the standard listing: Sub-standard or a greater AIM? What are the best routes to the equity capital markets in the UK? The Main Market’s new two-tier system offers the option of a Premium or Standard listing – the latter is subject only to the minimum EU requirements. But with the Alternative Investment Market (AIM) already seen as a less stringent route to a UK listing, what does the Standard listing offer that AIM doesn’t? In this article, Criticaleye asks Neil Matthews, Head of Equity Capital Markets at Eversheds, and Marcus Stuttard, Head of AIM at the London Stock Exchange, why a UK issuer may or may not consider a Standard listing as a viable option.

www.criticaleye.net 01 Since 6 April 2010, companies issuing shares Community Comment on the Official List can choose to obtain either a Premium or Standard listing. This Paul Clarke, is as a result of a review by the UK Listing Criticaleye Associate Authority (UKLA). The Standard listing “With the right dialogue between a replaces the old Secondary listing, which was company and its investors, a Standard only open to non-UK companies, and now listing might be the right environment offers UK and overseas companies the same for a company to reduce transaction opportunities to list on the Main Market. costs and go through a period of growth before reverting back to a Premium The Lawyer’s view – Neil listing.. It is also useful for companies Matthews, Head of Equity which do not have the appropriate Capital Markets, Eversheds trading record for a Premium listing. They can join the Main Market with the requirements does not offer investors the For UK companies, it seems there are now stated intention of becoming Premium protection that they have been used to listed at the first available opportunity. three routes to accessing the UK’s equity when investing in Official List companies. It would be interesting to see whether capital markets - a Premium listing or a the stance of FTSE and other index Standard listing on the Main Market or companies changed if a highly liquid and Does it even offer the same level of comfort admission to AIM. So what is the role of popular company chose the Standard as an investment on AIM? At least investors the Standard listing and what does this listed route. If investors demanded a can rely on the fact that an AIM quoted option add to the London market? change then it might happen. After all, company must appoint and retain at all other European indices are populated times a nominated advisor (NOMAD) - On the one hand, the UKLA’s review has by companies that have entered their responsible for assessing and signing off broadly met its objective of giving UK and domestic markets using a Standard on its suitability for AIM admission and international companies parity when enjoying listing as they do not have the gold-plated available to assist the company in complying version that is our Premium listing.” the benefits of a London listing: overseas with AIM rules. The UKLA has also stated issuers wishing to have a Premium listing that companies with a Standard listing will will now be required to follow the same rules So why should a UK issuer consider a Standard not be eligible for inclusion in reported UK as UK companies in areas such as corporate listing? Well, access to a listed market with an indices, thus removing one of the perceived governance and compliance with pre-emption international reputation, for starters. But also benefits of being listed on the Official List. rights requirements. On the other, companies lower regulatory requirements - an issuer with that wish to comply with EU-minimum listing a Standard listing is not required to comply AIM’s detractors have increased over the last standards but not the UK’s ‘super-equivalent’ with UK ‘super equivalent’ provisions - and, couple of years – it isn’t a perfect solution. rules - those additional requirements set therefore, lower ongoing compliance costs. But if investors can regain their enthusiasm by the UKLA over and above the minimum This can translate into significant cash savings. for AIM, which continues to offer growth required by EU legislation - can now still companies and their investors a flexible yet obtain a listing on the Main Market when For example, no sponsor is required, so the appropriately regulated market, then for previously AIM was their only real option. prohibitive costs of an investment bank can any UK company seeking to float and which be avoided. Similarly, if the issuer is not meets the eligibility requirements on both, required to comply with the UK Corporate the choice will rarely be anything other Community Comment Governance Code, it could reduce its spend on than between a Premium listing or AIM. David Flin, Assistant non-executive directors. Further savings could Director, Corporate Broking, be made if a material transaction is exacted Community Comment Investec Investment Banking with lower regulatory obstacles, such as the requirement to seek shareholder approval. Kelvin Harrison, Chairman “From an institutional investor of Maxima Holdings plc perspective, the Standard Listing If you’re an AIM company that feels your remains largely untested to date, “The benefit for a smaller quoted valuation is being prejudiced, you might with relatively little activity and the company of a full LSE listing compared think it’s worth saving money and switching highest profile listings being cash with AIM was already very limited. The to Standard. From the issuer’s perspective, shell acquisition vehicles. Accordingly, only real positive was prestige and that the ability to secure the ‘badge of quality’ is of debatable value. The introduction investors have not yet formed a view that the Official List proffers, combined with of the Premium rating has essentially as to whether the protections afforded lower compliance costs when compared devalued the Standard listing, making under a Standard listing are sufficient to with a Premium listing or, arguably, AIM, a AIM more attractive for a small to promote this as a viable alternative to the Standard listing might appeal. But ultimately, medium-sized business. You have the more established listing options. Nor is same institutions investing in AIM will the investor community support it? And it likely that the creation of the Standard stocks as in smaller LSE companies if not, what’s the point of it? Who felt it was listing has led to a broadening of the - providing that you appropriately necessary other than EU bureaucrats? pool of capital available to businesses apply the Corporate Governance Code compared to AIM. In the short term, - and private investors in AIM stocks There has been remarkably little interest shown have the benefit of exemption from it is not clear what catalysts exist to by UK companies thus far. And institutional inheritance tax. I would argue that this allow the Standard listing to become investors, initially unsure of the regime change results in equivalent liquidity. An AIM a popular choice for new businesses and what the advantages and disadvantages quotation also has lower costs and coming to market (as opposed to might be, have gradually come to realise that gives the company increased flexibility specialist investment vehicles).” in raising capital for acquisitions.” a listing regime based only on EU-minimum www.criticaleye.net 02 The response from the QUOTE FROM THE UK London Stock Exchange – Community Comment LISTING AUTHORITY Marcus Stuttard, Head of AIM, Mario Levis, Professor of London Stock Exchange Finance, Cass Business School A spokesperson for the UKLA comments: “Two key objectives of the introduction The Standard listing was set up fundamentally “One of the key objectives for the new of Premium and Standard options have to offer greater choice. Historically, there listings standards is to enable the UK been to deliver: enhanced clarity for all have been UK companies that haven’t to compete more effectively with the participants, while maintaining - as fully been able to comply with the eligibility European and even US markets for new supported by the market - the UK badge of requirements of a Premium listing, so listings. The lighter approach would be quality represented by the super-equivalent the Standard listing now gives them the of interest to some of them that look Premium listing requirements; and a level option of a Main Market listing. A factor in for London as a wider pool of capital, playing field for issuers so that the same rules with better liquidity, more institutional this choice will be an issuer’s assessment apply for securities of the same category, investors and firmer valuations and of the standards that will be expected irrespective of the nationality of the issuer. lower cost of capital. At the same by its target investor group. Success time the Standard listing represents will ultimately come down to investor “It’s also important to point out that, a delicate balancing act of complying preference and we are certainly seeing while an AIM quotation does impose some with EU guidelines and protecting the evidence that companies considering a requirements going beyond a Standard standards in the Main Market. The main Standard listing are, based on investor listing - particularly requiring a NOMAD – a differences between the Premium and feedback, being advised to voluntarily Standard listing also requires compliance Standard listing relate to the length of adopt many of the ‘super-equivalent’ with the Transparency Directive and the period of audited historical financial provisions that apply to a Premium listing. free float requirement imposed by the information and trading record and type Listing Rules, which do not apply in full to of corporate governance requirements. The rationale for opening up the Standard securities admitted to trading on AIM. A Such differences although significant, listing segment to UK companies was prospectus, which is vetted by the UKLA, they don’t on their own, lessen the not driven by any specific agenda or is only required for AIM companies when level of investors’ protection. It is expectation of large numbers of companies important, however, that investors a public offer is made, which is unusual. signing-up immediately - it simply reflects are fully aware of such differences In most circumstances an admission a desire to level a playing field where and take all the necessary steps to document is produced which requires fewer there was no good reason to continue fully examine the risks and value of disclosures than a public offer prospectus. limiting the choice for UK companies. their investments. The Sarbanes– We would not therefore agree that a Oxley experience in the US clearly Standard listing imposes lower obligations The Standard listing is an additional route demonstrates that investors appreciate on issuers than a quotation on AIM.” to market, rather than a replacement, or the value of listings requirements.” threat to AIM. The companies on AIM chose © Criticaleye 2010 the tailored regulatory environment that it offers. For many, a major consideration In essence, the Standard listing gives when choosing a public market is to benefit companies access to a public listing on the Neil Matthews from peer-group comparison. AIM, like Main Market. But the ‘super-equivalent’ Partner & Head of Equity the Premium listing, already has a critical provisions - those that apply over and Capital Markets, Eversheds mass of companies, so by joining them above the EU minimum standards, such it helps put a company on the radar of as the Combined Code - do not apply Neil is a partner in the corporate group at analysts that have a sector focus. The other to the company’s corporate governance international law firm Eversheds, where he spin-off benefits include the access to an and ‘the Model Code’ does not apply in also heads Eversheds’ international Equity established network of investors, NOMADs, respect of the dealing in the company’s Capital Markets Group. Neil is a member of brokers, market makers and all the other securities by directors and employees. the London Stock Exchange’s AIM Advisory intermediaries that support the market. This makes a Standard listing an attractive Group and is a regular speaker on the The NOMADs are there to offer assistance option for certain types of companies, topic of IPOs and corporate governance. and vouch for their client companies and particularly those that undertake specialist shouldn’t be viewed simply as a cost that types of transactions, such as Special Marcus Stuttard can be avoided through a Standard listing. Purpose Acquisition Companies. Head of AIM, London Stock Exchange The UKLA undertook a review of the UK listing There are a number of key differences regime to clarify the labelling of the various between both the regulatory framework and Marcus was appointed Head of AIM routes to market. It was clear that when the ‘product benefits’ of AIM, a Premium in April 2009. He is responsible for the choosing between a Primary and a Secondary and a Standard listing. Similarly, you can management and development of AIM, listing on the Main Market, the term compare the relative merits of listing on the London Stock Exchange’s international ‘secondary’ wasn’t very helpful as it implied a AIM with a Standard listing, such as the growth market for small and medium sized company needed a primary listing on another tailored regulatory model, the support of enterprises. He is also a director of TOKYO market, which wasn’t the case. The terms the NOMAD and the relevant tax incentives AIM, the JV between the LSE and Tokyo Stock ‘premium’ and ‘standard’ provide clarity for for investors. Eligibility criteria for inclusion Exchange Group to develop a new market companies and investors alike. The standard in UK indices, such as the FTSE 100, are set for growing companies in Japan and Asia. option is new in the respect that it is open to by the index providers based on feedback UK companies, but essentially, it’s not that from the end users and the Exchange has Contact the authors through www.criticaleye.net different from the original ‘secondary’ option. no agenda in influencing those decisions. www.criticaleye.net 03