02 March 2017

The FCA has launched a wide-ranging review of UK primary markets.

The detail is set out in its discussion paper on the UK Primary Markets Landscape: DP17/2 Review of the Effectiveness of Primary Markets.

The discussion paper covers a wide range of topics including:

  • a review of standard listing and whether the rationale for the standard/premium structure remains valid
  • the potential for a new international segment for large international companies
  • whether a new standard listing securities category should be created for open-ended investment companies
  • the effectiveness of the UK's primary equity markets in providing capital for science and technology companies in the scale-up phase
  • a review of whether the current listing regime acts as a barrier to the provision of long-term capital/patient capital to issuers
  • whether alternative market structures are required to create a long-term capital market.

It seems likely that the current listing regime will change as a result of the ideas expressed in the discussion paper. Market structures may also need to evolve if the discussions on funding for science and technology companies and patient capital are to progress.

The discussion paper also covers debt securities, debt MTFs and retail access to debt markets.

DP17/2 – the detail

The FCA is looking to prompt a broad discussion about the effectiveness of the UK primary markets landscape.

Standard listing

Feedback received by the FCA indicates that:

  • a standard listing is viewed as an unattractive option for a listing because it lacks clarity
  • the obligations imposed on issuers with a standard listing are not clearly understood
  • the name suggests that it is “second best”.

DP 17/2 asks for comments on the underlying rationale for standard listing and seeks feedback on whether the key assumptions on which the standard listing regime was built are still valid. The FCA has also asked for views on the name and for alternative suggestions.

It will be interesting to see how the FCA ensures the continuation of the standard listing category once the core EU directives and regulations which underpin that category cease to apply post-Brexit (if indeed that is the regulatory outcome). The FCA has not addressed that topic in its discussion paper although it has promised to keep developments under review.

New listing segment for international companies

The FCA is considering whether the listing regime should include a new segment for international companies. Its rationale for having a distinct international segment is to create a new, credible listing option for large international companies which may wish to access UK markets but may feel that current UK listing requirements are not fully appropriate. The FCA suggests that this may be attractive to companies where there is a founding family or government that wishes to retain control rights that are incompatible with a conventional premium listing.

Development of a package of investor protections, appropriate to the segment’s aims and capable of fostering investor confidence will be key. The FCA is seeking views on appropriate investor protections. Suggestions include:

  • the requirement to appointment a sponsor when listing to support appropriate standards of due diligence
  • substantive eligibility conditions, such as a unqualified working capital statement, minimum market capitalisation, and financial information which has been audited without qualification and supports a three-year revenue earning track record
  • application of the related-party rules, with other features of the premium listing regime applying on a ‘comply or explain’ basis.

Open-ended investment companies

Open-ended investment companies are currently unable to apply for a standard listing. The FCA is seeking views on whether it should remove the ‘super-equivalent’ premium listing obligations for open-ended investment companies. These would then constitute a new standard listing securities category.

Science and technology companies

The FCA has asked a number of open questions as part of its review of the provision of capital for science and technology companies in the scale-up phase. These include:

  • What are the factors that adversely impact the effectiveness of the UK’s public equity markets in providing scale-up capital?
  • What potential enhancements to the primary market regulatory framework could contribute to improving the provision of scale-up capital?
  • Should science and technology companies have reached a certain stage of business maturity before accessing public equity markets? If so, how should that stage of maturity be defined?

The FCA recognises that there is a difficult balance to be struck between the ability for scale-up companies to access capital in public markets and the risks for investors. It is difficult to see how changes to the primary market regulatory regime could change investment risk appetite without other wider changes being made.

Patient capital and alternative market structures

The FCA has asked for views on:

  • the extent to which current market structures and regulation reinforce a short-term focus in issuers and investors
  • whether alternative market structures might better support a more patient, long-term approach.

If taken forwards this aspect of the discussion paper could result in very different market structures focussed on the provision of patient capital and the creation of a long-term capital market. This would be very different from the existing regulated and exchange-regulated markets referred to in the discussion paper (which include the Main Market, Euronext London, AIM, the NEX Exchange Main Board and the NEX Exchange Growth Market). 

Next steps

The FCA has asked for responses to the questions posed in the discussion paper by 14 May 2017. If the FCA decides to propose any specific policy proposals as a result of the feedback to DP17/2, it will issue a further consultation paper.

If you would like to discuss the FCA’s proposals and how they may affect your company, please contact Nick Graves.

Key contact

Nick Graves

Nick Graves Partner

  • Head of Corporate
  • Corporate Advice
  • Mergers and Acquisitions

Subscribe to news and insight


Our market-leading corporate lawyers specialise in delivering high value strategic transactions for a wide range of businesses.
View expertise