PLC QTRLY - Q1 2024

This is our regular quarterly update to help our listed company clients and other market participants keep up to date with key developments relevant to issuers on the Main Market and AIM market of the London Stock Exchange.

Listing regime reform: Full details of new UK Listing Rules published

On 7 March 2024, the FCA published an updated draft instrument relating to its reforms of the UK listing regime, which are designed to create a simpler UK listing regime that is attractive to a wider range of companies. 

The draft instrument includes the second tranche of the new draft UK Listing Rules  which, alongside the draft included in its December 2023 consultation paper focusing on the requirements for commercial companies with a primary UK listing of equity shares (as described in PLC QTRLY Q4 2023), form a complete draft of  the new UK Listing Rules (UKLRs). 

The new draft instrument includes updates to the UKLRs which will apply to commercial companies, including:

• The addition of former Premium Listing Principles 3 & 4 into the commercial companies category.
• Alleviations for sovereign controlled issuers.
• Sponsor requirements for the closed-ended investment funds and shell company categories added into UKLR 4 and UKLR 24.
• Transitional rules on the application of the Listing Rules to transactions that have not yet completed at the time the UKLRs come into effect. 

The draft instrument also includes the remaining proposed Listing Rules for listing categories other than the commercial companies category, including for closed-ended investment funds and shell companies.

The new UK Listing Rules are expected to take effect early in the second half of 2024.

Listing regime reform: Indicative impact on FTSE UK Index Series

FTSE Russell has published a summary of provisional changes to its UK Index Series Ground Rules to reflect the FCA's proposed changes to the UK listing regime, including the proposed replacement of the existing standard and premium listing segments with a single category for shares in commercial companies (ESCC) and a separate new category for closed-ended investment funds.

Currently only premium listed companies are eligible for UK indexation. It is anticipated that the ESCC and closed-ended investment fund categories will be eligible for UK indexation, replacing the premium segment, shortly after the introduction of the new regime. Since premium listed companies are expected to be mapped to the ESCC and closed-ended investment fund categories, and standard listed companies are expected to be mapped to the transition or international commercial companies secondary listing categories (neither of which will be eligible for indexation), the immediate impact on UK indexation is expected to be minimal.

However, companies may subsequently apply to transfer to the ESCC category, which may result in them becoming eligible for UK indexation at the next quarterly index review.

FTSE Russell does not intend to introduce additional eligibility requirements to replicate any current premium listing requirements but other eligibility requirements for UK indexation will remain, including:

• The requirement to be assigned UK nationality under the Ground Rules.
• The requirement for there to be a minimum free float of 10% for companies incorporated in the UK.
• The requirement for there to be a minimum free float of 25% for companies incorporated outside the UK.
• The requirement for more than 5% of a company's voting rights to be in public hands, although this requirement will be updated to take into account the voting rights attached to any classes of share with enhanced voting power.

The updated Ground Rules are expected to be implemented in Q3 2024, shortly after the new UKLRs come into effect.

UK prospectus regime: Public Offers and Admissions to Trading Regulations 2024 published

On 30 January 2024, the Public Offers and Admissions to Trading Regulations 2024 were published. The regulations will replace the retained EU law relating to prospectuses and create a new UK specific regulatory framework designed to give companies the flexibility to raise larger sums from investors more quickly. The regulations were published in draft form and laid before parliament in November 2023 (see PLC QTRLY Q4 2023).

The majority of the regulations will come into force on a future date on which the existing UK prospectus regulation will be revoked. However, the provisions of the regulations enabling the FCA to make or approve rules, give guidance, give directions or issue statements of policy came into force on 30 January 2024.

The regulations include a general prohibition on public offers of securities, which will be subject to a series of exemptions. The FCA is given powers to make rules in a number of areas relating to those exemptions (including those relating to regulated markets, primary multilateral trading facilities and public offer platforms).

During 2023, the FCA engaged widely with the market, including via a series of engagement papers, and published a summary of feedback on its engagement process in December 2023. The FCA aims to consult formally on detailed rules governing public offers of securities and admissions to trading on UK regulated markets in summer 2024.

Governance: 2024 UK Corporate Governance Code

On 22 January 2024, the FRC published a revised UK Corporate Governance Code, which will apply to financial years beginning on or after 1 January 2025, together with a summary of key changes and a mythbuster. The FRC then published updated guidance on the application of the Code on 29 January 2024. 

The Code is currently applicable to all premium listed companies on the London Stock Exchange, whether incorporated in the UK or elsewhere, and is expected to apply to ESCC companies following the Listing Rules changes due to be implemented later this year. 

The FRC has taken a targeted approach in its amendments to the 2018 Code, focusing on a limited number of changes to ensure the right balance is struck between UK competitiveness and positive outcomes for companies, investors and the wider public. The most significant changes are the new disclosure requirements for the annual report on the effectiveness of a company's internal controls (backed by a board declaration of effectiveness), which will apply to financial years beginning on or after 1 January 2026, and on malus and clawback provisions in directors' remuneration.

Developments in board diversity

Third FTSE Women Leaders review

On 27 February 2024, FTSE Women Leaders published the third FTSE Women Leaders Review, highlighting continued progress during the year towards achieving greater gender balance on the boards and leadership teams of FTSE 350 companies. 

The Review sets out the following four current recommendations to achieve gender-balanced boards and leadership teams by the end of 2025:

• The voluntary target for FTSE 350 boards and leadership teams is increased to a minimum of 40% women's representation by the end of 2025.
• FTSE 350 companies should have at least one woman in the chair or senior independent director role on the board and/or one woman in the CEO or CFO role by the end of 2025.
• Key stakeholders, such as the investment community and corporate governance agencies, should continue to set best practice guidance, or have in place alternative mechanisms as appropriate, to encourage any FTSE 350 board that has not yet achieved the 33% target for 2020, to do so. In addition, FTSE 350 board below 33% women should look to the underrepresented gender when considering additional appointments.
• The scope of the Review is extended beyond FTSE 350 companies to include the largest 50 private companies in the UK by sales, to provide consistency of regulatory approach and drive further progress across British business. 

Parker Review 2024 update report

On 11 March 2024, the Parker Review published its update report on improving the ethnic diversity of UK business. 

The report sets out findings from its latest voluntary census on the ethnic diversity of the boards and senior management of FTSE 350 and large UK private companies as at 31 December 2023, including the following:

• 96% of FTSE 100 companies had ethnic minority representation of their boards, mirroring the position in 2022. The number of FTSE 100 boards with more than one ethnic minority director rose from 49 in 2022 to 56 in 2023. Ethnic minority directors represent 19% of all FTSE 100 directors (up 1% from 2022).
• 79% of FTSE 250 respondents had at least one ethnic minority director on their boards (up from 67% in 2022). The Review encourages those FTSE 250 companies that have no ethnic minority directors to consider what they might be able to do to meet the target deadline of one ethnic minority director on their board by December 2024.
• The number of ethnic minority CEOs in the FTSE 100 rose from 7 to 12 during 2023 and the number of chairs rose from 6 to 7. For FTSE 250 boards, the number of ethnic minority chairs increased from 5 to 8 during 2023 and the number of ethnic minority CEOs was unchanged at 14.
• On average, 13% of FTSE 100 senior management positions and 12% of FTSE 250 senior management positions are held by people with ethnic minority backgrounds.
• 36 of the 50 private companies invited to participate in the Review provided data about their board composition. Of those, 61% reported having at least one ethnic minority director, ahead of the December 2027 target deadline.

Pre-Emption Group report on adoption of updated Statement of Principles

On 5 March 2024, the Pre-Emption Group published its first report monitoring the use of its updated Statement of Principles on the disapplication of pre-emption rights for UK listed companies since it was revised in 2022 to increase the level of disapplication authority that companies can request routinely to 20% (see PLC QTRLY Q4 2022), together with an accompanying podcast.

The report examined adoption of the revised Statement of Principles by FTSE 350 companies for AGMs held between November 2022 and July 2023 and included the following key findings:

• 55.7% of FTSE 350 companies with AGMs during the relevant period sought enhanced disapplication authority as permitted under the updated Statement of Principles.
• 65.7% requested authority for a specified capital investment, in addition to authority for general corporate purposes.
• 98.3% had all disapplication resolutions passed by shareholders, with only a small number seeing significant dissent.

Going forward, the Pre-Emption Group has also committed to implementing a public database of post-transaction reports made to it following capital raisings in which pre-emption disapplication authorities are used.

Investment Association letter to remuneration committee chairs

On 26 February 2024, the Investment Association published its letter to remuneration committee chairs of FTSE 350 companies, outlining areas of focus for both the 2024 AGM season and the Investment Association's review of the Principles of Remuneration to be published later in 2024.
One key area of focus is the debate over competitiveness of remuneration for executive directors of UK listed companies and the impact of investor expectations in the UK compared to other jurisdictions, with the following three themes highlighted by companies:

• The need to increase pay opportunities through LTIP grant levels.
• The use of hybrid schemes incorporating both performance and restricted shares.
• The requirements of the UK Corporate Governance Code (including the new malus and clawback provisions) reducing the perceived value of remuneration.

The 2024 updates to the Principles of Remuneration will focus on simplifying the Principles, ensuring that they are supporting a competitive market and delivering the right outcomes for both shareholders and their underlying clients and that current market practice and expectations of the Investment Association's members lead to the evolution of the Principles, rather than the Principles dictating market practice.

Priorities for the 2024 AGM season include productive conversations on remuneration practices in the UK; how remuneration committees are adapting to the inflationary environment; and remuneration committees demonstrating how remuneration outcomes are appropriate given performance achieved during the year and how targets for 2024 have been set.

PISCES: HM Treasury consultation on private intermittent securities and capital exchange system 

On 6 March 2024, HM Treasury published a consultation paper seeking industry feedback on the UK's proposed new private intermittent securities and capital exchange system (PISCES), which is intended to allow private companies to trade their existing shares in a controlled environment during intermittent trading windows. The closing date for the consultation is 17 April 2024. 

PISCES will be developed using a financial markets infrastructure sandbox, as established under the Financial Services and Markets Act 2023, which is expected to go live at the end of 2024.

If you would like to discuss any of these issues or any other public company matters, please contact: Connor Cahalane, James Channo and Karen Hendy.