Oversight by regulators

Question 1

What is a listed company?

Answer 1

A Listed company is one whose shares have been admitted to the Official List maintained by the FCA in accordance with FSMA2000 s. 74.

Once listed, a company will apply for its shares to be admitted to trading on a regulated market. The largest regulated market operating in the UK is the London Stock Exchange’s (LSE) Main Market.

Companies with shares admitted to trading on a public market are most often referred to as listed companies . HERE we focus on LSE. However, there are alternative markets include Euronext London and AQUIS Exchange.

Question 2

What is the UK’s competent authority regulating the admission of securities to UK listings?

Answer 2

The FCA is the UK ‘competent authority’ and exercises its powers under FSMA2000 and retained EU legislation including UK Market Abuse Regulations regulating the admission of securities to official listing in the UK

Question 3

What are the 2 types of listing principles?

Answer 3

There are two types of listing principles.

1. Standard listings - A listing that is described as a standard listing sets
   requirements that are based on the minimum EU directive standards.
2. Premium listing - A listing that is described as a premium listing will
   include requirements that exceed those required under relevant EU
   directives

Question 4

What is the main criteria for premium listing (from FSMA?)

Answer 4

1. Company must be incorporated and be acting in accordance with its Articles
   2.Audited accounts filed for last three years, in most cases (and always for ‘premium listing’)
   3.At least 75% of business supported by historic revenue earning record
   4.Current key executives played significant role in company’s activities
   5.Company to be capable of making decisions independent of any controlling shareholder
   6.Shares to be fully paid, and free from liens or restrictions
   7.First shares to be listed must have at least £700,000 capital
   8.At least 25% of share capital to be in public hands
   9.For ‘premium listing’, must meet FCA’s capital requirements
2. Shares must be eligible for electronic settlement (CREST)
   11.Company must be plc

Question 5

Listing process - when should the final version of the listing application be submitted to the FCA?

Answer 5

The final version of the listing application is submitted to the FCA 48 hours prior to the proposed listing date however in practice draft versions of the documentation, inc. any prospectus or listing particulars, will have been submitted and discussed with the FCA over a period of many weeks or month to ensure everything is in order.

Question 6

Final versions of what documents are submitted to the FCA 2 business days prior to the application date?

Answer 6

Application for Admission of Securities to the Official List.
Prospectus or listing particulars approved by the FCA;
A circular published in connection with the application;
or if applicable
Supplemental prospectus or supplemental listing particular, if applicable.
Written confirmation of the number of shares to be allotted.
If a prospectus or listing particulars are not required a copy of the announcement detailing the number of shares to be issued and the circumstances of their issue.

Question 7

On the day of the application hearing, what should be submitted if relevant?

Answer 7

shareholder statement if the class of shares is to be listed for the first time; or
completed pricing statement where an issue of new shares comprising a placing, open offer, vendor consideration placing, offer for subscription or an issue out of treasury.

Question 8

What types of public issue are there?

Answer 8

Capitalisation issues - issue of fully paid shares to existing shareholders
Exchanges and conversions - existing being exchanged or converted into new
Exercise of options or warrants
Intermediaries offers - offer new securities to intermediaries to issue to own clients (usually private investors)
Introductions - existing shares listed for first time
Offers for sale or subscription - prospectus for application for its shares
Open offers - same as Rights issue, but rights not traded
Placings - as above, but purchased by stock broker or issuing house
Rights Issues - new shares to existing shareholders
Vendor consideration issues - acquiring company may issue shares instead of cash
Other - eg ESOP
Underwriting - used to ensure minimum amount is raised

Question 9

What advisory roles may be involved when issuing shares?

Answer 9

Sponsor - mandatory for premium listing and recommended for standard
Corporate Broker - link between company and investors
Financial public relations consultants
Lawyers - for both the company and sponsor
Reporting Accountant - (in addition to the auditor)
Share registrars

Others
surveyors to value properties
security printers for the secure and rapid turnaround of the prospectus
insurance brokers
trademark and patent attorneys…..

Question 10

What is the UK Prospectus Regulation and when did it come into force?

Answer 10

The Prospectus Regulation came into force on 21 July 2019 under the Prospectus Regulation Rules Instrument 2019 (FCA 2019/80) and are set out in the FCA Handbook and updated periodically.

They cover the format and detailed content of a prospectus , the period during which a prospectus remains valid and the manner in which a prospectus must be published .

They reiterate the general rule that a person may not make an offer of securities to the public, or seek admission to trading on a regulated market, unless a prospectus has been prepared, approved by the FCA and published.

As part of the Brexit changes the EU regulations were onshored , with amendments, and are known as the UK Prospectus Regulations. Under which a prospectus requirement is triggered for either of the following two events:

1. To make an offer of securities to the public (Art 3.1);

or

2. The admission of securities to trading on a UK regulated market (Art 3.3).

Question 11

Under the prospectus rules, what is an offer to the public?

Answer 11

Under the Prospectus Regulations, there is an offer to the public if there is a communication to any person that presents sufficient information on the transferable securities to be offered and the terms on which they are offered to enable an investor to decide to buy or subscribe for the
securities in question.

The definition is very broad and can include offers by private companies.

The communication may be in any form and by any means and includes placing through financial intermediaries. There are a number of exemptions for small offers or to a restricted group of potential investors.

Question 12

What are the key exemptions from the requirements to publish a prospectus under the prospectus regime?

Answer 12

1. Shares issued in substitution for shares of the same class
2. Takeover
3. Merger or division
4. Scrip Dividend
5. Employee Offer

CHECK THIS IN BOOK - Think there might be more - don’t understand the slide

Question 13

What options do companies have in relation to how a prospectus looks?

Answer 13

Under the Prospectus Regulations, companies may choose to prepare a single document or a three part prospectus containing
1. a registration document containing details of the issuer
2. a securities note containing details of the shares being offered
3. and a summary document.

The single document is the most common form of prospectus while the three part document is most useful for frequent issuers as the registration document remains valid for up to 12 months.

Question 14

Why is it important that the information contained in the prospectus content is verified for false or misleading information?

Answer 14

It is extremely important that the prospectus contents are verified as
directors carry personal liability for false or misleading information set out in the prospectus.

Question 15

What section does a single document prospectus contain?

Answer 15

A single document prospectus must contain the following sections, and in this order (PRR 2.2):

1. a clear and detailed table of contents;
2. a summary containing the information required by Article 7 of Regulation (EU) 2017/1129, as adopted by the UK
3. the risk factors linked to the issuer and the type of security covered by the issue as required by Article 16 of Regulation (EU) 2017/1129, as adopted by the UK; and
4. the specific information on the issuer and securities required by the various schedules to, and ‘building blocks’ set out in, the annexes to Regulation (EU) 2019/980, as adopted in the UK. Although there are a large number of these ‘building blocks’ for the majority of equity
   share based offers the following will be required

Question 16

What are The Exchange’s admission and disclosure standards?

Answer 16

The Exchange’s Admission and Disclosure Standards - Same as Listing Rules.

Eligibility criteria
1. An application for admission to trading of any class of securities must relate to all securities of that class, issued or proposed to be issued or further securities of a class that is already admitted, issued or proposed to be issued.
2. The company must be in compliance with the requirements of any securities regulator by which it is regulated and/or any stock exchange on which it has securities admitted to trading.
3. In the case of transferable securities, all such securities must be freely negotiable.
4. Securities that are admitted to trading by the LSE must be capable of being traded in a fair, orderly and efficient manner.
5.The LSE may refuse an application for the admission if it considers that the applicant’s situation is such that admission of the securities may be detrimental to the orderly operation or integrity of its markets, or the applicant does not or will not comply with the standards or with any special condition imposed by the LSE.
6.Companies must confirm that they meet the criteria and requirements of the market to which they are applying.

Question 17

Ongoing Reporting, Filing and Compliance

If changing the financial accounting reference date, when must a listed company make a market announcement in connection to this?

Answer 17

Financial Accounting reference date

A listed company must make a market announcement via an RIS as soon as possible, of any change in its accounting reference date and confirmation of the new accounting reference date (LR 9.6.20R).

Question 18

Ongoing Reporting, Filing and Compliance

When must a listed company publish its annual financial statements?

Answer 18

A listed company must publish its annual financial statements within four months of the end of the financial year and ensure that copies of its annual report and accounts are freely available on request for a period of at least 10 years from their original publication (DTR 4.1.3R and 4.1.4R).

As discussed in chapter 6, listed companies are required to include additional information and disclosures in their annual accounts and any interim accounts.

Question 19

Ongoing Reporting, Filing and Compliance

What should an auditor’s report of a listed company contain?

Answer 19

Auditor’s report

The report of the auditors of a listed company must include details on the
additional auditable sections of the annual report (LR 9.8.10R): the statement by the directors that the business is a going concern

Question 20

In addition to the annual report and accounts and the auditors report, what other reports should be presented?

Answer 20

Directors’ remuneration report CA2006 s. 420 contains the directors’ duty to prepare a remuneration report.

Directors’ Report must include acquisition of own shares (see week 9).

Question 21

What other occasions would come under ongoing filing and compliance?

Answer 21

Dividend announcements
Publication of financial statements (must be available on website, plus copy to FCA)
Resignation of Auditors - see week 9
Right of members to raise audit concerns
Summary financial information - may circulate the strategic report and supplemental material (see week 9).
Issue of Securities - new securities must be admitted to trading
Constitutional changes - must be notified to market
the appointment, resignation or removal of directors or auditors;
change of company name or accounting reference date;
results of resolutions at meetings of the members;
any material change to the company’s trading prospects; or
corrections or confirmation of market expectations, where different
from previously published information or guidance.

Question 22

What is the UKMAR (UK Market Abuse Regulations)?

Answer 22

UK Market Abuse Regulations (UKMAR) relates to the control and disclosure of inside information and dealing with Persons Discharging Managerial Responsibilities (PDMR).

Question 23

Under the Disclosure and Trading Regulations, when can you selectively disclose insider information and what should be prepared in connection with this?

Answer 23

The ability to share inside information with those owing a duty of confidentiality can only be relied on where the recipient needs that information to provide services or advice to the company (DTR 2.5.7).

Where a selective disclosure has been made, a holding announcement
should be prepared for release as soon as possible in the event of a leak (DTR 2.6.3).

Any holding announcement should contain as much detail on the subject matter as possible, the reasons why a fuller announcement cannot be given and an undertaking to announce further details as soon as possible (DTR 2.2.9).

Question 24

What are the provisions under the UKMAR 17?

Answer 24

Under UKMAR 17:
Companies must publish ’inside information‘, via an RIS, that directly concerns them as soon as possible and must post and keep on its website, for five years, copies of all inside information publicly disclosed (UKMAR 17(1)).

Disclosure of inside information may be delayed if (UKMAR 17(4)):

immediate disclosure is likely to prejudice the company’s legitimate interests;

delayed disclosure is unlikely to mislead the public; and the company can ensure the information remains confidential until it is disclosed.

Where a disclosure has been delayed the company must notify the FCA of that fact immediately after the information has been disclosed and provide an explanation if requested.

Question 25

What is Insider Dealing and what legislation would you find information around this?

Answer 25

Insider dealing is dealing in shares on a regulated market while in possession of price sensitive information. Insider dealing is a criminal offence.

The inside information must be specific, relate to the company whose securities have been dealt and must not be public knowledge.

It must also be shown that if that information were to have been made public, it would have had a significant effect on the price of the securities concerned.

The defences against a charge of insider dealing include that the person:
did not expect the dealing to result in a profit attributable to the information being price sensitive;

had reasonable grounds for believing that the other party to the deal was also in possession of the information; and

would have dealt irrespective of whether or not they had been in possession of the price sensitive information.

The legislation is contained in Part V of the Criminal Justice Act 1993
(CJA1993).

Three offences were introduced by CJA1993 s. 52:
1. dealing in company securities while in the possession of inside information;
2. encouraging another person to deal while in possession of inside information;
and
3. disclosing information other than in the proper performance of an office,
employment or profession.

The provisions contained in the Criminal Justice Act 1993 are lengthy and complex, and many companies issue detailed notes of guidance for their directors and senior executives.

Question 26

Could someone who does not work directly for a company be prosecuted for Insider Dealing?

Answer 26

Yes.

The insider must either know that they possess inside information or knowingly acquire inside information from an inside source. It is no longer necessary for the insider to be connected with the particular company; a person can be an insider simply by having access to inside information.

Accordingly, the husband or wife of a director could be convicted if using inside information passed on by their spouse, and any friends could
also be guilty of an offence if they dealt in shares on the basis of inside information gained directly from the director or indirectly from the spouse or some other third party.

Question 27

What is an insider list and what is its purpose?

Answer 27

Companies must have deal specific or event based insider lists and may have a permanent insider list.

To be entered on a permanent insider list the individual will be assumed to have access to all inside information at all times. As a result, any permanent insider list is likely to be very short.

Deal specific or event based insider lists must be kept in electronic form, must adhere to the format laid down by the regulations, must be retained for five years and must be capable of being produced to the FCA as
soon as possible on request (MAR 18(1)(c), 18(3) and 18(5)).

Question 28

What is the minimum content for an insider list?

Answer 28

identity of each person with access to the information;
reason why the person is on the insider list;
date and time that person obtained access to the information; and
date on which the insider list was drawn up.

Companies are required to keep their insider lists up to date. The list must also contain:
date and time of any change in the reason for inclusion on the insider list;
date and time any new person is added to the insider list; and
date and time when a person ceases to have access to inside information.

All insiders must acknowledge in writing their legal and regulatory duties and that they are aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information (MAR 18(2)).

Question 29

What obligations do regulated businesses have in terms of money laundering?

Answer 29

Regulated businesses and certain professional firms must establish appropriate procedures and training to ensure they recognise suspicious activity but also have an internal process to report those suspicions.

Businesses covered by the legislation are required to nominate
a money laundering reporting officer (MLRO) to whom employees must report their suspicions. Having reported their suspicions employees need take no further action and it is for the MLRO to ??? missing text

Question 30

What is dematerialisation?

Answer 30

By 2023 the elimination of paper share certificates and all shares in listed companies being held in electronic form. However, following the decision of the UK to leave the EU the government have announced a pause in implementing dematerialisation of the share register until after Brexit.