The UK's Financial Conduct Authority has issued a discussion paper and a consultative document about changes to its listing rules that ought to be of interest to firms that advise HNW clients about the issuance of equity securities or certificates representing equity securities that are listed on exchanges in the UK.

The FCA's putative reforms apply to the listing rules of primary markets (capital markets that deal with the issuance of new securities) only. In the consultative document the FCA says that it wishes to stick to the British tradition of ‘one share, one vote’ and ensure that minority shareholders cannot control any company, "meaning that a majority shareholder would naturally have significant influence, given its majority of voting rights in the company."

There are three groups of proposals in the consultative document, which cover the following.

• Chapter 6 of the listing rules, which applies to every commercial company that is a new applicant for the admission of equity shares to premium listing (except in cases where a company with an existing premium listing of equity shares introduces a new holding company to its group in certain circumstances).
• Transactions that occur outside the ordinary course of business and which are, or are proposed to be, undertaken by listed issuers. The FCA wants to change the so-called ‘class tests’ which it uses to assess the size of a transaction relative to the listed issuer, and specifically the ‘profits test.’ Here, the FCA wants to allow premium listed companies to disregard an anomalous profits test result of 25% or more when all of the other class test results are below 5%, and also wants to allow them in certain limited circumstances to make specified adjustments to the profit figures that they use in the profits test without first asking the regulator's permission.
• The FCA's approach to suspending the listing of an issuer that has announced a reverse takeover, or whose plans for such a transaction have leaked out.

Reverse takeovers and shell companies

The regulator aims to continue its policy of cancelling an issuer’s listing when it completes a reverse takeover, i.e. a transaction in which the business, company or assets being acquired is/are bigger than the listed issuer, or in circumstances where the transaction has resulted in a fundamental change in the business, board or voting control of the issuer.

When such a takeover is in the offing, the FCA assumes that the market does not have enough information about the company being taken over unless the listed company can provide it. It will cease to make such assumptions in future. However, it proposes to carry on with its existing approach towards shell companies, i.e. issuers whose assets consist wholly or predominantly of cash or short-dated securities, or whose predominant objective is to undertake an acquisition or merger. Special purpose acquisition companies fall into this category.