Relationship between UKLA and the London Stock Exchange

Relationship between UKLA and the London Stock Exchange

This note provides an overview of the functions of the UK Listing Authority and the London Stock Exchange in relation to applications for the listing and trading of securities.
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On 1 May 2000, the London Stock Exchanges (LSE) function as the competent authority for listing was transferred to the United Kingdom Listing Authority (UKLA), a division of the Financial Services Authority (FSA). The transfer was made because of concerns that the LSEs demutualisation could lead to conflicts of interest in its role as a regulator and a profit seeking organisation. On 17 November 2003, the UKLA merged with the Markets and Exchanges Division of the FSA to form one division known as the Markets Division. The particular departments of the Markets Division are still referred to as the UKLA when acting as such. This note sets out the functions of the UKLA and LSE.

The UKLA
The UKLA is a division of the FSA which now forms part of the Markets Division. The UKLA is structured as follows: Company Monitoring: Advises on and monitors continuing compliance with the Listing Rules and Disclosure and Transparency Rules, including announcements of inside information, notification of major interests in shares and the Model Code. Advises and monitors full and timely disclosure of inside information. May temporarily suspend a company from listing where a disorderly market may develop.

Listing Applications: Maintains the Official List. Processes applications for the listing of securities. Issues notices in relation to suspensions, cancellations and restoration of listings.

Equity Markets Group:

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Deals with equity queries arising from written submissions and calls to the UKLAs equity helpdesk (including queries in relation to class tests) Assesses the eligibility of companies seeking to list equity in London. Reviews and approves prospectuses for equity securities. Reviews and approves certain circulars to be issued by companies with a premium listing of their equity shares.

Global Debt Group: Assesses the eligibility of companies seeking to list debt in London. Reviews and approves prospectuses and listing particulars for debt securities and global depositary receipts.

Sponsor supervision: Deals with queries in relation to new sponsors and general queries on LR 8.

Separation of listing and trading

Following the transfer of the competent authority for listing to the UKLA, being listed on the LSE no longer means the same as being "officially listed". Instead, there is a distinction between being admitted to listing and admitted to trading. Issuers who want their securities admitted to the LSEs markets for listed securities must follow a two stage process: The companys securities need to be admitted to the Official List by the UKLA. The companys securities need to be admitted to trading by the LSE. Only when both of these processes have been completed will the securities be officially listed on the LSE. This means two sets of fees and two sets of continuing obligations. Trading is a requirement for listing and vice versa, so that a suspension from trading will lead to a suspension of listing by the UKLA.

Approach and role of UKLA

Role The UKLAs main responsibilities are: Admitting securities to listing on the UKs main market. Making, reviewing and amending the Listing Rules, and the Disclosure and Transparency Rules. Enforcing compliance with the Listing Rules and the Disclosure and Transparency Rules (including suspension and cancellation of listing, if necessary).

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Making day to day decisions on listing matters, whether relating to applications for listing, continuing obligations or application of the rules. Admission to listing In considering an application for listing, the UKLA: Must satisfy itself that all the relevant conditions for listing have been met by an issuer. Examines and, if appropriate, approves listing particulars and other documents requiring review and approval. The UKLAs Listing Applications team maintains the Official List of the FSA. The team processes applications for the listing of securities and issues notices in relation to suspensions, cancellations and restorations of listings. To gain admission of securities to the Official List an issuer must make an application for Listing to the Listing Applications team - this involves an issuer or its advisers: Completing an Application for Admission of Securities form. Submitting the required listing fee. Submitting the required application documents to Listing Applications. Arranging a listing hearing. Admission of the securities to the Official List becomes effective when the FSAs decision to admit the securities to listing has been announced pursuant to paragraph 3.2.7G of the Listing Rules in a "Dealing Notice". Listed issuers have continuing obligations under the Listing Rules (and disclosure obligations under the Disclosure Rules), including rules relating to disclosure of information, acquisitions and disposals under the various class tests and transactions with related parties. Listed issuers are also still required to have a model code governing share dealings by persons discharging managerial responsibilities and state the extent to which they meet the Combined Code on corporate governance. See Practice notes: Disclosure Rules: disclosure and control of inside information Listed and public company issues: acquisitions. The Model Code. The Combined Code: overview. Listing, Prospectus, Disclosure and Transparency Rules The Listing, Prospectus, Disclosure and Transparency Rules form a block of the FSA Handbook. They contain: Listing Rules: these contain the Listing Principles, rules and guidance on listed companies continuing obligations and the sponsors regime. Prospectus Rules: these contain rules and guidance on the requirements to publish a prospectus, the approval process and contents of a prospectus.
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Transparency Rules: these relate to major shareholdings and the notification and dissemination of information by issuers of transferable securities. Disclosure Rules: these contain rules and guidance on listed companies obligations to disclose and control "inside information" and notify transactions by persons discharging managerial responsibilities. For further details, see Practice note, Listing, Prospectus, Disclosure and Transparency Rules: overview. Compliance In addition to the UKLAs ability to suspend or cancel listings and censure issuers, the LSE is able to halt trading where there is a disorderly market. In recognition of the concern that issuers could therefore face investigations and penalties from both bodies, the UKLA liaises with the LSE to minimise problems in this area. For further details, including the UKLAs ability impose fines, see Practice note, Listing, Prospectus, Disclosure and Transparency Rules: enforcement and remedies. Approach When the transfer of competent authority for listing came into effect, the UKLA adopted a "business as usual" approach to the listing role. Continuity of approach was maintained by transferring the LSE staff on to the UKLA team. In addition, the LSEs two market practitioner advisory committees were also transferred to the FSA. These two groups are an important source of practical market advice and continue to play a key advisory role. Despite these elements of continuity, the FSA potentially has a different approach to regulation. The Financial Services and Markets Act 2000 (FSMA) sets out the duties of the competent authority with regard to the making of Listing Rules. It must have regard to: Proportionality of regulation. The burden of regulation must be proportionate to the benefits it brings. Improving competitiveness: both of the UKs capital markets internationally and between listed securities. Facilitating innovation in respect of listed securities. Maximising its own effectiveness. (Section 73, FSMA.) Future of the UKLA On 26 July 2010, HM Treasury published a consultation paper setting out and seeking views on the governments proposals for reform of the UK financial regulatory system. The consultation paper sets out further details of the proposals already outlined by HM Treasury for new bodies to be established to replace the existing tripartite regulatory structure. With regard to listing and related activities, views are requested on whether the UKLA should be merged with the Financial Reporting Council under BIS or whether it should remain within the
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markets division of one of the proposed new regulators, the Consumer Protection and Markets Authority (CPMA). Responses to the current consultation are requested by 18 October 2010. The responses will be used to develop more detailed proposals and draft legislation which will be published for consultation in early 2011. For further details, see Legal update, HM Treasury consultation on new UK financial services regulatory structure: listing and related activities.

Approach and role of LSE

Role The LSEs main responsibilities are: Admitting securities to trading. Publishing its Admission and Disclosure Standards. Operating its Regulatory News Service (RNS). Investigating unauthorised disclosure of price sensitive information. Admission to trading When applying to the LSEs markets for the first time, companies should approach the LSE as early as possible and certainly no later than the time they approach the UKLA regarding admission to the Official List. Initially there will be a meeting between the company, its professional advisers and the LSE to discuss a variety of issues, including: How the LSE can support the company through the admission process. How the LSE can help to raise the profile of a company coming to the market. Understanding the companys business. Explaining the companys responsibilities once admitted. There is then an application form to complete for admission to trading. Admission and Disclosure Standards The LSE first published its own Admission and Disclosure Standards (the Standards) on 1 May 2000. The Standards have been revised annually since that date and are available on the LSEs website. They contain the admission requirements and the ongoing disclosure requirements which companies whose shares are admitted to trading on the LSEs main market have to observe. They do not apply to companies admitted to AIM. The LSE retains discretion and flexibility in applying the Standards, so that, in appropriate circumstances, they can be tailored to meet an individual companys needs. The Standards deal with:

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Admission requirements. The application process. Continuing obligations. The key principles behind the Standards are: Providing companies which meet the admission requirements with access to the LSEs markets. Promoting investor confidence in the markets operated by the LSE. Maintaining the quality and attractiveness of its markets to companies and investors. Operating proper and orderly markets. Minimising any overlap with the rules of an issuers EEA competent authority. As part of the LSEs development and maintenance of the Standards, it will comment on any proposed changes to the Listing Rules. Regulatory Information Services The RNS, which was and still is operated by the LSE for regulatory announcements, was not part of the listing authority function and remained with the LSE post transfer of the competent authority for listing. Since 15 April 2002 listed companies have had a choice of RIS through which they can release their regulatory announcements. This choice brought an end to the LSEs monopoly of release of such information through its RNS. The current RISs are listed on the FSAs website. For further details, see Practice note, Regulatory Information Services. Approach In 2000, the LSE set up a Company Services department. The objectives of this department are to: Attract new companies to the LSEs markets (through presentations, conferences, seminars, meetings and publications). Assist companies through the listing and admission process. Develop and maintain relationships with companies once they have been admitted. (For example, there will be a named contact through whom queries can be channelled, there will be networking events and other relationship management initiatives). Provide the necessary infrastructure to support the LSE in its dealings with companies. Company Services processes applications for admission to trading. But it does not review draft prospectuses, listing particulars or other circulars, as this is done by the UKLA as part of the listing process.
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Future of LSE In recent years, there has been intense activity concerning the future of the LSE. In May 2000, the Frankfurt and London exchanges announced their plan to merge. The new entity was to be called iX and was intended to create a London-based market for the top EU companies, regulated by the FSA. However, in September 2000, the LSE backed out of the iX deal after Deutsche Brse announced that it was keeping its options open as regards the merger. Meanwhile, claiming that the iX proposal was flawed, the Swedish company, OM Group, announced a hostile offer for the LSE in August 2000. The OM bid failed in November 2000, partly owing to a restriction in the LSEs articles which prevented an individual shareholder from holding more than 4.9% of the LSEs shares. In May 2001, the LSE announced its intention to list its shares and in July 2001 an extraordinary general meeting of the LSE removed the 4.9% restriction (which, some investors believe, leaves the LSE exposed as an easy takeover target). The LSE obtained an introduction to the Official List of the UKLA in July 2001 and admission to trading on the LSEs main market. The LSEs status as a public listed company means that it is more susceptible to takeover by another exchange: In 2004/2005 both Deutsche Brse and Euronext made takeover bids for the LSE, prompting the FSA to release a statement on the potential long-term implications of a takeover of the LSE. In March 2005 Deutsche Brse withdrew its bid as it had failed to convince the LSE to recommend the offer but it reserved the right to make an offer if Euronext or another third party were to announce an offer for the LSE, or in such other circumstances as are permitted by the UK Takeover Code. On 7 April 2005, the Office of Fair Trading published the full text of its decisions to refer the proposed bids for the London Stock Exchange plc by Deutsche Brse and Euronext to the Competition Commission under the Enterprise Act 2002 (see Legal update, OFT publishes reference decisions in London Stock Exchange bids). Then, on 1 November 2005, the Competition Commission announced that it has confirmed its provisional finding that the anticipated acquisition by either Deutsche Brse or Euronext might be expected to result in a substantial lessening of competition, but that it would allow the mergers on condition that each party gives undertakings to implement a package of structural and behavioural remedies to ensure the independence of LSEs clearing provider. On 1 December 2005, the Competition Commission published an administrative timetable for negotiation of the undertakings. In December 2005, the LSE rejected a 1.5 billion takeover offer from Macquarie Bank. In November 2006, Nasdaq, which has built up a 20% stake in the LSE, made an offer to acquire the LSE for 1243p per share in cash. The board of the LSE rejected the offer on the basis that it undervalues the company. Meanwhile, to ensure that regulation of the LSE is to be retained by the FSA if the LSE does fall into foreign ownership, the Investment Exchanges and Clearing Houses Act 2006 provides for the amendment of Part 18 of FSMA to enable the FSA to veto changes to the regulatory provisions (that is, rules, guidance, arrangements, policy or practice) of UK recognised bodies if it appears to the FSA that the changes would be disproportionate to the end the provisions are intended to achieve or would not pursue a reasonable regulatory objective. The FSA is given similar powers in relation to bodies applying for recognition as a UK investment exchange or clearing house.
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These powers are intended to ensure that the ownership of exchanges does not affect the existing light-touch risk-based regulatory regime for recognised bodies (it will not, however, have any effect on the nationality of the ownership of recognised bodies). Note that on 1 October 2007, the LSE merged with Milans Borsa Italiana.

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Article Information
RESOURCE INFORMATION

The fulltext is available at http://www.practicallaw.com/2-107-4008

General

Article ID: 2-107-4008 Document Generated: 27-Jul-2010 06:54:40

Jurisdiction

United Kingdom http://www.practicallaw.com/topic1-103-0717

Subject

FSMA: introduction http://www.practicallaw.com/topic9-103-1355 Disclosure Listing, Prospectus, http://www.practicallaw.com/topic8-103-2096 and Transparency rules

International Offerings http://www.practicallaw.com/topic4-380-7427 London Stock Exchange http://www.practicallaw.com/topic6-103-1366

References

locator (http://www.practicallaw.com/0-501-4233) Listed and public company issues: acquisitions: the 1 July 2005 regime (http://www.practicallaw.com/1-200-7730) The Model Code: the 1 July 2005 regime (http://www.practicallaw.com/1-200-8819) Listing, Prospectus, Disclosure Primary Sources: FSAH LR: 3.2 Application for admission to listing (http://www.practicallaw.com/1-202-2033) Listing, Prospectus, Disclosure and Transparency Rules: overview (http://www.practicallaw.com/1-203-5634) London Stock Exchange (http://www.practicallaw.com/T1154) FSA (http://www.practicallaw.com/T1185) Financial Services and Markets Act 2000 (http://www.practicallaw.com/T2030) Corporate governance and the Combined Code (http://www.practicallaw.com/A22830) Disclosure Rules: disclosure and control of inside information (http://www.practicallaw.com/3-203-2677) Regulatory Information Services (http://www.practicallaw.com/3-203-3785)

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locator (http://www.practicallaw.com/3-501-7876) OFT publishes reference decisions in London Stock Exchange bids (http://www.practicallaw.com/4-200-5819) HM Treasury consultation on new UK financial services regulatory structure: listing and related activities (http://www.practicallaw.com/5-502-8992) Investment Exchanges and Clearing Houses Act 2006 (http://www.practicallaw.com/7-208-3957) UK Statutes Primary Sources: FSMA 2000 73. General duty of the competent authority (http://www.practicallaw.com/9-202-3769) Listing, Prospectus, Disclosure and Transparency Rules: enforcement and remedies (http://www.practicallaw.com/9-203-5630)

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