• The Government sets out its first proposals to reform the UK’s non-financial reporting regime
• The Government publishes proposals for a regulatory framework for trading in private company securities
• FTSE Russell publishes a summary of how it proposes to apply its FTSE index inclusion criteria under the FCA’s reform listing regime

Government sets out first proposals to alleviate non-financial reporting obligations

The Government has published a ministerial statement setting out its initial intentions to reform the UK’s non-financial reporting framework for companies and other business entities, with a view to creating a more proportionate regime.

The statement follows the Government’s call for evidence in June 2023. See our previous Corporate Law Update for more detail on the call for evidence on the UK’s non-financial reporting framework.

The statement confirms the following.

• Company size thresholds. The Government intends to increase by 50% the financial thresholds used to determine whether a company is micro, small, medium-sized or large. These thresholds determine the level of reporting by a company, with large companies subject to significantly greater reporting requirements. The proposed new thresholds are set out in the statement.
  
  The Government estimates that this would result in 5,000 companies moving down from “large” to “medium-sized”, and 13,000 companies moving from “medium-sized” to “small”.
  
  The Government is not currently proposing to amend the current employee headcount thresholds in the short term. However, it intends to consult later in 2024 on amending the threshold for classification as a medium-sized company from 250 employees to 500 employees.
• Narrative reporting. The Government also intends to remove several “low-value, obsolete or overlapping requirements” from a company’s directors’ report and from its directors’ remuneration report and policy. The statement does not set out which requirements would be removed.
• Strategic reports. The Government intends to consult on exempting medium-sized companies from the requirement to publish a strategic report.
• Digital annual reports. The Government also intends to make it easier for companies to issue digital annual reports. Again, the statement does not set out how this would be achieved.
• Audit. The Government intends to consult on exempting smaller public interest entities (PIEs) from audit tendering and rotation requirements.

Read the ministerial statement on the Government’s next steps to reform the UK’s non-financial reporting regime.

Proposals published for a new private securities trading framework

The Treasury has published a consultation on creating a new private trading framework, to be known as the Private Intermittent Securities and Capital Exchange System or, PISCES.

The framework would allow sophisticated investors to buy and trade securities in public and private companies in a controlled environment and subject to a more proportionate disclosure and market abuse regime.

Rather than a trading venue per se, PISCES would be a regulatory perimeter within which operators can establish their own platform. Shares on a platform within the PISCES framework would trade intermittently during so-called “trading windows” set by the platform operator.

The framework would employ a bespoke regulatory regime designed to provide greater protection than that which applies to off-market, bilateral trades, but with a lighter touch than the public capital markets. Some aspects of that regulatory regime would apply at all times, but many elements would apply only during or immediately before a trading window.

The Treasury believes PISCES could provide investors with better access to start-ups that have not yet reached the stage of seeking an IPO, allowing them to seek investment to scale up and creating a future pipeline for IPOs on the UK’s junior and senior public capital markets. It may also be a way for existing employee shareholders of private companies to realise the value of their holdings.

PISCES would be trialled initially within a financial services sandbox, allowing the Government to flex financial markets and company legislation to see whether the concept works. If successful, participants in the framework would be given the option at the end of the trial to graduate to the permanent framework or to bow out. The duration of the PISCES trial is yet to be decided.

You can read more about the proposals for a new private securities trading framework (PISCES) in our separate in-depth piece.

Read HM Treasury’s consultation on a Private Intermittent Securities and Capital Exchange System (PISCES) (opens PDF).

FTSE Russell publishes index inclusion criteria under new listing regime

Benchmarks firm FTSE Russell has published an outline of provisional changes it intends to make to its FTSE UK Index Series ground rules when reforms to the UK’s Listing Rules proposed by the Financial Conduct Authority (FCA) take effect.

You can read our previous Corporate Law Update for more information on the proposed reforms to the UK’s listing regime.

FTSE Russell publishes several stock market indices, including the FTSE 100, FTSE 250 and FTSE Small Cap. Inclusion within a FTSE Russell index is a key component of attracting institutional investment and, indeed, for some investors, a prerequisite.

However, under FTSE Russell’s current rules, to be included within a FTSE index, a company’s securities must be listed on the FCA’s premium listing segment. This has, to date, been perceived as a key drawback of seeking a so-called “standard listing”.

Under the FCA’s proposed reforms, the current premium and standard listing segments will be replaced by a single “Equity Shares (Commercial Companies)” category. There will be separate categories for closed ended investment funds, shell companies and secondary listings, as well as a transitional category for existing standard-listed companies. Existing companies will be mapped to the most appropriate replacement category based on their current segment.

In its FAQs, FTSE Russell has said it intends to make the following changes, subject to any further developments by the FCA.

• Securities in the new Equity Shares (Commercial Companies) or Closed Ended Investment Funds category will be eligible for inclusion in the FTSE Russell UK indices.
• Securities in the new Equity Shares (International Commercial Companies Secondary Listing), Equity Shares (Shell Companies) or Equity Shares (Transition) category will not be eligible.
• However, if a company mapped initially to the Transition category subsequently transfers to the Commercial Companies category, it will become eligible for inclusion.
• Given that premium-listed companies are expected to be mapped to the Commercial Companies and Closed Ended Investment Funds categories, and standard-listed companies to one of the other categories, FTSE Russell expects the new index criteria to result in “minimal impact”.
• FTSE Russell does not intend to introduce any additional requirements for inclusion in its UK indices to replicate any current premium listing requirements. Rather, it merely intends to update its ground rules to reflect the changes to the UK listing regime at this time.

Read FTSE Russell’s summary of proposed changes to its FTSE index inclusion criteria.