In a notice published today that has the potential to make London a significantly more attractive market for US issuers, the London Stock Exchange has issued a consultation paper in relation to its proposal to allow immediate electronic trading and settlement of shares of US companies that are sold in the UK under US Securities and Exchange Commission (SEC) Regulation S. The comment period for the proposal ends on 26 June 2006.
Electronic trading and settlement differs from current market practice, which is to require Regulation S shares to trade in certificated form during a "distribution compliance period" (usually at least one year after completion of an offering). Although cumbersome compared to settlement through CREST, the Exchange’s electronic, paperless settlement system, this method has been viewed as a necessary precaution to prevent the transfer of shares to "U.S. Persons" (essentially, individuals and entities resident in the US) in violation of the US securities laws. Not surprisingly, US companies contemplating a London listing may view physical settlement as a disadvantage.
In the past, exchanges outside the US have sought "no-action" relief from the SEC to ensure paperless settlement of Regulation S shares complies with US securities laws. The London Stock Exchange has not received such relief, although we understand there have been discussions with the SEC.
We will provide further updates to our contacts as events develop.