Bulletins | January 29, 2018

LSE’s review of the AIM rules – Feedback statement

As reported in our Autumn 2017 In Counsel, in a call for evidence published on 11 July 2017, the London Stock Exchange (LSE) sought feedback on certain key areas of the AIM Rules for Companies (the AIM Rules) and the AIM Rules for Nominated Advisers.

On 11 December 2017, the LSE published a feedback statement setting out an overview of the responses received and where amendments are proposed:

New early notification process for nominated advisers (nomads) bringing companies to market

Following strong support for this proposal, changes to AIM Rule 2 are proposed to introduce a formal requirement for early notification.  Whilst the initial communication will be before the submission of the Schedule One form, its exact timing is to be at the nomad’s discretion.  The information required to be disclosed is to be published on a template which will be available from the LSE’s website.  The LSE has made clear, however, that early notification neither diminishes nor substitutes a nomad’s obligations to the LSE to be satisfied about an applicant’s appropriateness nor the nomad’s ongoing obligation to update the LSE on any new information or any changes of circumstances that arise during the admission process.

The benefit of this change is not that there is to be an evaluation of new market entrants, but that the LSE is creating a structure for that. There have been circumstances before where the LSE has not communicated this well and may face claims of caprice. The LSE makes it clear that AIM is its market and no company has a right to be admitted.

LSE guidance on suitability factors

There was overwhelming agreement that providing such guidance would be helpful with respondents stating that increased certainty would be created by providing a set of non-exhaustive examples.  Accordingly, a non-exhaustive list is proposed to be incorporated in Schedule Three to the AIM Rules for Nominated Advisers.  It should be noted that, simultaneously, changes to AIM Rule 9 are also being proposed to emphasise the LSE’s discretion to refuse admission. The greater clarity is welcome.

No few float requirement

In its call for evidence, the LSE garnered opinion over whether a free float requirement would be beneficial. The answer was clear: companies and the professional ecosystem around those companies do not want such prescription for a flexible SME growth market.

Whilst the LSE contended that a free float requirement would increase certainty about a company’s financial resources and the support of recognised institutions would provide confidence to the wider market about the company’s governance and business model, on balance, respondents were not in favour of this proposed change, nor did they support applying a threshold solely to non-revenue generating companies.

New obligation to clearly follow a recognised corporate governance code

The LSE’s view is that companies benefit from adopting appropriate governance measures, and recognise that, to be effective, these measures should be tailored to a company’s individual requirements and take into account its particular stage of development. Codes provide a helpful point of reference and measurement. The upgrading of the current AIM Rule 26 governance disclosure to a governance requirement was largely supported by respondents who stated that the current principles-based approach provides flexibility and is not disproportionately burdensome or costly, which is a key consideration for small and medium growing companies. A majority of respondents were of the view that it would be beneficial to require AIM companies in their existing AIM Rule 26 disclosures to comply or explain against a recognised industry code, such as the UK Corporate Governance Code, the QCA Code or the AIC Code. Accordingly, AIM Rule 26 is to be upgraded to require up to date ‘comply or explain’ qualitative disclosures. The codes themselves require annual updating through the corporate governance statement from the company board chair.

Consequential amendments are also being proposed to Schedule One and Schedule Two of the AIM Rules.

Responses to the LSE’s conclusions are requested by 29 January 2018.