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FSA/PN/003/2008
14 January 2008

The Financial Services Authority (FSA) has today published a Discussion Paper reviewing the structure of the UK Listing Regime. The paper discusses ways to re-label the Primary and Secondary listing segments to help participants in the markets understand better the obligations on issuers of the various types of listed securities.

The UK market has remained very successful while global markets have undergone a period of significant change. The Listing Regime is a key element of the UK market's success, as is its strong international focus. London has increased its share of the global initial public offering (IPO) market in recent years and the UK continues to attract considerable numbers of overseas issuers, which the FSA welcomes. The paper seeks views on how the Listing Regime can best support the competitiveness of UK Capital Markets, while protecting investors appropriately.

Sally Dewar, FSA Managing Director of Wholesale and Institutional Markets, said:

"In an increasingly competitive global environment, we are committed to ensuring the Listing Regime makes a full contribution to the continued international success of UK capital markets while keeping pace with changes in global markets. We welcome a full and open debate on this issue."

A UK listing is often seen as symbolising a distinctive set of standards, separate from those attaching to other 'listed' markets elsewhere in Europe, and to 'non-listed' markets. Primary Listed securities are governed by provisions which are 'super-equivalent' to the requirements of the appropriate European Union directives, while the provisions for Secondary Listed securities and Global Depositary Receipts (GDRs) are in line with the minimum EU requirements.

To continue the Listing Regime's contribution to the success of UK markets, the paper sets out a new structure for the regime in which securities subject to higher standards will be more clearly separated from directive minimum standards. It proposes re-labelling Primary Listing 'Tier One Listing' and Secondary Listing and GDRs 'Tier Two Listing'. Alternatively, it suggests reclassifying Secondary Listing and GDRs. The securities would continue to be admitted to trading and subject to appropriate EU directive based obligations, but they would not be 'Officially Listed' by the FSA.

UK companies are only eligible for a 'super-equivalent' Primary Listing and not Secondary Listing. This treats UK companies differently, as overseas issuers can choose between which of the two regulatory regimes they list under. The paper explores proposals to relax these restrictions and create a level playing field for both overseas and UK issuers.

The paper also asks whether there would be greater clarity if Primary Listed companies were all subject to the same corporate governance requirements, be they UK or overseas issuers. Currently, overseas companies must disclose whether or not they comply with the corporate governance regime in their country of origin and disclose the significant ways in which their corporate governance practices differ from those in the Combined Code. The paper seeks views on whether requiring overseas companies to 'comply or explain' against the Combined Code would lead to substantive changes in behaviour by investors and issuers.

The paper further notes that the FSA has increased the regulatory resources devoted to the oversight of the GDR market, in line with its relative growth in recent years. The GDR market is a specialist market, not typically accessed by retail investors. While the FSA will keep this area under review, and invites views in the paper, the FSA does not propose further regulatory changes at this time.

The paper asks for comments by 14 April 2008. The next step will be to publish a feedback statement around Q3 2008 and a consultation paper with detailed rules will follow subsequently.

Notes for editors

1. DP08/1: 'A review of the Structure of the Listing Regime' can be found on the FSA website.
2. The Alternative Investment Market (AIM) is a market for non-listed securities, operated by the LSE. It is, therefore, beyond the scope of this discussion paper.
3. A Primary Listing is the most stringent form of listing in terms of requirements or standards available for companies seeking a listing on the Official List. For a Primary Listing a company is required to provide the following: a three-year revenue earning record; an unqualified working capital statement and prior approval of shareholders before the cancellation of their listing. The company must also appoint a sponsor to advise on key transactions, specifically the company's IPO. A sponsor firm is typically an investment bank, appointed to advise the issuer on the application of the Listing Rules and to provide key confirmations to the FSA under those rules. To act as sponsor, a firm must be accredited as such by the FSA. Once a company has obtained a Primary Listing of its equity securities, the company is then subject to a number of ongoing obligations, namely informing the market of material changes and corporate governance of the company.
4. Requirements for a Secondary Listing stem from the Prospectus and Disclosure and Transparency Rules with the following additional provisions: the company must satisfy the Consolidated Admissions and Reporting Directive (CARD) requirements; applicants for Secondary Listing must be overseas companies (where the company is incorporated in a non-EEA state and the company has no listing in its home jurisdiction, the FSA must be satisfied that the absence of a listing in the home state is not due to the need to protect investors) and the company must publish in the UK all circulars, notices, reports and resolutions and notify a Regulated Information Service it has done so.
5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.