Michael Harris, a partner at London-based law firm Howard Kennedy, looks at what the changes will mean for listed companies.

At first glance, the changes being introduced to listings on the LSE might appear little more than cosmetic, with the existing categories of “primary” and “secondary” listings set to be replaced with “premium” and “standard” listings. But this is more than just a name change.

At present, companies with a primary listing are subject to the full gamut of the Listing Rules which, for many smaller and medium-sized enterprises (SMEs) can be considered onerous and expensive. Hence the role of secondary listings, which are currently only available to overseas companies and where the listing requirements are considerably less stringent.

For most fully listed companies, the change from a primary to a premium listing will not involve significant changes to the Listing Rules, though it will become easier for such companies to “downgrade” to standard status. There will be some tightening of the treatment of premium listed companies from outside the UK, which will now come under the Combined Code on Corporate Governance. It has also been proposed to apply pre-emption rights to shareholders of such companies on new issues for cash; there is continuing consultation on this.

More significantly for SMEs, the new standard category, unlike the old secondary listing, will be available to UK companies. Indeed, as a transitional measure, the restriction preventing UK companies from to applying for a secondary listing has already been removed. Standard listing will not be available for investment companies.

The standard listing obligations are based on EU minimum standards. There is no need for a published three-year trading record, so that new companies may apply; the 12-month working capital statement can be dispensed with; and the company does not require a sponsor. In addition, no shareholder approval is required for significant or related-party transactions, there are no pre-emption rights for non-UK companies, and restrictions on directors’ dealings do not apply (however, notification requirements under the Disclosure and Transparency Rules and applicable UK legislation do).

The new regime will increase flexibility for the London market, providing more options for SMEs either to downgrade to standard (requiring a 75 per cent resolution from shareholders but no new application to the UKLA) or, for new applicants, by offering a simpler and cheaper route to listed status. Nevertheless, it is likely that most listed companies will wish to retain a premium listing to maintain profile and eligibility for market indices, important factors for liquidity.

For AIM companies, however, or for new applicants considering a European exchange as an alternative to London, the new standard listing may be more attractive. Compared to AIM, a standard listing requires no 12-month working capital statement, no sponsor or nomad is needed, and there is a lighter regime for significant and related-party transactions.

Even before these changes come into effect, the immediate availability of a secondary listing for UK companies will give an early indication of how popular the new standard listing is likely to be. The effect of the changes will be watched with interest.