October 25, 2021

Volume XI, Number 298

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October 25, 2021

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FSA Consultation on Proposed Changes to UK Listing Rules: New Definitions and Individual Guidance

The UK Financial Services Authority (the FSA) recently published a Consultation Paper CP12/5 (No. 32) (the Consultation) which includes, among other proposals, a number of proposed changes to Chapter 11 of the UK Listing Rules (LR) and Chapter 9 of the Supervision Manual (SUP).  The changes comprise: i) a proposed amendment to the definition of “substantial shareholder” for the purpose of LR 11 (related party transactions), and ii) various proposed amendments to the SUP, the Disclosures Rules and the Transparency Rules so the United Kingdom Listing Authority (UKLA) helpdesk would cease to accept requests for individual guidance on a “no names” basis.

Background to LR 11

LR 11 sets out various requirements that apply to transactions and arrangements between a listed company and related parties.  Under LR 11, the definition of a “related party” includes “a person who is (or was within the 12 months before the date of the transaction or arrangement) a substantial shareholder”.  A “substantial shareholder” is defined as “any person who is entitled to exercise or control the exercise of 10 per cent or more of the votes able to be cast on all or substantially all matters at general meetings of the company”.

According to the Consultation, the FSA has encountered a number of situations where, for example, investment banks may hold shares for relatively brief periods of time, as a result of arranging or facilitating block trades between shareholders and other investors.  Where the amount of shares being traded either taken alone, or in conjunction with other holdings of the investment bank, represent 10 per cent or more of the voting rights of the issuer, this creates a related-party relationship between the issuer and the investment bank.  However, the FSA does not consider the imposition of the obligations set out in LR 11 is proportionate in such situations.

Proposed New Definition of “Substantial Shareholder”

The FSA proposes introducing a new definition of “substantial shareholder”, to be introduced as a new rule LR 11.1.4AR.  The proposed definition reflects the current definition but includes an additional carve-out which provides that, for the purpose of determining whether a person controls 10 per cent of more of the voting rights in an issuer, the voting rights held or controlled by that person will be disregarded if the following conditions are satisfied in relation to those rights:

  • The securities to which the voting rights are attached are held for a consecutive period of five trading days or less
  • Voting rights are not exercised within the period the securities are held
  • No attempt is made directly or indirectly by the person holding or controlling the voting rights to intervene or exert influence on the management of the issuer within the period the securities are held

Background to SUP 9

The UKLA helpdesk is the medium through which the FSA provides market participants with individual guidance, which is an important part of its function, as set out in SUP 9.  Currently, individuals may request guidance in writing or orally.  If oral queries raise complex or significant issues, the UKLA normally will expect the details of the request to be confirmed in writing. 

The UKLA has previously allowed requests for individual guidance to be made on a “no names” basis in situations where the adviser does not wish to disclose the identity of the issuer to which the query relates.  Within the FSA, this practice is unique to the UKLA.

Although the FSA recognises that advisers value the flexibility of being able to request technical guidance on a “no names” basis, its view is that allowing it raises a number of significant risks, both for the UKLA and for advisers seeking to rely on the guidance it provides.  This is because the UKLA is often in the position of being asked to provide individual guidance when it is not fully informed of the facts of the case.  In addition, when the UKLA is approached formally on a named basis and given the entire context, it may have to re-open advice given previously.  Consequently, the FSA believes this does not represent an efficient use of its resources and does not produce a satisfactory outcome for either the adviser or the issuer.

Proposed Changes to Requests for Individual Guidance

The FSA proposes that it will no longer accept requests for individual guidance that are made on a “no names” basis.  This will bring the UKLA into line with the FSA more generally.  Issuers and their advisers would still be able to make requests for individual guidance in writing, on a named basis, which the UKLA would respond to in writing within the current turnaround times.  In cases of exceptional urgency, the FSA would be prepared to receive requests orally, and would retain a stand-alone telephone line for this purpose.  The listing applications telephone line and the administrative queries telephone line would remain available, each with its own separate contact number.

The FSA’s view is that, under its proposals, the risks inherent in providing advice on a “no names” basis would be removed for both the UKLA and advisers.  The FSA believes that submitting requests for individual guidance in writing would result in their being “reasonable requests” for guidance and the UKLA would be less likely to be used as the first port of call for technical advice.  Issuers and their advisers would, in turn, benefit from receiving from the UKLA guidance that is binding and in written form.

Next Steps

Responses to the Consultation should be submitted by 6 May 2012.  To review the  Consultation, please go to: http://www.fsa.gov.uk/static/pubs/cp/cp12-05.pdf

© 2021 McDermott Will & EmeryNational Law Review, Volume II, Number 77
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