Listing Rules Reform - Closed-Ended Investment Funds
Insights - What We Think

LISTING RULES REFORM

The new UK Listing Rules (“UKLR”) are expected to come into effect in the second half of 2024. The new UKLRs are based on the existing rules for premium and standard listed companies – with some significant relaxations for premium listed companies but an increase in regulation for standard listed companies. Current ‘premium’ and ‘standard’ listing segments will be replaced with a single Equity Shares – Commercial Companies (“ESCC”) category and there will be one set of Listing Principles.

Issuers currently categorised as Closed-Ended Investment Funds (“CEIF”) are expected to remain in their existing category however the name of the category will be updated to reflect the single segment. UKLR 11 will replace the current Chapter 15 of the Listing Rules and as per current rules, under UKLR 11.4.1R a CEIF must comply with all the requirements under UKLR 6 (Equity shares (commercial companies): continuing obligations) and UKLR 9 (Equity shares (commercial companies): further issuances, dealing in own securities and treasury shares) subject to modification and additional requirements set out in UKLR 11.

FTSE Russell

• Shares currently listed on the Premium Segment will be automatically mapped. There is not expected to be an immediate impact to the FTSE UK Index Series on day one of the new listing regime.

UKLR 6: EQUITY SHARES (COMMERCIAL COMPANIES): CONTINUING OBLIGATIONS KEY CHANGES

• General requirement to carry on an independent business and the control of business rule have not been carried over into UKLR 6.
• The current approach taken to listed companies with a controlling shareholder re the election of INEDS and cancellation of listing will continue
• Comply or explain for ALL commercial companies in respect of the UK Corporate Governance Code

UKLR 6: EQUITY SHARES (COMMERCIAL COMPANIES): CONTINUING OBLIGATIONS KEY CHANGES

• The profits test will not be carried over to the UKLR
• New disclosure-based regime for class 1 transactions – companies will be required to make an announcement ASAP after the terms of a significant transaction
• Specific content will need to be included in the announcement
• No shareholder approval or circular requirements apply to such transactions, nor any requirements to appoint a sponsor (save where guidance, waiver or modifications from the FCA are sought)
• Class 2 transactions no market announcement but continuous disclosures under UK MAR still applies 
• Reverse takeovers – remain subject to existing listing regime

UKLR 8: RELATED PARTY TRANSACTIONS

• Related party transaction >5% on class tests
• No shareholder vote required
• Board approval exc. conflicted directors required
• Written confirmation from a sponsor that the transaction terms are fair and reasonable
• A market announcement as soon as possible after the transaction terms are agreed including board fair & reasonable statement (supported by a sponsor)

UKLR 11: CLOSED-ENDED INVESTMENT FUNDS

• Rules clarify board independence: A director can be considered independent where the AIFM is independent from the CEIF fund’s investment manager
• New Rules regarding rights attached to Class C shares

UKLR: EQUITY SHARES (TRANSITION): CONTINUING OBLIGATIONS KEY CHANGES

• Issuers mapped into the Equity shares (transition) category will remain subject to existing continuing obligations under Chapter 14
• At present the FCA has not provided a deadline of when it expects companies in the Equity shares (transition) category to transfer into the Equity shares (commercial companies) category
• It is expected that once there are a limited number of issuers in the Equity shares (transition) category the FCA will close the category and at that time issuers will either be required to transfer to another listing category or de-list

TRANSFERS BETWEEN LISTINGS

• If an issuer transfers between categories i.e. the Equity shares (transition) category to the Equity shares (commercial companies) category then it must appoint a sponsor and meet the relevant requirements contained withing UKLR, 4, 21 and 24
• An issuer may take steps, in connection with a transfer, which require it to consider whether a prospectus is necessary – if the company or its capital is reconstituted in a way that could amount to an offer of transferable securities to the public. The issuer and its advisers should consider whether obligations under the Act and the prospectus rules may be triggered.

NEXT STEPS

Company Matters will be supporting their clients with this transition. Please reach out to your contact if you have any questions.