QCA Response to the FCA - CP17/4 Review of Effectiveness of Primary Markets: Enhancements to the Listing Regime

12th May 2017

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Our Legal and Primary Markets Expert Groups contributed to our response to the FCA's proposed enhancements to the Listing Regime.

We agreed with the proposals to clarify the requirements regarding the historical financial track record and the revenue earning track record requirements for premium listing eligibility as they codify the current understanding and expectations of potential issuers and their advisers.

We noted that an element of judgement should be applied when deciding whether to disregard the result of the profits test where the result is 25% or more and all other class tests results are below 5%. We commented that both the issuer and the sponsor should consider the facts of each case in question before determining whether the profits test should be automatically disregarded.

Regarding other possible enhancements to the calculation of the profits test, we suggested that material litigation costs could be added to the shortlist of genuine one-off costs presuming that it is one specific case that will not span more than one financial period.

Regarding alternative profit measures that should be used either in conjunction with or in place of the current profits test, we noted that using operating profits or earnings before interest, tax, depreciation and amortisation (EBITDA) could be utilised to eliminate distorting factors such as the effect of financing decisions between debt and equity.

We remarked that the FCA should amend the applicable provisions in LR 5.6 to remove the rebuttable presumption of an issuer’s listing being suspended upon announcement or leak of a reverse takeover (other than for shell companies). We argued that this will greatly assist issuers, their advisers and shareholders by removing an element of risk and uncertainty with potential transactions.

Accordingly, we commented that (other than for shell companies) an issuer or, where the issuer is premium listed, its sponsor should no longer be automatically required to contact the FCA as early as possible to discuss whether a suspension is appropriate when a reverse takeover is agreed, or being contemplated, or to request a suspension where details of the reverse takeover have leaked.

Regarding reverse takeovers, we suggested that although a “reverse takeover” for a shell company should remain subject to the rebuttable presumption of suspension, there can be circumstances where a shell company is undertaking a corporate action, such as acquiring a minority interest in an entity, which would not be considered by investors or the shell company itself to constitute an acquisition.

Click here to download our response (pdf)

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