Explanatory Memorandum to COM(2022)762 - Amending regulations 2017/1129, 596/2014 and 600/2014 to make public capital markets in the Union more attractive for companies and to facilitate access to capital for SME's - Main contents
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| dossier | COM(2022)762 - Amending regulations 2017/1129, 596/2014 and 600/2014 to make public capital markets in the Union more attractive for ... |
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| source | COM(2022)762  |
| date | 07-12-2022 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Contents
- Political context
- Reasons for the proposal
- Objectives of the proposal
- Meetings with Member State experts
- Meeting with the ECON Coordinators in the European Parliament
- Clarify the conditions under which issuers may delay disclosure of inside information and modify the timing of the notification of the delay to the NCA
This proposal is part of the Listing Act package, a set of measures to make public markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the Capital Markets Union (CMU) core aim to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. Listed companies, including recently listed ones, often outpace privately owned companies in terms of annual revenue growth and job creation 1 . By listing on public markets, companies can diversify their investor base, reduce their dependency on bank financing, gain easier and cheaper access to additional equity capital and debt finance (through secondary offers), raise their public profile and increase brand recognition.
Since the publication of the first CMU Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular SMEs, to access public markets. In January 2018, the Directive 2014/65/EU of the European Parliament and of the Council (the Markets in Financial Instruments Directive, or ‘MiFID II’) 2 introduced a new category of Multilateral Trading Facilities (MTFs), the SME growth markets, 3 to incentivise SMEs access to capital markets. In 2019, new EU rules were put forward by Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) to cut red tape and reduce regulatory burden for companies listing on SME growth markets while preserving a high level of investor protection and market integrity. Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers.
The new CMU Action Plan adopted in September 2020 announced that ‘in order to promote and diversify small and innovative companies’ access to funding, the Commission will seek to simplify the listing rules for public markets’. Following up on this and building on the 2019 SME Listing Act, the Commission set up a Technical Expert Stakeholder Group (TESG) on SMEs which confirmed stakeholders’ concerns that further legislative action is needed to support listing of companies and especially of SMEs. In its final report of May 2021 5 , the TESG made 12 recommendations to amend the listing framework both on regulated markets, as well as on SME growth markets.
On 15 September 2021, President Von der Leyen announced in her letter of intent 6 addressed to the Parliament and the Presidency of the Council a legislative proposal to facilitate SMEs’ access to capital, which has been included in the 2022 Commission work programme 7 .
A company’s decision to list is a complex one and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by a legislative intervention. For instance, the features of the ecosystem that determine the cost of listing services, and more broadly geopolitical instability, Brexit, Covid-19, and inflation, have all had (and will continue to have) an impact on the decision to list, on the timing of listing, and on whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also an important factor in a company’s decision to list and remain listed. The Listing Act package represents a targeted set of measures aiming to reduce the regulatory burden where it is considered to be excessive (i.e., where regulation could ensure investor protection/market integrity in a more cost efficient manner for stakeholders) and to increase the flexibility accorded under company law to a company’s founder(s) or controlling shareholder(s) to choose how to distribute voting rights after the admission to trading of shares.
The regulatory framework applying to the listing process is multifaceted. Companies must comply with regulatory requirements before, during and after the initial public offering (IPO). This proposal focuses specifically on the regulatory burden that emerges at two moments: the IPO stage and the post-IPO stage. It addresses regulatory burden at the IPO stage by introducing targeted amendments to Regulation (EU) 2017/1129 of the European Parliament and of the Council 8 (the Prospectus Regulation) and it addresses regulatory burden at the post-IPO stage by introducing targeted amendments to Regulation No 596/2014 of the European Parliament and of the Council 9 (the Market Abuse Regulation or ‘MAR’). It also contains limited technical amendments to Regulation No 600/2014 of the European Parliament and of the Council (the Markets in Financial Instruments Regulation or ‘MiFIR’) 10 .
The proposed regulation is accompanied by two other legislative proposals:
·a proposal for a directive amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 (the Listing Directive), which aims to both (i) streamline and clarify listing requirements and (ii) to increase the low level of investment research on SMEs;
·a proposal for a new directive on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choosing the appropriate governance structures when they list.
When making a decision on whether or not to list, companies weigh expected benefits against the costs. If costs prevail, or if alternative sources of financing offer a less costly and easier option, companies will not seek access to public markets. Feedback from the market indicates that the initial and ongoing costs of becoming a public company have risen considerably in recent decades, both in absolute terms and relative to private equity funding, in particular for SMEs. The regulatory environment impacts all stages of the listing process and is among the driving forces of the high costs of listing and staying listed. Companies are required to comply with several disclosure and reporting requirements under EU law, especially the Prospectus Regulation and MAR.
The aim of the Prospectus Regulation is to enhance the internal market for capital by ensuring investor protection and market efficiency while helping companies, including SMEs, access different forms of finance in the EU 12 . The Prospectus Regulation lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. A prospectus is a document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company.
The Prospectus Regulation does not apply under certain circumstances, such as for non-equity securities issued by certain sovereign or supranational entities, or for offers of securities to the public with a total consideration in the Union below EUR 1 million over a period of 12 months. It also includes several exemptions from the obligation to publish a prospectus for offers of securities to the public or admission to trading on a regulated market. In particular, Member States may exempt from the obligation to publish a prospectus offers of securities to the public of up to EUR 8 million over a period of 12 months, provided that they do not require notification (a ‘passport’). For offers below EUR 1 million or the relevant threshold set at national level, Member States may require national disclosure documents, provided that they do not constitute a disproportionate or unnecessary burden. Hence, issuers willing to offer securities cross-border need to comply with the threshold and disclosure requirements set out by the concerned Member States, unless those issuers draw up a prospectus on a voluntary basis in order to benefit from the EU single passport.
Under the CMU Action Plan, progress has already been made to make it easier and cheaper for companies, in particular smaller ones, to draw-up a prospectus. The Prospectus Regulation introduced the EU Growth prospectus – an alleviated form of a standard prospectus - for SMEs listed on SME growth markets. It aimed to reduce the costs of preparing a prospectus by smaller issuers, while providing investors with material information to assess the offer and take an informed investment decision. The Prospectus Regulation also introduced a simplified prospectus for companies whose securities are admitted to trading continuously and for at least the last 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt (follow-on or secondary issuances). Issuers whose securities are admitted to trading on an SME growth market can also use this simplified prospectus to transfer subsequently to regulated markets. Finally, Regulation (EU) 2021/337 of the European Parliament and of the Council 13 introduced, as part of the Capital Markets Recovery Package (CMRP), a new type of short-form prospectus (the “EU Recovery prospectus”). The EU Recovery prospectus is available to issuers that have shares already admitted to trading on a regulated market or an SME growth market continuously for at least the last 18 months and that issue additional shares to overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. The EU Recovery prospectus regime will however expire on 31 December 2022.
Despite the alleviations introduced, feedback from stakeholders indicated that the requirement to produce a prospectus remains overly burdensome. This refers to both instances where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on of equity or non-equity securities.
The current rules in particular contribute to overly lengthy prospectuses. For example, in some cases, the Prospectus Regulation requires information that may not be indispensable for investors to make an informed investment decision (i.e., not justified from the investor protection point of view). Feedback to the public consultation (echoed during the stakeholders’ meetings) confirmed the view that neither the standard prospectus nor the EU Growth prospectus strikes an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, especially SMEs. In other cases, a prospectus is required when a lot of information is already available in the public domain (in particular, in the case of follow-on issuances). The excessive length of the prospectus can also discourage some, in particular smaller, investors from consulting it and translate into a higher cost of investing for larger investors. It also requires a longer period of time for the national competent authority (NCA) to scrutinise and approve the prospectus.
The current rules also contribute to very divergent prospectuses across the EU. Data reported by Oxera 14 and by the European Securities and Markets Authorities (ESMA) 15 shows a large discrepancy between Member States regarding the length of prospectuses, which is indicative of a lack of uniformity of prospectuses in the EU. This discrepancy stems also from the fact that the current rules do not sufficiently frame supervisory scrutiny by NCAs.
Feedback from stakeholders highlighted that the EU regulatory framework places overly burdensome requirements also on already listed issuers, in particular under MAR. Since its entry into application on 1 July 2016, MAR has been extended to MTFs, including SME growth markets. MAR aims to increase market integrity and investor confidence. It prohibits from: (i) engaging or attempting to engage in insider dealing 16 ; (ii) recommending that another person engages in insider dealing or induces another person to engage in insider dealing; (iii) unlawfully disclosing inside information 17 ; or (iv) engaging in or attempting to engage in market manipulation. Issuers are also subject to several disclosure and record-keeping obligations under MAR. In particular, issuers are under a general obligation to disclose all inside information to the public as soon as possible 18 .
Feedback from stakeholders indicated that some aspects of the MAR disclosure regime place a disproportionately high burden on issuers. In particular, stakeholders perceive as burdensome the obligation to disclose as soon as possible all inside information. This is due to the broadness of the notion of inside information (which gives rise to difficulties for issuers when delineating between what is and what is not inside information), as well as to the fact that the same notion applies both for the purpose of the prohibition of insider dealing and for the purpose of disclosure. While the broadness of the notion of inside information allows to cater for a wide and very early prohibition of insider dealing, it also implies that issuers are required to disclose information at a very early stage, when information on circumstances or events have not yet reached a high degree of certainty.
The notion of inside information covers not only events that have already occurred but also events which are “reasonably expected to occur” (i.e., for which there is a realistic prospect to occur) and, in the context of protracted processes (such as a merger), the intermediate steps which are connected with bringing about a future event. As a consequence, issuers incur high compliance costs to understand which steps of a protracted process may constitute inside information and when a certain piece of information is mature enough to be disclosed. At the same time, the effectiveness of disclosure in reducing information asymmetries between issuers and investors is limited if information is too preliminary, incomplete and still potentially subject to fundamental changes. Too early disclosure of information could mislead investors and trigger action on his/her part that could prove to be suboptimal in hindsight (e.g., divesting the stock too soon or not divesting soon enough), thus increasing the opportunity cost for investors.
Furthermore, issuers face a lack of legal clarity around the conditions that need to be met to delay disclosure when immediate disclosure would be likely to prejudice the legitimate interests of the issuers (e.g., by jeopardising the successful conclusion of ongoing negotiations).
A few additional reporting and disclosure requirements under MAR place a disproportionately high burden on issuers, such as the provisions on managers’ transactions, insider lists, and market sounding. Current MAR rules also create a disproportionate sanctioning regime for disclosure-related infringements, in particular for SMEs, which may potentially be sanctioned at the same level as large companies.
The overall objective of this initiative is to introduce technical adjustments to the EU rulebook in order to reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. This, in turn, is expected to help diversify funding sources for companies in the EU and increase investments, economic growth, job creation and innovation in the EU.
The proposed targeted amendments to the Prospectus Regulation aim in particular to make it easier and cheaper for issuers to draw up a prospectus, while enabling investors to make the right investment decision by providing comprehensible, easy to analyse and concise information. They also seek to introduce sizable simplifications to, or even exemptions from, the prospectus requirements in cases where the issuer is already known to investors and a lot of information is already publicly available (follow-on issuances). These amendments are accompanied by amendments aimed at fostering the convergence of and streamlining the scrutiny and approval process by NCAs (for example, by narrowly frame the ability of NCAs to request issuers to include additional information in the prospectus).
In the case of an offer of securities to the public or the admission to trading on a regulated market, the proposal streamlines and further standardises the standard prospectus (referring to a non-alleviated prospectus type, irrespective of whether it relates to equity or non-equity securities, or whether is drawn up as a single document or consists of separate documents). The proposal aligns the level of disclosure of the standard prospectus to the level of disclosure currently required under the EU Growth prospectus regime, introduces a fixed order of disclosure and makes incorporation by reference a legal requirement. The proposal also introduces the possibility for issuers to draw up the prospectus in English only as the language customary in the sphere of international finance (except for the summary which in practice is the only document that most retail investors consult), and to publish it in an electronic format only (i.e., no paper copies on request). At the same time, only for shares or other transferable securities equivalent to shares in companies, a limit number of pages (300 pages) is introduced to avoid overly lengthy prospectuses for companies that do not have a complex financial history. Jointly, these amendments seek to provide a tangible cost and burden reduction for issuers, while ensuring that investors can take advantage of a document that is easier to read and navigate and more easily compare financial instruments and issuers.
The proposal also seeks to make it easier for SMEs to raise funds on public markets, in particular on SME growth markets, by generating further cost savings for SMEs and better tailoring disclosure to the needs of investors. For companies offering securities to the public and listing on SME growth markets (as well as for offers of securities to the public by smaller companies), the EU Growth prospectus is replaced by a mandatory new short-form EU Growth issuance document. This document builds on the level of disclosure currently required under the EU Recovery prospectus regime and existing admission documents required by SME growth markets (where the obligation to publish a prospectus does not apply), follows a fixed order of disclosure and is subject, in the case of shares and other equivalent transferable securities, to a page limit.
While the proposal exempts, under certain conditions, from the prospectus requirement offers of securities fungible with securities already admitted to trading (for which the publication of a summary document will suffice), it subjects follow-on issuances of non-fungible securities to the approval and publication of a new mandatory short-form EU Follow-on prospectus, largely building on the current EU Recovery prospectus regime. These amendments seek to ensure that companies can fully benefit from the advantages of accessing public capital markets, including easier and quicker access to additional equity capital and debt finance through follow-on offers. At the same time, they safeguard investor protection as these companies are already subject to periodic and ongoing disclosure and reporting requirements and, in addition, issuers will be required to publish the most relevant information for investors.
Finally, the amendments to the Prospectus Regulation aim to foster cross-border offers by harmonising and increasing to EUR 12 million the threshold for exempting small offers of securities to the public from the obligation to publish a prospectus. This amendment also seeks to benefit smaller issuers, including SMEs, as in certain cases they will no longer have to produce a prospectus, lowering substantially their regulatory costs and incentivising them to access public capital markets. The proposal also introduces amendments to the rules on equivalence for third countries prospectuses to make them workable.
The proposed targeted amendments to MAR aim to reduce legal uncertainty on what constitutes inside information for the purpose of disclosure as well as on the timing of disclosure. While the proposal maintains the current broad notion of inside information for the purposes of the insider dealing regulation, it narrows down the scope of the disclosure obligation. The proposal clarifies in particular that the obligation to disclose all inside information to the public does not cover the information relating to the intermediate steps of a protracted process, as this information is too preliminary and hence not mature enough for disclosure. At the same time, the proposal introduces an empowerment for the Commission to establish, by way of a delegated act a non-exhaustive list of the relevant information as well as, for each information, an indication of the timing when issuers are expected to disclose it. Jointly, these amendments seek to make the MAR disclosure regime less costly to comply with by issuers, more predictable from the investors’ point of view and more conducive to effective price formation.
The amendments to the disclosure obligation are accompanied by improvements to the regime for the exchange of information among NCAs to enable them to better identify cases of market manipulation by setting up a cross market order book surveillance (CMOBS) mechanism, 19 thus increasing the integrity of EU markets and enhancing their appeal for investors. In the same vein, the proposal introduces a possibility for ESMA to establish collaboration platforms, in particular for the purpose of monitoring wholesale commodity markets, to address concerns about market integrity and the good functioning of financial and, in particular, spot markets.
Finally, the proposal seeks to make the sanctioning regime for MAR disclosure-related infringements more proportionate for SMEs to avoid discouraging smaller issuers from listing or remaining listed.
The proposal also aims at alleviating the regulatory hurdles resulting from the application of the managers’ transactions, insider list and market sounding regimes while ensuring that these alleviations do not impair investor protection and market integrity.
The creation of a CMOBS mechanism requires also targeted amendments to the MiFIR framework to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision, and to confer to ESMA the role to harmonise the format of the template used to store such data.
The proposed targeted amendments aim to build the necessary conditions for structural improvements in EU public capital markets to occur over time. A more favourable regulatory regime would encourage the development of a more favourable ecosystem, contributing in a multi-faceted manner to the CMU objective of improving access to financing by companies. Furthermore, this proposal should be analysed in conjunction with other proposed and upcoming initiatives. The proposed amendments are part of a broader package of measures outlined in the CMU Action Plan, which aim to address other issues currently preventing companies from raising capital on public markets.
• Consistency with existing policy provisions in the policy area
The proposal is in line with the overarching objectives of the Prospectus Regulation to facilitate fund raisings through capital markets, ensure investor protection, and foster supervisory convergence throughout the EU. The proposal is also in line with the overarching goals of MAR to ensure the integrity of financial markets in the Union and to enhance investor protection and confidence in those markets as well as with the objective of MiFIR to ensure that EU markets in financial instruments are transparent and work efficiently.
The proposal is furthermore consistent with the reporting obligations laid down in Directive 2004/109/EC of the European Parliament and of the Council 20 (Transparency Directive), for issuers on regulated markets. It is also in line with the provisions of MiFID II and Commission Delegated Regulation (EU) 2017/565 21 regulating SME growth markets.
• Consistency with other Union policies
The proposal is fully in line with the CMU core aim to make financing more accessible to EU companies and in particular to SMEs. It is consistent with a number of legislative and non-legislative actions taken by the Commission in the framework of the 2015 CMU Action Plan, 22 2017 Mid-term Review of the CMU Action Plan 23 and 2020 CMU Action Plan.
In order to support jobs and growth in the EU, facilitating access to finance for companies, especially SMEs, has been a key goal of the CMU from the outset. Since the publication of the CMU Action Plan in 2015, some targeted actions were taken to develop adequate sources of funding for SMEs through all their stages of development. In its Mid-term Review of the CMU Action Plan published in June 2017, the Commission chose to raise its level of ambition and strengthened its focus on the SMEs’ access to public markets. In November 2019, the co-legislators adopted a regulation to promote the use of SME growth markets 24 aiming to reduce the administrative burden and the high compliance costs faced by SME growth market issuers while ensuring a high level of market integrity and investor protection; foster the liquidity of publicly listed SME shares to make these markets more attractive for investors, issuers and intermediaries; and facilitate the registration of MTFs as SME growth markets. That Regulation entered into force in December 2019, except for the provision amending MAR that started applying in January 2021.
Furthermore, following the COVID-19 crisis, the Commission adopted the CMRP, which comprised of targeted amendments to capital markets and bank regulation, with the overarching aim to make it easier for capital markets to support EU businesses to recover from the COVID-19 crisis. The suggested changes to the capital market rules aimed in particular to alleviate regulatory burden and complexity for investment firms and issuers.
This proposal follows up on the 2020 CMU Action Plan and its objective to make financing more accessible to EU companies (Action 2 “supporting access to public markets”). The proposal focuses on alleviating the regulatory requirements that can deter a company from deciding to list or to remain listed (‘supply-side’). Other factors that may deter issuers from listing, such as a narrow investor base and a more favourable tax treatment of debt over equity, are addressed by other ongoing and upcoming CMU initiatives that complement the amendments put forward in this proposal and should be analysed in conjunction with this initiative. These initiatives relate, for example, to (i) the creation of an EU Single Access Point (ESAP) that will tackle the lack of accessible and comparable data for investors, making companies more visible to investors, (ii) the centralisation of EU trading information in a consolidated tape for a more efficient public market trading landscape and price discovery and (iii) the introduction of a debt-equity bias reduction allowance (DEBRA) 25 to make equity financing more attractive (and less costly) for companies.
Furthermore, a series of the Commission initiatives will further strengthen the investor base for listed equity. The EU’s SME IPO Fund will play the role of an anchor investor to attract more private investment in SMEs’ public equity by partnering with institutional investors and investing in funds focused on SME issuers. The Capital Requirement Regulation and Solvency II reviews will increase the investor base for issuers by facilitating investments from banks and insurance companies in public long-term equity.
This proposal is in line with action 2 of the New European Innovation Agenda 26 published in 2022, which recognized the important role of the listing act in facilitating access to finance for deep tech scale-ups.
The proposal also takes into account the evidence behind the opinion of the Fit For Future Platform on facilitating SMEs’ access to capital and in particular on simplification of the procedures for the admission to trading of securities of SMEs and other listing obligations.
Finally, this proposal will help especially EU SMEs benefit from an alleviated legislative regime to access public capital markets and to comply with ongoing transparency and reporting requirements. This is also in line with the objective of the SME relief package announced by the Commission President Ursula von der Leyen in the State of the European Union speech on September 19, 2022.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal basis of the Prospectus Regulation, MAR and MiFIR is Article 114 of the Treaty on the Functioning of the European Union (TFEU). The proposal introduces targeted amendments to those Regulations and is therefore based on the same legal basis.
Article 114 TFEU provides for the adoption of measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States, which have as their goal the establishment and functioning of the internal market. Recourse to Article 114 TFEU is in particular possible where disparities between national rules are such as to obstruct the fundamental freedoms or create distortions of competition and thus have a direct effect on the functioning of the internal market.
• Subsidiarity (for non-exclusive competence)
Under Article 4 of the Treaty on the Functioning of the European Union (TFEU), EU action for completing the internal market must be appraised in light of the subsidiarity principle set out in Article 5(3) of the Treaty on European Union. According to the principle of subsidiarity, action at EU level should be taken only when the objectives of the proposed action cannot be achieved sufficiently by Member States alone and thus mandate action at EU level. It also has to be considered whether the objectives would be better achieved by action at EU level (the so-called ‘test of European added-value’).
Legislation applying to issuers and trading venues is largely harmonised at EU level, leaving limited flexibility for Member States to adapt this legal framework to local conditions. As a consequence, modifications of the EU legislation are necessary to bring about desired improvements. At the same time, the objectives of this proposal would be better achieved by action at EU level. By its scale, EU action could reduce the administrative burden for issuers, while at the same time safeguarding market integrity and investor protection, thus ensuring a level-playing field. In addition, an EU action is appropriate as the initiative seeks to support cross-border listing and securities trading activity across the whole EU, in order to further integrate and achieve scale on EU capital markets.
• Proportionality
The proposed measures to reduce the regulatory burden on companies that seek a first-time listing and on companies that are already listed respect the principle of proportionality. They are adequate for reaching the objectives and do not go beyond what is necessary.
The proposed regulatory alleviations in the Prospectus Regulation aim to provide cost and burden reductions for issuers, while preserving and strengthening investor confidence in the well functioning of public markets. Proportionality is in particular ensured by introducing sizable simplifications to, or even exemptions from, the prospectus requirements only in cases where the issuer is already known to investors and a lot of information is already publicly available. Proportionality is furthermore ensured by tailoring disclosure to the prevailing size of the company on the market. The proposal introduces thus an EU Growth issuance document only for companies listed on SME growth markets (i.e. mainly, although not exclusively, SMEs).
Importantly, the proposed changes ensure that the level of transparency for investors is not negatively affected. None of the proposed measures will create the need for investors to perform any additional due diligence, and a high level of investor protection will be ensured. For instance, the possibility to use only English (i.e. common and widely-accepted language in the financial field) for drawing up the prospectus is counterbalanced with the requirement to have the summary in the language(s) of the Member State where the public offer is made. In the same vein, in the cases where an exemption from the prospectus is introduced, issuers are required to publish a statement (although not a prospectus) containing the most relevant information for the investor.
The proposed alleviations to reduce the administrative burden for already listed issuers (MAR) are also carefully calibrated to avoid a detrimental impact on market integrity and investor protection, which are the core objectives of MAR. By limiting the disclosure obligation to “mature” events only, the proposal ensures that markets and investors receive only meaningful information, avoiding the circulation of inaccurate or misleading information, which may misguide investment decisions. The proposed amendments to the disclosure regime are furthermore accompanied by strengthening the supervisors’ monitoring system for order data, which, through the standardisation of order data reporting formats and the facilitation of exchanges of such data between NCAs, will enrich the market abuse supervisory toolbox, thereby ensuring greater market integrity and enhancing investor confidence. Finally, the targeted amendments to other disclosure and reporting obligations and to the sanctioning regime under MAR will remove undue administrative burden and create a more proportionate level of sanctions for smaller issuers (SMEs), thus striking a right balance between cost reduction and the primary need to safeguard market integrity and investor protection.
• Choice of the instrument
The proposal introduces targeted amendments to the Prospectus Regulation, the MAR and MiFIR. The legal basis of those Regulations is Article 114(1) TFEU. Any amending Regulation therefore must have the same legal basis. Moreover, as the proposed amendments are changes to existing legal texts, they can be introduced via an Omnibus Regulation.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
This initiative focuses on reducing the regulatory burden that issuers incur during the listing process and afterwards when they are listed. Therefore, it only covers those aspects in the Prospectus Regulation and MAR that stakeholders consider to hinder companies’ access to and ability to remain on public markets.
To inform this initiative, the Commission services collected a significant amount of data directly from trading venues and issuers (including SME associations). TESG (in force between October 2020 and May 2021) provided some evidence in addition to the input received from market participants. The Commission also contracted a study on Primary and Secondary Equity Markets in the EU from Oxera in November 2020, which contains a very detailed overview of EU capital markets. Other sources used included extensive academic literature and research.
Annex 6 to the impact assessment includes a detailed assessment of the effectiveness, efficiency and coherence of the Prospectus Regulation requirements, in line with the review clause (see Article 48 of Prospectus Regulation). The analysis of the Prospectus Regulation is furthermore based on data provided bilaterally by ESMA to the Commission services for the year 2021 and on ESMA’s published reports on EEA approved prospectuses for the years 2019 and 2020. The analysis also took into account the key findings of ESMA’s peer review report of the scrutiny and approval procedures of prospectuses by authorities of 21 July 2022. The analysis highlights that current prospectus requirements place unnecessary burden on issuers and that the intended objectives of the Prospectus Regulation could be delivered with less costly requirements for issuers while maintaining an adequate level of investor protection.
In 2019-2020, ESMA conducted a review of MAR and, in September 2020, following a formal request from the Commission, provided its technical advice in its MAR Review report 27 . ESMA’s report is based on extensive feedback received from market participant representatives in reply to a public consultation, including from the Securities and Markets Stakeholder Group. The public consultation was published on 3 October 2019 and ran until November 2019 28 : 97 responses were received from a wide range of respondents (i.e., credit institutions, asset managers, issuers, legal and accountancy firms, and trading venues). In summary, ESMA concluded that the MAR framework was working well overall and considered that a major overhaul of the legislative framework would not be necessary, while proposing a number of technical adjustments and clarifications. The report also identified some areas for which ESMA deemed additional guidance as beneficial/necessary.
Some of the Report’s conclusions are, however, contrasted by the conclusions of the CMU HLF and of the TESG, as well as by the feedback received from stakeholders in the context of the targeted consultation on the Listing Act and during the technical meetings. Annex 8 of the impact assessment summarises the assessment carried out by the Commission services in relation to the MAR provisions for which ESMA’s conclusions are not in line with the feedback received from experts and stakeholders. This includes: the notion of inside information and the issuers’ obligation to disclose inside information to the public; the conditions to delay disclosure; provisions regulating market soundings, insider lists and administrative sanctions. The analysis also covers the cross market order book surveillance.
• Stakeholder consultations
On 19 November 2021, the Commission launched a Call for Evidence as well as a fourteen-week public and targeted consultations seeking views from stakeholders on how to increase the overall attractiveness of listings on public markets in the EU. The consultation also sought information on any potential shortcomings in the regulatory framework that dissuade companies from raising funds through public capital markets. In addition, the consultation asked specific questions about the Prospectus Regulation and the MAR.
Overall, 108 responses were received, sent by stakeholders from 22 Member States, the US, the UK and Switzerland. 29
A vast majority of respondents (72%) believed that excessive compliance costs linked to regulatory requirements in the IPO and post-IPO phase were rather important or very important factors in explaining the lack of attractiveness of EU public markets. This included the vast majority of issuers, exchanges, investors and some NCAs. Several stakeholders stated that the listing burden is similar for large companies and SMEs, therefore making the burden very disproportionate for an SME. The majority of respondents argued that both listing and post-listing rules lead to a burden disproportionate with the investor protection objectives that these rules are meant to achieve (52% and 57%, respectively).
Overall, respondents admitted that the average cost of the different types of prospectuses was difficult to estimate and that the cost depended on various factors including legal fees, audit costs and the complexity of the business. Most respondents (59%) considered that the standard prospectus in its current form does not strike an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, and that it should be significantly alleviated. The same view was also expressed by 44% of respondents about the EU Growth prospectus. Almost half of respondents believed that the prospectus regime for non-equity securities has been successful in facilitating fundraising through capital markets (48%).
On secondary issuances, respondents’ views were split. While a slight majority of respondents (51%) considered that the prospectus requirement should not be lifted for follow-on issuances, a significant minority (43%) considered that issuers listed continuously for at least 18 months on a regulated market or an SME growth market, should not have to publish a prospectus for subsequent issuances.
Finally, most respondents (54%) said they did not think there was any alignment or convergence in the way NCAs assess the completeness, comprehensibility and consistency of draft prospectuses that are submitted to them for approval.
Overall respondents found most aspects of the current MAR regime burdensome. The most burdensome requirements were those related to the notion of inside information (64% said this was very burdensome or rather burdensome) and the conditions for delaying of disclosure (70% of respondents said this was very burdensome or rather burdensome). Respondents’ views were split, when asked whether ESMA’s clarifications by way of guidance on the notion of inside information would be sufficient. Almost half of those who expressed an opinion nevertheless believed that ESMA’s guidelines would not be sufficient to provide the necessary clarifications around the notion of inside information (54%). Those respondents (which included representatives of banks, trading venues, issuers, financial intermediaries and NCAs) expressed concerns that ESMA’s guidance would not be effective in removing legal unclarity. They stated that the notion of inside information is too broadly defined and that too much information has to be published. According to them, a rethink of the notion of inside information is required, which can only be carried out in the context of the Level 1 regulation.
Respondents were further asked whether MAR should distinguish between a notion of inside information for the purposes of prevention of insider dealing and a notion of inside information triggering the disclosure obligation. A majority of respondents who expressed an opinion on the matter believed that a distinction between the two notions would be appropriate. Moreover, a majority of respondents who expressed an opinion noted that it should be clarified that inside information relating to a multi-stage process need only be made public once the end stage is reached, unless a leakage has occurred.
The overwhelming majority of respondents (72%) were in favour of an increased threshold for the reporting of managers’ transactions under Article 19(8) MAR. They stated that such an increase would not harm market integrity. There was also consensus among respondents that the requirements on insider list need to be simplified for all issuers to ensure that only the most essential information for identification purposes is included. When asked if respondents considered that the ESMA’s limited proposals to amend the market sounding procedure are sufficient, while providing a balanced solution to the need to simplify the burden and maintaining the market integrity, the majority of respondents disagreed (62.2%).
Finally, most respondents (51%) said that the current punitive regime under the MAR was not proportionate to the objective sought by legislation.
• Collection and use of expertise
Over the recent years, companies’ and especially SMEs’ access to public markets has been the focus of the Commission’s continuous evaluations. Issues of regulatory burden on companies when accessing public markets were raised in the context of the CMU HLF, TESG and the 2020 CMU Action Plan. The Commission also took into account extensive research on the topic undertaken in the Oxera study.
The Commission also organised two technical meetings/workshops with industry stakeholders in April 2022 with a view to further refining the policy options under consideration.
Furthermore, the Commission presented the objective of the proposal at the European Securities Committee Expert Group and at the Coordinators of the Economic and Monetary Affairs Committee (ECON) of the European Parliament.
Expert groups’ recommendations
In June 2020, the CMU HLF issued several recommendations to improve the public market ecosystem, generally with the objective of alleviating regulatory requirements. From the perspective of MAR and the Prospectus Regulation, the recommendations concentrated respectively on the notion of inside information, interaction between MAR and the Transparency Directive, the insider list, managers transactions and sanctions as well as the threshold and length of prospectuses, deadlines and the passporting regime.
In October 2020, the European Commission launched the TESG. The Group had been tasked with monitoring and assessing the functioning of SME growth markets, as well as providing expertise and possible input on other relevant areas of SMEs’ access to public markets. The TESG confirmed the concerns expressed by the stakeholders that further legislative action is needed to support listing of companies and especially of SMEs. In its final report , published in May 2021, the TESG drew up 12 recommendations, including a recommendation on clarifying and narrowing down the disclosure obligation under MAR and a recommendation to alleviate the listing requirements. On the Prospectus Regulation, the TESG suggested to introduce alleviations concerning the maximum length of the prospectus (e.g., through a page limit for IPO prospectuses), language (allowing prospectuses to be drawn up in English), secondary issuances and transfers of listing (e.g., introducing on a permanent basis significantly streamlined prospectus similar to the EU Recovery prospectus), the determination of “Home Member State”. On the MAR, the TESG suggested introducing alleviations as regards its scope, the definition of inside information for the purpose of disclosure, market soundings, insiders list, managers’ transactions, and sanctions.
Stakeholders’ meetings
The Commission services also organised two virtual technical workshops at the beginning of April 2022 with representatives of exchanges, issuers and investors with a view to further refining the policy options that the Commission was considering. Numerous bilateral meetings with stakeholders were organised throughout the preparation of this initiative.
The Commission also presented the objective of the proposal at the European Securities Committee Expert Group (EGESC) on 15 October 2021 and again at the same group on 17 and 30 May 2022. Delegations participating in the discussion showed support to the Commission’s objective to improve the attractiveness of EU public markets, while ensuring investor protection and market integrity.
The MEP coordinators that participated in the discussion welcomed the Commission’s proposed way forward on the Listing Act, acknowledging the problem with EU public markets. They stressed that the Commission needs to find a right balance to ensure that all companies, especially SMEs, can access public markets for funding, while at the same time ensuring adequate investor protection.
• Impact assessment
This proposal is accompanied by an impact assessment that was submitted on 10 June 2022, discussed on 6 July 2022 and received a positive opinion by the Regulatory Scrutiny Board (RSB) – with reservations – on 8 July 2022.
The RSB asked the Commission to amend the draft impact assessment to clarify: (i) the articulation and coherence of the Listing Act initiative with other linked capital markets initiatives; (ii) the risks and limitations of the analysis; (iii) the different views expressed by different categories of stakeholders on the problem definition, the options, and impacts of the options. The comments formulated by the Board were addressed and integrated into the final version of the impact assessment.
The impact assessment focuses on identifying and addressing specific regulatory barriers at each stage of the listing process. It discusses barriers at the pre-IPO stage stemming from company law, in particular, from the fact that a multiple-vote share listing is not possible in some Member States. It then focuses on barriers at the IPO stage arising from the Prospectus Regulation, notably from the high costs of drawing up a prospectus. Finally, it addresses barriers encountered at the post-IPO stage stemming from MAR, in particular, costs due to the legal uncertainty regarding the issuers’ obligation to publicly disclose inside information. For each stage of the listing process, the impact assessment sets out two alternative policy options, after having analysed the available empirical evidence and accounting for stakeholders’ views.
The impact assessment analyses the options in relation to three objectives, that is whether they: (i) reduce the regulatory and compliance costs for companies seeking to list or those that are already listed, (ii) ensure a sufficient level of investor protection and market integrity, and (iii) provide issuers with more incentives to list. The preferred option (for each stage of the listing process) should thus be cost-efficient and effective in addressing the identified barrier while safeguarding a sufficiently high level of investor protection and market integrity. The proportionality of measures for smaller companies has been considered when identifying and assessing options.
While the regulatory amendments set out in the options, on their own, could not address all the challenges faced by EU public markets, together with other measures considered as part of a wider plan to enhance companies’ access to public capital markets, they seek to contribute to reversing the current negative trend in EU public markets. Absent of those regulatory improvements, EU public markets would continue to rely on the suboptimal regulatory framework for listing, which in turn would reduce the attractiveness of public markets, resulting in an economic cost for EU issuers, investors and the EU economy as a whole. The baseline scenario hence envisages no amendments to the legislative framework governing the rules for listing and already listed companies.
For the IPO-stage (i.e. Prospectus Regulation), policy option 1 proposes: (1) transferring the scrutiny of listing documents (including the prospectus) to exchanges, allowing the alleviation of contents only in specific cases (i.e. in the case of listings on SME growth markets and for secondary issuances). Policy option 2 proposes to have a shorter prospectus (or admission document) in all circumstances and a more streamlined scrutiny and approval process by NCAs. The analysis revealed that the introduction of shorter prospectuses combined with streamlined scrutiny by NCAs, as proposed in option 2, would be the most appropriate way to address the identified regulatory barriers.
For issuers the estimated cost savings would amount to approximately EUR 67 million per year. This figure includes EUR 56 million for primary issuances on regulated markets, EUR 2.7 million for primary issuances on SME growth markets, EUR 7 million for secondary issuances of fungible securities and EUR 1 million for secondary issuances of non-fungible securities.
Investors would take advantage of a lighter and more streamlined document, which is easier to read and navigate. The more standardised format (i.e., fixed order of disclosure of the prospectus sections) would facilitate the comprehensibility of prospectuses and their comparability across the EU. Furthermore, the possibility to publish the prospectus in an electronic format only would enable accessing and navigating the prospectus on an electronic support tool, which is nowadays more commonly used by investors.
NCAs scrutiny and approval process would be more efficient, convergent, and streamlined. Additional cost savings would stem from the fact that NCAs would no longer have to scrutinise and approve prospectuses for secondary issuances of fungible securities, which would now be exempted under certain conditions.
For the post-IPO stage, policy option 1 seeks to clarify and narrow down the disclosure obligation under MAR, also by reviewing the conditions for delaying such disclosure, and to render the sanctioning regime more proportionate for SMEs, while policy option 2 proposes to limit MAR disclosure of inside information to a closed pre-identified list of events. Option 1 has been identified as the preferred option.
Measures under this preferred option would enhance legal clarity on what is and what is not to be disclosed, removing disclosure of information that is too preliminary. This, in turn, implies a reduction in burden for listed companies by limiting the amount of time and costs, including external advisers’ fees, currently spent to ensure compliance with the disclosure obligation. This can also limit issuers’ recourse to delayed disclosure. For issuers the decrease in direct and indirect costs is due to the additional clarity when assessing whether a certain piece of information qualifies as inside information in a specific case/event. The estimated reduction in annual compliance costs amounts to approximately EUR 89 million, broken down into EUR 24.6 million for SMEs and EUR 64.6 million for non-SMEs. The targeted amendments to the delayed disclosure rules could additionally reduce costs for companies by EUR 11 million, of which EUR 1 million for SMEs and EUR 10 million for non-SMEs.
Investors would benefit from the removal of unnecessary (or even misleading) disclosures and increased legal certainty with respect to the information issuers would be expected to disclose. This would avoid costs (including opportunity costs) linked to suboptimal decisions taken by investors based on prematurely disclosed information.
NCAs would benefit due to the streamlined supervision of compliance with disclosure obligations, which would lead to a reduction of the administrative burden. This option would also lower the administrative costs incurred by NCAs when reviewing the notifications of delays received from issuers, as the latter would have a lower need of delaying disclosure.
Finally, effects on exchanges are assumed to be limited under both preferred options. Exchanges would, however, benefit over time from a gradual increase in companies seeking admission to trading on them, because of the regulatory alleviations and higher attractiveness of public listing.
This proposal will contribute to the CMU agenda and its objective of diversifying the funding of EU companies as well as ensuring the development and further integration of capital markets in the EU. The regulatory measures proposed in this initiative are expected to have an impact on all companies in the EU, and particularly on SMEs, which are more exposed to the regulatory burden than larger companies with a higher cost absorption capability.
In terms of wider consequences, the proposal is not expected to have a direct social impact. However, there can be a positive indirect impact on employment due to better access to funding by companies, allowing firms to innovate and grow faster and to employ staff to achieve those objectives. As the initiative targets in particular SMEs (with some measures directly addressed at them), the (indirect) impact on employment is likely to be particularly relevant. Today SMEs in the EU provide for employment of around 100 million people, account for more than half of the EU GDP and play a key role in adding value in every sector of the economy 30 . Importantly, they make up 99.8 % of EU companies 31 .
No direct environmental impacts and no significant harm, either direct or indirect, are expected to arise from the implementation of this proposal. A number of companies listed on public markets, however, may engage in the research and development of new environment-friendly technologies. Improved access to finance will allow these companies to grow at a more rapid pace and allocate more financial resources to R&D programmes that can contribute to the European Green Deal objectives.
The proposal may also positively, although marginally, affect the achievement of the Sustainable Development Goals (SDGs), in particular of SDG 8 (decent work and economic growth) and SDG 9 (industry, innovation, and infrastructure).
Finally, this proposal overall is not expected to have any serious impact on digitalisation. That said, the possibility under the Prospectus Regulation to request prospectuses in paper format is being removed with this proposal, thus promoting the digitalisation of the listing process. Moreover, the CMOBS will allow an automatic exchange of order book data among NCAs improving the cooperation for surveillance purposes through digital means.
• Regulatory fitness and simplification
The overall Listing Act package is expected to bring about annual administrative cost savings of approximately EUR 167 million for issuers, including SMEs. It is expected that NCAs would be able to reduce their costs because simpler and clearer requirements will make it possible to conduct their supervisory activities more efficiently. Investors would also benefit from the envisaged regulatory changes, as corporate information (at the moment of listing and thereafter) will become shorter, more timely and easier to navigate. It is expected that there would be only minor adjustment costs arising from the implementation of the proposal for issuers and NCAs.
• Fundamental rights
The proposal upholds fundamental rights and the principles recognised by the EU’s Charter of Fundamental Rights, in particular the freedom to conduct a business (Article 16) and the principle of consumer protection (Article 38). As this initiative aims at alleviating the administrative burden placed on issuers, it will help improve the right to conduct business freely. The planned amendments to the Prospectus Regulation and the MAR should not have any negative impact on consumer protection, as those targeted changes are framed in a way that will preserve a high level of market integrity and investor protection.
4. BUDGETARY IMPLICATIONS
The initiative is not expected to have any noteworthy impact on the EU budget. The ICT infrastructure to facilitate the exchange among NCAs of cross market order book data for the purpose of market surveillance (CMOBS data) under the MAR is expected to cost around EUR 400 000 in one-off costs, with annual running costs of EUR 200 000. This CMOBS tool would be built by NCAs, potentially as a delegation agreement as allowed by Article 28 of Regulation (EU) No 1095/2010 that can be organised between NCAs and ESMA. Therefore, it would not be funded by EU budget but by NCAs, building on the existing Transaction Reporting Exchange Mechanism system that was established following Directive 2004/39/EC of the European Parliament and of the Council 32 (MiFID I) through a delegated project.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
Monitoring of the impact of the amended Prospectus Regulation will be carried out in cooperation with ESMA and NCAs in the context of the annual reports on prospectuses approved in the EU 33 , which ESMA is empowered to produce every year. In addition, the Commission will in 5 years assess the application of the Prospectus Regulation and whether the different prospectuses remain appropriate for meeting the Regulation’s objectives. When making its assessment, the Commission will strike an appropriate balance between achieving investor protection and minimising regulatory burden for companies.
The Commission will also assess the application of MAR in 5 years and report on the effects of this reform, in particular on the disclosure of inside information and the mechanism for exchanging order book data.
• Detailed explanation of the specific provisions of the proposal
Article 1 – Amendments to the Prospectus Regulation
Exemptions for secondary issuances of securities fungible with securities admitted to trading on a regulated market or on an SME growth market.
Article 1(5)(a) of the Prospectus Regulation lays down an exemption from the obligation to publish a prospectus for the admission to trading on a regulated market of securities fungible with securities already admitted to trading on the same regulated market, provided that the newly admitted securities represent, over a period of 12 months, less than 20 % of the number of securities already admitted to trading on the same regulated market. The proposal amends Articles 1 i and 1(5) to set out that this exemption applies to both the offer of securities to the public and the admission to trading of the concerned securities. The proposal also extends this exemption to companies that have had securities traded on an SME growth market continuously for at least the last 18 months before the offer or the admission to trading of the concerned securities and increases the threshold from 20% to 40%.
In addition, the proposal amends Articles 1 i and 1(5) to introduce a new exemption from the prospectus requirement. Under such new exemption, companies issuing securities fungible with securities already admitted to trading on a regulated market or an SME growth market, including companies transferring from an SME growth market to a regulated market, are not required to draw up and publish a prospectus. Instead, these companies are required to publish and file with the NCA a short summary document that includes a statement of compliance with ongoing and periodic reporting and transparency obligations and details the use of proceeds and any other relevant information, not yet disclosed publicly. A new Annex IX is inserted in the Prospectus Regulation to clarify what information is to be included in the summary document.
The new exemption however does not apply to secondary issuances of securities which are not fungible with securities already admitted to trading and to secondary issuances by companies that are in financial distress or that are going through a significant transformation, such as a change in control resulting from a takeover, a merger, or a division. In such cases, issuers are under the obligation to draw-up and publish a new short-form prospectus: the EU Follow-on Prospectus (see point below).
Compared to the exemption currently laid down in Article 1(5)(a), the new exemption has a broader scope (e.g., no percentage cap, no requirement that the new securities are admitted to trading on the same market) and is subject to specific safeguards to protect investors (e.g., the requirement to publish a summary document).
Provisions relating to existing prospectus exemptions that become redundant are deleted.
Harmonised threshold for exempting small offers of securities to the public from the requirement to publish a prospectus.
Article 1(3) of the Prospectus Regulation, which lays down a threshold of EUR 1 million below which the Regulation does not apply, is deleted.
Article 3(2) of the Prospectus Regulation is amended to set a unique harmonised threshold of EUR 12 million below which offers of securities to the public that do not require a passport are exempted from the prospectus requirement (threshold based on the total consideration of the aggregated offers made by the same issuer in the Union over a period of 12 months). Issuers are however allowed to draw up a prospectus on a voluntary basis. Furthermore, it is specified that Member States are allowed to require national disclosure documents for offers of securities to the public below EUR 12 million, provided the national disclosures do not constitute a disproportionate burden.
More standardised and streamlined prospectus for primary issuances of securities offered to the public or admitted to trading on a regulated market.
The proposal amends Articles 6(2) and 7 to introduce a standardised format and sequence of the prospectus as well as of the prospectus summary (i.e. a fixed order of disclosure of the information contained therein). Furthermore, the proposal introduces a page-limit (300) for shares IPO prospectuses and clarifies what information to be provided within the prospectus does not fall under the page limit.
The empowerment to the Commission to adopt delegated acts to set out the format and content of the prospectus is amended accordingly (Article 13(1) and Annexes I to III of the Prospectus Regulation). It is furthermore clarified that those delegated acts should also consider (i) for issuers of equity securities, whether the issuers is subject to the sustainability reporting under the upcoming Corporate Sustainability Reporting Directive 34 , and (ii) for issuers of non-equity securities, whether those non-equity securities are marketed as taking into account ESG factors or pursuing ESG objectives.
Additional improvements to the efficiency and effectiveness of the prospectus requirements are achieved through amendments to Article 16 (to streamline risk factors), Article 19 (to make incorporation by reference mandatory), Article 21 (to remove the possibility for investors to request paper copies of the prospectus) and Article 27 (to ensure issuers can draw-up the prospectus in English only, except for the summary).
Replacing the simplified disclosure regime for secondary issuances and the (soon to expire) EU Recovery prospectus with a new EU Follow-on prospectus.
The proposal introduces a new EU Follow-on prospectus, which replaces on a permanent basis (for equity and non-equity securities) the simplified prospectus for secondary issuances. The simplified disclosure regime for secondary issuances (Article 14 of the Prospectus Regulation) is therefore repealed. Grandfathering provisions are introduced for simplified prospectuses for secondary issuances approved before the repeal (new Article 50(1) of the Prospectus Regulation). The EU Recovery prospectus regime (Articles 7(12a), 14a, 20(6a), 47a and Annex Va of the Prospectus Regulation) will have expired on 31 December 2022.
The regime for the EU Follow-on prospectus is laid down in the new Articles 7(12b), 14b, 20(6b), 21(5b) and Annexes IV and V to the Prospectus Regulation. This regime applies to secondary issuances that do not fall under an exemption (e.g., where the fungibility criterion is not fulfilled). Issuers however may, on a voluntary basis, draw-up and publish an EU Follow-on Prospectus also in the case of secondary issuances falling under one of the exemptions. Issuers are also allowed to draw up other prospectus types for secondary issuances (e.g., frequent issuers may use a standard prospectus including a URD 35 or, for non-equity securities, a base prospectus 36 ).
The EU Follow-on prospectus follows a standardised format and sequence, is subject to a page limit in the case of secondary issuances of shares and can be drawn-up in a language customary in the sphere of international finance (except for the summary).
Replacing the EU Growth prospectus with a new EU Growth issuance document.
The proposal introduces a new EU Growth issuance document, which replaces on a permanent basis the EU Growth prospectus. The EU Growth prospectus regime set out in Article 15 of the Prospectus Regulation is therefore repealed. Grandfathering provisions are introduced for EU Growth prospectuses approved before the repeal (new Article 50(2) of the Prospectus Regulation).
The new regime for the EU Growth issuance document is laid down in the new Articles 7(12b), 15a, 21(5c) and Annexes VII and VIII to the Prospectus Regulation. Under the proposed amendments, the drawing-up and publication of an EU Growth issuance document is mandatory, except where an exemption from the obligation to publish a prospectus applies, for offers of securities to the public by certain identified categories of offerors, including SMEs and issuers whose securities are admitted or to be admitted to trading on an SME growth market, provided that they do not already have securities admitted to trading on a regulated market. However, in the case of secondary issuances, SMEs and issuers on SME growth markets may still choose to draw up an EU Follow-on prospectus for an offer of securities to the public, provided that they have securities already admitted to trading on an SME growth market continuously for at least the last 18 months and that they have no securities admitted to trading on a regulated market.
The EU Growth issuance document follows a standardised format and sequence, is subject to a page limit 37 in the case of offers to the public of shares and can be drawn-up in a language customary in the sphere of international finance (except for the summary).
Streamline and improve convergence of the scrutiny and approval of the prospectus by NCAs.
The proposal amends Article 20(11) to empower the Commission to specify in delegated acts: i) when a competent authority is allowed to use additional criteria for the scrutiny of the prospectus and the type of additional information that may be required in that circumstances; ii) the maximum timeframe for a competent authority to finalise the scrutiny of the prospectus and reach a decision on whether that prospectus is approved or the approval is refused and the review process terminated; iii) the consequences for a competent authority that fails to take a decision on the prospectus within the time limits laid down in the Prospectus Regulation.
Furthermore, the proposal amends Article 20(13) to require ESMA to conduct one peer review on scrutiny and approval of prospectuses at least every 3 years.
Make permanent the amendments introduced by the CMRP and further clarify rules on supplements.
Article 23 is amended to make permanent the changes introduced by the CMRP. 38 Furthermore, Article 23 is amended to clarify that, in the event of a publication of a supplement to the prospectus, the financial intermediary is required to inform only those investors who are clients of that financial intermediary and agreed to be contacted by electronic means (at least to receive the information on the publication of a supplement).
Revise the equivalence regime under Articles 29 and 30 for third countries prospectuses to make it workable.
Additional conditions are introduced in Article 29 to make the equivalence regime workable 39 . Furthermore, the approval by the competent authority of the home Member State of a prospectus drawn up under the laws of a third country is replaced with the mere filing with that competent authority. Finally, general equivalence criteria are laid down and the Commission is empowered to adopt delegated acts to further specify those criteria.
Article 30 is also amended to confer ESMA the task to establish cooperation arrangements with the supervisory authority of the third country concerned and the Commission is empowered to define the minimum content of those cooperation arrangements.
Additional amendments.
The threshold of EUR 150 million to exempt offers of non-equity securities issued in a continuous and repeated manner by credit institutions introduced by the CMRP in Articles 1 i, point (j), and 1(5), first subparagraph, point (i) is made permanent.
Furthermore, the proposal simplifies and alleviates the URD regime by making it possible to draw up the document in English only and granting the status of frequent issuer after one year of approval instead of two (see amendments to Article 9(2), second subparagraph).
The proposal also reduces from six to three days the minimum period between the publication of a prospectus and the end of an offer of shares to facilitate swift book-building processes (especially in fast moving markets) and increase the attractiveness of the inclusion of retail investors in the IPOs 40 .
Finally, the proposal amends Article 47 (yearly ESMA report on prospectuses) to include the new EU Follow-on prospectus and EU Growth issuance document, as well as the new exemption for secondary issuances of securities fungible with securities already admitted to trading on a regulated market or on an SME growth market.
New timelines are set out for the review of the Prospectus Regulation (Article 48) and amendments are introduced for the key areas that the Commission is required to assess (taking into account the amendments introduced by this Regulation).
Article 2 – Amendments to the MAR
Narrow down the scope of the obligation to disclose inside information and enhance legal clarity as to what information needs to be disclosed and when.
The proposal narrows down the scope of the disclosure obligation set out in Article 17(1) in the case of the so-called protracted process (i.e. multi-staged events, such as a merger) by setting out that the disclosure obligation does not cover the intermediate steps of that process. Issuers in particular are under the obligation to disclose only the information relating to the event that is intended to complete a protracted process.
As the proposal does not amend the notion of inside information laid down in Article 7, the prohibition of insider dealing continues to be triggered also by an intermediate step of a protracted process that qualifies as inside information. At the same time, the proposal introduces an obligation for issuers to ensure the confidentiality of inside information (subject to the ban on insider dealing) until the moment of disclosure and to immediately disclose such inside information to the public in the case of a leakage.
Finally, the proposal enhances legal clarity as to which information falls under the scope of the disclosure obligation as well as to the timing of disclosure by empowering the Commission to adopt a delegated act to establish a non-exhaustive list of relevant information together with the indication (for each piece of information) of the moment when disclosure is expected to occur.
Clarify the conditions under which issuers may delay disclosure of inside information and modify the timing of the notification of the delay to the NCA
The proposal amends Article 17 i to replace the general condition that the delay should not mislead the public by a list of specific conditions that the inside information that the issuer intends to delay must satisfy. Moreover, the timing of the notification of the delay to the NCA is advanced to the moment immediately after the decision to delay disclosure is taken by the issuer (instead of the moment immediately after the information is disclosed to the public). The proposal however does not impose an obligation on NCAs to authorise delays.
Clarify the safe-harbour nature of the market sounding procedure.
Article 11 regulates the interactions between a seller of financial instruments and one or more potential investors, prior to the announcement of a transaction, conducted in order to gauge the interest of potential investors in a possible transaction and its pricing, size and structuring (so-called “market sounding”). The proposal amends Article 11 to clarify that the market sounding regime and the relevant requirements are only an option for disclosing market participants (DMPs) to benefit from the protection against the allegation of unlawful disclosure of inside information (‘safe-harbour’). It follows that DMPs opting to carry out market soundings in accordance with certain information and record-keeping requirements are granted full protection against the allegation of unlawfully disclosing of inside information. DMPs opting to carry out market soundings without complying with the said requirements are not able to take advantage of the protection given to those who have complied. However, in the case of non-compliance, there is no presumption that DMPs have unlawfully disclosed inside information.
At the same time, to ensure the possibility for NCAs to obtain an audit trail of a process that may imply disclosure of inside information to third parties, the proposal specifies that all DMPs (irrespective of whether they intend to benefit from the safe-harbour or not) shall consider, before conducting market soundings and throughout the process whenever they disclose information, whether such process involves inside information. They must also make a written record of the conclusions and reasons and provide it to the NCA upon its request.
Finally, the definition of market sounding is expanded to also include cases where a transaction is not eventually announced.
Simplify the insider lists regime for all issuers building on the alleviations introduced by the Regulation (EU) 2019/2115.
The proposal amends Article 18 to extend the alleviations introduced to the insider lists regime by Regulation (EU) 2019/2115 for issuers on SME growth markets to all issuers (including those on regulated markets). The proposal in particular requires issuers to draw up and maintain a less burdensome list of ‘permanent insiders’. This list includes all persons having regular access to inside information relating to that issuer due to their function or position within the issuer (such as members of administrative, management and supervisory bodies, executives who make managerial decisions affecting the future developments and business prospects of the issuers and administrative staff having regular access to inside information). This list will be easier for issuers to produce while being still meaningful for the investigations of NCAs on insider dealing cases.
This alleviation is only granted to issuers and is without prejudice to the obligation of persons acting on their behalf or for their account (such as accountants, lawyers, rating agencies) to draw up, update and provide to the NCA upon its request their own insider list. At the same time, for issuers whose securities have been admitted to trading on a regulated market for at least the last 5 years, the proposal allows Member States to opt out and require the drawing up and maintenance of a ‘full insider list’ where justified by market integrity concerns. This list includes all persons having access to inside information, as it is currently the case.
Finally, the proposal introduces further minor technical amendments to decouple the obligation of the issuer and the persons acting on its behalf or on its account to request the persons included in the insider list to acknowledge their legal and regulatory duties from the duty of those persons to acknowledge such duties. It also clarifies that the acknowledgement shall be done in a durable medium (instead of in writing).
Raise the threshold above which managers shall notify their transactions and expand the scope of exempted transactions during the close period.
The proposal amends Article 19 to raise from EUR 5 000 to EUR 20 000 the threshold above which transactions conducted by Persons Discharging Managerial Responsibilities (PDMRs) and Persons Closely Associated on their own account and relating to the shares or debt instruments of that issuer or to derivatives or other financial instruments linked thereto shall be notified to the issuer and to the NCA. The current 5 000 threshold is too low and is at the origin of the disclosure of not meaningful transactions. The proposal also raises from EUR 20 000 to EUR 50 000 the value to which NCAs may decide to increase the threshold applying at national level.
Moreover, the proposal includes certain further transactions in the scope of the exemptions to the prohibition for PDMRs to carry out transactions in the closed period (i.e. in the 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public). These are in particular employees’ schemes that concern financial instruments other than shares, as well as qualification or entitlement of financial instruments other than shares, and transactions where no investment decision is taken by the PDMR (such as the automatic conversion of financial instruments).
Make administrative pecuniary sanctions for infringements of disclosure requirements more proportionate, in particular for SMEs.
The proposal amends Article 30(2)(i) and i to make administrative sanctions for infringements of disclosure requirements more proportionate to the size of the issuer.
The proposal provides that pecuniary sanctions for this type of infringements are by default calculated as a percentage of the total annual turnover of the issuer. However, competent authorities may calculate sanctions based on absolute amounts in exceptional cases and only where it would be impossible to consider all circumstances of an infringement, as set out in Article 31, where the calculation of pecuniary sanctions is done based on the total annual turnover of the issuer. For those cases, the proposal introduces lower absolute amounts of the minimum of the maximum pecuniary sanctions for SMEs. As a consequence, Member States would have the possibility to decrease in their national laws the cap on pecuniary sanctions for SMEs for disclosure-related infringements. The proposal does not amend any provisions on sanctions related to other types of infringements.
The proposal also amends Article 31 to ensure that competent authorities, when determining the type and level of administrative sanctions, take into account, among the relevant circumstances, the fact of duplication of criminal and administrative proceedings and penalties for the same breach.
Set up a CMOBS mechanism.
The proposal introduces a new Article 25(a) to set up a CMOBS mechanism that allows NCAs to exchange order book data collected from exchanges to detect market abuse in a cross-border context.
Other amendments.
Articles 14 and 15 prohibit insider dealing, the unlawful disclosure of inside information and market manipulation. Article 5 contains, however, an exception to those prohibitions for buy-back programmes and stabilisation. The proposal amends Article 5 to simplify the reporting mechanism that an issuer shall follow in order for its buy-back programme to benefit from such as well as the information to be disclosed. Under the proposed amendments, issuers shall report the information only to the NCA of the most relevant market in terms of liquidity for their shares and disclose to the public only aggregated information.
The definition of inside information with respect to “front running” conducts ( Article 7(1)(d)) is amended to ensure that it captures not only persons charged with the execution of orders concerning financial instruments but also other categories of persons that may be aware of a future relevant order. The amendments also aim to ensure that the definition covers also the information on orders conveyed by persons other than clients, such as orders known by virtue of management of a proprietary account or a fund.
Considering that the operator of an SME growth market is not a party to a liquidity contract, the proposal amends Article 13(12) to remove the requirement for such operator to approve the terms and conditions of liquidity contracts and replace it with an obligation to only acknowledge in writing to the issuer that it has received such contract.
Article 17(5) allows an issuer that is a credit institution or a financial institution to delay the public disclosure of inside information in order to preserve the stability of the financial system, provided that certain conditions are met. The proposal amends Article 17(5) to include in its scope the case of an issuer that is a parent or related undertaking of a listed or non-listed credit institution or financial institution.
The proposal adds an Article 25(b) to allow the creation by ESMA of collaboration platforms, with NCAs as well as with public bodies that monitor spot markets, to reinforce the exchange of information in the case of concerns related to market integrity or the good functioning of markets. The proposal also amends Article 25 to enable ESMA to initiate cooperation.
Finally, the proposal brings benchmark administrators and contributors expressly into the scope of MAR administrative sanctioning regime by amending Article 30(2), points (e) to (g).
Article 3 – Amendments to MiFIR
In connection with the introduction of the CMOBS mechanism, the proposal amends MiFIR to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision and to empower ESMA to harmonise the format of the template used to store such data.
Article 4 – Entry into force and application
Article 4 sets out the dates of the entry into force and application of this Regulation.