Listed companies and corporate governance
What is UKLA and who is responsible for it?
UKLA stands for UK Listing Authority and it is the responsibility of the Financial Services Authority. UKLA is empowered to make rules governing admission to listing, the continuing obligations of issues, the enforcement of the obligations and suspension and cancellation of listing.
Can UKLA impose financial penalties?
Yes. It can impose financial penalties on listed companies. It can also impose financial penalties on the directors of listed companies if they knowingly contravene the listing rules.
What is the status of AIM?
AIM stands for the Alternative Investment Market. It is run by the London Stock Exchange and it is intended as a market for smaller companies. AIM companies are not subject to the Listing Rules and are not listed for the purposes of statutory or regulatory requirements. They are subject to separate AIM rules issued by the London Stock Exchange.
How many quoted companies are there?
There are about 1,400 fully listed companies, though the number varies from time to time. This number does not include companies quoted on AIM.
What is the SETS system of trading?
This automatically matches buy and sell orders entered by brokers on computer screens for shares in the most heavily traded companies. This includes all FTSE100 and most FTSE250 companies.
Quotation driven trading applies to other listed shares.
How have corporate governance codes developed since 1992?
Corporate governance has developed since 1992 with the publication of the following codes:
1992 Cadbury Code
This was a code of best practice in corporate governance. It was issued by a committee convened by the Financial Reporting Council and chaired by Sir Adrian Cadbury.
1995 Greenbury Code
This was a report on various aspects of directors' remuneration. The committee was established by the CBI and chaired by Sir Richard Green- bury.
1998 The Hampel Combined Code
This was the report of a committee established by the Financial Reporting Council and chaired by Sir Ronald Hampel. It reviewed the operation of the Cadbury and Greenbury codes, brought them together (hence the Combined Code), amended them and added its own contribution.
2003 The Combined Code on Corporate Governance
This followed a review by Derek Higgs and brought the Combined Code up to date. It was again brought up to date in 2006 and a further review is underway at the time of writing.
Does the Combined Code apply to all companies?
No it does not. It applies to listed companies and is annexed to the listing rules. Changes to the listing rules have been made because of it. Of course it is of interest to other companies and may influence their governance.
Are smaller listed companies exempted from some of the requirements of the Combined Code?
Yes they are. Companies that were not in the FTSE 350 throughout the year immediately before the reporting year may:
Have just two independent non-executive directors. This is instead of half the board, excluding the chairman.
Have remuneration and audit committees comprising two independent non-executive directors. This is instead of three.
Does the Combined Code have the force of law behind it?
No it does not. It is compulsory for listed companies to the extent that they are required to comply on a point by point basis or explain on a point by point basis why they have not complied. Not to do so would incur the wrath of the Financial Services Authority.
How is the Combined Code laid out?
The code is divided into a number of subject areas. For each one there is a main principle, supporting principles and code provisions.