New 20% exemption rule change for Main Market listings

July 19, 2017

On June 30, 2017, the final text of a new EU regulation (the “Prospectus Regulation”) was published. This will replace, on a phased basis, the Prospectus Directive (2003/71/EC) and the existing Prospectus Regulation (809/2004).  The Prospectus Regulation applies to “regulated markets” – in the UK, the LSE Premium and Standard markets, but not the LSE’s AIM market.

The majority of the Regulation’s provisions will apply from July 21, 2019. However, two provisions will apply immediately (from July 21, 2017):

  • Subsequent share issuances:  an exemption to the requirement for a prospectus, so long as the new shares represent up to 20% of a class already admitted to trading over a rolling 12-month period. This is an extension of the current exemption under which issuers can issue capital representing less than 10% of a class already listed.
  • Convertible securities:  a new cap on the exemption to the requirement for a prospectus regarding the admission to trading of shares resulting from conversion or exchange of other securities (e.g. convertible bonds) or from the exercise of rights conferred by other securities. This exemption will only apply where such shares represent less than 20% of the number of shares of the same class already listed. Currently, there is no limit on shares issued as a result of conversion.

For UK companies, the ability to issue more securities without a prospectus is likely to be most relevant in the context of consideration shares issued in M&A transactions. This is because the company would need to disapply pre-emption rights if they were to issue 20% of share capital on a non pre-emptive basis.  In addition, institutional investor requirements may place further limits for new issuances on a non pre-emptive basis.

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