The Professional Securities Market - London Stock Exchange

Factsheet15 November 20133.0 International FinancialReporting Standards (“IFRS”)A key difference between the retail and w holesaleregimes is in the preparation of financial information. Anissuer follow ing a retail regime under PD is required toprepare its financial information to follow IFRS standards,or an equivalent standard, for any financial year startingon or after 1 January 2007. This applies to all issuers ofconvertible securities required to provide disclosuresaligned w ith those of equity issuers, irrespective ofdenomination. Preparing financial information to followIFRS standards is not a requirement under a w holesaleregime and local accounting standards are acceptable.Under PD, issuers instead are required to provide adescription of the key differences between the accountingstandards used and IFRS 1 .These requirements may not suit some issuers w ho wantto list convertible bonds or securities denominated below€100,000, but w ith the intention to target professionalinvestors only. This is particularly so for those issuersfrom outside the EU, w hose accounting standards maynot be deemed equivalent to IFRS. The cost of re-statingor providing additional disclosures under a retail regimecould be prohibitive.4.0 London’s solutionTo offer increased flexibility and to meet the needs ofissuers not w ishing to issue to retail investors, the LondonStock Exchange and the Financial Conduct Authority(“FCA”) – the UK’s competent authority for listing –introduced an additional element to complement thelisting processes launched under PD. This provided athird option for issuers listing in London, w hich enablesthem to follow a wholesale regime irrespective of the typeor denomination of security.Since 1 July 2005, issuers listing debt, convertibles orDRs in London have had the choice of being admitted tothe Main Market, w hich is a Regulated Market, or theProfessional Securities Market, w hich is operated andregulated by the Exchange. Both are recognised anddefined w ithin the directives 2 .The rationale in taking this approach stems from the factthat PD and the Transparency Directive (“TD”) apply tosecurities that are admitted to Regulated Markets w ithinthe EU. Therefore, the FCA is able to exercise flexibility inthe implementation of the directives w here issuers chooseto admit to the Professional Securities Market, as this isnot a Regulated Market as defined in the directives.In follow ing the Professional Securities Market route tolisting, issuers are able to admit any type of debt securityor DR, including those carrying a right to convert oracquire equity, of any denomination and follow aw holesale regime, w ithout the requirement for additionalequity disclosure for convertibles. In addition, the FCA isable to exercise flexibility in its application of thew holesale requirements for issues onto the ProfessionalSecurities Market. For example, issuers from manyjurisdictions are not required to provide a description ofthe key differences between their local accountingstandards and IFRS.1 The requirement undera wholesale regime toprovide a narrativedescription of thedifferences between IFRSand the local accountingprinciples adopted by theissuer is waived forissuers admitting to theProfessional SecuritiesMarket.2 A regulated market isdefined under MiFID(Markets in FinancialInstruments Directive - tobe implemented on 1November 2007). TheProfessional SecuritiesMarket is operated andapproved as a MultilateralTrading Facility (MTF),also defined under MiFID.2