June 7, 2022 Will the FCA’s reforms hurt the AIM Market?
The Financial Conduct Authority (FCA) is consulting on its proposed reforms to make the Main Market of the London Stock Exchange and the UK more attractive to companies, but any reform that makes Main Market listing requirements simpler and more competitive could surely hurt AIM.
The FCA’s stated aim is to make it simpler for companies to be admitted to trade on the Main Market. The UK would as a result become more competitive post-Brexit by attracting new issuers and investors. The existing multiple listing segment model suggests a hierarchy within listed markets where one segment is considered superior to the other. The FCA’s reforms intend to remove the stigma around companies not taking a premium listing. They would also potentially allow all companies in the Main Market to participate in the FTSE indices.
The FCA proposes to achieve these outcomes by establishing a single listing segment for equity shares of commercial companies with:
• a new single set of eligibility criteria;
• a minimum set of mandatory continuing obligations to ensure an appropriate level of investor protection;
• the choice to adopt additional supplementary obligations, based on the existing continuing obligations for premium listed companies, to provide an enhanced role for shareholders in holding companies to account on an ongoing basis; and
• a sponsor to provide assurance, maintain standards, and protect investors.
Impact on AIM
The primary reason for having two listing segments was a result of EU minimum standards that were set under the Consolidated Admissions and Reporting Directive and the Transparency Directive. Elements of the existing premium listing regime have however acted as barriers to companies listing on the Main Market. For example, growth companies in the technology and bioscience sectors have been unable to meet the financial eligibility criteria of the existing premium listing segment and have instead been trading on AIM. It has been reported that AIM grew by 33 companies in 2021, its biggest increase since 2007. We have also seen evidence of AIM-listed companies having less of a desire to move to the Main Market, as the reputation and depth of AIM continues to grow.
However, the FCA’s reforms may encourage more companies to move from AIM to the Main Market (or to list on the Main Market initially). A single set of eligibility criteria and the removal of financial eligibility requirements could lead companies that are currently trading on AIM or were considering admission to AIM to opt for the Main Market.
The FCA faces a challenge to demonstrate that the proposed reforms are not really just a rebranding exercise with two regimes under a different name with a proposed minimum set of mandatory continuing obligations effectively being no different than the current standard listing obligations. It will also be a balancing act for the FCA to ensure that any less onerous eligibility and mandatory continuing obligations standards do not lead to fewer companies listing on the Main Market and result in less capital flowing into the UK.
Responses to the FCA consultation will be accepted until 28 July 2022. Elemental will continue to monitor the proposed reforms to the UK’s listing regime.