We work closely with nominated advisers to ensure that they can maintain up to date and relevant AIM knowledge within their corporate finance functions to enable them to carry out the obligations they owe to London Stock Exchange under the AIM Rules for Nominated Advisers (“Nomad Rules”). 

In this Inside AIM, we set out answers to some of the frequently asked questions in respect of staffing, particularly taking into account wider market conditions and trends.

Relevant Transactions

Market conditions can have an impact on the number of Relevant Transactions undertaken, as defined in Nomad Rule 5. Rule 5 provides discretion for us to consider equivalent work undertaken in respect of IPOs or other major public transactions where the work performed by the nominated adviser is similar to that of an AIM admission. When considering alternative transactions, we look for evidence that firms have undertaken work equivalent to the Admission Responsibilities set out in Schedule Three of the Nomad Rules and that the firm has retained overall management and responsibility for the transaction and transaction documentation. Below are examples of transactions we may consider accepting [1]:

• Schemes of arrangement: a UK takeover which is effected by way of scheme of arrangement where the nominated adviser has acted for the offeree and has led the drafting of the main scheme document.
• Aborted transactions: Transactions (that would otherwise be Relevant Transactions) which do not complete due to market conditions and where all relevant due diligence has been completed and the relevant documents are in final form.
• Complex Relevant Transactions: AIM Regulation would usually only expect one approved Qualified Executive (“QE”) to be the lead adviser on each Relevant Transaction, or a maximum of two if the Relevant Transaction is sufficiently complex to require it. Where a nominated adviser firm considers a Relevant Transaction to be complex, details should be provided of the roles of the two QEs executives as well as an explanation of why both should be credited with acting in a lead corporate advisory role.

We would also highlight that, as set out in Nomad Rule 5 and Inside AIM (Issue 1), both an applicant QE and an existing QE may cite the same Relevant Transaction if they have each been involved to an appropriate extent.

QE Applications

We have regular conversations with nominated advisers about their current and future resourcing plans and we work with, and support, nominated advisers as they develop their wider corporate finance staffing. One question we receive regularly is whether a QE in an existing firm will automatically transfer as a QE if they change firm or join a firm which is considering applying to become a nominated adviser.

QE status is considered in the context of the firm and is not an individual qualification	The wider staffing of the nominated adviser function beyond the minimum number of QEs is an important consideration for us (at both a junior and senior level). Accordingly, QE applications are considered in the context of the firm’s overall staffing, management controls, senior management supervision (of the nominated adviser team), junior support and compliance function. Underpinning this is the principle that QE status is not an individual qualification, but a designation granted to the firm denoting those individuals within the firm who are authorised by the Exchange to lead AIM Rules advice for that nominated adviser. Accordingly, QE status is not automatically transferable.
A number of factors will be taken into account when considering QE applications	We will consider applications for QEs where a firm supports that individual to act as a QE on its behalf.  Where an applicant is not able to demonstrate that all the required Relevant Transactions have been completed we may use the provisions of Nomad Rule 27 such as the requirement for ongoing supervision, as a condition of approval. In such circumstances we will look at a range of factors. For example, we will seek evidence that the applicant has a sound understanding of the UK corporate finance market and AIM in particular. We will also consider the support the applicant will receive and will take into account the wider staffing and controls within the firm.
Maintenance of standards is our key objective	The criteria for QE approval are designed to ensure that a nominated adviser firm is in a position to meet its obligations owed to London Stock Exchange and thus to maintain standards across the market. We expect nominated adviser firms to bear this in mind when supporting a QE application and we will also take this into account in our considerations.

 

Ensuring coverage for nominated adviser obligations

We are sometimes asked by nominated advisers about team working arrangements. 

Individual working arrangements will be considered

Nomad Rule 4 refers to a ‘full-time employee’. The intention underlying the reference to ‘full-time’ is to ensure that QEs give full attention to the role and thereby to address the circumstances of individuals who undertake other professional services or employment outside of the business of the firm, such as NED roles. The designation of QE is for the benefit of the firm so that it can demonstrate that its AIM company clients have real-time access to appropriately experienced staff to lead regulatory support and advice. Therefore, a firm may consider individual working arrangements such as part-time or other forms of flexible working.

Nominated advisers to ensure alternative arrangements do not impact performance of their obligations

Nominated adviser firms need to demonstrate that satisfactory arrangements are in place such that the role of a nominated adviser can be fully discharged. For example, this will mean that AIM company clients have ongoing access to QEs that have full knowledge of the company and its developments to be able to advise and guide it on its AIM Rules obligations in a real-time market environment. If part-time or flexible working arrangements are agreed, then this should be arranged in a way that supports the performance of such obligations. For example, by ensuring that clients have access to more than one QE with the requisite knowledge of its business.

 

Compliance

An important element of the wider staffing of a nominated adviser firm is the compliance function. In addition to ensuring it has sufficient QEs, we encourage firms to consider what a “good” compliance function looks like, having regard to its specific structure and services. In our experience, the success of a compliance function is dependent on an engaged senior management team. When considering its compliance needs, amongst other things, a firm should consider a compliance function that:

• Has sufficient resources to be able to provide an appropriate level of attention to the compliance needs of the nominated adviser function;
• Is knowledgeable of the obligations set out within the Nomad Rules, as well having an appreciation of the wider UK corporate finance market;
• Provides oversight of compliance with the firm’s corporate finance manual, including responsibility for any training in relation to the manual and for updates to it, where necessary;
• Understands and appreciates relevant risks and how these are managed;
• Is fully engaged with the nominated adviser team and provides a source of senior input; and
• Has a mandate from management and the experience to provide independent challenge.

Maintenance of knowledge and experience

Nominated advisers ask us about the benefits of commissioning an external review or training in respect of their obligations to London Stock Exchange and their understanding of the AIM Rules. Whilst we appreciate that firms might consider that taking external advice could evidence a commitment to their compliance with the Nomad Rules, we question the benefits of this approach noting that the role of a nominated adviser is different to that of other professional services firms. We think it is more meaningful for a nominated adviser to engage the experience and expertise within its team when conducting a review.  

We generally find that the nominated adviser firms that share knowledge internally, have experienced staff beyond individual QEs, focus on individual and collective performance and supervision, and have good levels of management engagement along with an embedded compliance culture, are better placed to meet their nominated adviser obligations. We are always very happy to provide support and to provide firms with our experience gained from engagement across the market when they are considering or designing an internal review.

 

Staffing of Nominated Advisers

 

Date: 28 May 2019

[1] Such discretion is unlikely to be applied in relation to an entity seeking approval as a nominated adviser pursuant to Nomad Rule 2.

 

Companies whose shares have for the last 18 months been traded on certain markets may be eligible to use an AIM Designated Market route to admission. This route to market, streamlines the AIM admission process by dispensing with the requirement of producing an AIM admission document.

Today we have issued an updated AIM Designated Market Route publication. The new publication updates the list of AIM Designated Markets by introducing a new category extending to EU Regulated Markets and SME Growth Markets. The addition of the new category reflects harmonisation of investor protections and regulations in relation to securities admitted to trading on UK and European trading venues.   

Potential applicants exploring this route to AIM should discuss details with a nominated adviser.

 

AIM Designated Market Route.

AIM designated market route

 

Date: 28 May 2019

From 28 September 2018, AIM companies will be required to disclose details of the recognised corporate governance code they have decided to apply. Companies will have to explain how they comply with their chosen corporate governance code and, where they depart from the code, provide an explanation of the reasons for doing so.

Good corporate governance is supported by a detailed explanation of a company’s practices against the principles of a chosen code, in a manner that enables shareholders to evaluate how the principles have been applied, rather than simply identifying areas of non compliance. This principles-based approach to corporate governance is consistent with our overall approach to AIM. Accordingly an AIM company should exercise due care to ensure that the information in their corporate governance statement is informative and not misleading.

We have engaged with nominated advisers in preparation for the changes. The feedback has indicated that AIM companies are progressing well. The guidance below addresses some of the common questions received from nominated advisers as part of our engagement.

Timing of disclosure

On 8 March 2018 the Exchange confirmed that it would introduce a requirement for AIM companies to disclose on their website how they ‘comply or explain’ against a recognised corporate governance code. To provide AIM companies and nominated advisers with adequate time to prepare for the change, we confirmed that AIM companies have until 28 September 2018 to implement the new corporate governance disclosure requirements.

After 28 September 2018, an AIM company will have to review its corporate governance disclosures annually. We expect that in most cases this review will take place at the same time as the company prepares its annual report and accounts. An AIM company’s website should include the date when it last reviewed its compliance with its chosen code and, in conjunction with this review, update its AIM Rule 26 disclosures to remain accurate.

Where to make your corporate governance disclosure

AIM Rule 26 requires an AIM company’s corporate governance statement to be published on its website. The disclosure on its website should be clearly presented and easily accessible from the ‘AIM Rule 26’ landing page on its website. It is acceptable for the statement to incorporate by reference (for example disclosures that are provided in a clearly delineated corporate governance section of the annual report) provided that the material is freely available and the statement clearly indicates where interested parties can read or obtain a copy of that material (for example, the relevant pages or section of the annual report or the URL for the relevant web page).

If an AIM company has not yet made disclosure against a recognised code in its annual report, the corporate governance statement must be disclosed on its website by 28 September 2018, in accordance with AIM Rule 26.   

Recognised code

The Exchange has not prescribed a list of recognised codes as it remains preferable for AIM companies to have a range of options to suit their specific stage of development, sector and size.

However, we have referred to established benchmarks for AIM company codes such as the QCA Corporate Governance Code and the UK Corporate Governance Code. Further, for AIM companies that have a dual listing in their home state, we have confirmed it is acceptable to report using an appropriate standard in their home jurisdiction. For example, an AIM company which is incorporated in Australia and listed on both ASX and AIM is able to rely on its disclosures pursuant to the ASX Listing Rules (i.e. recommendations set by the ASX Corporate Governance Council) so long as this disclosure is available on its website and reviewed annually, in accordance with AIM Rule 26

It is important to note that the requirements of the code applied by AIM companies are not set by the Exchange, but by third parties. Accordingly, AIM companies should ensure they keep informed of any changes to the recognised code they apply.

Good corporate governance and investor engagement

Good corporate governance is not simply about codes or rules; it involves strong leadership, a positive culture, robust systems and risk management. These all encourage and reinforce behaviours that ensure company representatives act to protect the interests of the company and its shareholders. In order to facilitate discussions with investors, disclosure is essential. Accordingly, the new corporate governance requirements are intended to provide information to investors to enhance the engagement between investors and the boards of AIM companies.  However, disclosure alone does not constitute good corporate governance. 

It is for investors to determine whether the corporate governance policies, practices and any reasons stated for non compliance with the adopted code, are appropriate for the AIM company, taking into account factors such as its stage of development, sector and size. 

 

Preparation for corporate governance changes

Date: 26 July 2018

Social media and other forms of electronic communication are powerful tools which can be of significant value to AIM companies when communicating with a broad range of investors and stakeholders. Such communications may include ‘twitter’, non-regulatory news feeds, an AIM company’s website etc.  Whatever the form of public communication, these are subject to the same rules regarding disclosure of regulatory information.

With the increased use of such forms of communication, AIM companies should consider with their nominated adviser how to manage social media in the context of their obligations under the AIM Rules for Companies (“the AIM Rules”).

Requirement for notification to a RIS “no later than it is published elsewhere”

The fact that information released through other outlets may be, or may eventually become publically available, is not a substitute for making a notification under the AIM Rules no later than it is disclosed elsewhere.  This includes releasing the information to the media even on an embargoed basis. So, disclosure by social media alone will not meet an AIM company’s disclosure requirements and an AIM company must continue to use traditional means of regulatory dissemination which take precedence.

AIM Rules 10 and 11 are important in ensuring there is equal, fair and timely disclosure of regulatory information to the market and that integrity in the market is maintained. The consequence of not doing so, from an AIM Rules perspective, may be the suspension of an AIM company’s securities from trading pending a compliant notification where there has been unusual share price movement because of an inequality of information in the market. We may also require an AIM company to issue a clarification notification where comments made via social media by directors, or persons on behalf of an AIM company are inconsistent with notifications made via a RIS.

Further, if London Stock Exchange considers that an AIM company has breached AIM Rules 10 and/or 11, it will investigate and take such disciplinary action as it considers appropriate.

An AIM company should, of course, have regard to MAR which is within the remit of the FCA and must be considered separately to its AIM Rules obligations.  Where premature or selective disclosure has been made, or where communications are designed to cause share price volatility (e.g. through a tip or leak of confidential information about the AIM company) this may also give rise to issues beyond the AIM Rules, and are within the remit of the FCA’s powers relating to market abuse.

Systems, procedures and controls

AIM companies that make use of social media should consider with their nominated adviser how the dissemination of information is supervised and monitored to ensure compliance with its disclosure obligations under the AIM Rules.  

The systems, procedures and controls an AIM company puts in place (as required by AIM Rule 31) should take into account the use of social media and other forms of electronic communication used by the company in order to manage its’ disclosure obligations under the AIM Rules. Communication policies should be considered in a meaningful way, taking into account the needs of the particular company and in this context, some obvious things to consider, by way of example only, include:

• Does the AIM company have a clear policy on the use of social media as part of its existing communications policies;
• How effective is that policy in practice, for example, how does the AIM company ensure that the policy is  read and understood by all relevant persons;
• How regularly is the policy reviewed  and how does the AIM company identify and ensure the policy is updated when necessary;
• If an AIM company engages third parties to disseminate regulatory information on its behalf including via social media, how has it satisfied itself that the third party will not compromise compliance with the AIM Rules; and
• In the context of an AIM company’s obligations under AIM Rules 10 and 31, what are its protocols in talking to its nominated adviser in advance of the release of information via social media.

 

As a final point, consideration should be given by an AIM company and its nominated adviser (as part of its OR3 obligations) as to how to be reasonably be kept informed about social media posts, for example relevant internet discussion forums. This is important in the context of enabling the nominated adviser to be alerted to potential disclosure issues for its AIM companies such as whether a false market might be developing in an AIM company’s securities, as well as indicating a leak of confidential information.

An AIM company through its nominated adviser should continue to make London Stock Exchange aware of significant rumours or problems relating to internet discussions, which may impact on the orderly market in the securities.  Whether the AIM company is required to make a notification will depend on the particular circumstances.

 

Social Media

 

Date: 12 December 2016

AIM Notice 45 referred to FCA’s supervisory approach in respect of closed periods and preliminary results under the Market Abuse Regulation (“MAR”).  The Notice welcomed FCA’s approach and confirmed that we would review the AIM Rules for Companies (“the AIM Rules”) once further clarification was provided by ESMA.  In this regard we note that on 13 July 2016 ESMA updated its 'Questions and Answers' on MAR (“Q&A”).  

ESMA’s Q&A mirrors the approach of the FCA set out in their statement published on 25 May 2016.  We refer AIM companies and their advisers to this new ESMA Q&A for further information.

Given this clarification by ESMA, we do not consider it necessary to amend the AIM Rules.

We continue to support the use of Listing Rule 9.7A.1 by AIM companies as a benchmark in relation to the preparation of a preliminary results announcement.

Frequently asked questions for AIM companies and their nominated advisers in respect of MAR and the AIM Rules are now available at this link.

 

Market Abuse Regulation (MAR) - Closed periods and preliminary results

 

Date: 2 August 2016

On 3 July 2016, the Market Abuse Regulation (MAR) will come into force.  MAR is an EU regulation which is directly applicable across all member states. MAR includes disclosure obligations for issuers admitted to trading on regulated markets or MTFs, and accordingly, will apply to AIM.

As set out in in AIM Notice 44, London Stock Exchange is consulting on changes to the AIM Rules for Companies (“the AIM Rules”) as a consequence of the introduction of MAR.

This Inside AIM sets out information to support nominated advisers as they work with their clients to prepare them for the introduction of MAR and consequent changes to the AIM Rules. The contents of this Inside AIM are based on the assumption that the proposals set out in AIM Notice 44 are implemented.

We will continue to keep the operation of our rules under review. 

Overview of MAR obligations

The key disclosure obligations in MAR relate to the disclosure of inside information and disclosure of deals by persons discharging managerial responsibilities (“PDMR”) and closely associated persons.  MAR will also introduce mandatory close period rules. 

AIM Rule 11

The purpose of AIM Rule 11 is to maintain a fair and orderly market in securities and to ensure that all users of the market have simultaneous access to the same information in order to make investment decisions. The disclosure obligation in respect of inside information under Article 17 of MAR protects investors from market abuse (see recital 49 of MAR). 

Whilst there is clearly overlap in respect of both sets of obligations, they should be considered separately.  In particular, we note that “inside information” has a specific and technical definition (given its context) whereas consideration of AIM Rule 11 by an AIM company (with the guidance of its nomad) is a principles based consideration in the context of the maintenance of a fair and orderly market.  Therefore, the separate disclosure tests and guidance to AIM Rule 11 must be complied with.

Importantly, compliance with MAR does not mean that an AIM company will have satisfied its obligations under the AIM Rules, just as compliance with the AIM Rules does not mean that an AIM company will have satisfied its obligations under MAR.  An AIM company must comply with the AIM Rules and MAR at all times.

For example, the guidance to AIM Rule 11 which sets an expectation that an AIM company should keep impending developments confidential under the AIM Rules would not restrict an AIM company from making such a disclosure if required under Article 17 of MAR.  Equally, the ability to delay the publication of inside information under MAR would not override the disclosure obligation contained in the AIM Rules. In this regard an AIM company must consider whether it is able to delay the information pursuant to the guidance to AIM Rule 11.

An AIM company should continue to consider its AIM Rules disclosure obligations in conjunction with the advice and guidance of its nominated adviser pursuant to AIM Rule 31. It will not be a defence to a breach of the AIM Rules that the AIM company had received legal advice that it was MAR compliant. In this regard, we do not expect a different approach by AIM companies and nominated advisers to compliance with AIM Rule 11 post MAR.    The AIM Rules are principles based and accordingly, as is the case currently, the consideration of AIM Rule 11 disclosure obligations should not be overly narrow or technical. We consider this approach to compliance with AIM Rules 11 and 31 is fundamental to ensuring market integrity. Failure by an AIM company to comply with AIM Rule 11 or to seek the advice and guidance of its nominated adviser (and take that guidance into account) pursuant to AIM Rule 31, will be regarded as a serious breach of the AIM Rules and may result in the London Stock Exchange taking disciplinary action in addition to our powers to suspend or cancel an admission. 

Collaboration with FCA

FCA is the competent authority for MAR in the UK and its powers are contained in Article 23.  Therefore, whilst FCA will have powers to intervene as competent authority and will be responsible for the investigation and enforcement of breaches of MAR, we intend to work closely with the FCA to co-ordinate our approach to obtaining any necessary information from AIM companies whilst minimising duplication of activities.

It is important for the effective overall operation of the market that real time monitoring and management of the market continues to be undertaken by London Stock Exchange, as market operator.  In practice, where there is a query as to whether an AIM company should make a disclosure, we will continue to liaise with the AIM company’s nominated adviser regarding its AIM Rules obligations and will provide the FCA with information about these discussions, where relevant to MAR.  It is open to the FCA to consider an AIM company’s compliance with MAR at any time. 

For the avoidance of doubt, we will not be able to opine on MAR obligations/compliance. Any guidance provided by AIM Regulation in respect of disclosure will only be in relation to an AIM company’s obligations under the AIM Rules.

PDMR dealings

Article 19 of MAR (PDMR transactions) contains notification requirements which will apply to issuers, PDMRs and persons closely associated with them. Article 19 will also include mandatory close period rules.  Given the scope of MAR, duplicate obligations will be removed from the AIM Rules. However, we consider it is important for the integrity of the market that AIM companies have in place systems and controls to manage these obligations.  We therefore have proposed to amend AIM Rule 21 to require all AIM companies to have a dealing policy and to require nominated advisers to consider this as part of their responsibilities.  

We do not intend to prescribe the detailed content of the dealing policy but we have in AIM Notice 44 set out the minimum provisions that we would expect to be included in the policy. We expect AIM companies and nominated advisers to consider the design and implementation of the policy in a meaningful way, to ensure it is capable of working in practice, taking into account the nominated adviser’s knowledge of the company and its management. This obligation will be separate to an AIM company’s compliance with Article 19. Accordingly, an AIM company’s compliance with MAR will not mean it will have automatically satisfied its obligations under AIM Rule 21.

Insider lists

Following implementation of MAR, all AIM companies will be required to maintain a list of all those persons working for them that have access to inside information.  The FCA, as competent authority for MAR in the UK will be responsible for enforcing compliance with this provision.  Accordingly, AIM companies will need to implement systems and controls to comply with these obligations.

Although MAR includes provisions for issuers on SME Growth Markets to draw up a list only when requested by the regulator, the SME Growth Market regime will not into come into force until MiFID II is implemented in January 2018.  AIM is currently not a SME Growth Market, so AIM companies will therefore be required to comply with Article 18.

 

Preparation for market abuse regulation

 

Date of publication: 29 April 2016

On 3 July 2016, the Market Abuse Regulation ("MAR") will come into force. MAR is an EU Regulation which has direct effect across all EEA member states and will supersede the existing Market Abuse Directive.

MAR disclosure obligations will apply to financial instruments admitted to all multilateral trading facilities, as well as regulated markets. Accordingly, these obligations will apply to all issuers admitted to European growth markets including AIM.

The key disclosure obligations in MAR relate to the disclosure of inside information and disclosure of deals by persons discharging managerial responsibilities and closely associated persons. MAR will also introduce mandatory close period rules.

This article sets out our preliminary thoughts on how we expect MAR obligations to sit alongside the disclosure obligations in the AIM Rules for Companies ("AIM Rules").

 

AIM Disclosure Rules

The disclosure obligations under MAR will be within the remit of Financial Conduct Authority ("FCA") as the UK competent authority and we have been working closely with the FCA to co-ordinate our approach to the implementation of MAR for AIM companies.

We have given consideration to whether it remains appropriate to retain the disclosure provisions contained within AIM Rule 11 following the implementation of MAR. On balance, we consider that retaining a disclosure rule in the AIM Rules is important to the integrity of AIM and the maintenance of an orderly market. We also consider that the disclosure requirement in AIM Rule 11 (as currently drafted or with minor amendments) will continue to reinforce our expectations of AIM companies to provide equality of information on a timely basis, allowing investors to make informed investment decisions.

Retaining AIM Rule 11, should not materially change a company’s approach to disclosure compared to existing market practice. Although we appreciate that retaining the AIM disclosure rules will mean that AIM companies will have obligations to both AIM Regulation and the FCA, we will work closely with FCA to minimise any duplication. For example, in respect of real time disclosure, it is currently envisaged that in the first instance AIM Regulation will continue to have discussions with nominated advisers and will co-ordinate with the FCA as necessary.

Whilst we consider that the above approach will mitigate the need for an AIM company to engage separately with two regulators in most situations, it should be noted that only the FCA, as the competent authority under MAR, will be able to opine on MAR compliance and will retain the right to engage directly with an AIM company if necessary.

The AIM Rules already sit alongside wider regulatory and legal obligations owed by an AIM company as described at AIM's Regulatory Landscape.

Although we have already sought views from various market participants, we will undertake a market consultation if changes to the AIM Rules are required. In the meantime, we would welcome further feedback from market participants which should be addressed to aimregulation@lseg.com.

 

Market abuse regulation

 

Date of publication: 28 October 2015

Introduction

This Inside AIM article relates to AIM company disclosures arising from equity financing products that involve AIM securities and in which AIM companies or their directors may have an interest. By way of illustration only, these products include:

• equity financing facilities, which provide AIM companies with a line of funding in return for equity;
• equity swap facilities; and
• crowd funding type products targeted at non-institutional investors.

Given the importance of ensuring correct disclosures to the orderly operation of the market, it should be noted that London Stock Exchange has required correction of notifications that had incorrectly disclosed the terms of such equity financing arrangements.

Complexity and Non Standard Terms

Some of these equity financing products may, by their nature, be complex. AIM companies and their nominated advisers should carefully evaluate the structure of, and any non-standard terms contained within, such facilities when considering disclosure requirements to ensure that the information provided is sufficient to give a proper understanding to investors. This may involve providing more detail than would ordinarily be the case for more commonly used forms of financing and in all cases should properly reflect the substance of the transaction.

As an example, depending on the nature of the product, the AIM company and its nominated adviser should consider whether in respect of company equity financing facilities, the circumstances of a draw-down request (and the notice of such) gives rise to an AIM Rules disclosure obligation in its own right, pursuant to AIM Rules 10 and 11 and not just the actual draw down itself. Matters which may be relevant to such consideration could include:

• the expectation the notification is likely to set regarding the company’s funding requirements and it’s expected use of the facility;
• the size of the draw down; and
• the company’s financial position at the time of draw down.

Disclosure of Directors Share Dealings

In addition to equity financing arrangements available to AIM companies, products are available to directors of public companies to enable them to use their own holding in the AIM company as a means of personal financing by way of, for example, share sale and repurchase agreements.

In order to comply with the AIM Rules, it is important that AIM companies carefully evaluate the consequences of these agreements, most particularly in relation to the requirements on the AIM company to correctly and fully disclose directors’ dealings under the AIM Rules.

The definition of a “deal” under the AIM Rules is, of course, very broad and encompasses almost any action a director might take in relation to his interest in his holding of securities in that AIM company. Accordingly, the nature of any director’s dealings arrangements should be clearly and fully disclosed, most usually at the time that a transfer of an interest in the shares becomes binding (whether that transfer occurs now or in the future).

Further, care should be taken when using terminology to describe the nature of the arrangement to ensure appropriate and sufficient disclosure. For example, share sale and repurchase agreements are distinct from secured loans/share pledges in a number of key areas (in particular, in relation to the point at which an interest in shares is transferred). The transfer of voting rights is also an important consideration that may require disclosure.

After the initial disclosure of any equity financing arrangements, AIM companies should make appropriate updates, for example, where there are changes to director’s previously stated intentions or if a director does not meet a margin call that results in that director’s holding in the AIM company changing including, for example, losing rights under the relevant agreement.

Systems and Controls for Disclosure

In respect of directors’ personal deals, given that an AIM company is often not a party to these equity financing arrangements, an AIM company’s agreements with its directors should ensure that it can obtain from directors all information that the AIM company will need in order to comply with its director dealing notification requirements under AIM Rule 17 where a director enters into arrangements relating to his or her AIM company holding. This is an important element of the requirements of AIM Rule 31.

Consideration should also be given to who within the AIM company is best placed to be involved in the preparation of notifications to the market where key executive directors, or a number of directors, are involved in equity financing arrangements. London Stock Exchange would expect, as part of an AIM company’s AIM Rule 31 processes, that appropriate independence is exercised in the preparation of a notification.

AIM companies are advised to consult with their nominated adviser at the earliest opportunity about the proper disclosure of these types of arrangements. Nominated advisers should consult with AIM Regulation if they are in any doubt as to the disclosure requirements.

 

AIM Company Disclosures relating to Equity Financing Products

 

Date of publication: 24 September 2015

Due to certain restrictions under US securities laws, equity securities issued by US companies and other companies that do not qualify as "foreign private issuers" under US securities laws were historically not eligible for electronic settlement in the CREST system operated by Euroclear UK & Ireland ("EUI"). Such securities were generally settled in certificated form and flagged as Regulation S, Category 3 securities in the trading system ("Regulation S, Category 3 securities").

The introduction of the EU Regulation on Central Securities Depositories (Article 3(2)) requires transactions in transferable securities that take place on a trading venue (such as AIM) to be recorded in book entry form in a CSD (i.e. settled electronically). Accordingly, the Exchange has been working with EUI and other relevant parties for a resolution that will allow such securities to be able to be settled electronically.

The Exchange welcomed the publication by EUI on 11 May 2015 of its whitebook relating to its proposed "Euroclear UK & Ireland: Regulation S Category 3 Settlement Service". The service provides issuers of Regulation S, Category 3 securities with an electronic settlement service through CREST.

We expect all existing Regulation S, Category 3 securities to be eligible for electronic settlement by no later than 1 September 2015. We have updated the Rules of the London Stock Exchange for member firms (rule 1550) and accompanying guidance to the rule, which relates to all member firms trading Regulation S, Category 3 securities. For further details see Stock Exchange Notice N17/15 published on 7 August 2015.

New AIM applicants that propose to issue Regulation S, Category 3 securities are reminded to request a derogation from Rule 32 of the AIM Rules (transferability of shares) prior to admission and clearly disclose on the AIM Application form whether they are Regulation S, Category 3 securities, as they will be identified as such on the trading system with the letters "REG S". It should be noted that derogations from Rule 36 of the AIM Rules will no longer be available for such securities.

Further background can also be found in AIM Notice 41 published on 7 August 2015.

 

Regulation S Category 3 Securities

 

Date of publication: 7 August 2015

AIM is an international market for growth companies covering a broad range of sectors with a wide range of market capitalisations. Given this, the AIM Rules take a principles based approach to ensure that they are relevant to the needs of such companies.

A company’s free float is an important qualitative assessment, which can have a significant impact on the ability of the company to attract investors and the functioning of the secondary market. Whilst we do not prescribe levels of free float, the issue of free float is something that we consider an important factor in the work a nominated adviser undertakes when bringing an applicant to market. Sufficient free float is fundamental to the orderly trading and liquidity of the securities once admitted to AIM, which is inextricably linked to the company’s appropriateness to be admitted to AIM.

Nominated advisers will be aware that we often ask them to provide us with details about the factors they have considered in relation to free float when seeking to bring a company to AIM. As a consequence, this is an area where we thought it would be helpful to clarify some of the factors we often discuss with nominated advisers, including the following:

• Consideration should be given to how the securities are likely to trade when admitted to AIM, following discussion with the company’s broker(s) and potential market makers. We would expect consideration to be given to the spread and nature of the shareholders comprising the free float;

• Failure to raise initial target funds (which in itself might give rise to free float questions) may be indicative of more fundamental issues of appropriateness and is a matter that should be properly explored by the nominated adviser;

• Limited free float should give rise to questions about the rationale for the applicant to seek admission to AIM;

• Where there are concentrated shareholdings (e.g. connected due to family, business or other interests/ connections) free float issues should be considered in conjunction with issues of undue influence, control and ongoing corporate governance arrangements within the company.

 

Consideration of free float

 

Date of publication: 1 June 2015

Pursuant to AIM Rule 31, AIM companies are required to have in place sufficient systems, procedures and controls to enable them to comply with the AIM Rules. This is an area which the nominated adviser is also required to consider.

Such consideration involves, for example, the review of financial policies and procedures documentation prepared by the company (in conjunction with its reporting accountants). Nominated advisers should approach this consideration in a meaningful way, which would go beyond merely a review of the relevant documents to include an assessment of whether those policies are capable of working in practice, taking into account the nominated adviser’s knowledge of the company and its management.

The Exchange also notes that such systems, procedures and controls must be in place by the time of admission.

 

Systems, Procedures and Controls - Financial Policies and Procedures

 

Date of publication: 1 June 2015

Please find below inside AIM newsletters- issues 1 to 5

The technical guidance provided in Inside AIM should be regarded as illustrative only. It is intended to give an indication of how AIM Regulation expects certain aspects of the AIM Rules to be interpreted and is not definitive. AIM Regulation should be contacted by a company's nomad if clarification or a derogation from the rules is required.

As usual, AIM companies should continue to seek the guidance of their nomad when looking for assistance on the application of the AIM Rules.

Any amendments to existing AIM Rules will continue to be communicated via AIM Notices and will be subject to the usual public consultation process where appropriate. Amendments to our rules will not be introduced through Inside AIM.

Inside AIMs have not been updated following the UK's exit from the European Union, therefore in the context of historic references to EU regulation, users should refer to the relevant UK onshoring financial services legislation under the European Union (Withdrawal) Act (EUWA) 2018.

The Serious Fraud Office is a government department and is part of the UK criminal justice system. Its aim is to investigate and prosecute serious and complex fraud and so deter fraud and maintain confidence in the probity of business and financial services in the United Kingdom. The SFO also has power to take criminal action in issues of insider dealing. The SFO will investigate "boiler room" fraud depending on the seriousness and complexity of the circumstances. The FCA, City of London Police and Action Fraud (the UK National Fraud & Cyber Crime unit) may also have an interest in and take action where such fraud is suspected.

For more information, refer to: http://www.sfo.gov.uk/

A company’s shareholders play a vital role in holding a company and its directors to account by virtue of rights enshrined in company law including the ability to vote on resolutions put to shareholders at general meetings which will include the election and removal of directors, pre-emption rights and the right to requisition a general meeting (subject to a sufficient proportion of shareholders supporting such an action).

Shareholders also have their own obligations under the Disclosure and Transparency Rules to report their shareholding to the company to enable the company to meet its own notification obligations in respect of its significant shareholders. Oversight of compliance of these obligations of shareholder disclosure is the remit of the FCA.

Certain legal remedies against a company may also be available to shareholders under company law in circumstances where the directors have acted outside of their powers.

An AIM company will be subject to a range of regulatory and legal obligations which it must comply with. Its AIM Rules obligations are just one aspect of this. The primary obligations owed by a company are set out under company law. A company will have in place articles of association which set out the constitution of the company, including the core duties and obligations of its shareholders and directors.

In respect of a company’s obligations under the AIM Rules, the responsibility for compliance rests primarily with the company itself and it must have in place appropriate procedures, resources and controls to ensure compliance, seeking advice from its nominated adviser whenever appropriate and taking that advice into account in meeting its obligations.

AIM Regulation provides an e-mail enquiry and telephone service for Nomads, as they are the primary regulators of AIM companies. In exceptional circumstances, AIM Regulation is able to deal with queries from an AIM company’s other advisers, such as lawyers and accountants, or from the company itself.

1. The AIM Rules for Nominated Advisers state that AIM Regulation will not provide guidance on a ‘no-names’ basis in relation to detailed or specific regulatory matters. The relevant company’s name and the enquirer’s details should be disclosed to AIM Regulation so it can provide appropriate advice. All information received is kept confidential, in accordance with the AIM rules. If AIM Regulation does provide any guidance on a ‘no-names’ basis, it is provided for general, high-level purposes only and it is non-binding upon the Exchange and should not be relied upon.

2. Before contacting AIM Regulation, please ensure you have first checked all appropriate resources. Contacting AIM Regulation should not be treated as a substitute for reviewing these in the first instance.

3. Complex or specific queries, class test queries or requests for rule derogations must be sent by email by a company's Nomad.

4. When contacting AIM Regulation, you must provide it with all the material information necessary for it to advise on the query. If AIM Regulation provides advice or a derogation and the information on which this was based subsequently changes, you should approach AIM Regulation again as soon as possible.

5. AIM Regulation strives to respond to all queries as quickly as possible. However, complex or policy-related queries may require three business days or possibly longer if the team needs to access further information. This timescale should be factored into any transaction timetable. In any event, AIM Regulation should always be contacted at the earliest opportunity.

6. An adviser should not assume that a derogation from the AIM Rules has been provided unless a member of the AIM Regulation team has confirmed this specifically in an email to the company’s Nomad.

7. Please note that all telephone calls to and from AIM Regulation are recorded to enable London Stock Exchange to carry out its regulatory responsibilities. Please see the AIM Regulation privacy statement below for further details.

You can contact AIM Regulation preferably by email on aimregulation@lseg.com or alternatively on +44 (0) 20 7797 4154.

If your query relates to a secondary markets matter only, please contact the Exchange’s Market Supervision team on +44 (0) 20 7797 3666 (STX 33666).

If you have a complaint relating to an AIM company or a Nomad’s compliance with the AIM Rules, please e-mail aiminvestigations@lseg.com. If you have a complaint about the Exchange, please click here for more details.

 

Privacy Statement

^{Any personal information which you provide on these forms will be used by London Stock Exchange plc for the purposes of regulating AIM. If you are providing any personal information on behalf of another individual, you confirm by submitting such form that you have provided all necessary notices and, where required, have obtained that individual's consent to do so. In some cases, it may be necessary to carry out background checks on individuals using the information contained in these forms which, where permitted by law, may include criminal record disclosures. To carry out these checks, we may need to disclose personal information to, and collect information from, third party partners, with whom we have entered into binding arrangements to regulate the sharing of data, including its security, where appropriate. We carry out these checks in order to enforce the AIM Rules, and to ensure AIM’s reputation and integrity. We will only disclose information which may identify you as an individual where we believe it is necessary or advisable to do so in relation to these purposes. You have certain rights in respect of your personal information, including to access it, or to amend it where it is inaccurate. To investigate exercising any of these rights, or to find out more about our data protection and privacy practices, please refer to our Privacy Policy available on London Stock Exchange’s website. Your data controller, for the purposes of applicable law, is London Stock Exchange plc.}