Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), has sent a 'Dear CEO' letter, a month after he revealed that the regulator was conducting a review into Aviva’s preference share cancellation plans.
Bailey’s letter, published today, claimed that while the FCA is conducting a review into the market for certain fixed income shares - mainly those described as perpetual - it wants to ensure investors have access to information they may need to ‘properly asses the risks and rewards attaching to’ irredeemable preference shares or other instruments.
He pointed out that the recent announcement from Aviva, that it was going to cancel its high yielding preference shares, affected the market and the price of those shares.
While the company subsequently stated that it decided not to follow through on this decision, other listed companies with irredeemable shares have not clarified their position. Last month, the regulator announced that it will conduct a review to see if Aviva’s plan broke market abuse rules.
Bailey (pictured) stated: ‘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).’
The regulator added that companies may also wish to ensure that terms and conditions, articles of association, Q&A documents and details of any changes regarding such instruments are readily available to shareholders.
Within the Q&A document, companies should address: the extent to which changes to rights can be made, the existence of any ability to cancel the shares at a price less than the prevailing market price and whether the company made a decision on using these powers.
Bailey added: ‘I would urge you to ensure that these details are available for your company's shares and also to consider, in conjunction with your advisers if necessary, whether there is a risk that the prevailing market price of any of your company's shares or other signals from investors suggest that there is a lack of understanding over the terms and conditions of those shares and/or your company's intention regarding them.
'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.'