Standards slip with FSA’s listing regime

September 28, 2009

Just as the head of the UK’s Financial Services Authority is warning against the dangers of allowing competition to drive regulation, the watchdog has approved a new set of listing rules which do just that.

After more than 18 months of consultation, the FSA has adopted the new structure for the Listing Regime — the rules dictating which companies and instruments can be listed on the London markets. Its decision boils down to adopting the lowest common denominator, under the banner of simplicity.

Having spent years inviting companies from all over the world to raise capital in the London markets — waiving many of the rules that would apply to more established British companies — the FSA has decided that British firms need a level playing field and should be given the same treatment that other European Union companies can claim in London. This change takes effect next month.

The new second-tier listing bucket will include equities — excluding those issued by investment entities — Global
Depository Receipts (GDRs) and debt and securitised derivatives which are only required to comply with EU minimum requirements.

It is hard to think of a worse time for watering down the rules. Given that one of the main drivers for the review was to preserve London’s competitive position in the face of companies going elsewhere to list, the timing of the announcement seems extraordinary.

The wider changes come into play from next year, when getting a once prestigious London listing will become like choosing a plane ticket. Companies will be able to opt for either a Premium or Standard listing. The Premium ticket — open to equity securities issued by commercial companies and closed and open-ended investment entities — will have to meet the UK’s super-equivalent standards, which the FSA points out are higher than the EU minimum requirements.

In many ways this amounts to little more than a lengthy relabelling process, which probably won’t change a great deal. Nevertheless, it is hard to see what the new approach is designed to achieve. After all, companies that want to raise equity in London without meeting the demands of the listing regime can already opt for the Alternative Investment Market.

At its worst, the FSA’s move undermines the rights of investors at the precise moment when companies that no longer have access to the debt markets and are in a precarious financial position are most likely to seek a stock market listing.

Now they will be able to do so without the inconvenience of having to jump through the hoops that gave investors peace of mind in the first place.

While the FSA is beefing up some of the requirements for overseas companies with a Premier listing in London, not much else changes as a result of the new rules. The FSA hopes that the exercise will result in greater clarity for all. But any company which opts for the new Standard listing should be immediately suspect. Investors should give it a wide berth.

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