members of theboard (or equivalent body) is independent from the investmentmanager. However, in practice Nominated Advisers andinvestors may insist upon some form of strengthenedcorporate governance and, in practice, many AIM companiesvoluntarily submit to compliance with the Code;

(b) there are no restrictions on holdings in other listed CEIFs or onconducting trading activities;

(c) there is no requirement that the investment policies of anymaster fund coincide with the investment policies of any“feeder” CEIF admitted to AIM, nor that the CEIF police theactivities of the master fund on an ongoing basis;

(d) the rules on the content of the investment policy are lessprescriptive than those applicable to the Main Market. The

CEIF must state and follow an investment policy which mustcontain (amongst other things) details of target investments,investment strategy, investment spread, whether investmentswill be active or passive, the nature of target returns toshareholders and (if applicable) details of any policy ongearing, cross holdings, maximum exposure limits and otherinvestment restrictions. Amendments to the publishedinvestment policy require the prior approval of theshareholders; and

(e) securities admitted to trading on AIM are not eligible for listingon the Official List and this precludes investment by institutionsthat are restricted to investing in “listed” securities. In addition,unlike the Main Market or the SFM (see section 12.4.3), AIM isnot a Regulated Market, which means that certain financialinstitutions such as insurers and pension funds may beprohibited by their constitutive documents from investing inCEIFs admitted to AIM.

12.4.3 Specialist Funds Market The SFM is intended by the Exchange to be an alternative tomarkets which impose EU Directive minimum requirements, suchas NYSE Euronext Amsterdam. The SFM regime imposes a lesserburden than the rules relevant to the Main Market and AIM, both interms of initial requirements for listing and ongoing obligations. Assuch, it is targeted at highly specialised CEIFs (for example hedgefunds, private equity funds, infrastructure funds and funds withcomplex legal structures and security types) in which the investorsare institutions, professionals or other highly knowledgeableinvestors. Particular points to note are:

(a) there is no requirement for a Sponsor or a Nominated Adviser,reducing costs for the CEIF;

(b) there is no requirement for adoption of a formal corporategovernance regime or an explanation of deviations from the



Code. In particular, there is no requirement that the board (orequivalent body) of the CEIF be independent of the manager;

(c) there are no formal rules on the content of the investmentpolicy and restrictions, although these are at the heart of aCEIF’s operations and therefore the CEIF itself will invariablyimpose (and investors are likely to require) certain parametersthat are intended to spread investment risk. Neither are thereany restrictions or obligations in respect of cross holdings inother CEIFs, trading activities or, if the CEIF is a feeder fund,ensuring the master fund’s investments are consistent withthe CEIF’s investment policy. There is no requirement thatamendments to the investment policy be approvedby shareholders;

(d) there are no rules in respect of notification of, or shareholderapproval for, significant or related party transactions;

(e) whilst the content requirements for a Prospectus are lessonerous than those for listing on the Main Market, it is still

necessary for the Prospectus to comply with the minimumrequirements of the Prospectus Directive and to have theProspectus approved by the FCA;

(f) as with AIM, securities admitted to trading on the SFM are noteligible for listing on the Official List, although (unlike AIM) theSFM is a Regulated Market and is therefore able to attract awider range of institutional investors;

(g) unlike securities traded on the Main Market, securitiesadmitted to the SFM are not currently eligible for inclusion inthe FTSE UK series of indices and are not therefore able toaccess the publicity benefits of those high profile indices orattract investments from tracker and benchmark funds tied tothe FTSE UK series; and

(h) as with the Main Market, CEIFs admitted to the SFM mustcomply with the FCA’s DTRs.



Specialist issuers

13.1 What is a specialist issuer?13.2 Mineral companies13.3 Scientific research based companies13.4 Property companies13.5 Start-up companies13.6 Shipping companies

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13.1 What is a specialist issuer?

The Listing Rules recognise that certain types of companies, as aresult of the specific nature of their operations and/or theimportance of the assets that they use or develop as part of theirbusiness, cannot readily satisfy the eligibility requirements whichare applicable to other Premium listed companies. As such, theListing Rules modify certain of the conditions for eligibility to listingthat would otherwise apply to mineral companies and scientificresearch based companies.

Certain specialist issuers are subject to additional disclosurerequirements above and beyond those laid down in theProspectus Rules. These additional disclosure requirements havebeen published by ESMA (the “ESMA Recommendations”) andapply to property companies, mineral companies, scientificresearch based companies, start-ups and shipping companies.

Investment companies are dealt with separately in section 12.

13.2 Mineral companies

For the purposes of the Listing Rules, a mineral company is acompany or group, whose principal activity is, or is planned to be,the extraction of mineral resources (which may or may not includeexploration for mineral resources). Mineral resources includemetallic and non-metallic ores, mineral concentrates, industrialminerals, construction aggregates, mineral oils, natural gases,hydrocarbons and solid fuels including coal.

13.2.1 EligibilityThe general eligibility requirements for listing, which are describedin section 4, apply to mineral companies with a number of keymodifications. Unlike other first time applicants, a mineralcompany that has been operating for a period of less than three

years may still apply for admission to listing, provided that it haspublished or filed historical financial information since the inceptionof its business. In addition, the general requirement that historicalfinancial information must represent at least 75 per cent. of theapplicant’s business does not apply to mineral companies.However, mineral companies must still ensure that any historicalfinancial information will put prospective investors in a position tomake an informed assessment of the business for which a listingis sought.

If a mineral company does not hold controlling interests in amajority (by value) of the properties, fields, mines or other assets inwhich it has invested, it must demonstrate that it has a reasonablespread of direct interests in mineral resources and has rights toactively participate in their extraction.

The independence test discussed in section 4.1.8 applies tomineral companies, as does the requirement to put in place abinding agreement with a controlling shareholder to ensure thatthe company can act independently of the controlling shareholder.

13.2.2 DisclosureIn addition to the general disclosure requirements set out in theProspectus Rules (see sections 6.4 and 6.5), mineral companiesmust also comply with the disclosure obligations set out in theESMA Recommendations.

The ESMA Recommendations provide that a Prospectus issuedby a mineral company should set out:

(a) details of mineral resources and, where applicable, reservesand exploration results/prospects in accordance with thereporting standards of a specified list of acceptable codesand/or organisations (see below);


13. Specialist issuers

(b) anticipated mine life and exploration potential or similarduration of commercial activity in extracting reserves;

(c) an indication of the duration and main terms of any licences orconcessions and legal, economic and environmental conditionsfor exploring and developing those licenses or concessions;

(d) indications of the current and anticipated progress of mineralexploration and/or extraction and processing, including adiscussion of the accessibility of the deposits; and

(e) an explanation of any exceptional factors that have influencedthe above information.

As mentioned above, the ESMA Recommendations provide thatdisclosure regarding reserves and resources should be inaccordance with one of a number of internationally recognisedmineral reserves and resources reporting codes, details of whichare set out in Appendix 1 of the ESMA Recommendations.

The ESMA Recommendations also require that a competentperson’s report (also known as a mineral expert’s report (“MER”))must be included in all prospectuses published by a mineralcompany in connection with a public offer or admission to tradingof equity securities. The MER should be prepared by an individualwho either possesses the required competency requirements asprescribed by the relevant codes/organisation or, if suchrequirements are not prescribed by the code/organisation, thenthe individual must:

(a) be professionally qualified and a member in good standing ofan appropriate recognised professional association, institutionor body relevant to the activity being undertaken, and who issubject to enforceable rules of conduct;

(b) have at least five years’ relevant professional experience in theestimation, assessment and evaluation of the type of mineralor fluid deposit being or to be exploited by the company andto the activity which that person is undertaking; and

(c) be independent of the company, its directors, seniormanagement and its other advisers; have no economic orbeneficial interest (present or contingent) in the company or inany of the mineral assets being evaluated and not beremunerated by way of a fee that is linked to the admission orvalue of the company.

The MER should report mineral resources and where applicablereserves and exploration results/prospects in accordance with oneof the reporting standards that is acceptable under one of theprescribed codes and/or organisations.

In the absence of guidance set out in the relevant reporting code,ESMA recommends that the report contain the following:

(a) a legal overview of the company’s rights of exploration andextraction and the properties to which those rights attach;

(b) a description of the geological characteristics of the properties;

(c) a table providing data on the resources and reserves and avaluation of those reserves;

(d) an assessment of environmental and social liabilities;

(e) a selection of historic production statistics and operatingexpenditures; and

(f) a discussion of the infrastructure.


Section 13: Specialist issuers

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The MER should be dated not more than six months before the dateof the Prospectus and the Prospectus must contain a statement thatno material changes have occurred since the date of the MER.

13.3 Scientific research based companies

13.3.1 EligibilitySimilar to mineral companies, the general eligibility requirementsfor listing, which are described in section 4, apply to scientificresearch based companies with a number of key modifications.

For the purposes of the Listing Rules, a scientific research basedcompany is a company primarily involved in the laboratoryresearch and development of chemical or biological products orprocesses or any other similar innovative science based company.

A scientific research based company that has been operating for aperiod of less than three years may still apply for admission tolisting, provided that it has published or filed historical financialinformation since the inception of its business. A scientific researchbased company is not required to demonstrate that its historicalfinancial information represents at least 75 per cent. of its business,however, the Listing Rules require that the company must:

(a) demonstrate its ability to attract funds fromsophisticated investors;

(b) intend to raise at least £10 million at the time of listing;

(c) have a capitalisation before listing of at least £20 million (basedon a proposed issue price and excluding the value of anyshares which have been issued in the six months before listing);

(d) have as its primary reason for listing the raising of finance tobring identified products to a stage where they can generatesignificant revenues; and

(e) demonstrate that it has a three year track record of operationsin laboratory research and development including:

(i) details of patents granted or progress as to theirapplication; and

(ii) the successful completion of, or the successful progressionof, significant testing of the effectiveness of its products.

Scientific research based companies must be able to demonstratethat they have the ability to carry on an independent business astheir main activity, and are required to put in place a bindingagreement containing relevant independence provisions with anycontrolling shareholders (see section 4.1.8).

13.3.2 DisclosureThe ESMA Recommendations require that an issuer of shareswhose principal activities are involvement in laboratory researchand development of chemical or biological products or processes,including pharmaceutical companies and those involved in theareas of diagnostics and agriculture and which is a start-upcompany, is expected to disclose in its Prospectus:

(a) details of its operations in laboratory research anddevelopment, to the extent material to investors, includingdetails of patents granted and, in relation to its products, thesuccessful completion of, or the successful progression ofsignificant testing of the effectiveness of its products. If thereare no relevant details, a negative statement should beprovided. Where applicable, this information should beprovided in the line item of research and development, patentsand licenses;

(b) details of the relevant collective expertise and experience ofkey technical staff;

(c) information on whether the company has engaged incollaborative research and development agreements withorganizations of high standing and repute within the industry,to the extent material to investors. In the absence of such



agreements, an explanation on how such absence could affectthe standing or quality of its research efforts; and

(d) a comprehensive description of each product the developmentof which may have a material effect on the future prospects ofthe company.

A company covered by the ESMA Recommendations is alsoexpected to include the information required for start-upcompanies (see section 13.5).

13.4 Property companies

For the purposes of the ESMA Recommendations, a propertycompany is a company whose principal activity is the purchaseand/or holding of properties, both directly and indirectly, and thedevelopment of those properties for letting and retention as aninvestment. The definition of property covers freehold, heritable orleasehold property.

ESMA recommends that a Prospectus for a public offer oradmission to trading of shares should contain a valuation report.The valuation report must:

(a) be prepared by an independent expert;

(b) give the date or dates of inspection of the property;

(c) provide all the relevant details in respect of material propertiesnecessary for the purposes of the valuation;

(d) be dated and state the effective date of valuation for eachproperty, which must not be more than one year prior to thedate of publication of the Prospectus provided that thecompany affirms in the Prospectus that no material changeshave occurred since the date of valuation;

(e) include a summary showing separately the number of freeholdand leasehold properties, together with the aggregate of theirvaluations; and

(f) include an explanation of the differences of the valuation figureand the equivalent figure included in the company’s latestpublished individual annual accounts or consolidatedaccounts, as applicable.

13.5 Start-up companies

A start-up company is a company that has been operating in itscurrent sphere of economic activity for less than three years. Thiswould cover not only a company which had been in existence forless than three years but also a company which had completelychanged its business less than three years ago. Companiesformed for the purpose of acting as holding companies for existingbusinesses are not considered start-up companies. Specialpurpose vehicles are not considered start-up companies as theyare formed for the purpose of the issuance of securities, not toconduct a business.

A start-up company must include in its Prospectus a discussion ofthe company’s business plan with a discussion of the company’sstrategic objectives, along with details of the key assumptions onwhich the plan is based, in particular with respect to thedevelopment of new sales and the introduction of new productsand/or services during the next two financial years and asensitivity analysis of the business plan to variations in majorassumptions. Companies are not obliged to include a businessplan with figures.

The Prospectus must also refer to information such as:

(a) the extent to which the company’s business is dependent on anykey individuals and identifying any such individuals, if material;

(b) current and expected market conditions;

(c) dependence on a limited number of customers or suppliers; and

(d) the assets necessary for production not owned by the company.



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The company may also choose to include a valuation reportprepared by an independent expert on the services/products ofthe company, although this is not a mandatory requirement.

13.6 Shipping companies

For the purposes of the ESMA Recommendations, a shippingcompany is a company which, as its principal activity, operates inocean going shipping and which manages, leases or owns cargoand/or passenger vehicles either directly or indirectly.

ESMA recommends that a Prospectus prepared by a shippingcompany for a public offer or admission to trading of sharesshould contain the following:

(a) the name of any ship management company or group (if otherthan the company) which manages the vessels, if any,together with an indication of the terms and duration of itsappointment, the basis of its remuneration and anyarrangements relating to the termination of its appointment;

(b) all relevant information regarding each material vessel which ismanaged, leased or owned either directly or indirectly by thecompany, including the type, place of the registration of thevessel, shipping owning company, financing terms, capacityand other relevant details; and

(c) if the company has contracts to build new vessels or improveexisting vessel(s), detailed information regarding each materialvessel (detailed description of the cost and financing of thevessel (refund, guarantees, letters of commitment), chartertype, dimension, capacity and other relevant details) shall beprovided in the appropriate line item of the Prospectus, suchas principal future investments or material contracts.

In the Prospectus a company is also expected to include acondensed valuation report which must:

(a) be prepared by an experienced independent expert;

(b) give the date or dates of inspection of the vessels and bywhom it was prepared;

(c) provide all the relevant details (valuation method) in respect ofmaterial vessels necessary for the purposes of the valuation;

(d) detail separately any vessels whose acquisition is to befinanced through the security issue;

(e) be dated and state the effective date of valuation for eachmaterial vessel, which must not be more than one year prior tothe date of publication of the Prospectus provided that thecompany affirms that no material change has occurred sincethe date of valuation; and

(f) include an explanation of the differences of the valuation figureand the equivalent figure included in the company’s latestpublished individual annual accounts or consolidatedaccounts, if applicable.

The condensed valuation report is not required if the companydoes not intend to finance one or more new vessels, where therehas been no revaluation of any of the vessels for the purpose ofthe issue, and it is prominently stated that the valuations quotedare as at the date of the initial purchase or charter of the vessel(s).



Listing Global Depositary Receipts

14.1 What are Global Depositary Receipts (or “GDRs”)?14.2 Which rights attach to GDRs?14.3 How can GDRs be listed in the UK and which Listing Rules apply?14.4 Advantages of a GDR listing14.5 Disadvantages of a GDR listing14.6 Key differences in listing requirements for GDRs and Premium listings of shares14.7 Key differences in continuing obligations for GDRs and Premium listings of shares

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14.1 What are Global Depositary Receipts (or “GDRs”)?

GDRs are securities which typically represent the ownership of acompany’s shares, and are issued on behalf of a company by adepositary bank. GDRs are typically issued in respect of anoverseas company from an emerging market, and are most oftenpurchased by sophisticated or professional investors. GDRs areusually admitted to the Official List and traded on the Exchangeindependently from the underlying securities (which may notthemselves need to be listed securities).

When a company raises money through a GDR issue, each GDRrepresents a certain number of shares (for example, one GDR forevery share or one GDR for every five shares) usually determinedby a desire to keep the price per GDR within a liquid range. Theshares to be represented by the GDRs are transferred to thedepositary bank, which holds the shares on trust for the benefit ofthe GDR holders pursuant to the terms of the deposit agreement.

14.2 Which rights attach to GDRs?

The rights and obligations of the company, the depositary bankand GDR holders are set out in a deposit agreement and in theconditions of the GDRs. These terms are then summarised in theprospectus. Subject to local law restrictions, the depositagreement aims to give the GDR holder similar or the same rightsas a direct shareholder would have in the company. Althoughthere can be differences between transactions, the following keypoints are commonly included in deposit agreements for mostGDR programmes.

14.2.1 Corporate communicationsThe depositary bank is usually required to notify GDR holders ofany corporate communications it receives from the company, forexample notices of meeting, share buybacks, dividends orrights issues.

14.2.2 Voting rightsTechnically, the depositary bank has the voting rights attaching tothe shares underlying the GDRs because the shares are legallyregistered in its name or the name of its local custodian. It willpass these rights through to GDR holders and is usually requiredto vote the shares in accordance with, and in proportion to, theinstructions of the GDR holders.

14.2.3 DividendsThe depositary bank receives dividends from the company andpays these to the GDR holders. Usually the depositary bank paysdividends to GDR holders in US dollars rather than in the currencyof the country where the company is incorporated and thedepository will carry out the required currency conversion for GDRholders. The depositary may also be able to reduce or eliminatewithholding tax on dividends by making use of double tax treaties.

14.2.4 Deposit/withdrawalInvestors are usually permitted to deposit shares into the GDRfacility and receive GDRs from the depositary bank in exchange(or to withdraw shares from the GDR facility in exchange forreturning GDRs to the depositary bank). Investors typically bearthe fees for any deposits or withdrawals they make.

14.2.5 Direct enforcement by GDR holdersThe GDR holders are usually permitted to enforce their rightsunder the deposit agreement directly against the company. Unlikea trustee for an issue of debt securities, the depositary bankwould not typically be required to take enforcement action againstthe company on behalf of the GDR holders.

14.3 How can GDRs be listed in the UK and which ListingRules apply?

GDRs can be admitted to the Official List and to trading on theMain Market of the Exchange, which is a Regulated Market for the


14. Listing Global Depositary Receipts

purposes of EU securities law. It is also possible to list GDRs onthe Professional Securities Market of the Exchange (which is anExchange-regulated market), although this is less common.

Chapter 18 of the Listing Rules deals with GDR listings. GDRissuers are categorised as Standard listed issuers. Broadlyspeaking, the rules applicable to GDRs follow EU Directiveminimum requirements. This is in contrast to the rules that applyto Premium listings of shares in the UK, which go beyond EUDirective minimum requirements.

This section focuses on the differences between the requirementsfor a Premium listing of shares as compared to a GDR listing. Thelisting requirements and ongoing obligations applicable to a GDRissuer are less onerous than for a Premium listing of shares (seesections 14.6 and 14.7).

Please see the quick reference guide in Appendix 1 of this guidefor a comparison of the key eligibility requirements and continuingobligations requirements which apply to Premium, Standard, GDRand AIM issuers.

14.4 Advantages of a GDR listing

14.4.1 Highly developed marketGDRs allow companies from emerging markets to achieve a listingof securities in a highly developed market such as London. Thiscan mean greater liquidity, more extensive research coverage, andwider publicity than a listing in the company’s home country. Itmay also be possible to raise larger amounts of money in Londonthan in some local markets where there is less available capital.

As well as being developed, the GDRs themselves are asophisticated and trusted security with relatively standardised

terms and conditions. This permits a liquidity across the GDRmarket that is difficult to achieve across markets for local equitysecurities. For example, a Russian bank and a Middle Easternbank are both comparable and tradable within the same marketand in the same currency if both have a GDR listing.

14.4.2 Access to investorsMany investors may choose not to invest in a company in ajurisdiction that poses difficult regulatory or legal issues. A GDRlisting seeks to mitigate some of these obstacles by placing a USdepository bank in between the investor and the asset as anintermediary. The investor is able to rely on the local experienceand due diligence of the depositary bank thereby reducing both itsperceived and real exposure to local risks.

Some investors may be unable to invest in equities that are listedin emerging markets (or certain emerging markets), or may findsuch investments difficult in practice, for example, because oflocal regulations, foreign exchange restrictions or investmentmandate limits which restrict or limit investments in certaincountries or currencies or require minimum levels of liquidity. Bylisting GDRs in London, companies from emerging markets maybe able to access a broad range of institutional investors who theymay not have been able to reach in their home markets.

14.4.3 Less onerous regulatory requirementsIn London, the eligibility and disclosure requirements for GDRs(which largely follow EU Directive minimum requirements) are lessonerous than for a Premium listing of shares (which are subject toadditional super equivalent FCA rules and continuing obligationsbeyond EU Directive minimum requirements) (see sections 14.6and 14.7). The Prospectus content requirements are also lessonerous for GDRs than for a Premium listing of shares.


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The IPO preparation process is also more straightforward and lesstime consuming. There is no practice or requirement to conduct adetailed forward looking working capital analysis as there wouldbe for a Premium listing nor is there a need to ask accountants toprepare a “long form” financial due diligence report.

14.4.4 Compatibility with home listingSince GDRs and shares are separate securities, a GDR listing cansit alongside a company’s share listing in its home jurisdiction andit may not be necessary to undertake any dual listingarrangements or corporate restructuring (for example, interposinga UK plc holding company) in order to achieve a GDR listing. Thiscan also avoid local regulatory or political issues aroundre-locating the holding company from the home jurisdiction.

14.5 Disadvantages of a GDR listing

14.5.1 Less liquidity than Premium listing of sharesAs GDRs are specialist securities which are typically purchasedby sophisticated or professional investors rather than retailinvestors, trading liquidity for GDRs can be lower than forPremium listings of shares.

14.5.2 Investor perception of GDR listingIt has been suggested that investors attach a premium to aPremium listing of shares compared to a GDR listing on the basisthat the more stringent regulatory and corporate governancerequirements applicable to share listings give comfort to investorsas to the quality of the company’s management, businessprocesses and market transparency. If this view is correct, it wouldimply a price premium and/or reputational benefit for companieswho have a Premium listing of shares rather than a GDR listing.However opinions differ amongst market participants and some

take the opposite view, that investors do not see much differencebetween the two categories of listing.

14.5.3 FTSE eligibilityTo be eligible for inclusion in the FTSE UK indices a companymust have a Premium listing of shares. GDR listings are noteligible for inclusion.

14.6 Key differences in listing requirements for GDRs andPremium listings of shares

Section 4 of this guide sets out the basic eligibility requirementswhich apply to a company seeking a Premium listing of its shares.A number of these eligibility requirements are equally applicable toGDR issuers, in particular the requirement to:

(a) publish a Prospectus which has been approved by the FCA; and

(b) have an appropriate public distribution of thecompany’s securities.

However, there are a number of key differences between theeligibility requirements for a Premium listing of shares and forGDRs. In particular, a GDR issuer is not required to:

(a) make a statement about the sufficiency of its working capitalfor the next 12 months;

(b) carry on an independent business; or

(c) appoint a Sponsor in connection with its listing application.

Historically a GDR issuer was not required to comply with theListing Principles. As of 16 May 2014, this is no longer the caseand it must now comply with Listing Principles 1 and 2 (seesection 10.1).



14.7 Key differences in continuing obligations for GDRs andPremium listings of shares

The key continuing obligations for Premium issuers of shares areset out in section 10 of this guide. Some of these continuingobligations are applicable to GDR issuers. In particular, GDRissuers must:

(a) publish their annual financial report within four months of theend of the financial year, including audited financial statements,a management report and responsibility statement;

(b) maintain a free float of 25 per cent. or more of the GDRs;

(c) disclose any inside information to the market;

(d) maintain insider lists of persons who have access toinside information;

(e) include a corporate governance statement in the directors’report. This statement must include specific information,including information about the corporate governance code towhich the issuer is subject and any corporate governance

code which the issuer may have voluntarily decided to apply.The statement must also contain a description of the mainfeatures of the issuer’s internal control and risk managementsystems in relation to its financial reporting processes.

However, many of the continuing obligations applicable toPremium listed companies are not applicable to GDR issuers. Byway of example, GDR issuers are not required to:

(a) publish half yearly financial reports, including condensedfinancial statements, a management report andresponsibility statement;

(b) publish interim management statements in the middle part ofeach half year;

(c) publish a detailed shareholder circular and obtain shareholderapproval for certain significant transactions and/or relatedparty transactions; or

(d) ensure that their directors comply with the Model Code ondirectors’ dealings.



Admission to AIM

15.1 Advantages of admission to AIM15.2 Disadvantages of admission to AIM15.3 Companies suitable for admission to AIM15.4 Requirements for admission to AIM15.5 Legal status of AIM and the requirement for a Prospectus15.6 Typical admission process15.7 AIM Designated Markets: a fast track route to AIM15.8 Timescale15.9 Liability of directors15.10 Corporate governance15.11 Ongoing obligations15.12 Moving from AIM to the Main Market15.13 Cancellation of listing15.14 Further information

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Since its launch in 1995, over 3,000 companies have joined theAlternative Investment Market (“AIM”) and these companies haveraised more than £67 billion from initial public offers andsubsequent capital raisings. Its admission requirements and itsongoing regulation of member companies are set at a level whichis intended to be stringent enough to maintain investorconfidence but not so as to be prohibitive for young and/orgrowing companies. AIM is operated by the Exchange and is anExchange-regulated market as opposed to a Regulated Market(see section 15.5).

15.1 Advantages of admission to AIM

While retaining the advantages of listing on the Main Market suchas increased access to capital, increased liquidity for thecompany’s shares, ability to make acquisitions using shares,obtaining an objective market value and an increase in thecompany’s public profile, admission to AIM also confersadditional advantages:

15.1.1 Lower eligibility requirementsThe entry requirements for listing on the Main Market precludemany companies from joining. For instance, the requirement that25 per cent. of shares be in public hands or that a company havea three year trading record can be particularly problematic,especially for newly established companies. By contrast,admission to AIM requires no trading record, there is noprescribed level of shares to be in public hands and there is nominimum market capitalisation requirement.

15.1.2 Lower regulatory burdenA company admitted to AIM will not face the same level ofcontinuous obligation requirements and restrictions as a companylisted on the Main Market. The forty five AIM Rules, in contrast tothe Listing Rules for companies on the Main Market, cover just

eleven pages, do not use legal or technical jargon and aredesigned to be understood by all market participants. The AIMRules are available on the Exchange’s website with definitions andguidance notes to assist the understanding of individual rules.

15.1.3 Lower costThe cost of admission to AIM is likely to be cheaper than obtaininga Premium listing of shares on the Main Market. Furthermore, onthe basis that a company admitted to AIM is subject to fewercontinuing obligations than a company with a Premium listing ofshares on the Main Market, the cost of maintaining admission toAIM will be cheaper than the cost of maintaining a Premium listingof shares on the Main Market.

15.1.4 Policy on acquisitionsAIM companies are not generally required to produce furtherdocuments when effecting acquisitions and disposals. AIM istherefore ideal for companies looking to grow by acquisition.

15.1.5 TaxationInvestors may be able to take advantage of several tax reliefsavailable when investing in a company admitted to AIM, increasingthe attractiveness of investing in an AIM company. For companies,those with shares admitted to AIM are treated more favourably inthe calculation of several taxes than companies with shares listedon the Main Market.

15.2 Disadvantages of admission to AIM

Admission to AIM carries with it similar disadvantages to thosewhich would apply to a company seeking admission of its sharesto listing on the Main Market, such as the dilution of control ofexisting owners, greater disclosure of information, strictercorporate governance and the cost of obtaining and maintainingadmission (see section 1.2).


15. Admission to AIM

15.3 Companies suitable for admission to AIM

15.3.1 SizeAdmission to AIM is ideally suited to mid-sized companies looking toraise capital without incurring the regulatory burden and restrictionsimposed by a listing on the Main Market. There is no minimummarket capitalisation requirement: ultimately the judgement as towhether a company is suitable for admission to AIM is made by thecompany’s Nominated Adviser (see section 15.4.1).

15.3.2 Industry sectorCompanies admitted to AIM are spread across the full range ofindustry sectors without a particular bias and include companiesfrom the financial services, media and entertainment, mining, oiland gas, pharmaceuticals and biotechnology, real estate andtechnology sectors.

15.3.3 Foreign companiesA company does not need to be incorporated in the UK to beadmitted to AIM. Foreign companies with existing listings oncertain overseas stock exchanges can join AIM without having toissue an AIM Rules admission document through a fast trackprocedure. See section 15.7.

15.4 Requirements for admission to AIM

The main requirements for admission to AIM are outlined below:

15.4.1 Need for a Nominated Adviser (NOMAD)

Every company seeking admission to AIM must appoint aNominated Adviser (also commonly known as a Nomad) – acorporate finance adviser approved by the Exchange to act inthis capacity.

The Nominated Adviser plays a key role at admission, assessingthe company’s overall appropriateness and suitability for AIM and

assisting it throughout the flotation process. The NominatedAdviser is responsible for warranting to the Exchange that, in itsopinion, a company is appropriate for AIM. Therefore, althoughthe Nominated Adviser is appointed by the company, its primaryduty is to the Exchange. The Exchange has published AIM Rulesfor Nominated Advisers which set out the criteria for becoming aNominated Adviser and the continuing obligations of aNominated Adviser.

Once admitted, the company must retain a Nominated Adviser atall times to help it meet its continuing obligations and to deal withmarket issues as they arise.

15.4.2 Need for a BrokerUnder the AIM Rules every AIM company must retain a broker atall times. The broker’s role is to:

(a) assess the level of investor interest in a company’sAIM securities;

(b) provide advice on market and trading related issues atadmission and in the run up to admission; and

(c) advise on the pricing of shares and investment opportunities.

Often the Nominated Adviser will also have a broking team and acompany may wish to appoint the same firm as NominatedAdviser and broker.

15.4.3 Other advisersOther advisers are also integral to supporting a company throughthe AIM admission process. Such advisers usually include a law firm,accountancy firm and often financial PR/investor relations firms.

15.4.4 AIM Rules Admission documentThe AIM Rules require an applicant to produce an admissiondocument (an “AIM Rules admission document”) in English and


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in an easily analysable and comprehensible form. This documentmust be made publicly available on the company’s website.

Schedule Two of the AIM Rules sets out what information isrequired to be disclosed in the AIM Rules admission document. Itincorporates some, but not all, of the content requirements for anequity Prospectus required by the Prospectus Rules (for example,as would be required in the case of a company seeking aPremium listing of shares on the Main Market).

The company must take reasonable care to ensure that theinformation contained in the AIM Rules admission document is tothe best of the knowledge of the company, in accordance withthe facts and contains no omission likely to affect the import ofsuch securities.

The preparation of the AIM Rules admission document will take aconsiderable amount of time and effort and will be a collaborativework product with input from the company, the NominatedAdviser, the reporting accountants and the company’s lawyers.

The AIM Rules admission document does not need to bereviewed or approved by the Exchange (unlike in the case of acompany’s Prospectus prepared in connection with it obtaining aPremium listing of shares on the Main Market where the FCA mustapprove it) but the Nominated Adviser is in effect risking its ownreputation on the suitability, content and reliability of the documentand they will closely supervise the drafting of the document.

In certain circumstances, however, a company will be required toprepare a Prospectus complying with the Prospectus Rules whichmust be approved by the FCA, as opposed to an AIM Rulesadmission document. See section 15.5 for details.


Contents of an AIM Admission DocumentThe AIM Rules admission document must contain information on:

(a) the persons responsible for the document, which includesthe company and its directors;

(b) risk factors that are specific to the issuer or its industry andto the shares being admitted to AIM;

(c) the issuer and its capital;

(d) the issuer’s business;

(e) organisational structure;

(f) significant trend information;

(g) certain board practices;

(h) directors and employees;

(i) major shareholders;

(j) related party transactions;

(k) financial information concerning the issuer’s assets andliabilities, financial position and profits and losses for thelatest three financial years (or such shorter period that theissuer has been in operation);

(l) material contracts;

(m) the securities to be offered or admitted to trading;

(n) selling shareholders;

(o) expenses of the offer; and

(p) any other information reasonably considered necessary toenable investors to form a full understanding of: (i) theassets and liabilities, financial position, profits and lossesand prospects of the applicant and the securities for whichadmission is being sought; (ii) the rights attaching to thosesecurities; and (iii) any other matter contained in theadmission document.


15.4.5 Other documentsThere are many other documents that are often prepared in orderto produce the AIM Rules admission document, in particular:

(a) the AIM Rules require a statement by the company’s directorsto be included in the AIM Rules admission document thatconfirms that the company has sufficient working capital for aperiod of at least 12 months from the date of admission of thecompany to AIM. Therefore, a working capital report willusually be prepared by the company in conjunction with itsauditors to provide comfort that such a working capitalstatement can be made; and

(b) an accountant’s financial due diligence report (also known asthe long form report) on the company prepared for theNominated Adviser and the directors of the company, thepurpose of which is to assist the Nominated Adviser inunderstanding the company and to assess whether thecompany is suitable for admission to AIM.

15.4.6 Transferability of sharesThe company’s shares must be freely transferable, not subject toany pre-emption rights and eligible for electronic settlement.

The AIM Rules do not impose any requirement to applypre-emption rights on new issues of shares and, as such,pre-emption rights will only apply where the company lawrequirements of the issuer’s country of incorporation require it.

15.4.7 Lock-in ruleIf the company has not been earning revenues for at least twoyears, the directors of the company or any group company and thesubstantial shareholders (anyone holding a direct or indirect interestin 10 per cent. or more of the class of the security to be admitted or10 per cent. or more of the voting rights relating to the company)

must agree not to dispose of any interest in the company’s sharesfor a period of one year following admission. This rule is designed toprevent admission to AIM being simply a means by which ownerscan immediately realise their investment in the company.

15.4.8 Requirement for a company websiteEach AIM company must, from admission, maintain a website onwhich up-to-date management and financial information on thecompany must be available free of charge. This website mustinclude (amongst other requirements) a description of thecompany’s business, the names of directors and significantshareholders, all notifications the AIM company has made in thepast 12 months and a copy of the AIM Rules admission documentor Prospectus. The company must update the website on aregular basis.

15.4.9 Admission feeAn admission fee is payable by all companies seeking admissionto AIM. The admission fee is based on the market capitalisation ofthe company on the day of admission. An annual fee is payable byall companies whose equity securities or certificates representingshares are admitted to trading on AIM.

15.4.10 Settlement arrangementsAn AIM company must ensure that appropriate settlementarrangements for its securities are in place, and in particular, AIMsecurities must be eligible for electronic settlement. On the basisthat only shares created under the laws of England and Wales(and certain other limited jurisdictions) can be held or transferred inCREST directly, any non-UK incorporated issuers seekingadmission of their shares to AIM must apply for a listing ofdepositary interests rather than a direct listing of their shares (seesection 4.1.9 for more information about depositary interests).



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15.5 Legal status of AIM and the requirement fora Prospectus

AIM is an Exchange-regulated market rather than a RegulatedMarket which means that companies seeking admission to AIMdo not have to produce a Prospectus complying with theProspectus Rules unless an offer of shares is made to the publicand an exemption does not apply. The most commonly reliedupon exemptions are if the offer is made solely to:

(a) qualified investors (i.e. organisations which are authorised orregulated to operate in the financial markets); or

(b) to less than 150 persons per EEA state.

Since the vast majority of IPOs on AIM are structured as privateplacings to institutional and other qualified investors, it is likely thatmost companies seeking admission to AIM will be able to relyupon one of the exemptions and will not be required to produce aProspectus and will instead be required to prepare an AIM Rulesadmission document.

It is possible to admit to AIM all types and classes of securitiesincluding ordinary shares and preference shares.

Companies listed on AIM are not subject to the Listing Rules.

15.6 Typical admission process

The procedure for admission to AIM is quicker and more flexiblethan the procedure for admission to the Main Market, largelybecause the AIM Rules admission document does not requirereview or approval by the Exchange prior to its publication.

To produce the AIM Rules admission document an extensive legaland financial due diligence exercise will be conducted on thecompany and various accounting reports prepared (see section15.4.5) to be reviewed by the Nominated Adviser.

A series of drafting meetings will then take place involving thecompany’s directors/senior managers, the company’s legaladvisers, the Nominated Adviser and the Nominated Adviser’slegal advisers in order to draft the AIM Rules admissiondocument. Running alongside the drafting process, a verificationexercise will be undertaken by the company’s legal advisers onbehalf of the company to confirm the accuracy of statementsmade in the document.

The company will give presentations to targeted investors to seektheir commitment to buy the shares at admission.

Once there is sufficient take-up of the shares by investors,a pre-admission announcement must be made to the Exchangeat least 10 business days prior to the expected date ofadmission to AIM.

At least three business days before the expected date ofadmission, the company must submit to the Exchange acompleted application form and an electronic version of its AIMRules admission document, along with its Nominated Adviser’sdeclaration as to the suitability of the company and the companymust pay the AIM admission fee.

If a Prospectus is required, an application must be made to the FCAfor its approval. This requires the submission of the draft Prospectus(and various other documents) to the FCA at least 20 working daysbefore the intended approval date of the Prospectus.

Admission becomes effective when the Exchange issues adealing notice.

15.7 AIM Designated Markets: a fast track route to AIM

A company which has had its securities traded on an AIMDesignated Market for not less than 18 months prior to its intended



date of admission to AIM, may apply to be admitted to AIM withoutbeing required to prepare an AIM Rules admission document.

Instead of preparing an AIM Rules admission document, thecompany is required to make an announcement to the market20 clear days prior to the date of its expected admission to AIMwhich must include certain prescribed information.

15.8 Timescale

Admission to AIM is likely to take at least 14 weeks from the firstexploratory meetings to the first day of dealing and can take up to24 weeks. Much will depend on the extent to which materialissues arise out of the accounting and legal due diligenceinvestigations into the company. Although the process is lessonerous than for a Premium listing of shares on the Main Market,obtaining admission to AIM still requires considerable timecommitment from directors and senior managers.

15.9 Liability of directors

As with a listing on the Main Market, the directors of a companyseeking admission to AIM are personally liable for the contents ofthe AIM Rules admission document, hence the need for thedetailed verification exercise to be conducted by the company’slegal advisers to ensure the document is accurate, complete andnot misleading, and for the directors to include a statement to thiseffect in the AIM Rules admission document. The liability of thedirectors for the AIM Rules admission document may involve both

civil and criminal penalties.

15.10 Corporate governance

The provisions of the UK Corporate Governance Code do notstrictly apply to AIM companies as there is no requirement tofollow the Code under the AIM Rules.

In addition to the Code, the QCA, an organisation that seeks topromote the interests of small and mid-cap quoted companies,has published “The Corporate Governance Code for Small andMid-Size Quoted Companies” (“QCA Code”). The QCA Codeapplies key elements of the Code and other relevant guidance tothe particular circumstances of smaller quoted companies,including AIM companies.

Most AIM companies choose voluntarily to comply with either theCode or the QCA Code. For those adopting the Code, mostcompanies qualify their corporate governance statements byreference to their size, sector and stage of development.

An AIM company must disclose on its website details of thecorporate governance code that it has decided to apply, how itcomplies with that code, or if no code has been adopted, astatement to that effect together with details of its currentcorporate governance arrangements8.

15.11 Ongoing obligations

15.11.1 AnnouncementsThe company must announce, without delay, any newdevelopment which is not public knowledge relating to a changein its financial position, sphere of activity, performance of itsbusiness or its expectation of its performance, which, if madepublic, would be likely to lead to a significant movement in its


The current AIM Designated Markets are: Australian Stock Exchange; Deutsche Börse Group;Johannesburg Stock Exchange; Nasdaq; NYSE; NYSEEuronext; NASDAQ OMX Stockholm; Swiss Exchange; TMXGroup; and the Official List.

8.The AIM Rules were amended on 13 May 2014. This a new requirement which must be implemented by 11 August 2014.


115

share price. This is similar to the general requirements fordisclosure applicable to companies listed on the Main Market.

15.11.2 Financial reportsThe company must prepare a half-yearly report, which must beannounced by no later than three months after the end of therelevant financial half-year, and must publish annual accounts notlater than six months after the financial period to which they relate.Both of these timescales allow the company more time to preparethe reports than equivalent provisions applicable to companieslisted on the Main Market.

An AIM company incorporated in the EEA must present itsaccounts in accordance with International Accounting Standards.If the company is not a parent company, it may prepare itsfinancial information in line with local accounting standards.Non-EEA incorporated companies on AIM may use eitherInternational Accounting Standards, US GAAP, Canadian GAAP,Australian IFRS or Japanese GAAP.

15.11.3 Disclosure of corporate transactionsAny transaction by an AIM company or one of its subsidiarieswhich exceeds 10 per cent. of any of the AIM class tests (similarto the percentage ratio tests set out in the Listing Rules – seesection 10.7.3) is classified as a “substantial transaction”.Transactions of a revenue nature in the ordinary course ofbusiness and transactions intended to raise finance that do notinvolve a change in the fixed assets of the group are excluded.Details of any substantial transaction must be notified to themarket without delay as soon as the terms of the transactionare agreed. Notification must include particulars of thetransaction, including the names of the other relevant parties,the effect on the AIM company and any other informationnecessary to enable investors to evaluate the effect of thetransaction upon the AIM company.

A market notification is also required where the companyundertakes a transaction with a related party (which includes adirector or substantial shareholder of the company) and thetransaction exceeds 5 per cent. of any of the AIM class tests. Anysuch notification must also include a statement that the directorsof the company (with the exception of any director involved in thetransaction as a related party) consider, having consulted with theNominated Adviser, that the terms of the transaction are fair andreasonable insofar as shareholders are concerned.

15.11.4 Transactions requiring shareholder approvalWhere a company undertakes a transaction, or a number oftransactions over a 12 month period, which would exceed100 per cent. in any of the AIM class tests or which would result ina fundamental change in the company’s business, board or votingcontrol, it is known as a “reverse takeover”. Any suchtransaction must be conditional upon the consent of shareholdersand be notified without delay to the market. In addition, anadmission document will be required in respect of the proposedenlarged entity. Where shareholder approval is given for thereverse takeover, trading in the securities of the AIM company willbe cancelled. If the enlarged entity intends to seek admission toAIM, it will be required to make an application in the same manneras any other first-time applicant.

Shareholder approval will also be required for any disposal by acompany which, when aggregated with any other disposal(s) overthe previous 12 months, exceeds 75 per cent. in any of the AIMclass tests (a “fundamental disposal”).

15.11.5 Information on DirectorsThe company must disclose to the market any dealings in theshares of the company by its directors. The company must alsodisclose to the market the appointment, resignation or dismissal ofany director.



15.11.6 Significant shareholder disclosuresUK incorporated AIM issuers must comply with both Chapter 5 ofthe DTRs and the significant shareholder disclosure obligations inRule 17 of the AIM Rules. Compliance with Chapter 5 of the DTRsin respect of AIM securities will usually mean that a company iscomplying with the significant shareholder disclosure obligations inAIM Rule 17 subject to certain provisos (see the Guidance Notesto AIM Rule 17 in the AIM Rules). AIM issuers not subject toChapter 5 of the DTRs must continue to comply with AIM Rule 17which requires the disclosure by an AIM company without delay ofany relevant changes to any significant shareholders.

15.12 Moving from AIM to the Main Market

It is not unusual for companies with securities admitted to AIM toseek to move up to the Main Market in due course. However, thereis no fast track procedure available to companies admitted to AIMto move to the Main Market. Any company wishing to do so will be

treated like any other new applicant and will need to demonstratethat it satisfies the FCA’s eligibility requirements for admission to theOfficial List set out in the Listing Rules and complies with therequirements for admission to trading on the Main Market set outin the Exchange’s Admission and Disclosure Standards.

15.13 Cancellation of listing

To cancel a listing on AIM a company is required to obtain aspecial resolution from its shareholders (i.e. the consent of not lessthan 75 per cent. of votes cast) and announce its intention todelist at least 20 clear business days prior to such date.

15.14 Further information

See the quick reference guide set out in Appendix 1 of this guidefor a comparison of the key eligibility requirements andcontinuing obligations requirements for Premium, Standard, GDRand AIM issuers.



Appendix 1


Appendix 1Quick reference guide to key eligibility requirements andcontinuing obligations requirements for Premium, Standard,GDR and AIM issuers

Criteria PremiumListing ofShares onMainMarket

StandardListing ofShares onMainMarket

StandardListing ofGDRs onMainMarket

Admissionof Shareson AIM

Eligibility Minimum Market Capitalisation

Free transferability of shares

Three year trading record

Independent business

Unqualified working capital statement 1

Securities in public hands 25% 25% 25%

Lock-up2

Supervision Requirement to appoint sponsor/nomadon admission

Sponsor Nomad

Requirement to retain sponsor/nomadpost admission 3 Nomad

1.Note, a working capital statement is still required to be made but it does not need to be unqualified.2.In practice however, sponsor will usually require company, selling shareholders, directors and, in some cases, senior management to enter into lock-up agreements fora specified period after admission.

3.Chapter 8 of the Listing Rules does require a sponsor to be appointed in certain circumstances post admission e.g. if the issuer is required to prepare a class 1 circular etc.






Listing Principles Issuer to comply with Listing Principles4

ContinuingObligations

Adherence to UK Corporate Governance Code on’comply or explain’ basis 5

Compliance with Model Code 6

Significant transaction rules apply 7

Related Party transaction rules apply 8

General obligation of disclosure of pricesensitive information 9

Obligation to maintain an insider list

4.A premium listed company must also comply with the Premium Listing Principles.5.Note however that it is considered best practice for an AIM issuer to comply with Code requirements or the QCA Corporate Governance Guidelines.6.AIM Rule 21 prevents directors and certain employees of a company admitted to AIM from dealing in the company’s securities in a close period.7.For reverse takeovers and disposals resulting in a ’fundamental change of business’ only.8.Notification obligation only but requires a statement from the directors that the transaction is fair and reasonable.9.Derives from AIM Rules requirements as opposed to Market Abuse Directive / DTR 2 obligation.

Appendix 1






FinancialReporting

Annual report and accounts

Half-yearly reports

Interim management statements10

ProspectusRequirements

FCA approved prospectus required on admission 11

10.The requirement to publish interim management statements will be abolished when changes to the EU Transparency Directive take effect. The long stop date forimplementation of these changes into national law is 26 Nove mber 2015.

11.Unless an “offer to the public” for the purposes of section 85 FSMA 2000 is made. Otherwise a Nomad-vetted AIM Rules admission document will need to be prepared.

Appendix 1

Glossary

123

144A Information Requirement – Where securities are to beoffered and resold into the US to QIBs in reliance on Rule 144A,the information which an issuer generally must agree to provide atany time to any QIB, or prospective purchasers of the securitiesfrom a QIB, on the request of the current holder of the securities.

AIM – Alternative Investment Market. The junior market of theExchange. An Exchange-regulated market. See section 15.

AIM Rules/AIM Rules for Companies – Published by theExchange, these rules set out the admission criteria and thecontinuing obligations which apply to a company seekingadmission of its securities to AIM. See section 15.

AIM Rules for Nominated Advisers – Published by theExchange, these rules set out the eligibility criteria for approval asa Nominated Adviser and the continuing obligations of NominatedAdvisers. See section 15.4.1.

Bookbuilding – A process where the Global Bookrunner andUnderwriters market the IPO to potential institutional investorsusing a Pathfinder or Price-Range Prospectus before the offerprice and/or number of shares is determined to obtainexpressions of interest as to the likely level and price at which theinvestors would be prepared to participate in the IPO. At the endof the marketing period, the price and size of the IPO aredetermined. See sections 5.2 and 7.1.

CEIF – Close ended investment fund. See section 12.2.

Code – The UK Corporate Governance Code (previously knownas the Combined Code) Principles of good corporate governanceand best practice recommendations published by the FinancialReporting Council. See section 10.8.1.

Competent authority – The authority designated as such by itsmember state that is responsible for, inter alia, approvingProspectuses. The FCA is the UK competent authority. Seesection 6.1.

Controlling shareholder – any person who exercises orcontrols on their own or together with any persons with whomthey are acting in concert, 30 per cent. or more of the votes ofthe company. See sections 4.1.8 and 10.7.3.

Corporate Governance Rules – Rules published by the FCAand found in Chapters 1B and 7 of the DTRs.

CREST – CREST is an electronic, paperless settlement system forUK securities operated by an independent company, Euroclear UK& Ireland Limited. CREST provides for the transfer of securitieswithout written instruments, and evidences title to securitieswithout a certificate. Members of the CREST system can transferthe securities that they hold by electronic book entry. The CRESTsettlement system is only open to securities of companiesincorporated in jurisdictions other than the UK if the legislationunder which they are incorporated is recognised as beingcompatible with CREST.

Disclosure Rules – Rules published by the FCA and found inChapters 1, 2 and 3 of the DTRs which set out certain disclosureobligations for listed companies whose securities have beenadmitted to trading on a Regulated Market in the UK or for whicha request for admission to trading on a Regulated Market in theUK has been made and disclosure obligations for directors andcertain other personnel of such companies.

DTRs – Collectively, the Disclosure Rules, the Transparency Rulesand the Corporate Governance Rules.


Glossary

EEA – European Economic Area.

ESMA – European Securities and Market Authority.

ESMA Recommendations – ESMA update of the CESRRecommendations on The Consistent Implementation ofCommission Regulation (EC) No. 809/2004 implementing theProspectus Directive. See sections 6.5 and 13.1.

EU Directive minimum requirements – EU legislative minimumrequirements for admission to the Official List.

Exchange – London Stock Exchange plc, the principal RIE for thetrading of shares in the London market. The Exchange operates fiveseparate markets: (i) the Main Market; (ii) AIM; (iii) the SFM; (iv) thePSM; and (v) the HGS. The Exchange also operates a number oftrading systems for debt and equity securities. See section 2.4.

Exchange Act – United States Securities Exchange Act of 1934,as amended.

FCA – Financial Conduct Authority. The FCA has a number offunctions which include setting and administering the criteriagoverning when a Prospectus must be prepared, admission to theOfficial List and the continuing obligations for listed companies.

FSA – Financial Services Authority, the predecessor to the FCA.

FS Act – Financial Services Act 2012

FSMA – Financial Services and Markets Act 2000.

Global Bookrunner – Appointed where an IPO involves an offerof shares in different capital markets. The Sponsor often fulfils thisrole (solely or jointly with another bank) and will oversee thebookbuilding process. See section 3.1.3.

GDR – Global Depositary Receipt. Negotiable securities whichrepresent the ownership in a company’s equity, usually in the formof shares, and are issued on behalf of a company by a depositarybank. See section 14.

Grey market trading – This is the term used to describe tradingin shares prior to those shares being admitted to the Official Listand before official trading on the Exchange commences. While theshares may be traded on the Exchange, they trade subject toadmission to the Official List and if the shares are not ultimatelyadmitted to the Official List, all grey market trades are void andmust be unwound. See section 4.3.

HGS – High Growth Segment, a Regulated Market operated bythe Exchange aimed at high growth trading companies. Seesection 2.4.5.

Home state – Determined by the provisions of the ProspectusDirective. Broadly, for EEA companies issuing shares, themember state where the company has its registered office.See section 6.1.

Host state – The state where an offer to the public is made oradmission to trading on a Regulated Market is sought, whendifferent from the home state. See section 6.13.

IAS Regulation – EU Regulation No 1606/2002 which makes itmandatory for listed companies that prepare consolidatedaccounts to prepare audited accounts in accordance with IFRS.

IFRS – International Financial Reporting Standards.

Investment Entity – An entity whose primary object is investingand managing its assets with a view to spreading or otherwisemanaging investment risk. See section 12.



IPO – An initial public offer of shares, also called a flotation.

Key information – Information to be included in a Prospectussummary and which is essential to enable investors to understandthe shares to which the Prospectus relates and to decide whetherto consider the offer further. See section 6.3.

Listing – A two stage process involving admission to the OfficialList maintained by the FCA and admission to trading on an RIE,such as the Main Market.

Listing Rules – Rules published by the FCA and which set outthe regulations governing the admission of securities to the OfficialList and the continuing obligations of listed companies.

Main Market – A Regulated Market operated by the Exchange.Equity, debt, depositary receipts and other types of security maybe admitted to trading on the Main Market.

Market Abuse Directive – EU Directive 2003/6/EC on insiderdealing and market manipulation (market abuse) which wasimplemented in the UK on 1 July 2005. The Market AbuseDirective is to be replaced by a new EU Market Abuse Regulation.This Regulation is currently making its way through the EUlegislative process. It is unlikely to take effect, at the earliest,before mid 2016.

Nomad or Nominated Adviser – A corporate finance advisorapproved by the Exchange to act as a Nomad. Must be appointedby a company seeking admission of its securities to AIM. Seesection 15.4.1.

OEIC – Open ended Investment Company. See section 12.1.

Official List – A list maintained by the FCA of securities whichhave been officially listed by the FCA. See section 4 for the basic

conditions to be satisfied by a company to gain admission to theOfficial List.

OFR – Operating and Financial Review. An issuer must include anOFR in its Prospectus. See section 6.5.1(d).

Pathfinder Prospectus – A Prospectus that does not state thefinal offer price and/or number of shares being offered and whichis used in the bookbuilding process. See section 5.2.

PDMR – A person discharging managerial responsibilities. Seesection 10.4.

Premium listing – Available to both UK and overseascompanies. To achieve a Premium listing of equity shares,applicants must satisfy both EU Directive minimum requirementsand additional super equivalent requirements imposed by theFCA. See section 2.3.1.

Price-Range Prospectus – A Prospectus which contains a pricerange within which the final offer price may be set and which isused in the bookbuilding process. See section 5.2.

Prospectus – The document required to be published by FSMAand the Prospectus Rules where a company either (i) makes an offerof shares to the public in the UK or (ii) applies for the admission totrading of its shares on a Regulated Market in the UK. See section 6.

Prospectus Directive – EU Directive 2003/71/EC (as amended).

Prospectus Directive Regulation – EU Regulation No809/2004 (as amended) which has direct effect in Member Statesand which implements certain provisions of the ProspectusDirective regarding the format, incorporation by reference,publication of prospectuses and dissemination of advertisements.Many of the provisions of this Regulation have been incorporateddirectly into the Prospectus Rules.

Prospectus Rules – Rules published by the FCA which require acompany which is either (i) making an offer of securities to the publicin the UK; or (ii) making an application for admission of its securitiesto trading on a Regulated Market in the UK to prepare a Prospectusin a prescribed format for approval by the FCA prior to publication.

PSM – The Professional Securities Market operated by theExchange. An Exchange-regulated market for debt issuers.Securities listed on the PSM are also admitted to the Official List.See section 2.4.4.

QIBs – Qualified institutional buyers to whom a Rule 144A offermay be made. See section 5.6.1.

Regulated Market – A market recognised as such by its homestate pursuant to the provisions of EU Directive 93/22/EC. As at thedate of publication of this guide, the UK Regulated Markets are theICAP Securities & Derivatives Exchange Main Board, The LondonInternational Financial Futures and Options Exchange (LIFFE), TheLondon Metal Exchange, ICE Futures Europe, NYSE EURONEXTLONDON and the London Stock Exchange Regulated Market.

Regulation S – This regulation provides an exemption from theregistration requirements of the Securities Act for offers and salesof securities outside the US. See section 5.6.2.

Reporting Accountants – Appointed by the company to,amongst other things, prepare the long form report and to reporton the historical financial information in the Prospectus. Forinformation regarding their role see section 3.1.5.

RIE – An investment exchange recognised as such under FSMA.

RIS – A regulatory information service. A company will use an RISprovider to receive and disseminate information which must be

disclosed by it in accordance with the Prospectus Rules, theListing Rules and the DTRs. See section 10.2.

Rule 144A offer – An offer of securities pursuant to Rule 144A ofthe Securities Act made to US institutional investors which may bemade without being subject to the registration requirements of theSecurities Act provided, among other things, that all US investorswho purchase the securities are QIBs. See section 5.6.

Rules – Collectively, the Prospectus Rules, the Listing Rules andthe DTRs.

SAS 72 letters – Comfort letters issued by the ReportingAccountants under US accounting standards AU-C-920 where anIPO includes a US Offer. (N.B. AU-C-920 is a clarification of thetraditional SAS 72 standard for companies that are not public inthe US; this clarified standard has not changed customarycomfort letter practice). See section 3.1.5.

SEC – United States Securities and Exchange Commission, theUS securities regulator.

Securities – Generic name for equity and debt instruments.

Securities Act – United States Securities Act of 1933, as amended.

SFM – The Specialist Funds Market operated by the Exchange. Adedicated Regulated Market for specialist investment funds. Seesections 2.4.2 and 12.4.3.

Sponsor – Typically an investment bank or stockbroker. An FCAapproved sponsor must be appointed by a company seeking tohave its shares admitted to the Official List. For details regardingthe Sponsor’s role see sections 3.1.2 and 4.1.5.



Stabilisation Regulation – EU Regulation No. 2273/2003 whichsets out exemptions from the provisions of the Market AbuseDirective for buyback programmes and stabilisation activity.

Stabilising Manager – Usually the lead Underwriter, theStabilising Manager is the person identified in the Prospectus asthe central point of enquiry for any request from the FCA relatingto stabilisation activities undertaken in connection with the offer.See sections 3.1.3 and 7.3.

Standard Listing – The Standard segment of the listing regimeis sub divided into 5 categories which indicate the type ofsecurities having a Standard listing: shares; GDRs; Debt and debtlike; securitised derivatives; and miscellaneous securities.See section 2.3.2.

Super-equivalent – Refers to the additional admissionconditions and continuing obligations requirements in the ListingRules imposed by the FCA above and beyond EU Directiveminimum requirements. These conditions/obligations only applyto issuers seeking, or which already have, a Premium listing oftheir securities.

Supplementary Prospectus – A document which must beprepared if, during the period between formal approval by the FCAof a company’s Prospectus and before the offer to which theshares relate closes or trading in the company’s sharescommences, the company becomes aware of any significant newfactor, material mistake or inaccuracy relating to informationincluded in the Prospectus. See section 6.9.

Transparency Directive – EU Directive 2004/109 on theharmonisation of transparency requirements in relation toinformation about companies with securities admitted to tradingon a Regulated Market and which was implemented in the UK on

20 January 2007. The Transparency Directive has been amendedby EU Directive 2013/50/EU. These amendments must beimplemented into national law by 26 November 2015.

Transparency Rules – Rules published by the FCA and found inChapters 1A, 4, 5 and 6 of the DTRs which set out certaincontinuing obligations of listed companies, in particular, relating tofinancial reporting.

Underwriters – A group of investment banks who underwrite theissue or sale of shares under the IPO.

Underwriting – Underwriters, for a commission, undertake tosubscribe for or acquire any part of an issue not taken up byinvestors, thereby guaranteeing that the IPO will raise a givenamount of cash. See section 7.1.

US Offer – An offer or placing of securities into the US as part ofan IPO. See section 5.6.

10b-5 disclosure letter – A letter required to be delivered by thelegal advisers to the company and, usually, from its own legaladvisers, to the Sponsor and Underwriters, for risk managementpurposes where the offer involves a US Offer. See sections 3.1.1and 9.8.

129

The index is cross referenced to section numbers rather thanpages. References to information beginning with numbers, e.g.’48’, will be filed as if spelled out, e.g. ’forty-eight’

Advantages of listing

access to additional equity and debt capital 1.1.1attraction and retention of key personnel 1.1.5corporate image enhanced 1.1.2growth not limited by cash resources 1.1.4improved corporate governance 1.1.6inclusion in FTSE UK indices 1.1.7increased liquidity of capital investment 1.1.3visibility and awareness 1.1.8

Alternative Investment Market (AIM)

admission process 15.6admission requirements

admission document see AIM Rules admission documentcompany website 15.4.8fee 15.4.9lock in rule 15.4.7need for broker 15.4.2need for Nominated Adviser 15.4.1need for other advisers 15.4.3settlement arrangements 15.4.10transferability of shares 15.4.6

advantages of admission 15.1AIM Rules admission document 15.4.4application of Prospectus Rules 15.5cancellation of listing 15.13corporate governance 15.10Designated Markets 15.7directors’ liability 15.9disadvantages of admission 15.2investment entities 12.4.2legal status, Exchange regulated 15.5moving to Main Market 15.12ongoing obligations

announcements 15.11.1disclosure of corporate transactions 15.11.3financial reports 15.11.2

information on directors 15.11.5significant shareholder disclosures 15.11.6transactions requiring shareholder approval 15.11.4

role of LSE 2.4.3suitability for admission 15.3timescale for admission 15.8

Bookbuilding structure

placings 5.2underwriting 3.1.3, 7.1

Brokers

on admission to AIM 15.4.2professional advisers 3.1.6publication of research 8.2

Cancellation of listing

AIM 15.13Main Market 10.7.6

Closed End Investment Fund (CEIF)

definition 12.1, 12.2reasons for listing 12.3

Conditions for listing

admission to the Official List 4.1aggregate market value of all securities to be listed 4.1.9appointment of Sponsor 4.1.5independent business 4.1.8legal and regulatory compliance 4.1.2nature and duration of business activities 4.1.7overseas companies seeking primary listing in London 11.2preparation of a Prospectus 4.1.3premium listings compared with GDRs 14.6public distribution of shares 4.1.4standard listings of shares 11.1.1standard of financial information 4.1.6securities of a body corporate 4.1.1transferability of shares 4.1.9

Conditions for trading

admission to trading 4.2grey market trading 4.3


Index

Connected brokers

publication of research 8.2

Continuing obligations for listed companies

Disclosure and Transparency Rulescorporate governance requirements 10.8disclosure of inside information 10.2financial reporting

annual financial report and accounts 10.5.1half-yearly reports 10.5.2interim management statements 10.5.3

obligation to maintain an insider list 10.3PDMRs, disclosure of dealings 10.4sanctions for breach 10.9

Listing Principles 10.1Listing Rules

cancellation of listing 10.7.7independent business 10.7.3meeting of shareholders 10.7.2Model Code 10.7.5pre-emption rights 10.7.1related party transactions 10.7.5sanctions for breach 10.9significant transactions 10.7.4

London Stock Exchange 10.11, 10.12overseas companies seeking premium listing in London 11.2.Premium Listing Principles 10.1premium listings compared with GDRs 14.7Prospectus Rules 10.10

further issues of shares 10.10standard listings 11.1.2UK Corporate Governance Code 10.8.1

CREST

electronic settlement of shares 4.1.8, 15.4.10

Debt securities

listing segments 2.3.2

Depositary interests (DIs)

listing of 4.1.9

Directors

additional responsibilities on listing 1.2.2liability on admission to AIM 15.9persons responsible for Prospectus 9.1UK Corporate Governance Code, requirements 10.8.1

Disadvantages of listing

additional responsibilities of directors 1.2.2costs 1.2.4dilution of control of existing owners 1.2.1increased disclosure requirements 1.2.3management time 1.2.5

DTRs (Disclosure and Transparency Rules), see Continuing obligations forlisted companies

Due diligence procedures

preparing for listing 3.3Prospectus, minimising liability risk 9.5

Electronic settlement see CREST

FCA (Financial Conduct Authority)

Financial Conduct Authority see FCA (Conduct Services Authority)

Listing Rules 4.1Prospectus Rules 2.2review of listing regime 2.4role in listing process 2.2“super equivalent” admission standards 2.3.1, 4.1

Financial reporting

annual financial report and accounts 10.5.1half-yearly reports 10.5.2interim management statements 10.5.3

FSMA/Financial Services and Markets Act (2000) see also FSMA(Financial Services and Markets Act) 2000

48 Hour documents

timetable for admission to listing 3.5

Fraud Act (2006) see Liability, for Prospectus

FSMA (Financial Services and Markets Act) 2000 see also Liability,


131

for Prospectus

financial promotions 10.13market abuse 9.6, 10.13requirement for a Prospectus 6.1

FTSE UK indices

eligibility 1.1.7GDR ineligibility 14.5.3Specialist Funds Market 12.4.3

Global Bookrunners

placings, role 5.2professional advisers 3.1.3

Global Depositary Receipts (GDRs)

advantages of listing 14.4applicable Listing Rules 14.3definition 14.1disadvantages of listing 14.5Official List, admission 2.3.2premium listings compared

continuing obligations 14.7listing requirements 14.6

rights 14.2ways of listing in UK 14.3

Grey market trading

potential liabilities 9.7where permitted 4.3

High Growth Segment

role of LSE 2.4.5

Home state of company, Prospectus Directive purposes

approval of Prospectus by competent authority 6.1determination of 11.3.1

Host state

“passporting” of Prospectus 6.13

Inside information, disclosure see Continuing obligations for listed companies

Insider list see Continuing obligations for listed companies

Insurance see Liability, for Prospectus

Introductions see Listing Methods

Investment entities

choice of marketAIM 12.4.2Main Market 12.4.1Specialist Funds Market 12.4.3

CEIF see Closed End Investment Fund (CEIF)definition 12.1Investment trust 12.1

Legal advisers see Professional advisers

Legal review procedures

preparing for listing 3.4.1

Liability, for Prospectus

civilFSMA, 9.2.1general law 9.2.2

criminalFraud Act (2006) 9.4.3FS Act 9.4.1Theft Act (1968) 9.4.2

Prospectus, minimising liability riskdue diligence and verification 9.5.1insurance 9.5.2

Listing see Listing Process and Listing Methods

Listing methods

intermediaries’ offers 5.3introductions 5.1offers for sale and/or subscription 5.4placings 5.2US offers

Investment Company Act issues 5.6.3Regulation S 5.6.2Rule 144A Offers and Resales 5.6.1Section 4(a)(2) Private Placements 5.6.1

Listing Principles see Continuing obligations for listed companies

Listing process see also Listing segmentsdefinition of listing 2.1role of FCA 2.2role of LSE 2.4


Listing Rules

continuing obligations see Continuing obligations for listed companieseligibility for admission to Official List 4.1GDRs 14.3Investment Entity 12.1preparing for listing 3.3Sponsor, appointment of 4.1.5UK Corporate Governance Code 10.8.1

Listing segments

debt securities 2.3.2GDRs 2.3.2 premium listing 2.3.1standard listing 2.3.2securitised derivatives 2.3.2

London Stock Exchange (LSE)

admission to trading 4.2admissions standards, compliance with 10.12continuing requirements 10.11role in listing process 2.4

LSE see London Stock Exchange (LSE)

Main Market

application for trading 4.2investment entities 12.4.1moving from AIM 15.12Recognised investment exchange 2.1role of LSE 2.4

Market abuse see FSMA (Financial Services and Markets Act) 2000

Marketingdocument clearance 8.4Internet offers 8.3legal restrictions 8.1publication of broker’s research 8.2

Nominated Adviser (NOMAD)

on admission to AIM 15.4.1

Offers and resales (Rule 144A)

US offers 5.6.1, 9.8

Offers for sale and/or subscription see Listing Methods

Official List

admission toconditions 4.1preliminary steps 3.2listing review 2.4listing segments 2.3when becoming effective 3.7

Offshore offers (US)

Regulation S 5.6.2

144A Information Requirement

US offers 5.6.1

Open Ended Investment Company (OEIC) see Investment entities

Overseas companies

application of Prospectus Directive/Prospectus Rulesdetermination of “home state” 11.3.1

Prospectus drawn up in accordance with third country legislation 11.3.2conditions for listing 11.2continuing obligations requirements 11.2.suitability for admission to AIM 15.3.3

Pathfinder Prospectus

bookbuilding 3.1.3, 5.2, 7.1unapproved 6.10

PDMRs (persons discharging managerial responsibilities)

dealings by 10.7.6DTR disclosure obligations 10.4sanctions for breach of Listing Rules and DTRs 10.9

Placings see Listing Methods

Premium listing see also Listing Segments

Comparison with GDRscontinuing obligations 14.7liquidity 14.5.1listing requirements 14.6


133

Preparing for listing

approval, filing and publication of Prospectus 3.6costs 3.8legal review and due diligence procedures 3.4.1preliminary steps 3.2professional advisers see Professional adviserstimetable 3.5verification 3.4.2

Price Range Prospectus

bookbuilding 3.1.3, 5.2, 7.1unapproved 6.10

Private Placements (Section 4(a)(2))

US offers 5.6.1

Professional advisers

brokers 3.1.6Global Bookrunners 3.1.3legal advisers

to company 3.1.1to Sponsor 3.1.4

other 3.1.7Reporting Accountants 3.1.5Sponsor 3.1.2Stabilising Manager 3.1.3Underwriters 3.1.3US offers 3.1.1

Professional Securities Market (PSM)

role of LSE 2.4.4

Prospectus

advertisements relating to 6.10AIM, requirement for admission 15.5approval 3.6contents requirements

general obligation of disclosure 6.2registration document 6.5.1securities note 6.5.2summary 6.3

display documents 6.8ESMA Recommendations 6.5, 13.1, 13.2, 13.3, 13.4, 13.6

equivalent information requirement 6.6filing 3.6format 6.3omission of information 6.7“passporting” 6.13Pathfinder see Pathfinder Prospectuspreparation 4.1.3Price-Range see Price-Range Prospectuspublication 3.6responsibility for 6.4, 9.1Supplementary Prospectus 6.9third country laws, drawn up in accordance with 6.14US requirements 6.12when required 6.1withdrawal rights 6.11

Prospectus Directive see also Prospectus

application to non-UK companiesdetermination of “home state” 11.3.1Prospectus drawn up in accordance with third country legislation 11.3.2

Prospectus Rules see also Prospectus

application to non-UK companiesdetermination of “home state” 11.3.1Prospectus drawn up in accordance with third country legislation 11.3.2

further issue of shares 10.10Internet offers 8.3published by FCA 2.2

Publicity issues see also Marketing

US offers 5.6.1

Qualified institutional buyers (QIBs)

US offers 5.6.1

Recognised investment exchange (RIE)

application to trading 2.1

Regulation S

US offers 5.6.2

Regulatory information service (RIS)

notification of “inside information” 10.2


Reporting Accountants see also Professional advisers

legal review procedures 3.4.1long form report 3.1.5short form report 6.5.1

Rule 144A

US offers 5.6.1, 9.8

Sarbanes Oxley Act (2002)

US offers 5.6

SAS 72 letters (comfort letters)

Reporting Accountants 3.1.5timetable for admission to listing, impact on 3.5

SEC Registration Statement

US offers 5.6

Securitised derivatives see Listing Segments

Specialist Funds Market (SFM)

investment entities 12.4.3role of LSE 2.4.2

Specialist issuer

mineral companies 13.2property companies 13.4scientific research based companies 13.3shipping companies 13.6start-up companies 13.5

Sponsor see also Professional advisers

appointment 4.1.5

Standard listings

conditions for listing 11.1.1continuing obligations 11.1.2listing segments 2.3.2migration 2.3.3

Stock Exchange see London Stock Exchange (LSE)

Supplementary Prospectus see Prospectus

10b-5 Disclosure letter

legal advisers to company 3.1.1selling into non-UK jurisdictions 9.8

Theft Act (1968) see Liability, for Prospectus

Tripartite Prospectus see Prospectus

UK Corporate Governance Code

compliance by overseas companies 10.8.1, 11.1.2Listing Rules continuing obligations 10.7

Underwriters see Professional advisers

Underwriting

agreementconditions 7.2.1force majeure/termination 7.2.5lock-ups 7.2.6selling restrictions 7.2.4shares, commitment to take 7.2.2warranties/indemnities 7.2.3

over-allotment option 7.3structures 7.1underwriters see Underwriters

United States (US) see US offer

US Offer

Investment Company Act issues 5.6.3Private Placements (Section 4(a)(2)) 5.6.1Prospectus requirements 6.12Regulation S 5.6.2Rule 144A Offers and Resales 5.6.1Sarbanes Oxley Act (2002) 5.610b-5 Disclosure letter see 10b-5 Disclosure letterUS Wrap 6.12

Verification

preparing for listing 3.4.2Prospectus, minimising liability risk 9.5.1

When issued dealing see Grey market trading

Withdrawal rights see Prospectus



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Street, London, E14 5JJ. We use the word ’partner’ to refer to a

member of Clifford Chance LLP, or an employee or consultant with

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