Financial Conduct Authority (FCA) chief executive Andrew Bailey has published a Dear CEO letter urging companies to provide clarity for preference shares investors in light of Aviva’s share saga.
Following outrage from investors and MPs, Aviva U-turned on its plans to cancel four preference shares last month which had high fixed dividends of between 7.9% and 8.9% of their issue price. Subsequently the FCA announced it was making enquiries into Aviva’s efforts to cancel the shares to see if any had been any market abuse by the insurer.
Now Bailey (pictured) has published a Dear CEO letter which says the FCA is currently reviewing the preference share market and called for companies to provide clarity to investors.
After Aviva announced it was cancelling some of its preference shares this affected the market price of those shares and a number of other ‘similar shares issued by other listed companies fell at the same time’, Bailey’s letter said.
He noted that while Aviva had cancelled its plans and another company said it will not cancel its shares, other listed companies who hold these shares ‘have not clarified their position’.
Bailey warned companies must consider market abuse rules if they cancel these shares.
‘Listed companies will need to consider whether any intention to cancel or otherwise retire a class of irredeemable shares, or similar shares, at a price based on factors other than the prevailing market price, or their company's deliberation on any such intention, constitutes inside information under Article 7 of the Market Abuse Regulation (MAR),’ he said.
He urged companies to ensure their investors are aware of and understand the terms of conditions of their preference shares and suggested companies publish a Q&A document which would set information about the ability to cancel the preference shares below market price.
‘We recognise that there is a tension between investors' desire to see a permanent resolution to any remaining concerns and the desire of company boards not to limit their (and their successors') scope for action,’ he said.
‘However, in the event that you have publicly stated or propose to publicise your company's intentions regarding such securities, I would urge you to also set out the governance process and the approach to disseminating any future changes you might make.’