If you would like to know more, please follow this link to the Becoming listed on the LSE is a complicated process. The London Stock Exchange listing rules that must be fulfilled before a company can 'go public' follow.
The process of floating a company and their ongoing regulation is controlled by the UKLA (UK Listing Authority) which is a part of the FSA. The UKLA's listing requirements include:
Directors must sign a listing agreement which commits the board to high standards of behaviour and reporting levels to shareholders.
The directors must prepare a prospectus (known as listing particulars) to potential investors.
At least 25% of the share capital must be in the hands of the public so that the shares can be actively traded and remain reasonably liquid.
The company should have at least three years of accounts.
The company needs a sponsor (bank, stockbroker or other professional adviser) to guide and advise and to reassure the UKLA that the company is of sufficient quality.
Once listed on the London Stock Exchange, the company and directors have continuing obligations, which include:
Giving the market any price sensitive information as quickly as possible.
To undertake to disclose information fully and accurately.
The directors must follow strict guidelines relating to the buying and selling of their own shares in the company.
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Obviously, these aren’t the full London Stock Exchange listing rules – I don’t want to bore you!! But they do offer a guide as to what is required of companies hoping to list on the main market.
The rules were updated substantially during the 'Big Bang' in October 1986, although the real impact of those changes was to make London much more friendly for the big international investment banks.
It may go without saying, but when a company is floated on the market it will soon find itself quoted in the relevant part of the index. This is based on total market capitalisation and not on length of tenure. Since the index participants are updated quarterly, a company would then be moved into the appropriate index (the FTSE 250 for example). A smaller company with a lower market cap will make way for the entry of the new, larger firm.
This means that a newly listed company can be placed into the FTSE 100 relatively quickly if it is large enough.
One of the attractions of the Alternative Investment Market, AIM, is that their requirements for public listing are significantly less onerous and therefore less costly. This helps to attract younger and more rapidy growing companies to market.
In recent years, the Alternative Investment Market has attracted a number of smaller Russian companies wishing for a public listing. This is in part because of the influx of oligarchs to the UK. It also ought to serve as a potential warning to investors of the reporting standards on this market. Russian oligarchs have not created a reputation for transparency!
Whilst there will always be the potential for issues of trust to come to the surface in a large and well established plc, the risks to an investor grow significantly as the size and age of the company concerned get smaller. Investment research is a must for all investors, but the phrase caveat emptor applies even more for a smaller, newly listed company.
If you would like to read more about the requirements for a listing in London, please follow this link to the United Kingdom Listing Authority website.
A public company is defined as one that seeks finance from the investing public. This means that private companies are forbidden from raising capital in the same way. In fact, a Limited company in the UK can have a maximum of 20 shareholders.
By listing on a stock
exchange, a company's securities (shares, debentures etc) are freely
marketable. This makes them more attractive to the initial investor.
The Financial Services Authority is considered the competent authority to decide on admission to the Official List. On 1st May 2000, this role was transferred from the London Stock Exchange. The rules of a number of EU directives are combined to give power through the Financial Services and Markets Act 2000.
Every security must have published and have had approved either a prospectus or listing particulars. It is generally a prospectus which is required. There are 20 circumstances under which a prospectus is not required and some examples include:
shares offered as bonus shares for free to existing shareholders
where an offer is made to a maximum of 50 people
offers are targetted at employees, former employees and their children
The London Stock Exchange listing requirements lay down rules for the content of a prospectus. These rules will vary for different types of company and industry.
Other important conditions which must be satisfied prior to listing include:
three years of accounts must be available
the anticipated market value of all securities which are to be listed on the London stock exchange must be at least:
a) £700,000 for shares
b) £200,000 for debt securities
Why Not List?
It must be obvious to the reader that these rules would enable a very large number of companies to list! An anticipated market value of over £700,000 is not really all that large in the grand scheme of things. There are lots of internet start-ups with no revenues to speak of that could qualify on hope alone...
If this is the case, why don't more companies list? There are actually several reasons. Firstly, not every company founder and owner has a grand dream for the company that would involve raising capital and - let's be honest - losing some degree of control.
Secondly, the administration costs to run the company would increase very substantially. It is widely believed that the cost to issue an annual statement that complies with the rules governing firms quoted on the FTSE, and hold that AGM and other time consuming acts (meeting brokers and analysts for example) is over £100,000 per year for an average sized company.
Thirdly, most smaller company management teams would probably not be either willing or able to step into the shark infested waters that the stock market can be. The sudden burden of quarterly calls with investment banks, lunches with brokers and analysts and pressure to perform and grow every quarter is not one that many people would relish!
Also related to this subject are:
Learn More About The London Stock Exchange
London Stock Exchange History
London Stock Exchange Liquidity
London Stock Exchange Stockbrokers
London Stock Exchange Stockbroker Charges
London Stock Exchange - Alternative Investment Market
London Stock Exchange SETS