Securities exchange listing regime

Question 1

What is a listed company?

Once listed, what will a company do?

Who is the FCA?

What are the consequences of breaching the Listing Rules? (2)

Answer 1

= a company whose shares have been admitted to the Official list maintained by the FCA (company must apply to FCA for listing)

company will apply to regulated market (e.g. LSE) for its securities to be admitted to trading on that market

Financial Conduct Authority = UK’s competent authority

LRs are not law = sanction for breach is civil disciplinary action against company:
1. removal from Official List = shares no longer tradable on a regulated market
2. FCA has power to impose unlimited fines on companies and directors

Question 2

What is the main feature of the securities exchange listing regime?

What are the 2 consequences of breaching it?

How does one become authorised or exempt? (2)

What is regulated activity?

What are financial promotion and investment activities?

Answer 2

S.19 FSMA2000 = subject to certain exceptions, only authorised or exempt persons may carry on a regulated activity

Consequences:
1. S.20 FSMA2000 = a person carrying on a regulated activity who is not authorised or not exempted commits an offence
2. Agreements made may be unenforceable by the unauthorised person

A. An individual or firm must apply to the FCA to gain status as an authorised or exempt person
B. Members of professional bodies may be authorised by their professional body (solicitors and accountants)

Defined in ss.21 and 22 and Schedule 2 FSMA2000 (including…)

Financial promotion and investment activity = giving any form of investment management, promotion, or advice

Question 3

What is the purpose of the Listing Principles?

What is the difference between the Standard Listing Principles and the Premium Listing Principles?

Name the 2 Standard Listing Principles and 1 of the 6 Premium Listing Principles.

Answer 3

= ensure that listed companies pay due regard to the fundamental role they play in maintaining market confidence and ensuring fair, orderly markets

Standard applies to all listed companies, premium only applies to premium listed companies

LP1. Listed company must take reasonable steps to establish and maintain adequate procedures, systems, and controls to enable it to comply with its obligations

LP2. Listed company must deal with the FCA in an open and co-operative manner

PL1. Listed company must take reasonable steps to ensure directors understand their responsibilities and obligation

Question 4

Which companies can seek a premium listing?

Name 3 similarities of the Standard Listing and Premium Listing eligibility criteria.

Name 5 differences of the Standard Listing and Premium Listing eligibility.

What 2 things must an issuer with a controlling shareholder do? (applies to both standard and premium listed companies)

Answer 4

Only available for equity shares of commercial companies, closed-ended investment funds, and open-ended investment companies that meet the full set of requirements for a premium listing set out in LR 1.5.1G(3)

i. Expected minimum market capitalisation of £700,000
ii. Shares must be fully paid and freely transferable
iii. 25% minimum free float for each class of shares

1. Adviser required: S = No, P = yes = sponsor
2. Pre-emption rights: S = No, P = yes
3. Independent business: S = must carry on an independent business at all times
   P = must carry on an independent business as its main activity
4. P = must have published or filed audited accounts that cover at least last 3 years (S = cover 3 years or period company has been in operation if shorter)
5. P = ownership and control of revenue generating assets

A. must have a controlling shareholder agreement in place (disclosure of compliance in ARA)
B. demonstrate that it can carry on an independent business as its main activity (e.g. LR = re-election of independent directors)

Question 5

How does a company become listed?

Name 3 of the documents contained in the application as required by LR 3.3.2R.

On the day of the application hearing, what 2 things are required to be submitted (if relevant)?

When does the admission become effective?

Answer 5

Submit a listing application to FCA 48 hours (2 business days) prior to the proposed listing date

1. Application for Admission of Securities to the official List
2. Prospectus or listing particulars approved by FCA
3. Written confirmation of number of shares to be allotted

A. Shareholder statement if the class of shares is to be listed for 1st time; or
B. Completed pricing statement

Once the FCA has made a market announcement of its decision to admit the securities

Question 6

TYPES OF PUBLIC ISSUE
Name 5 methods by which securities may be floated.

What is an underwriting?

Answer 6

1. Capitalisation issues (bonus issues) = following the capitalisation of the company’s existing reserves = fully paid shares of the same class are allotted free of charge to existing holders in proportion to their holding
2. Offers for sale or subscription = company issues a prospectus inviting investors to apply for its shares
   A. Subscription = new securities issued directly to applicants
   B. Sale = New or existing securities acquired by an issuing house that then offers them to public for sale
3. Rights issues = company offers new shares to its existing shareholders in proportion to the number of shares they already hold - the right to new shares can be traded
4. Open offers = same as a rights issue, BUT the right cannot be traded
5. Placings = securities are subscribed for or purchased by investors who then ‘place’ them with investment clients

Underwriting = always risk investors do not subscribe for 100% shares = companies enter underwriting agreements with specialist financial institutions who guarantee to take up any unsold shares in return for a fee

Question 7

If not already appointed, companies considering a listing of their shares either must or should consider the appointment of a range of advisers.

Name the 6 most common and describe their roles.

What are the 3 reports a reporting accountant might produce?

Answer 7

1. Sponsor = acts as the link between the company and the FCA and the LSE
2. Corporate broker = acts as a link between the company and investors
3. Financial public relations consultants = raise and maintain a company’s profile leading up to flotation and after flotation to maintain liquidity
4. Lawyers = typically 2 firms appointed = first advising the company and the second advising the sponsor
   i. Undertake factual verification of statements within documents
5. Share registrars = maintain the register of members
6. Reporting accountant = review the company’s financial history, accounting systems and internal controls, and prepares a report for the benefit of potential investors

A. long report = detailed analysis - not published, given to directors and sponsor to draft prospectus

B. Short report = an abridged version of the long form report and is reproduced in the prospectus

C. Working capital report = provides assurance to sponsor that company will have sufficient working capital for the period covered by this report (usually 12-24 months)

Question 8

What is a prospectus?

What are the 2 events that trigger the requirement for one?

What is an offer to the public under the Regulation?

Are there any offers to the public that fall outside the Regulation?

Name 5 of the exemptions set out in PRP1.2 when a prospectus is not required.
(2 for both triggers, 2 for 1st trigger and 1 for 2nd trigger)

Answer 8

Document that provides full information of securities and their issuers

Art. 3 UK Prospectus Regulations = to make an offer of securities to the public or (2) the admission of securities trading on a UK regulated market

= communication to any person that presents sufficient information and terms of the transferable securities to enable an investor to decide to buy/subscribe for the securities

Art.1 = if total consideration for securities in any 12 months is under 1 million euros

Exemptions that apply to both triggers:
1. takeover, merger, or division
2. scrip dividend

Exemptions for public offer trigger:
3. shares are only offered to qualified investors
4. offer is made to fewer than 150 persons

Exemptions for regulated market trigger:
5. securities of the same class allotted are fully paid

Question 9

What is the format of the prospectus?

Which format is most useful for frequent issuers and why?

What is the content of the prospectus? (5)

Why is it so important for the contents of the prospectus to be verified?

How is the prospectus approved? (2)

Answer 9

PR 2.2.1 = format = prospectus can be drawn up as a single document or divided up into separate documents (registration document, securities note, and summary)

Separate documents because registration document remains valid for up to a year

PR 2.2 = content = if single document = following sections in this order:
1. table of contents;
2. Information required by Art. 7
3. the risk factors linked to the issuer
4. type of security covered by the issue
5. information required by regulation annex e.g. section 5 = business overview

= directors carry personal liability for false or misleading information

A. draft must be submitted to FCA for approval
B. if issuer does not already have listed shares and had a prospectus approved by the FCA = send a completed Form A, the relevant fee, and drafts of documents to FCA within 20 working days before intended approval date (10 working days if issuer is already listed and has a prospectus approved by FCA)

Question 10

What are the two market functions provided by the LSE?

A company whose securities are admitted to trading on the LSE’s Main Market must comply with the continuing obligations contained in what?

Answer 10

Primary market to raise capital and secondary market for investors to buy and sell shares

In the Exchange’s Admission and Disclosure Standards (replicate the general disclosure obligations contained in the Listing Rules = compliance with once equals compliance with the other)

Question 11

To gain admission to trading on the LSE, what are 3 of the 6 eligibility criteria?

Answer 11

1. Transferable securities must be freely negotiable
2. Securities must be capable of being traded in a fair, orderly, and efficient manner
3. Companies must confirm they meet the criteria and requirements of the market it is applying to (Main, AIM)

Question 12

ONGOING REPORTING, FILINGS, AND COMPLIANCE - FINANCIAL

What must a listed company do following a change of its ARD?

What must a listed company do after the directors have approved any decision to pay a dividend or other distribution?

What 3 details should this include?

Name 2 changes to a company’s constitution or its officers that will require notification to the market.

Answer 12

Make a market announcement via an RIS as soon as possible, confirming the new ARD

Make a market announcement via an RIS as soon as possible including the following details:

1. Net amount payable per share
2. Payment date
3. Record date

A. Appointment, resignation, or removal of directors
B. Change of company name

Question 13

ONGOING REPORTING, FILINGS, AND COMPLIANCE - DISCLOSURE OF INSIDE INFORMATION (MAR)

Under MAR 17, what must companies publish, how, when, and where must this be kept?

What 3 conditions must be met for a company to delay the disclosure of inside information?

Where disclosure has been delayed, what must the company do?

Answer 13

What = companies must publish ’inside information‘ that directly concerns them
How = via an RIS
When = as soon as possible
Where = must post on its website and keep copies of all inside information publicly disclosed for 5 years

Disclosure may be delayed if:
A. immediate disclosure is likely to prejudice the company’s legitimate interests;
B. delayed disclosure is unlikely to mislead the public; and
C. the company can ensure the information remains confidential until it is disclosed

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

Question 14

ONGOING REPORTING, FILINGS, AND COMPLIANCE - DISCLOSURE OF INSIDE INFORMATION (MAR)

What 4 things should companies do to help their compliance with disclosure obligations?

Answer 14

1. Establish and implement clear written policy, procedures, systems, and controls
2. Train and update relevant people on procedures for handling inside information
3. Have a disclosure manual and checklist for identifying inside information
4. Establish a disclosure committee to monitor and review compliance

Question 15

ONGOING REPORTING, FILINGS, AND COMPLIANCE - DISCLOSURE OF INSIDE INFORMATION (MAR)

What should a company maintain under MAR 18?

What are the 3 different types?

What are the 3 requirements for the compulsory ones?

Answer 15

= maintain insider lists in relation to employees and advisers with access to inside information

i. Deal-specific insider list (compulsory)
ii. Event-based insider list (compulsory)
iii. Permanent insider list (for individuals who are assumed to have access to inside information at all times)

1. must be kept in electronic form
2. be retained for 5 years, and
3. be cable of being produced to FCA as soon as possible on request

Question 16

ONGOING REPORTING, FILINGS, AND COMPLIANCE - DISCLOSURE OF INSIDE INFORMATION (MAR)

What is the minimum content required in an insider list? (5)

Answer 16

A. identity of each person
B. reason they are on the list
C. date and time they obtained access to information and were added to list
D. date on which insider list was drawn up
E. date and time person ceases to have access to inside information

Question 17

ONGOING REPORTING, FILINGS, AND COMPLIANCE - DISCLOSURE OF INSIDE INFORMATION (MAR)

What is inside information? (4)

What must insiders do?

Answer 17

MAR 7 = Information which:
1. relates to the company
2. is precise;
3. has not been made public; and
4. if it were made public would be likely to have a significant effect on the price of any securities

All insiders must acknowledge in writing their legal duties and that they are aware of the sanctions for insider dealing and unlawful disclosure

Question 18

ONGOING REPORTING, FILINGS, AND COMPLIANCE - PDMR/PCA DEALING

What is a PDMR? (2)

What is a PCA? (4)

Answer 18

MAR 1 = a natural or legal person in an issuer who is either:
A. a member of the administrative, management, or supervisory body of that entity
B. a senior executive who has regular access to inside information and the power to make managerial decisions
(PDMRs might not be directors but all directors of listed companies are PDMR)

MAR 3 = includes:
1. spouse/partner
2. children
3. relative who has shared the same residence for at least 1 year
4. any legal person, trust, or partnership controlled by the PDMR/PCA or established for the benefit of the PDMR/PCA

Question 19

ONGOING REPORTING, FILINGS, AND COMPLIANCE - PDMR/PCA DEALING

Under MAR 19, what must a PDMR/PCA do in relation to dealing?

What must the company then do?

Notifications by PDMRs need not be made until the aggregate of all transactions in any calendar year exceeds what amount?

Under MAR 19(5), what must a company do? (2)

Under MAR 19(5), what must a PDMR do?

Answer 19

MAR 19 = PDMRs/PCAs must notify the company and FCA within 3 business days of any notifiable transactions in shares undertaken by themselves (prescribed template for disclosure can be downloaded from FCA website)

The company must then disclose any notifications it receives to the market via a RIS within 2 working days of being notified of the transaction(s)

€5,000 (notifications below this can be made voluntarily)

(1) Must notify PDMRs in writing of their obligations under MAR 19 and (2) draw up a list of their PDMRs and PCAs

Must notify their PCAs in wiriting of their obligations under MAR 19 and keep a copy fo that notification

Question 20

ONGOING REPORTING, FILINGS, AND COMPLIANCE - MAJOR SHAREHOLDERS DEALING DISCLOSURE REQUIREMENTS

What is the general principle under DTR 5? (Who are companies required to identify)

When is a notification to the market required? (4)

Answer 20

DTR 5 = companies must identify who is controlling how voting rights are exercised and then disclose this to the market

1. Are the shares held in a relevant issuer?
   No = no disclosure required
   yes = …
2. Is the interest a relevant interest?
   No = no disclosure required
   Yes = …
3. Has the interest reached, exceeded, or fallen below a relevant threshold?
   No = no disclosure required
   Yes = …
4. Is it an exempt interest?
   Yes = no disclosure required
   No = disclosure of interest required

Question 21

ONGOING REPORTING, FILINGS, AND COMPLIANCE - MAJOR SHAREHOLDERS DEALING DISCLOSURE REQUIREMENTS

What is a relevant issuer?

When will a person have a relevant interest? (2)

What are the notification thresholds? / When may a person have a notifiable interest?

Name an exemption when the obligation to notify an interest does not apply.

Answer 21

DTR 5
Any issuer whose shares are admitted to trading on a regulated or prescribed market (includes AIM)

a person will have a ‘relevant interest’ if they hold:
1. Voting shares or
2. any qualifying financial instruments which entitles acquisition of voting shares

If % of their voting rights reaches, exceeds, or falls below:
A. 3,4,5,6,7,8,9 and 10% and each 1% threshold thereafter for a UK incorporated issuer; or
B. 5,10,15,20,25,30,50,and 75% for non-UK issuer

Does not apply to certain holdings:
* interest of market makers where their interest is less than 10%

Question 22

ONGOING REPORTING, FILINGS, AND COMPLIANCE - MAJOR SHAREHOLDERS DEALING DISCLOSURE REQUIREMENTS

Who must make the notification?

Who must be notified and when? (2)

How must the notification be made? (The form)

What content must the notification include? (2)

Answer 22

The interested person, or a person delegated by them

1. The issuer asap, but no later than 2 trading days (4 days for a non-UK issuer), after the interested person becomes aware, or should have become aware, of the notifiable interest
2. Must also electronically file copy of notification with the FCA at same time

Notification of listed companies must be made using FCA’s Form TR1

A. the date on which the threshold was reached or crossed
B. the identity of the shareholder and the person entitled to exercise the voting rights on behalf of shareholder

Question 23

INSIDER DEALING (CJA1993)

What are the 3 offences in relation to insider dealing under the CJA1993?

What is inside information?

Answer 23

S.52:
A. dealing in price-affected securities on the basis of inside information;
B. encouraging another person to deal in price-affected securities on the basis of inside information; and
C. disclosing information other than in the proper performance of an office, employment, or profession

S.56 = Information which:
1. relates to particular securities or issuer(s) of securities
2. is specific or precise;
3. has not been made public; and
4. if it were made public would be likely to have a significant effect on the price of any securities

Question 24

INSIDER DEALING (CJA1993)

When will someone be guilty of insider dealing?

What are the 3 defences against a charge of insider dealing?

Answer 24

only guilty if they knew the information was inside information and they knew that they obtained it from an inside source

S.53 = the person:
i. did not expect the dealing to result in a profit attributable to the price-sensitive information
ii. reasonably believed the information was disclosed widely
iii. would have done what they did even if they didn’t have the information

Question 25

PROCEEDS OF CRIME ACT 2002

Which part of POCA2002 relates to companies?

When will a person commit money laundering? (3) (CDCT,ARUC,AUHP)

What must a company do? (3)

Answer 25

Part 7 = sets out money laundering legislation

If they:
1. conceal, disguise, convert, or transfer criminal property or remove it from the UK
2. Enter into or become involved with an arrangement which they know or suspect facilitates the acquisition, retention, use, or control of criminal property; or
3. acquire, use or have possession of criminal property

A. Establish appropriate procedures and training to ensure they recognise suspicious activity
B. Have an internal process to report suspicions
C. Nominate a money laundering reporting officer whom employees must report their suspicions (MLRO must then decide whether to report to the National Crime Agency)

Question 26

SENIOR MANAGERS AND CERTIFICATION REGIME

What is the Senior Managers and Certification Regime?

What must a firm wishing to employ someone to carry out specified senior management functions do?

What are the 3 elements and 2 sub-elements of the framework for individual accountability?

Name 2 FCA governing functions.

Name 2 FCA required functions.

Can a person be appointed to more than one function?

Why is careful planning for a change of director holding a senior management function required?

Answer 26

= the process through which the FCA supervises the employment of financial services professionals to ensure they have necessary qualifications and experience

Seek approval from the FCA in advance

1. Senior Managers Regime = broadly divided into (a) customer functions and (b) significant influence functions
2. Certification Regime
3. Conduct Rules

FCA governing functions:
i. SMF 1 = Chief executive function
ii. SMF 3 = Executive director function

FCA required functions:
A. SMF 16 = Compliance oversight function
B. SMF 17 = Money laundering reporting function

Yes, but the firm must demonstrate that the individual is capable of managing multiple functions

A new director, although able to join the company, cannot be formally appointed as a director until authorisation of the FCA is received

Question 27

CAPITAL EVENTS AND ROLE OF SHARE REGISTRAR - SHARE OFFER

What are the 6 steps that should be followed for a share offer? (Starting with applications received)

Answer 27

1. Check application forms as they are received to ensure contain necessary details of applicant for adding to ROM and payment has been received
2. Applications from existing members should be identified so that any new shares are added to their existing account
3. At the closing date of the share offer = forward details of the applications received to the company
4. If the total number of shares applied for exceeds the number on offer the applications will need to be scaled back (at directors’ discretion e.g., all applications scaled back by same %, all applications up to X shares accepted and larger applications scaled back, or first come first served basis applied)
5. Directors hold meeting to formally approve issue of shares
6. ROM updated, share certificates issued, and refunds to unsuccessful or partial applicants sent

Question 28

CAPITAL EVENTS AND ROLE OF SHARE REGISTRAR - RIGHTS ISSUE

The steps for a rights issue are broadly the same as for a share issue, but with what additional 6 steps?

Answer 28

1. Member’s entitlement is calculated by reference to their shareholding at the record date
2. Entitlement forms printed and sent to member with space to indicate how much entitlement they wish to take, and any additional shares (if permitted)
3. Forms returned to company with payment
4. At conclusion of rights issue, schedule of valid acceptances will differentiate between shares accepted up to each members’ entitlement and any excess applications
5. If scaling back is required, this is only applied to the excess applications
6. If the rights issue is underwritten, the underwriter will acquire shares representing the shortfall

Question 29

What is a closed period?

What can a PDMR or PCA not do during this time?

What can insider not do during this period?

Answer 29

Closed period = 30 days prior to an announcement of company’s full or half-year financial report (or a preliminary announcement of full year results if announcement contains all key information)

MAR 19 = PDMR must not for themselves or for a 3rd party conduct any transactions in the financial instruments of the company during a closed period

An insider (someone on a company’s insider list) must not deal in the securities of the company during a closed period

Question 30

The listing regime requires listed companies to establish and maintain effective procedures for what 3 things in relation to inside information?

Why might a company establish a Disclosure Committee?

Answer 30

effective procedures for the identification, control and release of inside information

A Disclosure Committee is not mandatory but it may help ensure that procedures regarding the identification, control and release of inside information are managed properly by those with sufficient understanding of the company’s obligations