Editorial: Standard listing? Caveat emptor

The recent restructuring of the UK share listing regime by the Financial Services Authority has created a new hybrid category on the London Stock Exchange. It is called a ‘standard listing’.

Some witty financial wags have labeled it a ‘sub-standard listing’ – and with good reason.

The rules dictating which companies and instruments could list in London were altered in October, with the stated intention of improving the City’s competitive position as a leading financial centre. Basically, the FSA decided (under pressure from EU law) that British businesses should be given the same options that other EU companies claim in London.

Up until then, non-UK European companies could claim a ‘secondary’ listing on the Main Market, gaining the full benefit of exposure to London’s financial offerings without many of the obligations that a primary listing would entail. So far, so boring. But, following the change, Main Market UK companies can now apply for either a ‘premium listing’ or a ‘standard listing’. Ambitious smaller ventures launching onto the Main Market for the first time can make the same choice.

Just in case you weren’t aware, companies that boast a premium listing must have a sponsor (which rigorously supervises them) and a three-year trading record, and they must adhere to the UK’s ‘premium’ or ‘super-equivalent’ rules and standards, meeting the highest standards of regulation and corporate governance. By doing so, they can expect the highest level of confidence from investors.

However, the standard listing, by its very nature, is designed to be less onerous. A standard-listed company requires neither a sponsor nor a nominated adviser (nomad); nor must it show a three-year trading record. All it must do is meet a far less onerous ‘harmonised’ benchmark as set out by an EU minimum standard directive.

The longer one looks at this change, the harder it becomes to see any merit in it. For a start, growing businesses wishing to raise money and float in London (and which don’t wish to meet the financial and resource demands of a premium listing) already have an option. It’s called AIM – the most successful growth market in Europe.

AIM already boasts lighter regulation and the legal and financial flexibility that smaller companies require, plus tax breaks to reward risk. AIM’s biggest selling point for investors is its nomad system. Nomads explain and interpret market regulations for AIM companies and make sure these are adhered to. They also have a legal obligation to ensure that a business they float or act for is suitable for public markets – and remains so.

Standard-listed companies don’t need sponsors or nomads. As Donald Stewart, a partner at Faegre & Benson and chairman of the Quoted Company Alliance, points out ‘absolutely anybody can float a company for a standard listing, and technically, companies can even float themselves’.

At a time when the FSA has been trying to enforce greater transparency in the financial sector in general, and sharpen the nomad system in particular, he finds this latest listing development ‘all rather bizarre’.

The unintended consequences of the recent changes are many. The first is the general confusion over what a standard listing option adds to the London market.

The second, more alarming, consequence is that the new regime looks likely to threaten AIM’s role as the market of choice for entrepreneurs and fundamentally weaken investor protection. Why go to AIM when there is an easier option on the ‘Main List’.

It also opens up the possibility that nomads might encourage less reputable clients to ‘move up’ to a secondary listing, releasing the nomad of its legal responsibilities.

Of course, we now have a situation whereby a financial advisory firm that didn’t achieve nomad status because it couldn’t pass regulatory muster can nevertheless run roughshod over this rejection and float a company on the market anyway via a standard listing.

And as for a company self-certifying and floating itself – or sacking its diligent nomad and going it alone on the Main List – well, the mind boggles. At heart, a standard listing is a rather silly mistake from an organisation very prone to them. But it’s a dangerous one too, especially for everyone at AIM. Standard shares listing? Caveat emptor.