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ICSA Shares Conference July 2016

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ICSA Shares Conference July 2016

  1. 1. The ICSA Shares Conference 2016
  2. 2. Introduction Peter Swabey FCIS Director of Policy and Research, ICSA
  3. 3. The Investment Association’s Productivity Action Plan Andrew Ninian, Director, Corporate Governance and Engagement 7/18/2016 3 14 July 2016
  4. 4. THE UK’S PRODUCTIVITY PUZZLE WHAT IS THE SCALE OF THE ISSUE? Productivity Action Plan 4 1
  5. 5. The UK’s productivity growth remains 16% below its pre-2008 trend rate, and behind the G7 average THE UK’S PRODUCTIVITY GAP Productivity Action Plan 5 60 70 80 90 100 110 120 GDPperhourworked UK G7 Ave. Pre-2008 trend Source: OECD: Office for National Statistics
  6. 6. … WHEN COMPARED WITH THE G7 … The UK is behind all but Japan in GDP per hours worked, and others are increasing the gap Productivity Action Plan 6 60 70 80 90 100 110 120 130 140 Canada France Germany Italy Japan US GDPperhourworked 2010 2011 2012 2013 2014 UK at 100 Source: OECD: Office for National Statistics
  7. 7. GOVERNMENT RESPONSE Productivity Action Plan 7 Fixing the foundations: Creating a more prosperous nation (2015) “Productivity will not be transformed overnight, but reforms will deliver a step change that can realise both the aspirations of working people, and the ambition that our children’s lives will be better than our own.” - George Osbourne, Chancellor of the Exchequer
  8. 8. ROLE OF LONG-TERM INVESTMENT RESPONDING TO GOVERNMENT Productivity Action Plan 8 2
  9. 9. THE RESPONSE OF ASSET MANAGERS Letter to the Chancellor: • A group of our members wrote to the Chancellor, supporting the Chancellor’s commitment to address UK competitiveness and productivity. • Letter acknowledged the important role that Asset Managers play in supporting productivity improvements through long-term investment. • Committed the Investment Association to develop an Action Plan. The Investment Association: • The Investment Association represents the UK investment management industry. • Our members manage over £5.5 trillion of assets on behalf of UK and overseas clients - about 30% of the UK stock market. Productivity Action Plan 9
  10. 10. UK investment as a proportion of GDP has declined since 2001, and is behind other G7 members NEED FOR GREATER LONG-TERM INVESTMENT Productivity Action Plan 10 Source: Office for National Statistics, 2014 10 12 14 16 18 20 22 24 2001 2003 2005 2007 2009 2011 2013 CapitalInvestmentasaproportionofGDP Canada France Germany Italy Japan USA UK Trend (UK)
  11. 11. LONG-TERM INVESTMENT AND PRODUCTIVITY Increasing productivity requires long-term investment in infrastructure, factories and equipment, research and development and real estate. However, the UK's post-financial crisis regulatory framework is not well-structured to facilitate long-term investment. Improving the availability of and access to long-term investment would contribute to confidence, job creation and business investment, from an SME raising money to invest in new machinery to multibillion pound infrastructure projects. Productivity Action Plan 11 Increased shareholder value Improvements in Productivity Confidence and Job Creation Long-term investments
  12. 12. DEVELOPING OUR RESPONSE REVIEW FRAMEWORK AND PRINCIPLES Productivity Action Plan 12 3
  13. 13. METHODOLOGY Investor-led: • Intellectual stewardship and guidance was provided by an industry Steering Committee made up of CEO’s and senior fund managers of some of the largest investors in the UK • The Steering Committee was tasked with developing a framework for considering the key components of, and challenges to, long-term investment • Considered how the industry can play a vital role in helping businesses to drive sustainable long term returns • No single silver bullet, there needs to be improvements across the investment chain Productivity Action Plan 13 STEERING GROUP MEMBERS Nick Anderson Head of Investment Research Henderson Global Investors Richard Bruxton Chief Executive Officer Old Mutual Global Investors Elizabeth Fernando Head of Equities USS Investment Management Simon Fraser Chairman The Investor Forum Simon Gergel Chief Investment Officer UK Equities Allianz Global Investors William Gilmore Head of Private Equity Aberdeen Asset Management Trevor Green Head of UK Equities Aviva Investors Jessica Ground Global Head of Stewardship Schroders George Luckraft Senior Portfolio Manager AXA Investment Managers James Macpherson Co-Head of UK Equities Blackrock Helena Morrissey Chief Executive Officer Newton Investment Management Rod Paris Chief Investment Officer Standard Life Investments Iain Richards Head of Responsible Investment Columbia Threadneedle Andrew Sentence Senior Economic Adviser PwC Mark Zinkula Chief Executive Officer Legal & General Investment Management
  14. 14. IMMEDIATE ISSUES AND CHALLENGES • How do we define ‘productivity’? • ROCE? Efficiency? Profitability? • Defining capital base – consistently? • Cost of capital? Hurdle rates? • Access to capital – debt and equity. • Investors’ time horizon. • Regulators and unintended consequences. Productivity Action Plan 14
  15. 15. INVESTOR PRODUCTIVITY PRINCIPLES Productivity Action Plan 15 Enhance company reporting for efficient capital allocation Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy. Enhance investor stewardship and engagement The investment industry will engage with companies to help them achieve sustainable value creation over the long- term and support investments in improved productivity. Simplify behavioural incentives and the investment chain The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives. Develop efficient and diverse capital markets As key capital market participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets. Overcome tax and regulatory impediments to support the provision of long-term finance The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients. “A set of fundamental principles that seek to define an ideal framework for how investors can contribute to productivity improvements”
  16. 16. REVIEWING THE CAPITAL CYCLE Barriers and impediments: • Unequal treatment of DB and DC schemes. • Solvency rules leading to excessive de-risking. • Mandates not always aligned with long-term approach and stewardship. • Quarterly reporting encouraging short-termism and lacking focus on productivity. • Executive remuneration creating perverse incentives and not linked to the long-term interests of the business. • Tax-debt bias in funding structures leading to financial stability risks. Productivity Action Plan 16
  17. 17. THE PLAN TURNING PRINCIPLES INTO ACTION Productivity Action Plan 17 4
  18. 18. PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION Productivity Action Plan 18 SUPPORTING PRINCIPLE Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy. REC 1 IMPROVE REPORTING AND RESEARCH ON PRODUCTIVITY AND REFOCUS ON LONGER- TERM STRATEGIC DRIVERS Seek clearer articulation and measurement of the long- term drivers of productivity and work with companies to develop appropriate Key Performance Indicators Call for the provision of increased Longer-Term and Thematic Investment Research. Issue a Public Position Statement calling for listed companies to cease quarterly reporting and refocus on a broader range of strategic issues.
  19. 19. PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION Productivity Action Plan 19 SUPPORTING PRINCIPLE Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy. REC 2 IMPROVE REPORTING ON CAPITAL MANAGEMENT AND CLARIFY INVESTOR EXPECTATIONS OF CAPITAL MANAGEMENT Work with companies to improve how they articulate their capital management strategy and reporting of outcomes. Develop an investment industry Public Position Statement on how investor engagement can support and challenge company capital management decisions. Encourage the FRC’s Financial Reporting Lab to undertake a project to develop best practice guidance on the consistent disclosure of a company’s cost of capital.
  20. 20. PRINCIPLE ONE: ENHANCE COMPANY REPORTING FOR EFFICIENT CAPITAL ALLOCATION Productivity Action Plan 20 SUPPORTING PRINCIPLE Through investment and analytical expertise, the investment industry will seek to identify and finance those companies contributing productive growth in the economy. REC 3 IMPROVE REPORTING ON CULTURE, HUMAN CAPITAL AND ACCOUNTING FOR INTANGIBLES Raise the profile of Human Capital Management as a material investment consideration and promote better company reporting to facilitate enhanced investor analysis. Engage with the IASB to expedite its research on accounting for intangible assets. Support the work of the FRC’s Culture Project.
  21. 21. PRINCIPLE TWO: ENHANCE INVESTOR STEWARDSHIP AND ENGAGEMENT Productivity Action Plan 21 SUPPORTING PRINCIPLE The investment industry will engage with companies to help them achieve sustainable value creation over the long term and support investments in improved productivity. REC 4 MORE FORMALLY INCORPORATE A FOCUS ON LONG TERM VALUE CREATION AND PRODUCTIVITY INTO ENGAGEMENT PRACTICES Seek wider support and financing for the work of the Investor Forum by launching an independent membership fee. Support asset managers in the public reporting of stewardship activities.
  22. 22. PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN Productivity Action Plan 22 SUPPORTING PRINCIPLE The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives. REC 5 ENSURE THAT THE RELATIONSHIP BETWEEN ASSET OWNERS AND INVESTMENT MANAGERS IS GOVERNED IN WAY THAT DOES NOT INADVERTENTLY EMBED A SHORT TERM FOCUS Work with the pensions regulator, the PLSA, and investment consultants to develop best practice guidance on how stewardship and long term incentives can be better incorporated into the Statement of Investor Principles and Mandate design. Investment consultants are encouraged to issue public position statements describing how their activities support the provision of long-term investment approaches and stewardship in mandate design and performance evaluation.
  23. 23. PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN Productivity Action Plan 23 SUPPORTING PRINCIPLE The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives. REC 6 CONSIDERATION OF HOW GREATER OPPORTUNITIES FOR LONG TERM INVESTMENT CAN BE MADE AVAILABLE TO INVESTORS IN DEFINED CONTRIBUTION SCHEMES Establish a working group of key stakeholders to consider the key regulatory and market barriers to creating a Direct Contribution investment environment more suited to long term investment.
  24. 24. PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN Productivity Action Plan 24 SUPPORTING PRINCIPLE The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives. REC 7 FOSTER IMPROVED UNDERSTANDING OF THE INVESTMENT HORIZONS OF INVESTMENT MANAGERS Examine methodologies for calculating average holding periods with a view to developing a standard approach across the industry.
  25. 25. PRINCIPLE THREE: SIMPLIFY BEHAVIOURAL INCENTIVES AND THE INVESTMENT CHAIN Productivity Action Plan 25 SUPPORTING PRINCIPLE The investment industry will work to ensure that the agreed incentives and governance of the investment chain ensure a clear alignment with clients’ long-term investment objectives. REC 8 ENSURE THAT EXECUTIVE REMUNERATION STRUCTURES ARE ALIGNED TO LONG-TERM DECISION MAKING Consider the findings of the Executive Remuneration Working Group’s review of executive remuneration structures and launch an extensive programme of engagement with listed companies.
  26. 26. PRINCIPLE FOUR: DEVELOP EFFICIENT AND DIVERSE CAPITAL MARKETS Productivity Action Plan 26 SUPPORTING PRINCIPLE As key participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets REC 9 ENCOURAGE EQUITY INVESTMENT AND IMPROVE THE EQUITY OFFERING PROCESS Develop earlier engagement between institutional investors and small and mid-size early stage pre-IPO companies. Engage with the European Commissions on the proposed Prospectus Regulation. Lower the cost of issuing capital and removing the information asymmetry that exists at the expense of investors. Engage with key stakeholders to improve and support the efficiency of the secondary market capital raising process whilst maintaining investor protections.
  27. 27. PRINCIPLE FOUR: DEVELOP EFFICIENT AND DIVERSE CAPITAL MARKETS Productivity Action Plan 27 SUPPORTING PRINCIPLE As key participants, the investment industry has a key role in the development of asset classes and the efficient functioning of capital markets REC 10 ENSURE THE EFFICIENT OPERATION OF MARKETS FOR OTHER ASSET CLASSES TO ENSURE THE PROVISION OF DIVERSE CAPITAL MARKETS Continue to engage with the European Commission non the proposed Prospectus Regulation to promote the key priorities of asset managers for non-equity securities Promote a more efficient new issuance process in fixed income markets and aide secondary market liquidity through the use of clear terminology and definitions. Promote appropriate behaviours and investor expectations in fixed income markets and support the work of the FMSB and FCA Debt Markets Forum. Develop and promote guidelines for Housing Associations raising capital in public markets. Work with the UK Municipal Agency to promote the development of a UK municipal bond market and highlight the interest of investors in this sector. Support on-going work to develop European Private Placements and the revival of the securitisation market in the UK and Europe.
  28. 28. PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO THE PROVISION OF LONG-TERM FINANCE Productivity Action Plan 28 SUPPORTING PRINCIPLE The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients. REC 11 ENSURE THAT SOLVENCY AND PRUDENTIAL REGULATION DOES NOT INADVERTENTLY IMPEDE INVESTMENT MANAGERS FROM INVESTING IN A MANNER CONSISTENT WITH THEIR CLIENTS’ LONG-TERM INTERESTS Encourage the FCA to undertake a thematic review of whether the approach to market risk in prudential and conduct regulation is resulting in investment decisions that are consistent with the long-term investment objectives of clients. Convene a multi-stakeholder Working Group to review the extent to which current accounting standards and solvency and prudential regulatory requirements may be resulting in excessive de-risking by insurers and pension funds and impeding the provision of longer-term forms of finance.
  29. 29. PRINCIPLE FIVE: OVERCOME TAX AND REGULATORY IMPEDIMENTS TO THE PROVISION OF LONG-TERM FINANCE Productivity Action Plan 29 SUPPORTING PRINCIPLE The investment industry should contribute to the debate on the tax and regulatory impediments to investment so as to ensure the right long-term outcomes for clients. REC 12 REVIEW THE CAUSES OF “DEBT-BIAS” AND ITS EFFECT ON FINANCIAL STABILITY AND PRO-CYCLICAL DECISION-MAKING Undertake a comprehensive review of why companies favour funding through debt rather than equity.
  30. 30. EXAMPLE OF IMPLEMENTATION: LONG-TERM REPORTING GUIDANCE Companies Working Group to develop guidelines B Investors Institutional Voting Information Service (IVIS) Review Annual Reports for adherence to published Long- Term reporting guidelines and to measure progress. Evaluate Conduct periodic reviews to assess impact and whether adjustments are needed Consultation Education Implementation Review Productivity Action Plan 30 Guidelines issued Briefings/ Blogs Investors raise issues Sent to Companies Direct engagem. Regulate IVIS Reports Continue Adjust
  31. 31. CONTACT: Andrew Ninian, Director, Corporate Governance and Engagement - Andrew.Ninian@theia.org David McCarthy, Productivity Action Plan Analyst - David.McCarthy@theia.org 31
  32. 32. Market Abuse Regulation (“MAR”) ICSA Shares Conference 2016 James Poole, Manager, Capita Company Secretarial Services
  33. 33. 33 Agenda • Welcome & Introduction • Post MAR world • Brief overview of the impact of MAR • Focus on: - Share dealing and closed periods - PDMR/ PCA transactions - Impact on share plan transactions • Panel discussion & questions
  34. 34. The post MAR world… 34 3 July 2016: MAR Brexit Political fall out Iceland beat England
  35. 35. 35 Brief overview: The good news Definition of inside information remains largely the same Potentially increased flexibility to delay disclosure FCA confirmation that approach to ‘closed periods’ ahead of prelims can continue
  36. 36. 36 Brief overview: The bad news Changes to regime on dealing by PDMRs Administrative burden increased significantly
  37. 37. 37 Brief overview: Uncertainties Delay in finalising implementation measures and guidance has resulted in rushed implementation Uncertainty on guidance from regulators raises questions on the acceptability of established market practice Relevant rules and guidance have become more dispersed and harder to locate
  38. 38. Key elements of the definition of Inside Information have not changed: 38 Brief overview: Inside Information and delaying disclosure Inside Information
  39. 39. Issuers can still delay disclosure subject to certain conditions: 39 Brief overview: Inside Information and delaying disclosure Delayed disclosure permitted Likely to prejudice legitimate interests Not likely to mislead the public Confidentialit y assured
  40. 40. • Standard format insider lists required; containing much more information • Single insider list with different sections per project, possibly including a ‘permanent insiders’ section • Uncertainty over whether advisers/ third parties continue to keep their own insider list • Employees to acknowledge in writing that they are aware that they are on the insider list and of the connected duties and sanctions. 40 Brief overview: Insider lists
  41. 41. • Buyback regime stays largely the same; • Requirements to benefit from MAR safe harbour: - Prescribed disclosures prior to trading - Notify FCA of trading information and make public disclosures; • Safe harbour can enable trading in closed period if, for example, the programme is independently lead. 41 Brief overview: Share buybacks
  42. 42. 42 Brief overview: Market soundings • New requirements for conducting market soundings are onerous • Obtain prior consent of the recipient and inform them when the market sounding ceases to be inside information • Market soundings to be made on recorded lines if available • Keep detailed electronic records of the information given and to whom for 5 years and provide to FCA on request.
  43. 43. • Model code removed from Listing Rules – most issuers expected to retain their own updated dealing code; • Closed period: 30 calendar days before announcement of interim or year end report – or preliminary announcement; • PDMR’s expressly prohibited from dealing during closed periods; • PCA’s are not covered by this restriction (but caution is advisable due to insider dealing concerns and reputational issues). 43 Focus: Share dealing & Closed periods
  44. 44. PDMR Transactions during closed period (assuming a clearance process will be followed) 44 Focus: Share dealing & Closed periods Is it a transaction? Apply for clearance ✓ No restrictions ✘ Clearance refused Does the PDMR have PSI? Is PSI relevant to transaction? Is it appropriate? Is it a closed period? Does an exemption apply? Yes Yes Yes Yes Yes Yes No No No No No ✓ Give clearance
  45. 45. Permitted dealings The list of circumstances in which dealing is permitted during a closed period has been narrowed to: • the existence of exceptional circumstances, such as severe financial difficulty; or • transactions under an employee share scheme; or • transactions where the beneficial interest does not change. Notifying PDMRs and their PCAs • Issuers must notify their PDMRs of their obligations in writing and draw up a list of PDMR’s and their PCA’s. • PDMRs must notify their PCA’s in writing of disclosure obligations and retain a copy of the notification. 45 Focus: Dealings by PDMRs and PCA’s
  46. 46. Notifications Threshold for notifications Transactions only need to be reported once a threshold of €5,000 has been reached within the calendar year by that PDMR. It is unlikely that issuers will utilise this exception for dealings by PDMRs. Time limit Deadline for notification has been reduced from 4 to 3 business days. Issuers may wish to reduce PDMR notification in order to meet this deadline. FCA form The FCA has produced a new online form for notification of transactions: https://marketoversight.fca.org.uk/electronicsubmissionsystem/MaPo_PDM R_Introduction. 46 Focus: Dealings by PDMRs and PCA’s
  47. 47. 47 Focus: Dealings by PDMRs and PCAs
  48. 48. During closed periods: • Acceptance of an invitation: - Is permitted as long as it does not give rise to a right to shares (e.g. SAYE) - Is not permitted if it equates to the acceptance of an offer (e.g. bonus election if the acceptance would occur during the closed period) • Grant of option/ award of shares: - It is not clear whether the grant is a transaction by the PDMR - Permitted if set up in advance (conditions, timing, participants and amounts determined outside of closed period) 48 Focus: Impact on share plan transactions
  49. 49. Other share transactions: • DRIPs: permitted if entered into during an open period and no changes • SIP monthly purchases: permitted if entered into during an open period and no changes • Issue of shares on vesting: no issues – contractual obligation City of London Law Society Q&A http://www.citysolicitors.org.uk/attachments/category/114/Market%20Ab use%20Regulation%20EU%20MAR%2005%2007%2016.pdf 49 Focus: Impact on share plan transactions
  50. 50. Focus: Impact on share plan transactions • Is the PDMR permitted to trade during closed periods? • Are transactions caught under the disclosure regime? 50 Action Trading permitted Disclosure arising Adoption of plan ✓ ✘ Amendment of plan ✓ ✘ Sending out invitations ✓ ✘ Accepting an invitation ✓ ✓ Grant of option or award ✘ ✓ Vesting of option or award ✓ ✘ Exercise of option ✘ ✓
  51. 51. Focus: Impact on share plan transactions 51 Action Trading permitted Disclosure arising SAYE Options: Invitations ✓ ✘ Applications ✓ ✘ Grants ✘ ✓ Exercises ✘ ✓ Sale of shares ✘ ✓ SIPs: Invitations ✓ ✘ Applications ✓ ✘ (Monthly) allocations of shares ✘ ✓ Transfers of shares to PDMR ✘ ✓ Sale of shares ✘ ✓ • Is the PDMR permitted to trade during closed periods? • Are transactions caught under the disclosure regime?
  52. 52. 52 Panel discussion Peter Swabey FCIS Director of Policy and Research, ICSA Guy Dixon Governance Consultant, Bridgehouse Company Secretaries Nilufer von Bismarck Partner, Slaughter and May James Poole Team Manager, Company Secretarial Services, Capita Asset Services
  53. 53. 53 Viviane Joynes, CFind out more Capita offers a range of services and online resources about MAR: www.capitaassetservices.com/MAR
  54. 54. 54 Viviane Joynes, CContact us James Poole Team Manager T: +44 (0)344 39 11 926 M: +44 (0)7736 492 773 E: James.Poole3@capita.co.uk
  55. 55. MAR: panel discussion James Poole, Team Manager, Company Secretarial Services Nilufer von Bismarck, Partner, Slaughter and May Guy Dixon, Governance Consultant, Bridgehouse Company Secretaries
  56. 56. MAR: panel discussion During the panel discussion, it was suggested that a link to the ICSA guidance note on MAR addressing dealing codes and the Slaughter and May guidance on other MAR issues would be helpful. The ICSA guidance https://www.icsa.org.uk/knowledge/resources/mar-dealing-code Slaughter and May guidance https://www.slaughterandmay.com/media/2535170/the-new-eu-market-abuse-regulation- an-overview-for-uk-issuers.pdf
  57. 57. The ICSA Shares Conference 2016
  58. 58. Davis Polk & Wardwell London LLP is a limited liability partnership formed under the laws of the State of New York, USA, and is authorised and regulated by the Solicitors Regulation Authority with registration number 566321. Davis Polk & Wardwell London LLP Continuing obligations: what premium and standard listed companies need to know Presented by Will Pearce Partner, Davis Polk July 14, 2016
  59. 59. The UK listing regime 59  Securities law has been harmonised across the EU – minimum and maximum harmonisation  Differences in regulatory approach remain  Listing in the UK is a dual track process  London Stock Exchange (market) – LSE Admission and Disclosure Standards  Official List (regulatory) – Listing Rules  Premium vs. standard segment  Supervision by the FCA  Reviews and approves admission and documents  Regulates compliance with continuing obligations  Monitors market disclosures  www.the-fca.org.uk/markets/ukla Prospectus Directive, Market Abuse Regulation and Transparency Directive Delegated regulations ESMA guidance Financial Services and Markets Act 2000 Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules UKLA guidance
  60. 60. Communicating with the regulator 60 • Primary Market Bulletin • Procedural and Technical Notes • Status of guidance Knowledge Base • Urgent live market situations only • 020 7066 8354 from 7:00 am to 6:00 pm Urgent enquiries • Technical issues relating to sponsor services only • Named basis only Enquiries by sponsors •Other requests must be made in writing •Named basis only •Fax 020 7066 8349 •ESS Other requests
  61. 61. Listing Principles  Premium and standard  Basis of FCA enforcement Eligibility  Premium only  Eligibility requirements additional to LR 2  Controlling shareholder regime Transfer, suspension and cancellation  Premium and standard  Reverse takeovers Sponsor regime  Premium only  Obligation to consult or appoint a sponsor  Responsibilities of a sponsor Continuing obligations  Premium only  Continuing compliance with eligibility requirements  Share issues  Mandatory RIS announcements  Contents of Annual Report Circulars  Premium only  Documents requiring FCA approval  Content requirements Continuing obligations – listing 61 LR 7 LR 8 LR 9LR 6 LR 5 LR 13
  62. 62. Related party transactions  Premium only  Definition of related party  Exempt transactions  Relief for smaller transactions  Shareholder approval Class transactions  Premium only  Class tests  Class 2 announcement  Class 1 announcement, circular and shareholder approval Reverse takeovers  Premium and standard  Requirement for suspension  Avoiding suspension Share issues  Premium only  Rights issues, open offers and placings Prospectuses  Premium and standard  Requirement for prospectus – public offer or admission to trading  Content, approval and publication requirements  Advertisement regime Share buy-backs  Premium only  Requirements for purchases from related parties, purchases under 15% and purchases of 15% or more Continuing obligations – corporate transactions 62 LR 11 LR 9.5 PRLR 10 LR 5.6 LR 12
  63. 63. Dealings by managers  Premium and standard  Regime applies to PDMRs and CAPs  No dealing in closed periods  Notification obligations Insider lists  Premium and standard  Must keep insider lists  Prescribed form Disclosing inside information  Premium and standard  Obligation to disclose inside information  Delay if in legitimate interests Financial reporting  Premium and standard  Half-Yearly Financial Report  Annual Financial Report Dealings by shareholders  Premium and standard  Notification obligation – 3% and every percentage thereafter  Requirement to announce total voting rights Corporate governance  Premium and standard  Requirement for audit committee  Annual corporate governance statement Continuing obligations – disclosure and transparency 63 MAR Art 19 & DTR 3 DTR 4 DTR 5 MAR Art 18 & DTR 2 MAR Art 17 & DTR 2 DTR 7
  64. 64. Regulatory enforcement 64 Lamprell fined £2.4m by FSA Oil rig maker Lamprell has been fined £2.4m by the Financial Services Authority (FSA) over a “serious” failing of its internal control systems before it issued a series of profit warnings last year. March 2013 Reckitt Benckiser fined for failing to disclose executive share dealings The Financial Conduct Authority found weaknesses in the company’s systems and controls between July 2005 and October 2012. January 2015 Russian oil firm Exillon fined for failing to disclose payments to chairman Maksat Arip Russian oil company Exillon Energy paid out nearly £1m on private jets, school fees and credit card payments for its former chairman Maksat Arip - but failed to disclose the payments. April 2012 Nestor fined £175,000 over trades Nestor Healthcare Group, a provider of social and primary care services now part of Saga, has been fined £175,000 for allowing its directors to trade in company shares without obtaining necessary approvals from the board. The Financial Services Authority found that Nestor, listed on the London Stock Exchange until the 2010 buyout, had proper policies in place to prevent improper trading but “weak procedures allowed for this policy to be forgotten by the board”. February 2013 Tribunal sends out warning on inside information in wake of Hannam case Star rainmaker, Ian Hannam, found to have committed market abuse by tribunal May 2014 Pru moves into top five of FSA penalty league with £30m fine The regulator announced it had fined “companies in the Prudential Group £30m” for breaching its principles and the listing principles of the UK Listing Authority. The fine was broken down into £14m for Prudential plc for listing rules breaches and £16m for Prudential Assurance Company. April 2013 FCA fines Asia Resource Minerals £4.65m for listing violations June 2015
  65. 65. Questions? 65 Will Pearce Partner, Corporate will.pearce@davispolk.com T: +44 (0)20 7418 1448 M: +44 (0)7785 254 976 This presentation has been prepared for general information only: it is not intended to be exhaustive or to constitute legal advice.
  66. 66. Employee Share Schemes: Balancing Risk and Reward The ICSA Shares Conference 2016 14 July 2016 Stephen Woodhouse Partner Charlotte Fleck Solicitor www.pettfranklin.com
  67. 67. Employee Share Schemes • Share plan design • Taxation of employee share plans – Basic tax treatment and statutory share schemes – Operating an ESOT • Malus and clawback • Reporting requirements • Market Abuse Regulation ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 67
  68. 68. Employee Share Schemes • Executive share plans – Incentivise performance – Align interests with shareholders • Increasing criticism of option plans as focusing executives on short-term share price rather than long term value – Need to think hard at the outset about performance targets and metrics used – How long is the long term? • What do investors want? ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 68
  69. 69. Tax Treatment of Employee Share Plans • Basic tax treatment – Income tax on upfront value or on option exercise – Capital gains tax on gain in value thereafter • Need to make sure plan provides for operation of PAYE - any holding requirements should normally allow for sale of enough shares to cover tax – S.222 charges – what about leavers? • Tax is a reputational risk and there is increasing concern about any planning perceived as tax avoidance ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 69
  70. 70. Statutory Share Plans • CSOP – Market value share option with gain in value above exercise price subject to CGT – £30,000 award limit • Sharesave/SAYE – All-employee share option plan – 3 or 5 year monthly savings contract – current nil interest rates but option may be at a discount – Employee can exercise or take out cash ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 70
  71. 71. Statutory Share Plans • Share Incentive Plan – Free shares – up to £3,600 pa – Partnership Shares – up to £1,800 pa – Matching Shares – up to £1,800 pa – Dividend Shares • Must offer to all employees on equal terms • Concern over disparity between executive pay and lower-paid employees – do share plans have a role? • Group plans – need to be careful to track employee eligibility ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 71
  72. 72. Malus and Clawback • Essential – but need to think hard at the outset about circumstances in which operate – Negative publicity over “rewards for failure” – Discretion must be exercised reasonably and in good faith • How can you make sure clawback is enforceable? – Clauses should be clearly drafted and drawn to attention of employee ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 72
  73. 73. Reporting requirements • Directors’ remuneration reporting – Can this become too complex and legalistic? – Commercially sensitive information (e.g. performance targets) should still be disclosed after the fact • Voting on remuneration policies – shareholder expectations becoming stricter? • HMRC annual share scheme reporting – Reporting by employees in Self Assessment returns – should share awards be reported even where all tax has been deducted under PAYE? • Need to notify PDMR transactions to the market ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 73
  74. 74. Market Abuse Regulation • MAR closed periods • Insider dealing • PDMR notification requirements – Does not retain all Model Code exceptions for employee share plans – Need for clear internal policies and procedures more acute than ever – can be fined for failing to notify so not an afterthought ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 74
  75. 75. Questions? ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 75
  76. 76. Contact details David Pett david.pett@pettfranklin.com mobile: 07836 657 658 William Franklin william.franklin@pettfranklin.com mobile: 07889 726767 Stephen Woodhouse stephen.woodhouse@pettfranklin.com mobile: 07836 756031 Charlotte Fleck charlotte.fleck@pettfranklin.com mobile: 07703 826 321 Office: 0121 348 7878 Twitter: www.twitter.com/pettfranklinLLP For lots of information, go to our website: www.pettfranklin.com ©2016 Pett, Franklin & Co. LLP www.pettfranklin.com 76
  77. 77. Brexit: panel discussion Andrew Ninian, Director, Corporate Governance and Engagement, The Investment Association Will Pearce, Partner, Davis Polk & Wardwell LLP Stephen Woodhouse, Partner, Pett, Franklin & Co. LLP
  78. 78. Brexit: panel discussion During the panel discussion, it was suggested that a link to a reminder published by the Financial Reporting Council on 12 July, highlighting “some matters for directors to consider when preparing their forthcoming half-yearly and annual financial reports” might be useful for delegates. https://www.frc.org.uk/News-and-Events/FRC-Press/Press/2016/July/Reminders-for- half-yearly-and-annual-financial-rep.aspx

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