The Financial Conduct Authority (FCA) chief executive Andrew Bailey has written to the chief executives of companies that have issued irredeemable preference shares to warn against flouting market rules.
As FTAdviser previously reported, the FCA is currently investigating the market for preference shares after Aviva said it was contemplating buying back its preference shares at par value, despite the instruments trading at a value considerably in excess of that level.
When news emerged that Aviva was pondering taking this action, the price of many other preference shares also declined sharply in value.
The preference shares of Aviva and other companies on the market trade at much higher prices that the par value. This is because the yields are much greater than those available on the common stock of the companies.
Aviva later cancelled the plan to buy back the shares.
The FCA said companies issuing preference shares must ensure that information about the terms and conditions of the shares is "clear and comprehensible".
Mr Bailey's letter said companies should produce the information in a question and answer (Q&A) format to increase the level of clarity for investors, and this should specifically relate to how the rights of shareholders can be changed at a future date.
Mr Bailey's letter also warned companies to be mindful of the risks of insider trading.
He said: "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 seven of the Market Abuse Regulation (MAR).”
david.thorpe@ft.com
