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The London Stock Exchange (LSE) is to introduce “premium” and “standard” listings from April next year. At first glance, the changes being introduced to listings on the LSE might appear little more than cosmetic, with the existing categories of “primary” and “secondary” listings set to be replaced with “premium” and “standard” listings. But closer examination of the proposals shows that this is much more than just a name change.

At present, all companies with a primary listing are subject to the full force of the Listing Rules. This can be both onerous and expensive for small and medium-sized enterprises, (SMEs) who may decide to list on other exchanges where the regulations are not so onerous. For example a listing in the fully authorised Frankfurt Exchange is both cheap and, in many cases, completely unregulated.

Currently the availability of a secondary listing on the LSE, where the requirements are considerably less stringent, is only available to overseas companies but the new standard listing will in future be available to UK registered companies – though not for investment companies.

For most fully listed companies, the change from a primary to a premium listing will not involve significant changes to the existing rules, but it will become easier for such companies to “downgrade” to standard status. However there will be a tightening of the rules applying to premium listed companies from outside the UK. These will now fully come under the Combined Code on Corporate Governance.

The new standard listing obligations are based on EU minimum standards. There is no need for a published three-year trading record, so that new companies may apply; the 12-month working capital statement can be dispensed with; and the company does not require a sponsor. In addition, no shareholder approval is required for significant or related-party transactions, there are no pre-emption rights for non-UK companies, and restrictions on directors’ dealings do not apply (however, notification requirements under the Disclosure and Transparency Rules and applicable UK legislation do).

The new regime will increase flexibility for the London market, providing more options for SMEs either to downgrade to standard (requiring a 75 per cent resolution from shareholders but no new application to the UK Listing Authority) or, for new applicants, by offering a simpler and cheaper route to listed status. Nevertheless, it is likely that most listed companies will wish to retain a premium listing to maintain profile and eligibility for market indices, important factors for liquidity.

For companies listed on the Alternative Investment Market (AIM), however, or for new applicants considering a European exchange as an alternative to London, the new standard listing may be more attractive. Compared to AIM, a standard listing requires no 12-month working capital statement, no sponsor or nomad is needed, and there is a lighter regime for significant and related-party transactions.

This is an interesting and long overdue development, which will go a long way to addressing the loss of business from the LSE to other European exchanges.

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Category: Guide to City Jargon

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