Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, September 30, 2009

A change to “standard” listing would present challenges for IR teams

The news this week that UK companies will be allowed to list on the London Stock Exchange using a less rigorous set of rules previously available only to overseas companies has some interesting potential dilemmas for IR teams.

For those who missed it, the FSA trailed – buried in the depths of the FSA Handbook rules update – the change which creates a “premium” listing and a “standard” listing. These terms replace the “primary” listing, and the “secondary” listing that was previously closed to UK companies.

The distinctions are potentially important. Briefly being a ‘standard’ listing removes:
· Pre-emption rights for investors
· The obligation to adhere to the Combined Code (they’d have to comply with the Corporate Reporting Directive instead).
· The obligation to have a sponsor
· Eligibility for FTSE indices
· The need for a 3 year record.

Is this change – much of which comes into force next April – going to have companies rushing for the new standard? Probably not. Pre emption rights for example are jealously guarded, instill confidence among investors thus lowering the cost of capital. The Combined Code is anyway viewed by some top class companies as a departure point, going beyond its minimum to explain the culture of governance within the company, where it fits, how the board works and so on. (See M&S annual report for an example). I suspect many more companies will want to enhance – not diminish their discussion of governance beyond the Code in 2010.

Debatably, sponsors also add a credibility to a company’s offering, especially given the (relatively) new sponsor requirements. And index membership underpins many institutional positions; some passive institutional investors are prevented from buying shares in companies that are not part of an index.

So I don’t believe companies will be rushing for this new option – lower compliance costs or not. Does that mean this change is irrelevant? No. For a start only equity shares are eligible for a premium listing. Instruments such as depository receipts will use the new standard. Also Aim companies seeking an upgrade may choose it as a stepping stone.And an underlying purpose of the change remains valid: it allows the LSE to compete more effectively with other EU exchanges for non UK companies that do not want to meet the higher standards.

The “premium” listing will come to equal prestige – important in this post crisis world. For those companies that do opt for the “standard” listing, the services of a good IR team to help put the company into proper context will be even more essential.


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