Primary Market Bulletin 59

We found:

• A 39% decrease in DDII notifications submitted per day compared to our previous review. Factors such as market conditions may affect the volume of notifications, but such a significant drop was unexpected.
• Approximately 18% of issuers on the trading venues we reviewed made DDII notifications, compared to around 25% previously.
• Average delays increased by approximately 7 days since the previous review, to 35.2 days. However, we were pleased to see a fall of around 6 days for the average delay in the category of ‘Unscheduled Financial Information’. 

Fewer issuers making DDII notifications and delaying disclosure of inside information for longer may not mean that levels of compliance with some elements of Article 17.4 have fallen. It is possible that:

• Less information was identified as inside information compared to our previous review.
• Fewer issuers made use of the ability to delay disclosure of inside information and released information more promptly to the market.

Even so, issuers should make sure they have appropriate arrangements in place to comply with Article 17.4 of UK MAR. This includes the requirement to immediately inform us that disclosure of the inside information was delayed after disclosure to the public. Where issuers delay disclosure, they should give a written explanation of how the considerations in Article 17.4 were met, if we request it.

We remind issuers that Listing Principle 1 (see UKLR 2.2.1 R) states that ‘A listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.’ This extends to meeting its disclosure obligations under Article 17.4.

We considered DDII notifications submitted to us by issuers as required under Article 17.4 of UK MAR.

Article 17.1 of UK MAR requires, among other things, that an issuer ‘inform the public as soon as possible of inside information which directly concerns that issuer.’ However, Article 17.4 allows an issuer to ‘on [its] own responsibility, delay disclosure to the public of inside information if all the following conditions are met:

1. Immediate disclosure is likely to prejudice the legitimate interests of the issuer or UK emission allowance market participant.
2. Delay of disclosure is not likely to mislead the public.
3. The issuer or UK emission allowance market participant is able to ensure the confidentiality of that information.

If an issuer delays disclosure of inside information, they are required to inform us of that delay immediately after the inside information is disclosed to the public. This can be done via our ‘Notification of Delayed Disclosure of Inside Information’ form. Further guidance on using the form is in the Delayed Disclosure Form Guide. 

We considered the DDII notifications submitted for the 2-year review period from 1 April 2022 to 31 March 2024. The notifications we received related to issuers on the London Stock Exchange (LSE) Main Market, Alternative Investment Market (AIM), the Aquis Main and Growth Markets, and the LSE’s ‘Non-AIM MTF’ encompassing the Professional Securities Market, International Securities Market, and requests for admission to trading. 

We wanted to know whether the delay period differed depending on the type of information in the notification. So, we categorised the DDII notifications into 9 categories based on the information they contained. 

The category names were taken directly from the previous review for consistency and comparability, with the exception of a new category for persons discharging managerial responsibilities. This new category ‘PDMR Shareholdings’ is intended to capture the delayed disclosure of inside information contained in PDMR notifications which are required under Article 19.1 of UK MAR. 

We then calculated the average time between when a decision to delay disclosure is made to when information is disclosed to the public, and analysed this to understand how this differs by category.

Alongside our data analysis, we also engaged with issuers and their advisors to gain a more holistic understanding of market practice, and followed up on individual instances as appropriate.

Overall volume of DDII notifications

Over the review period, there were 835 DDII notifications. This represents a 39% fall in the number of DDII notifications submitted per day, on average, compared to our previous review.

A drop of this magnitude was significant and unexpected. Our previous review included the period immediately after UK MAR was onshored in the UK and it may have taken issuers time to update their compliance processes. In this context, we anticipated an increase in the volume of DDII notifications rather than a decrease.

A drop in DDII notifications does not necessarily indicate that levels of compliance with Article 17.4 have fallen. It is possible that less inside information was identified by issuers, or that issuers had chosen to delay disclosure of inside information less often. 

Conversely, it is possible that some issuers identified inside information and chose to delay it in line with Article 17.4, but failed to make DDII notifications to us following public disclosure. This would be a breach of Article 17.4, and we have and will continue to follow this up with issuers.

Volume of DDII notifications by category

Findings on the volume of DDII notifications were in line with our expectations. The highest volume of notifications related to ‘Mergers and Acquisitions’, ‘Business Updates’, and ‘Placings and other Corporate Finance’.

We received only 2 notifications in the ‘PDMR Shareholdings’ category, referencing the delay of the disclosure of inside information contained in PDMR notifications. Under Article 19.1 of UK MAR, PDMR notifications must be made promptly and no later than 3 working days after the date of the transaction. We remind issuers of their disclosure obligations under both Article 17.4 and Article 19 of UK MAR.

Differences in volume of DDII notifications based on issuers’ instruments

The number of debt-only issuers which made DDII notifications (11) was far lower than the number of equity issuers which made them (414). This is a significantly lower ratio than the general ratio of debt-only to equity issuers on the venues we reviewed. However, it is possible that debt-only issuers identified lower volumes of inside information, or made less use of the ability to delay disclosure.

Despite this, we remind debt-only issuers in scope of UK MAR that they are also required to meet their disclosure obligations under Article 17.4 when they delay the disclosure of inside information.

Volume of notifications by trading venue (equity-only)

We saw a significant drop in the proportion of equity issuers submitting a DDII notification. We found that 18% of issuers on the trading venues we reviewed had submitted a DDII notification during the review period. This compares to 25% of issuers previously.

We also noted that the proportion of equity issuers submitting DDII notifications on AIM (17%), the Aquis markets (3%), and the ‘Non-AIM MTF’ (3%) was lower than on the LSE Main Market (21%).

Average delay periods

The overall average period between the date of the decision to delay disclosure and the date when the inside information delayed was disclosed to the public was 35.2 days. This was an unexpected increase of approximately 7 days.

There are likely to have been a range of issuer-specific reasons for this. However, the longer the disclosure of inside information is delayed, the less likely that the conditions under Article 17.4 might be met, especially on ensuring the confidentiality of that information.

We remind issuers to consider whether the conditions to delay under Article 17.4 continue to be met on an ongoing basis. This includes ensuring the confidentiality of the inside information until disclosure is made.

During the delay period, we also remind issuers of their obligations under:

• Article 17.7 of UK MAR, that ‘[where] disclosure of inside information has been delayed […] and the confidentiality of that inside information is no longer ensured, the issuer […] shall disclose that inside information to the public as soon as possible.’
• Article 18 of UK MAR, to draw up and maintain insider lists to reduce the risk of unlawful disclosure of inside information and insider dealing during the delay period.

Average delay periods by category of notification

A key focus from our previous review was on the delay periods for notifications relating to unscheduled and periodic financial information.

The overall average delay increased by approximately 7 days from our previous review. But we were pleased to note a decrease of approximately 6 days in the average delay for the ‘Unscheduled Financial Information’ category, from around 21 days to 15 days. There was also a decrease of approximately 3 days for the ‘Periodic Financial Information’ category, to an average of 15 days.

Time taken to submit DDII notifications

We identified 43 issuers who had submitted at least 1 DDII notification to us 7 or more days after the inside information was disclosed to the public. Article 17.4 of UK MAR requires that issuers ‘inform the FCA that disclosure of the information was delayed immediately after the information is disclosed to the public’. We remind issuers to submit a DDII notification promptly to ensure compliance with Article 17.4.

Outliers

Some issuers were significant outliers in terms of the length of delay periods, delays in notifying us, and the number of DDII notifications made.

We followed up with several issuers to understand the reasons for this. While we did not identify matters of serious concern, we saw instances of issuers lacking confidence in classifying and processing inside information, leading to unnecessary classification and notification

We advised issuers to review their policies and procedures and arrange training for relevant staff. We will continue to monitor significant outliers and follow up with issuers where necessary.

Our findings are relevant to all issuers subject to UK MAR. We expect issuers subject to UK MAR to know and comply with relevant regulatory requirements including:

• Article 17 UK MAR (Public disclosure of inside information) 
• Article 18 UK MAR (Insider lists)
• Article 19 UK MAR (Managers’ transactions)
• DTR 2.2 (Disclosure of inside information)
• DTR 2.5 (Delaying disclosure of inside information)
• TN 506.3 (Periodic financial information and inside information)
• Listing Principle 1 (UKLR 2.2.1R – maintain adequate procedures, systems and controls)

Listed companies that undertake this practice should consider how they communicate the strategy to shareholders, including both benefits and associated risks. This covers regulatory announcements made under the UK Market Abuse Regulation, the UK Listing Rules and Disclosure Guidance and Transparency Rules as well as all other announcements, communications or marketing materials including those on the company’s website.

Listed companies should consider how they describe the risks to investors of the company acquiring and holding cryptoassets. For example, the volatility in the value of cryptoassets, the potential impact of this volatility on the company’s financial position and share price, and exposure to the failings of service providers.

Announcements on capital raisings should be clear on the use of proceeds, including where the proceeds may be used to acquire cryptoassets. Listed companies should also make sure that any communications are in line with the financial promotion restriction set out in S21 FSMA, and any FCA authorised firms should make sure their communications comply with the financial promotion rules.

Listed companies should be mindful of whether the acquisition of cryptoassets may constitute a reverse takeover under the definition in UKLR 7.1.4R. 

This is where the transaction (aggregated with any other transactions of a similar nature during the preceding 12 months as in UKLR 7.2.11R) meets or exceeds 100% any of the class tests. Or where the transaction, in substance, results in a fundamental change in the business or in change in board or voting control. As in UKLR 7.5.8G, where a listed company completes a reverse takeover, we will seek to cancel the listing of an issuer’s equity shares. 

This is unless we are satisfied that circumstances exist such that cancellation is not required. Following cancellation, the issuer will need to re-apply for listing. 

Listed companies that are unsure whether acquiring cryptoassets may constitute a reverse takeover should seek individual guidance from us via the Electronic Submission System (ESS).

A listed company, which is a shell company under UKLR 13.1.2R, should note the meaning of an initial transaction in UKLR 13.4.2R and the guidance in UKLR 13.4.3G. Specifically, that the first transaction that it enters into will generally constitute an initial transaction. This is likely to apply to acquiring cryptoassets. 

As in UKLR 13.4.4R and UKLR 13.4.24R, the shell company must, through its sponsor, contact us as early as possible before announcing the initial transaction to discuss whether suspending a listing upon announcement and cancelling a listing upon completion is appropriate.

For companies subject to UK MAR, developments around their plans to acquire cryptoassets as well as acquisitions of cryptoassets may constitute inside information. 

Companies should have regard to their disclosure obligations under article 17 of MAR. This may include acquisitions of cryptoassets as well as movements in the value of existing owned cryptoassets (which may also be dependent on the accounting treatment being adopted). 

Listed companies should make sure any inside information is carefully controlled before publication particularly where external parties are carrying out the treasury function on behalf of the company.