CP 12/2: Amendments to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules

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1 CP 12/2: Amendments to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules The ABI s Response to the FSA s consultation paper Introduction 1. The ABI is grateful for the opportunity to respond to the FSA s consultation on amendments to the Listing, Prospectus, Disclosure and Transparency Rules. 2. The ABI represents the UK s insurance, investment and long-term savings industry, the largest in Europe and the third largest in the world. It has over 300 members, accounting for some 90% of premiums in the UK domestic market and manages investments of 1.5 trillion. As institutional investors they have a strong interest in ensuring that the UK s equity markets are fair and efficient and their integrity is secured. General comments 3. We very much appreciate the continuing efforts of the FSA to foster high standards of listing. The consultation paper covers a range of technical and detailed proposed changes. We comment in the annex to this response on these detailed issues which in large measure we are supportive of. 4. The CP also invites views on the wider question of the quality of UK listing. As the CP identifies, In recent months there has been renewed debate about the nature of the premium listing standard. This issue has, however, broadened into a more fundamental discussion about whether the premium listing standard more generally needs to be further enhanced. We concur and, accordingly, we commend the FSA for providing the opportunity to address these wider concerns through the current consultation. Our specific comments on the wider issues reflect our concern that an erosion of standards of listing in recent years in turn has impacted on the quality of the leading UK stock market indices to the detriment of savers and investors.

2 Our comments on Premium listing: wider issues Q1: What, if any, changes to the Listing Rules do you believe may be necessary to provide additional protection to investors? 5. We agree with the comments in the paper about the FSA s understanding of the legitimate expectations of stakeholders in the Listing Regime: We see the whole purpose of retaining the super-equivalent rules contained within in the premium listing regime as being to maintain to the extent possible in a single capital market high standards of UK corporate practice. We, and the market, believe that these super-equivalent standards, taken together, should provide a clear benchmark for high standards of corporate governance and therefore for the reputation and quality of the market. This enhances both investor confidence and thus the attractiveness of the market to issuers. 6. In considering the health of the listed equity market it is necessary to consider not just the dynamics of supply on new listings, reflecting the financial and economic environment and the level of innovation in business activity but also the needs of investors. With a growing proportion of institutional equity fund management carried out on a passive basis there is greater reliance on suitability for listing being determined otherwise than by investment managers choosing to invest at IPO stage. 7. The question of suitability is a broader one than the UKLA s focus on eligibility but it is important, within the overall operation of the market, that scrutiny of the former as well as the latter takes place. The provision of stock-market indices and decisions by investors to track such indices is not the responsibility of the FSA in its role as UK Listing Authority. However the joint impact of the decisions of FSA and of FTSE as the leading index provider for UK stocks does effectively determine the make-up of the UK listed market, how it changes through the IPO process and, in turn, what UK savers are investing their money when they choose to invest in UK equities. 8. In seeking to pin down our concerns the key headline points are these: A small minority of current listed companies are a cause of concern. But we cannot assume it will remain only a small minority indeed it has been a relatively high proportion of recent IPOs. Difficulties have been posed by governance/structure/culture of a proportion of companies gaining a listing in recent time periods as well as the type of business model. Point of admission is where the problem perhaps mainly but not exclusively lies: The fundamental bedrock of the UK s investment engagement and corporate governance framework of comply or explain only works after point of float and it does not work with controlled companies. Transparency alone is not the basis of a sufficient safeguard. The low proportion of shares being floated in the case of some new entrants to the market has accentuated problems in this regard. 2

3 9. The consultation paper does not address the question of free float requirements. The recent decision of FTSE to move to introduce a 25% minimum free float benchmark has reduced the significance of FSA requirements in this regard but we believe the FSA approach needs to be readdressed. The FSA position remains that its requirements in this regard relate to the EU s Consolidated Admissions and Reporting Directive (CARD) and the need to ensure appropriate liquidity in a listed company s shares. We agree that this should be a requirement of eligibility to list but we do not regard it as sufficient for premium listing which is avowedly superequivalent to EU directive requirements. We do not believe that companies should be prevented from being admitted to trading on the UK market if they meet all relevant EU directive criteria but this can easily be done via a standard listing. 10. The consultation paper makes four suggestions for consideration and we comment on each in turn: enhancing the rights of minority shareholders by giving them rights of veto over particularly important resolutions such as the election of directors; The objective behind such a move, to ensure that the agreement of external shareholders to matters of fundamental importance such as whether members of the board who are classified as independent and therefore able to act impartially on behalf of all shareholders, is admirable. There would, however, remain practical problems around which parties are eligible to vote on the relevant resolutions and the principle of creating different classes of shareholder is not attractive. We suggest that the concept could be taken forward more appropriately through a requirement for a super-majority, probably a 75% approval requirement as pertains for special resolutions, for certain types of resolution. The election of directors deemed independent by the company would be the most obvious though other possibilities, perhaps in conjunction with the FRC in respect of the contents of the UK Corporate Governance Code, could be explored. re-instating/strengthening the previous LR 3.12 requirements that set as conditions of listing that companies with controlling shareholders must be capable of carrying out their business independently of the controlling shareholder(s); This would be a straightforward way of putting back in place what is an important safeguard for company and all shareholders, the value of which is underscored by their continued existence in what we understand to be the vast majority of relevant cases even though the formal Listing Rule requirement is in abeyance. introducing a new free float requirement that effectively allows minority shareholders to determine the governance arrangements of the company; We fully support the objective but we are unclear what provision for the Listing Rules might be intended beyond setting a free float requirement (either at admission or ongoing) which would need to be at a significantly higher than 25%. In practice even a 50% free float criterion, which deserves to be critically evaluated as part of a review 3

4 of whether the liquidity-based free float criteria should be changed, would not assure that independent shareholders were able to determine governance arrangements. A 50% free float requirement of itself does not provide protection against a substantial shareholder for example one with a starting holding in excess of the 29.9% level which is the key relevant threshold under the Takeover Code. strengthening the related party transaction requirements/disclosures. Some incremental changes might be beneficial though we recognise that the Listing Rules already provide some useful protections in this regard. We have considered certain other suggestions that have been floated in various quarters: That companies with a controlling shareholder, or perhaps where the free float is less than 50%, should, rather than being able in the usual way to comply-orexplain regarding the Corporate Governance Code expectations, in certain respects be required simply to comply. This could apply at point of admission or on an on-going basis so long as the large shareholder retained the position of significant influence. This is not entirely attractive in that it goes against the grain of the ethos of the Code but would be much improved if, instead, departures were subject to a super-majority ratification procedure. The role of sponsors in ensuring compliance with the requirements of the Listing Rules should be strengthened The proposals elsewhere in the consultation paper do move helpfully in this direction but they could be particularly useful if applied to providing assurance regarding undertakings given by substantial shareholders and effective operation of relationship agreements Delayed entry to premium listing i.e. standard listing given at point of float with subsequent elevation to premium-listing (and index eligibility) after an eligibility period being determined by an independent quality committee. In the US admission to the S&P index is subject to scrutiny of this type and it is a matter for debate whether in the UK context such a role would fall more naturally to the listing authority. If a judgmental element is able to be present within the US analogous process of being fully admitted as what might be termed investment grade equity then it can be argued the UK should not adopt a more rules-based approach. Requirement for UK incorporation or in a limited list of eligible jurisdictions: This could allow safeguards for shareholders to be better enforced and, potentially a level playing field of securities market regulation to be achieved. This would be a reversal in direction of travel away from narrow nationality criteria governing listing and achievability would be problematic. 4

5 Our conclusion on the wider issues We have concluded that there is no single measure that would address the legitimate concerns of investors and the needs of all market users including those of companies wishing to come to the market and achieve the cachet of a premium listing. Rather we think a package of measures is required to ensure that the path to listing is made more robust and that compliance with standards commensurate with premium listed status is achieved: Changes capable of being implemented in the shorter term: 1. Relationship agreement: requirement for those with a controlling shareholder to be reinstated (though all companies in question still seem to have them). The language within these should be expected to be robust, in order both to be effective and to give assurance to investors and the Listing Authority should provide on-going monitoring of these arrangements and how they are working in practice; 2. Role of sponsors: Increased responsibilities inter alia to provide specific assurance regarding undertakings given by substantial shareholders and effective operation of relationship agreements; 3. Free float: Explicitly move away from eligibility being determined by liquidity considerations alone. A free float of at least 25%, using a robust methodology, should be introduced in the near term which would help ensure greater suitability for qualification for being premium-listed; 4. Requirement, where a company has a shareholder(s) with ability (collectively) to exercise significant influence, for approval by a supermajority on certain resolutions a) election of independent directors b) ratification of explanations of departures from Corporate Governance Code parameters. Changes the merits of which should be debated further with a view to introduction in the medium term: 5. Qualifying period post-float for confirmation of premium listing and of entry to UK indices Eligibility for promotion being determined after a stipulated qualifying period by an independent quality committee; 6. Free float: Move to a general requirement for 50% of shares to be in public hands together with consideration of possible grounds for exceptions. 5

6 Responses to other Questions for Consultation ANNEX Reverse Takeovers Q2: Do you agree with the proposal to amend the Listing Rules (LR 5.6.2R) to narrow the reverse takeover exemption so that it only applies to listed issuers acquiring another listed issuer(s) listed within the same listing category? Q3: Do you agree that the proposed guidance on a fundamental change (LR5.6.5G) contains the key indicators? Do you think there are other factors that should be considered and if so what are they? Q4: Do you agree with the proposed changes to codify within the Listing Rules (LR5.6) the existing practice to contact the FSA as soon as possible once a takeover is agreed or details of the transaction have leaked, to discuss whether a suspension is appropriate? A suspension may not be appropriate but the right decision about whether or not one is necessary is most likely to be reached if there is dialogue between issuer and Listing Authority as soon as reasonably possible. Q5: Do you agree with the proposal to amend the Listing Rules (at LR5.6) to require an issuer to make an RIS announcement in relation to disclosure requirements, in addition to confirmation from the issuer? Q6: Do you agree with the proposal to amend the Listing Rules (at LR 5.6) to allow a premium listed issuer to have a modification within its track record when undertaking a reverse takeover, without rendering the enlarged group ineligible? Q7: Do you agree with the proposal to amend the Listing Rules (LR5.6) to follow the principles of our transfer provisions in the case of issuers acquiring targets which are also listed but in another category? Q8: Do you agree with the proposal to delete LR R allowing an issuer with a premium listing undertaking a reverse takeover, to be treated in certain circumstances as a class 1 transaction? 6

7 We agree with this proposal and the reasoning behind it. The derogation does not appear to be of practical use. Sponsors Q9: Do you support the proposal to amend the Listing Rules (LR8.2.1R(6)) so that for smaller related party transactions a premium listed company is required to appoint a sponsor for the purpose of providing the FSA with confirmation that the terms of the proposed transaction are fair and reasonable as far as shareholders are concerned? Yes, we agree that it would probably be sensible to make this is a responsibility of the sponsor. Q10: Do you support the proposal to amend the Listing Rules (LR 8.2.1R(7)) so that for Related Party Circulars a premium listed company is required to appoint a sponsor for the purpose of providing the FSA with confirmation that the terms of the proposed transaction are fair and reasonable as far as shareholders are concerned? Yes, we agree that it would probably be sensible to make this is a responsibility of the sponsor. Q11: Do you support the proposal to amend the Listing Rules (LR 8.2.1(9)) to require a premium listed company to appoint a sponsor to discuss with the FSA whether a suspension of the listing is appropriate, before announcing a reverse takeover (that has been agreed or is in contemplation or where details of the reverse takeover have been leaked)? Yes, we believe that any issuer contemplating the undertaking of a reverse takeover should have a sponsor appointed and that discussion with the FSA of whether a suspension of the listing is appropriate would be a key responsibility for the sponsor. Q12: Do you support the proposal to amend the Listing Rules (LR 8.2.1R(10) and LR8.2.1R(11)) so that where the target of a reverse takeover is not subject to a public disclosure regime, the premium listed company is required to appoint a sponsor in order to make a confirmations regarding the issuer s declarations, to the FSA? Q13: Do you support the proposal to amend the Listing Rules (LR8.2.1R(12)) to require a premium listed company to appoint a sponsor for the purpose of submitting the eligibility letter required as a result of a reverse takeover? Q14: Do you support the proposal to amend the Listing Rules (LR8.2.1R (13)) to require a sponsor to be appointed in relation to severe financial difficulty letters? 7

8 Q15: Do you support the proposal to amend the Listing Rules (LR8.2.1R(14)) to require a sponsor to be appointed in relation to the acquisition of a publicly traded company? As regards the target s annual consolidated accounts what matters to investors is comparability as far as possible with accounting standards as they apply in the UK i.e. IFRS as adopted in the EU and not the regulatory arrangements pertaining to the existing venue of trading or listing of the target company. Q16: Do you support the proposal to amend the Listing Rules in respect of the definition of sponsor services to include all sponsor communications with the FSA in connection with the sponsor service? Yes, and we agree with the FSA that the proposed extended definition should not impose an unreasonable burden on sponsors. Q17: Do you support the proposal to amend the Listing Rules (LR8.3.1R(1A)) so that a sponsor is required to provide any explanation or confirmation as the FSA reasonably requires for the purposes of ensuring that the Listing Rules are being complied with by an applicant or listed company? Yes, this is reasonable. Q18: Do you support the proposed amendments to the Listing Rules (LR8.3.1AR) in relation to sponsor communications and standard of care? Yes, this is reasonable. Q19: Do you support the proposed amendments to the Listing Rules (LR 8.3.2AG) in relation to sponsor communications that seek to reinforce the responsibility of the sponsor for communications with the UKLA, in instances where a sponsor relies on representations made by the listed company or applicant or a third party? Yes, this is reasonable. Q20: Do you support the proposal to amend the Listing Rules (LR 8.3.5BR) to introduce a Principle of Integrity for sponsors? Yes, we agree that this principle should apply to sponsors as it does to other authorised persons. We agree that this will not impose an additional burden for what we trust are the vast majority of sponsors who already operate to these standards. Q21: Do you support the proposal to amend the Listing Rules (LR8.3) to clarify that a sponsor must, as part of its ongoing conflicts checking procedures, take all reasonable steps to identify conflicts that could adversely affect its ability to perform its functions under LR8? Yes, this is reasonable. 8

9 Q22: Do you support the proposal to amend the Listing Rules (LR8.6.16) so that sponsors are required to retain accessible records which are sufficient to demonstrate the basis on which sponsor services have been provided? Yes, this is reasonable. Q23: Do you agree with the proposal to amend the Listing Rules (LR 8.7.8) so that sponsors are required to notify the FSA of matters that would be relevant to the FSA in respect to: market confidence; reorganisations; and, ongoing approval as sponsor? Yes, this is reasonable. Q24: Do you support the proposal to amend the Listing Rules (LR AG) so that sponsors are required to submit a cancellation request in the event that they are unable to provide the requisite assurance of ongoing eligibility? Yes, this is reasonable. Q25: Do you support the proposal to amend the Listing Rules (LR8.7 and LR G) so that sponsors are no longer required to submit Conflicts Declarations? We do not have a strong view. Retaining a belt-and-braces approach that specifically applies at the point of relevant transactions would still have merit. Q26: Do you support the proposal to amend the Listing Rules (LR8.6.17R and LR 8.7.8R(9)) so that sponsors are no longer required to carry out regular reviews? We think this is probably justified though we emphasise that the undertaking of reviews both on a regular and irregular basis are methods of checking that compliance is indeed being achieved on a continuous basis. Q27: Do you support the proposal to amend the Listing Rules (LR8.6.5R) to introduce a specific obligation on premium listed companies and applicants to co-operate with their sponsor to enable the sponsor to discharge its obligations to the FSA? Yes, this is reasonable. Q28: Do you agree with the proposed amendments set out in paragraph 3.45? Transactions Q29: Do you support the proposal to remove reference to revenue nature from LR R(3) and LR R of the Listing Rules? Yes, we think this is probably not a helpful reference and concur with its proposed deletion. However, it would be helpful to investors to have a better understanding of what transactions are captured by LR 10. 9

10 Q30: Do you support the proposal to amend the Listing Rules to dispense with the notification requirements for class 3 transactions by deleting LR 10.3 from the Listing rules? We agree that the notification requirements for Class 3 transactions can safely be dispensed in so far as they can be expected to duplicate obligations under the Disclosure and Transparency Rules. We strongly agree with the FSA s proposal to make clear that where issuers wish to make adjustments to the figures used in calculating the class tests because they believe a class test result might be anomalous under item 10G within Annex 1 of LR 10, they must discuss this with the FSA before the class tests crystallise. We strongly agree that, if the class tests are proposed to be calculated other than as prescribed by the Listing Rules, this must first be discussed and agreed with the FSA. We are not convinced with the stated rationale for proposing to amend the rule on the profits test in LR 10 Annex 1 4R to make clear that the test is not applicable for an acquisition or disposal of an interest in an undertaking that does not result in consolidation or deconsolidation of that target. It is not obvious why shareholders would be less concerned at a value commitment of 25 per cent by reference to the listed company in connection with an interest in an entity that is not controlled as compared to one that is. It would be preferable simply to rely on discretion of the Listing Authority to disregard any anomalous result. We think care needs to be taken over the concept that, for losses of the issuer and/or target, the profits test should still use the loss in the calculation and simply disregard the negative. It would be sensible if the FSA were to apply discretion in such circumstances. Q31: Do you agree that the proposed guidance on operation of our proposed new definition of break fee arrangements (LR and LR10.2.7) provides sufficient direction? Yes, we support this. Q32: Do you support the proposal to amend the Listing Rules (LR , LR and LR ) to require premium listed companies to send a supplementary circular to shareholders in the event a significant change or a significant new matter is considered to constitute necessary information? Yes, however we emphasise that it is important to send all relevant information to shareholders in the timeliest fashion possible. It is already challenging for institutional investors to consider the matter and lodge their votes under the current minimum timetable for EGM circulars. It is therefore not helpful to have new information provided after the date of publication of the original circular. Q33: Do you support the proposal to remove the reference to revenue nature from LR R of the Listing Rules? 10

11 Q34: Do you support our proposals in relation to directors indemnities and similar arrangements (LR10 and LR11)? Yes, we entirely agree with the FSA that the albeit potential triggering of the 25% Class 1 transaction threshold for this purpose would be a matter that shareholders would wish to control and that there is therefore no justification for providing an exemption under the class transaction regime for directors indemnities and similar arrangements. Q35: Do you agree with the proposed amendments to the Listing Rules (LR12.2, LR12.4 and LR13.7) in relation to the purchase of own equity shares? Yes, we agree that the distinction between general and specific authorities in this regard is right. Provided the full details are provided to shareholders of the proposed buy-back in excess of 15% that shareholders should be able to vote on this. However we believe that it is not sufficient for a transaction of this exceptional nature to be subject only to the passing of an ordinary resolution. The ABI guidance note on share repurchases has for many years stipulated that these should be sought by way of a special resolution and we believe the Listing Rules should specifically require this for exercises that go beyond the long-standing ceiling on repurchases that are not conducted by tender level i.e. pro rata to existing holdings. It is insufficient merely to require disclosure of the effects of this on concentration of existing holdings. Q36: Do you agree with the 0.5% threshold proposal (LR12.6.4R) requiring companies to announce any issue, sale or cancellation of treasury shares under an employee share scheme over 0.5% of a company s issued share capital (excluding treasury shares)? Yes, the rationale presented for the reduction in disclosure is reasonable and this seems to be a sensible formulation for what should instead be required. Q37: Do you support the proposal to amend the Listing Rules (LR13.1 and LR13.2) so that the circular must be posted to shareholders as soon as it has been approved and our proposals to require circulars to be sent to shareholders no later than seven days before the date of a meeting? Yes we agree, though we would again emphasise that it is already challenging for institutional investors to consider the matter and lodge their votes under the current minimum timetable for convening EGMs which require 14 days notice. Any new information provided 7 days before a meeting will for many institutional shareholders, if it justifies a change in voting decision, create considerable disruption and cost. Q38: Do you support the proposal to amend the Listing Rules (LR13.4.1R(4)) so that both the issuer and its directors will be referred to as taking responsibility for the contents of a class 1 circular? Yes, we agree with this proposal to ensure consistency with equity prospectuses. Q39: Do you support the proposal to remove the requirement (LR13.6.1R(7)) for listed issuers to include class 1 disclosures within a related party circular, in the event a transaction has a percentage ratio greater than 25%? 11

12 We are not convinced of the necessity to delete this rule which appears to ensure that relevant information is provided to shareholders. Financial Information Q40: Do you support the proposal to amend the Listing Rules (LR6.1.1R and LR6.1.1A) to reflect the FSA s current approach of not applying Chapter 6 where an existing premium listed company sets up a new holding company, provided that no transaction is being undertaken that would increase the assets or liabilities of the group? Yes, we would presume that obtaining shareholder approval for the restructuring would provide appropriate scrutiny. Q41: Do you support the proposal to amend the Listing Rules (LR6.1.3R(1)(b)) to limit the date of admission of the securities to listing to a date not more than 3 months after the date of the prospectus? We strongly support the intent here to reduce the risk of out-of-date financial information being used. The theoretical 18 month lag identified in the consultation paper is clearly unacceptable. The proposed formulation will in practice give a backstop date of between 3 and 9 months depending on when the prospectus is published within the applicant s reporting cycle. There will clearly be a difference in quality and relevance of financial information that is 9 months old compared to 3 months old and we encourage the FSA to look for ways to reduce the risk that securities are admitted on the back of a prospectus that is already out-of-date as regards financial information. Q42: Do you agree with the proposal to amend the Listing Rules (LR6.1.3R(2)) to remove the reference to auditors and focus on the independence of the person providing the opinion? Yes, we agree that the current specification is not appropriate and that the proposed change is warranted. Q43: Do you agree with the proposal to amend the Listing Rules (LR6.1.3AG) to include new guidance describing the types of modification to the opinion on audited accounts which may be acceptable to the FSA based on our current practice? Yes, we do not agree that any modifications to opinions in the nature of emphases of matter during the track record period should be seen as a regulatory bar to admission to listing. We are in favour of efforts to secure improvements in the level of information provided in audit reports and this will not be possible if modifications are of themselves treated as evidence of material deficiency in the financial position of the entity in question. It will still be important that modifications to audit reports are properly scrutinised and we agree with the proposal for guidance on this point. Q44: Do you support our proposals in the related rules and guidance on the sufficiency of the historical financial information (LR6.1)? Yes, we agree with the aim of giving greater clarity and transparency. 12

13 Q45: Do you agree with the proposed clarification of our approach in the Listing Rules (LR6.1.8R and LR6.1.11R) that if a mineral or scientific research company has not been operating for the required period of three years, it must have published or filed accounts since the inception of its business activities? Q46: Do you agree with the proposed clarification in the Listing Rules (LR6.1.12R) that a scientific research company must have proved its ability to attract funds from sophisticated investors prior to the marketing at the listing date? Q47: Do you agree with the proposed consequential amendments to the guidance (LR6.1.13G and LR6.1.14G) relating to the cases where the FSA can modify accounts and track record and the amendment to clarify that the guidance is only relevant to the accounts and track record requirements? Q48: Do you agree with the proposed new guidance in the Listing Rules (LR AG) clarifying that holdings of individual fund managers in an organisation will be treated separately, provided investment decisions with regard to the acquisition of shares are made independently? We agree. Holdings of portfolio managers, other than in exceptional circumstances, should be treated as in public hands so the treatment proposed for holdings within a group makes sense. Q49: Do you agree with the proposed new guidance in the Listing Rules (LR6.1.20BG) explaining that we consider that financial instruments that give a long economic exposure to shares, but do not control the buy/sell decision in respect of the shares, should not normally count as an interest for the purpose of the public hands threshold? Yes, it is important that such interests should not be counted towards the calculation of aggregate shares in public hands. Q50: Do you agree with the proposal to amend the Listing Rules (LR6.1.23R) so that a company s constitution and the terms of its shares must be compatible with electronic settlement, rather than requiring the shares to be settled electronically, or do you think we should delete the requirement altogether? We agree. Q51: Do you agree with the proposed amendments (LR13.4.7G) to the requirements for class 1 acquisitions of mineral assets? We have no particular comment. 13

14 Q52: Do you agree with the proposed amendments to the Listing Rules (LR 13.5), which detail the acceptable treatment for entities that have been or will be equity accounted or treated as an investment in the accounts of the listed issuer? We observe that equity accounting poses particular challenges in ensuring that the information relevant to investors is presented. Q53: Do you support the proposal to amend the Listing Rules (LR CR) so that, where financial information is required but cannot be provided in the appropriate form, a valuation report should be included in the class 1 circular? Q54: Do you find helpful the proposal to clarify in the Listing Rules (LR13.5.4R(2)) the exceptions to the rule that financial information in a class 1 circular must be prepared according to the accounting policies adopted in the issuer s latest annual consolidated accounts? Annex 3 We have no particular comment. Q55: Do you support the proposal to amend the Listing Rules (LR13.5.9AR) so that listed issuers are required to make specific disclosures in respect of synergy benefits? We agree that if disclosures are made in relation to synergy benefits the basis of the estimate should be disclosed in the manner proposed. We emphasise the importance, however, of ensuring appropriate protocols around what type of professional assurance should be required and we encourage the FSA to seek to be joined up with regard to Takeover Panel requirements. Q56: Do you agree with the proposal to amend the Listing Rules (LR ) to clarify that the financial information on companies acquired by targets should represent at least 75% of the enlarged target, or in the case of a reverse takeover 75% of the enlarged group? Yes, this is logical. Q57: Do you support the proposed amendments to the Listing Rules (LR R) to require financial information tables to detail the accounting policies used and that the accountant s opinion need only state that the table gives a true and fair view? We think that the accountant s opinion should detail in what respects the accounting policies are not consistent with the last published accounts. Q58: Do you support the proposal to amend the Listing Rules (LR R) relating to acquisitions of companies traded on overseas investment exchanges to allow the concession to apply where the FSA is satisfied as to the appropriateness of a particular investment exchange or MTF? 14

15 This is a more logical treatment though there is a case for being more restrictive as to the accounting regimes that would be acceptable in this regard. Q59: Do you agree with the proposal to include in the Listing Rules (LR AG) guidance as to the matters the FSA will consider and the timetable, when reviewing the appropriateness of a particular investment exchange or MTF? We have no special comment to make. Q60: Do you support the proposal to amend the Listing Rules (LR ) to allow certain modified opinions in financial information tables and require a positive assertion that the accounting policies are consistent? Q61: Do you support the proposal to amend the Listing Rules (LR ) to allow the issuer to choose whether to include interim and quarterly financials in a circular and the proposed amendments to LR R? Where interim half-yearly or quarterly financial numbers have been reported these should be disclosed in the circular together with any clarification that is needed as to consistency with previous accounting policies applied in the annual accounts. Where such data has been reported on an unaudited basis this status should be made clear. 3 Q62: Do you support the proposal to amend the Listing Rules (LR ) to amend the order of preference for the sourcing of disposal entity financial information and to allow the limited use of allocated financial information where such allocation is necessary and appropriately explained? Yes, and we agree that the FSA is right to disagree with arguments made that where the financial information for the disposal entity could not be sourced from the issuer s accounting records that no financial information should be required. Q63: Do you agree with the proposal to amend the Listing Rules (LR CR) so that in circumstances where accounting policies (or GAAP) may have changed, the FSA will require issuers to disclose the required financial information under both the old and new bases? As before, we would be interested to know how often the 75% rule above would be applied in practice. We have no special insight on how often the 75% rule would be applied in practice. Q64: Do you agree with the proposal to amend the Listing Rules (LR DG) in relation to the allocation of central costs to disposal entities to clarify that the concession applies only to non-operating costs such as interest and tax? 15

16 Q65: Do you agree with the proposal to amend the Listing Rules (LR13.5) relating to profit forecasts to clarify that the fact the profit forecast or estimate was prepared for a reason other than the class 1 circular does not itself indicate invalidity and that the phrase a significant part of the listed company group in LR (1)R should be interpreted as at least 75% of that entity? Q66: Do you agree with our proposal to delete LR G so that the requirements for profit forecasts are extended to class 1 disposals? Yes, this is appropriate. Externally managed companies Q67: Do you support the proposals to amend the Prospectus rules (PR 5.5.3) and the Disclosure rules and Transparency rules (DTR 3.1) to ensure the principals of the advisory firm are responsible (in addition to the company and its directors) for any prospectus the company publishes in the UK and to clarify that they are subject to transparency rules in their share dealings? Yes, we support this proposal. Q68: Do you support the proposals to amend the Listing Rules (LR6.1) so that commercial companies featuring this structure do not qualify for the premium listing accreditation? The CP is essentially seeking to require these companies to level up as regards governance protections but it also seeks to prevent these companies from being given a premium listing. We do not have a strong view on whether this belt-andbraces approach is necessary but we believe that at a minimum, one or other must apply and that such requirements should apply to all such entities whether they seek to list in future or are already listed. We note here that the FSA has recently, in its DP 12/1 on Implementation of the Alternative Investment Fund Managers Directive, proposed restricting eligibility for UK premium listed investment companies to those that are internally managed, i.e. to those that are the AIFM within the meaning of the Directive. It is not clear whether the thinking there was related to the wider question of externally-managed companies as being consulted on in this CP. In our response to DP 12/21 we conveyed our preliminary view that there is no compelling reason to introduce such a restriction for investment companies and that internally and externally managed investment companies can co-exist within the premium-listed category with choice of route being one for the companies concerned and their shareholders and prospective investors. We now take the opportunity to confirm that view. ABI 2/5/12 [s:\inv\consultations\fsa\fsa cp 12 2 lr 16