UK seeks to close the back door to foreign listings

The UK has become something of a haven for large natural resources companies seeking new capital and access to a liquid equity market. The trend has become so pronounced that using the famous FTSE-100 index as a benchmark of anything to do with Britain is somewhat suspect. Moreover, some of the entities listing have been coming in the back door. They allow themselves to be "acquired" by a company that's already listed – perhaps an inactive shell – through an exchange of shares that leaves the original owners still very much in control even if the companies don't really meet the normal listing standards for free float and open control. The Financial Services Authority has been mulling what to do about it for a while and has now produced a long consultation paper, seeking to set the policy before the FSA itself demerges. Its UK Listing Authority wants to close the back door by tighten the definition of reverse takeovers. "In order to prevent use of the reverse takeover regime as a 'back-door' route to obtaining a listing, we are proposing to narrow this exemption so that only acquisitions by a listed issuer of another listed issuer in the same listing category will not be treated as a reverse takeover." That won't of its own stop foreign listings – that's not the aim of the rule anyway. But it will prevent a foreign company that doesn't quality for premium listing to achieve premium status without premium performance on governance and disclosure.

Sponsors: The UKLA also wants to tighten the rules concerning firms that sponsor listed companies. Usually investment banks or stockbrokers, these firms play the role of advising listed companies on how the market works. The UKLA wants to add a few layers of responsibility to the mandate. One is particularly noteworthy: "we propose to introduce a specific Principle for Sponsors that will require sponsors to act with honesty and integrity in relation to a sponsor service." Who would every have thought of that?

Source document: The FSA consultation paper is a 173-page pdf file.