Listing regime – latest FCA Primary Market Bulletin

The Financial Conduct Authority (FCA) has published the 33rd edition of its Primary Market Bulletin (PMB No.33). It contains an update on various issues, including the FCA’s review of delayed disclosure notifications.

Feedback on review of delayed disclosure notifications

In November 2020, the FCA published a review of notifications of delayed disclosure of inside information (see our blog post here).

Following publication of the review, the FCA says that it has received a number of queries. It clarifies that the review did not contain any new guidance and was not intended to drive wholesale changes to market practice. In particular the FCA reiterates that:

  • Periodic financial information – Issuers should begin with the assumption that information relating to financial results could constitute inside information and the FCA expects issuers to exercise judgement in assessing whether inside information exists.
  • Board changes – Following feedback on the challenges of complying with the obligation to announce inside information as soon as possible in the context of board changes, the FCA acknowledges that the question of whether information is “precise” requires judgement. The FCA also refers issuers to the guidance in its Technical Note on Assessing and handling inside information.

Major shareholding notifications and total voting rights announcements

In 2020, the FCA conducted a review of the way that UK issuers announced changes to total voting rights and the effect on major shareholding notifications.

DTR 5.6.1 requires an issuer to disclose the total number of voting rights, and the total number of voting rights attaching to treasury shares, at the end of each month if there has been a change in those numbers during the month. If there is a material increase or decrease during the month, an immediate total voting rights announcement may be required under DTR 5.6.1A.

DTR 5 also requires holders of shares and certain financial instruments to notify the FCA and the relevant issuer when certain thresholds are reached or crossed.

Recommendations made by the FCA following its review include:

  • issuers should report changes to total voting rights clearly and on time at the end of each calendar month during which an increase or decrease occurred, even if this information has previously been disclosed in accordance with DTR 5.6.1A; and
  • issuers should report total voting rights figures as a distinct announcement using “Total Voting Rights” as a headline and selecting as the classification for the regulated information “Total number of voting rights and capital”.

The new on-line portal for investors to submit TR-1 notifications of major shareholdings electronically (see our blog post here) is now live and TR-1 notifications must now be sent via the portal.

Payments to governments

In 2020 the FCA conducted a review of disclosures made by those issuers in the extractive sector required to report on their payments to governments in accordance with DTR 4.3A.

The FCA reminds issuers of the key requirements in relation to contents, publication and filing of these disclosures (in particular filing with the National Storage Mechanism in XML format).

The FCA also reminds issuers that no determinations of equivalence have been made by the FCA in respect of DTR 4.3A and so all issuers within scope are required to comply, even if they report similar information in another jurisdiction.

 

Sarah Hawes
Sarah Hawes
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Caroline Rae
Caroline Rae
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Gareth Sykes
Gareth Sykes
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FCA and FRC statement on reporting deadlines

The Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) have published a joint statement reminding issuers of the temporary relaxations to the usual timeframes for publication of the annual report and accounts in light of the ongoing Covid-19 pandemic.

Under the relaxations, issuers have an additional two months to finalise their annual report and accounts (so they must be published within six months of their year-end). In relation to half-yearly reports, the period for publication is effectively extended by one month, so the half-yearly report must be published within four months after the end of the half-year. The FCA has said that these temporary relaxations will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021.

The statement also reiterates the importance of keeping the market up to date and that listed companies must continue to assess carefully what information constitutes inside information, recognising that the Covid-19 pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.

The London Stock Exchange has also published an edition of Inside Aim, confirming that temporary measures for reporting deadlines in relation to the publication of annual results and half-yearly reports for AIM companies also remain available.

Alex Kay
Alex Kay
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Antonia Kirkby
Antonia Kirkby
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Robert Moore
Robert Moore
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The regulatory regime for companies following the UK’s withdrawal from the EU

The UK ceased to be a Member State of the European Union on 31 January 2020. A transition period then applied until 31 December 2020. During the transition period, EU law continued to apply in and to the UK, and the UK continued to trade as part of the Single Market.

The Brexit transition period ended on 31 December 2020, with the EU and UK having agreed to the terms of their future relationship through a Trade and Cooperation Agreement – you can read more about the implications of the agreement here.

Retained EU law

As of 1 January 2021, EU law no longer applies in the UK. By virtue of the European Union (Withdrawal) Act 2018, directly applicable EU law in force in the UK at the end of the transition period is retained as part of the UK statute book. Retained EU law has broadly the same status as any other UK enactment and is subject to the same rules/processes for amendment as any other UK primary or secondary legislation (or if made under devolved powers, the rules of the relevant legislature in Scotland, Wales or Northern Ireland).

EU Exit statutory instruments

The Government has made secondary legislation dealing with a range of corporate law matters to ensure that both Retained EU law and existing UK law and regulation (for example that referenced EU concepts or bodies) could operate effectively once the transition period ended. These regulations include:

FCA Rules

The FCA has made a number of changes to its Handbook that apply with effect from the end of the Brexit transition period, including changes to the Listing, Prospectus Regulation, Disclosure Guidance and Transparency Rules.

The impact of the rule changes for UK incorporated companies which have securities admitted only to a UK regulated market will be minimal. Issuers which have shares admitted to a regulated market in the UK and in an EEA state will have to adjust their systems and controls and, for example, make additional notifications to regulators for certain matters, including in relation to PDMR transactions.

Takeover Code

The Takeover Panel has similarly made a number of changes to the Takeover Code that were required as a result of Brexit. The changes will not have a significant impact on transactions.

 

Sarah Hawes
Sarah Hawes
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Barnaby Hinnigan
Barnaby Hinnigan
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Roddy Martin
Roddy Martin
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Special edition of the Primary Market Bulletin on Brexit

The Financial Conduct Authority (FCA) has published a special Primary Market Bulletin No.32 on Brexit to remind issuers and investors of the changes to the listing regime that will take effect at the end of the transition period on 31 December 2020. Issuers will need to ensure that their internal policies and procedures are updated to reflect these.

Areas covered include:

  • Inside information – Issuers will have to send a notification of any delayed disclosure of inside information to the FCA under Article 17(4) of the UK version of the Market Abuse Regulation (UK MAR). Issuers may also need to notify an EU competent authority if, for example, they have securities admitted to trading on an EU market. The content and format of the notifications remain the same.
  • PDMR transactions – UK MAR contains broadly the same requirements for transactions by persons discharging managerial responsibilities (PDMRs) and persons closely associated with them (PCAs), but again they will have to send their notifications to the FCA under Article 19 of UK MAR. This may be in addition to any notification to an EU competent authority. Under changes being introduced by the Financial Services Bill, to reflect changes to EU MAR, from 1 January 2021 issuers will have two working days to disclose a PDMR or PCA dealing from the date on which they are notified of it, rather than being required to make the disclosure within three working days of the dealing (see our earlier blog post).
  • Share buy-backs – UK MAR will retain the same exemptions for buy-back programmes and the FCA confirms that where the shares are traded on a UK trading venue, issuers should continue to report to the FCA each transaction relating to the buy-back programme (including those transactions which do not take place on a UK trading venue). Where the shares are also traded on an EU trading venue, issuers should continue to report to the EU competent authority.
  • Passporting prospectuses – It will not be possible to passport a prospectus into an EEA country after the end of the transition period. Issuers wishing to passport a prospectus before 31 December 2020 are advised to arrange their passporting request well in advance. Prospectuses passported into the UK before the end of the transition period will remain valid in the UK for 1 year from the date of the approval of the prospectus.
  • ESMA Guidelines and Q&A on Prospectus Regulation – The FCA confirms that the new Guidelines on disclosure requirements under the Prospectus Regulation published by the European Securities and Markets Authority (ESMA) will not have become effective before the end of the transition period, so issuers should have regard to the ESMA update of the CESR recommendations once the transition period ends. The FCA says that it will continue to have regard to the ESMA Q&A on the Prospectus Regulation where relevant.

Issuers can look at the version of the FCA Handbook that will apply from 1 January 2021 by using the “timeline” function on the FCA Handbook website.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Recent FCA publications

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 31 (PMB 31), and through it publicised two recent reviews it has undertaken into delayed disclosure of inside information and corporate governance disclosures by listed issuers.

Delayed disclosure of inside information

The FCA has reviewed the delayed disclosure of inside information notifications (DDIINs) it has received. Under Article 17(4) of Market Abuse Regulation (MAR), where a UK issuer delays disclosure of inside information, once it announces that information it must notify the FCA that it has been delaying its disclosure.

The FCA notes that only one quarter of issuers have submitted a DDIIN at all, leaving it concerned that issuers may not be aware of the requirement to submit them. It also identifies a number of areas where it will increase its oversight, including:

  • Unscheduled financial information – The FCA was surprised that the delays associated with disclosing unscheduled financial information were longer than those relating to periodic financial information, as it is more challenging to establish circumstances in which it is legitimate to delay unscheduled financial information. It also notes that it has only received a low number of DDIINs in this area, when compared with the number of unscheduled trading statements issued.
  • Director/board changes – The FCA was also surprised at the number of DDINs it received in relation to director/board changes, given that it is not specified in the (non-exhaustive) situations in the European Securities and Markets Authority (ESMA) guidelines on legitimate interests for delay where an issuer may have a legitimate interest in delaying disclosure.

Corporate governance disclosures

Following a review of a sample of annual reports from 2016-2018, the FCA makes a number of observations and suggestions in relation to compliance with the FCA rules relating to corporate governance, including:

  • Compliance with the Principles of the Governance Code – The FCA encourages premium listed issuers to consider carefully, when stating how they have applied the Principles of the Governance Code as required under Listing Rule 9, whether they have done so in a way that enables shareholders to evaluate how the Principles have been applied (rather than merely stating they have been). To avoid boilerplate disclosures, more examples and cross-references to other parts of the annual report could be included.
  • Board diversity reporting – Overall the FCA felt the quality of board diversity reporting could have been better, particularly in relation to Governance Code Provision 23 (work of the nomination committee), and Principles J (board appointment processes) and L (annual board evaluation).
  • Standard listed companies – A number of standard listed companies provided little or no information on their internal control and risk management systems, and management bodies and committees (as required by DTRs 7.2.5 and 7.2.7). The FCA also noted that a number of standard listed issuers state that they have applied the Provisions of the Governance Code “as far as relevant” without providing any further detail (which does not meet the requirements of DTR 7.2.3).

Extension of relaxations to deadlines for financial reporting

In response to the difficulties being faced by listed companies as a result of the Covid-19 pandemic, earlier this year the FCA published statements which, in effect, give listed companies an additional two months to publish their annual report and accounts (to within six months of their year-end) and an additional one month to publish their half-yearly reports (to within four months after the end of the half-year). In PMB 31 the FCA confirms that this temporary relief will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021.

 

Mike Flockhart
Mike Flockhart
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Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Updated ESMA Q&A and FCA approach to prospectus disclosure guidelines

ESMA has updated its Q&A on the Prospectus Regulation to include additional questions in relation to Brexit. Issues addressed in the updates to the Q&A include:

  • the status of a prospectus, where it has been approved by the FCA and passported into the EU prior to the end of the transition period, once the transition period ends; and
  • the need for non-EU issuers which have the UK as their home Member State for the purposes of the Prospectus Regulation to choose a different home Member State at the end of the transition period. ESMA has also updated its Q&A on the Transparency Directive to cover the choice of a home Member State under the Transparency Directive after the end of the transition period.

The updated Q&A on the Prospectus Regulation also cover:

  • the identification of profit forecasts in prospectuses; and
  • the exemption from the requirement to produce a prospectus where the securities being admitted represent less than 20% of securities of the same class already admitted to trading.

FCA approach to ESMA Guidelines on prospectus disclosures

ESMA published its Final Report – ESMA Guidelines on disclosure requirements under the Prospectus Regulation in July 2020 (see our corporate update 2020/15). However, the new Guidelines will not become effective before the end of the Brexit transition period on 31 December 2020 so will not become part of UK law at that point. In Primary Market Bulletin 31 (discussed at item 1 above), the FCA confirms that this means that, for prospectuses approved in the UK, issuers should continue to have regard to the old ESMA CESR Prospectus Directive Recommendations and it will consult on its approach to the new Guidelines in due course.

 

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

 

Latest FCA Primary Market Bulletin

The Financial Conduct Authority (FCA) has published the 30th edition of its Primary Market Bulletin (PMB).

Topics covered in the PMB include:

  • PDMR dealing notifications – It reminds persons discharging managerial responsibilities (PDMRs) of the importance of notifying dealings under the Market Abuse Regulation (MAR). This follows its first enforcement action for breach of the requirements (see our corporate update 2020/1). The PMB explains who a PDMR is, which transactions have to be notified and how notifications should be made.
  • Guidance notes on the prospectus regime – The FCA has finalised updates to several of its technical and procedural guidance notes to reflect the EU Prospectus Regulation, including on Supplementary prospectuses (Primary Market/TN/605.3), Significant change statements (Primary Market/TN/628.3) and Exemptions from the requirement to produce a prospectus (Primary Market/TN/602.3).
  • Proposed guidance note on the need for a prospectus on a scheme of arrangement – The FCA is consulting on a new technical note in relation to the prospectus requirements on a scheme of arrangement, which says that the FCA considers that a scheme of arrangement which has a mix and match facility involves an element of investor choice and therefore requires a prospectus (absent an exemption).
Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Caroline Rae
Caroline Rae
+44 20 7466 2916

Covid-19 – latest developments for corporate practitioners

Further guidance for companies has been published in light of the Covid-19 pandemic.

Corporate reporting

  • FRC Lab reports – The Financial Reporting Council’s (FRC) Financial Reporting Lab has published two reports which seek to give companies practical guidance on corporate reporting, and investor expectations, in light of the Covid-19 pandemic.
    • Covid-19 – Resources, action, the future covers: resources, including the availability of cash; actions to manage short-term expenditure and ensure viability; and the future and how the decisions taken now ensure the sustainability of the company and impact customers, suppliers and employees. These three areas reflect the Five current questions investors seek information on, published by the FRC Lab in March 2020.
    • Covid-19 – Going concern, risk and viability notes that going concern is not binary, or a pass/fail concept. A company can be a going concern even when one or more material uncertainties exist. However, in those circumstances, those uncertainties should be disclosed, together with management’s consideration of them. In relation to risk reporting, the FRC Lab says investors want to understand how the risks have changed, the specific impact on the company and how management have responded.

Contract

  • Execution of documents – The Law Society has updated its guidance on virtual execution and the use of e-signatures to include tips on how to operate in practice.
  • Covid-19 contract disputes – The economic disruption caused by the Covid-19 pandemic inevitably exposes businesses to heightened legal risk. In particular, counterparties may seek to delay, or avoid, performance and/or terminate agreements. We have published a guide which provides a general overview of the common bases for avoiding contractual obligations in commercial contracts, including a comparison of the key rights and remedies.

Companies House

  • Filings at Companies House – Companies House has developed a temporary service to enable companies to file certain documents online that would usually have to be submitted in a paper format. A list of the documents that can be filed in this way, which is currently quite limited, is available here. Companies House is planning to expand this service before the end of July to enable the upload of resolutions and articles of association.

Other relevant materials

  • Company meetings and insolvency regime – The new Corporate Insolvency and Governance Act 2020, which will both reform the insolvency regime in the UK and introduce relaxations for companies holding meetings while Covid-19 restrictions remain in force, received Royal Asset last night. We will be publishing further commentary in due course. Further information on the then draft Bill and its impact on financial institutions, landlords and supply chains is available here.
  • Insurance – The Financial Conduct Authority (FCA) has published guidance on its expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption policies during the test case brought by the FCA (see our corporate update 2020/10 for brief details on the case).
  • Repairing the balance sheet – As businesses emerge from the immediate shocks of the humanitarian and economic effects of Covid-19 and the public health responses to it, we have published a new guide in which we look at how businesses can begin to rebuild their balance sheets and adapt their funding in order to ensure their long-term ability to thrive.

For further Covid-19 related publications, see our COVID-19 Hub.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Gavin Williams
Gavin Williams
+44 20 7466 2153

FCA guidance for industry regulators on handling inside information

The Financial Conduct Authority (FCA) has published a Primary Market Bulletin (PMB No. 29), in which it sets out the results of its consultation (in PMB No. 25) on best practice for government departments, industry regulators and public bodies on identifying, controlling and disclosing inside information. It has also published its finalised best practice note.

The note includes guidance on the timing of announcements to the market and disclosures made in response to requests under the Freedom of Information Act 2000.

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Alex Kay
Alex Kay
+44 20 7466 2447

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

COVID-19 – latest developments for corporate practitioners

Further guidance for companies has been published in light of the COVID-19 pandemic.

Company meetings and other corporate actions

  • Shareholder meetings – The Government has published the Corporate Insolvency and Governance Bill (together with Explanatory Notes) which contains relaxations to the company meeting requirements contained in the Companies Act 2006 (as well as the meeting requirements for certain other entities).

The Bill would allow shareholder meetings to take place by electronic or any other means notwithstanding the provisions contained in the Companies Act 2006 and the company’s articles of association. The participants would not need to be in the same place and shareholders would not have a right to attend in person. The Bill would apply to company meetings held between 26 March and 30 September 2020 and if the deadline for a company to hold a shareholder meeting falls within this period, that deadline is extended to 30 September 2020. The Bill would also give the Secretary of State power to make secondary legislation in relation to notices and other documents relating to shareholder meetings. The second reading of the Bill is scheduled for 3 June 2020.

The provisions in the Bill largely reflect the guidance published by ICSA: The Chartered Governance Institute pursuant to which companies have been holding meetings with only the quorum physically present and other shareholders unable to attend. The main impact of the Bill would be to allow the quorum to meet virtually (for example, by a telephone call) rather than physically at a prescribed venue.

The Bill also contains major reforms to UK insolvency law (see below) and would give the Secretary of State the power to extend the periods for filing certain documents at Companies House.

Separately, the Financial Conduct Authority (FCA) has published a Primary Market Bulletin (PMB No. 28). The focus of PMB No. 28 is half-yearly financial reports (see below) but it also contains commentary on shareholder engagement and company meetings. The FCA encourages issuers to look at ways to allow shareholders to ask questions of management and exercise their voting rights effectively when making alternative arrangements to physical general meetings. The FCA also says that it is supportive of virtual general meetings.

  • Government support – The Government has announced that companies accessing the Bank of England’s Coronavirus Corporate Financing Fund (CCFF) and companies borrowing more than £50 million through the Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be subject to restrictions on distributions to shareholders and executive pay. In relation to distributions, companies will be unable to make dividend payments or undertake share buybacks. In relation to executive pay, companies will be unable to pay any cash bonuses, or award any pay rises to senior management. For companies accessing the CCFF, these restrictions will apply to participants that wish to borrow beyond 19 May 2021 and for companies borrowing under the CLBILS, they apply until the facility has been repaid in full.

Corporate reporting and company announcements

  • FCA statement on half-yearly financial reports – The FCA has published a Primary Market Bulletin (PMB No. 28) pursuant to which the period for listed companies to publish their half-yearly reports is effectively extended by one month such that the half-yearly report must be published within four months after the end of the half-year. The FCA also discusses going concern statements. It acknowledges the difficulties that companies may face in relation to the going concern assessment in light of the current circumstances and notes that auditors may need to include remarks in their audit opinion in relation to the going concern assessment. The FCA says that it is vital that investors are properly informed of the impact of COVID-19 and encourages users of financial statements to take into account the current circumstances when assessing their response to going concern disclosures. There is also discussion of shareholder engagement by listed companies (see above) and a statement that issuers could consider participation by smaller shareholders in capital raisings.
  • ESMA statement on half-yearly financial reports – The European Securities and Markets Authority (ESMA) has issued a public statement on the implications of COVID-19 on half-yearly financial reports. The statement discusses issues including the contents of the interim management report, risks and uncertainties linked to COVID-19 and impairment of non-financial assets.
  • Inside information – The FCA has published Market Watch No. 63 which focuses on inside information issues in light of COVID-19, particularly in the context of capital raisings. The FCA reminds issuers that they should continue to assess carefully what information constitutes inside information as COVID-19 and public policy responses to it may alter the nature of information that is material to a business’s prospects. Issuers should carefully monitor whether any new information is materially different from previous forecasts, guidance, or signals which they have announced publicly and which would now be likely to be misleading to investors. The FCA also reminds issuers that delaying the disclosure of inside information is only permissible when all three of the conditions to delay set out in Article 17(4) of the Market Abuse Regulation are met. Those conditions are that immediate disclosure is likely to prejudice the legitimate interests of the issuer; delay of disclosure is not likely to mislead the public; and the confidentiality of that information can be maintained.
  • Updated FRC guidance – The Financial Reporting Council (FRC) has updated its guidance for companies on corporate reporting during the COVID-19 pandemic by adding new sections on the reporting of exceptional items and alternative performance measures (APMs).

Contract issues

  • Force majeure – Many contracting parties have already been affected by force majeure events arising out of the COVID-19 pandemic and the associated restrictions. As the focus starts to shift toward the gradual easing of lockdown measures, those parties who have claimed force majeure relief will be preparing to resume performance as soon as the impact of the force majeure event comes to an end. However, it is also important for contracting parties to prepare for any second wave force majeure situation.

The force majeure implications of a potential second wave of COVID-19 infections and the resulting re-imposition or tightening of lockdown measures are discussed in a recent blog post and in a new episode of our Navigating COVID-19 podcast series. Our podcasts are available on iTunes, Spotify and SoundCloud and can be accessed on all devices.

  • Practical issues around signing and completion of contracts – Given the current restrictions on interaction which have been imposed by the UK Government and with a large number of people working from home, it is not always possible to adopt the usual methods for signing and completing transactions. In this briefing we summarise some practical points to ensure compliance with the necessary legal formalities whilst these measures remain in place.

Insolvency law

  • Major reforms to insolvency law – The Government has published the Corporate Insolvency and Governance Bill which contains the most far-reaching reforms to UK insolvency law in over 30 years. The Bill has been introduced on an emergency basis in an attempt to ensure that otherwise financially viable companies survive during a period of unprecedented interruption and turmoil. The Bill would introduce new company moratoriums and restructuring plans and would amend the current winding up and wrongful trading regimes. Our Restructuring, Turnaround and Insolvency team has published a briefing on the Bill which is available here.

Other relevant materials

For further COVID-19 related publications, see our COVID-19 Hub.

Caroline Rae
Caroline Rae
+44 20 7466 2916

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093