Financial stability, financial services and Capital Markets union

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The Listing Act

Summary
Evaluation
Commission Proposal
Legal Act
Implementation

Overall state of play:

Evaluation – Finalised:
• SWD(2015)255, 30 November 2015
• SWD(2022)762, 7 December 2022
Commission proposal – Adopted:
• on 30 November 2015, COM(2015)583
• on 7 December 2022, COM(2022)760, COM (2022)761, COM (2022)762
Legal act:
• adopted, 14 June 2017, Regulation (EU) 2017/1129 (the Prospectus Regulation); entry into force 20 July 2017; application date: 21 July 2019; amended by Regulation (EU) 2019/2115 (SME Growth Market Regulation)
• pending in legislative procedure, planned to be adopted by 2024

State of play, main conclusions, outlook

Since the publication of the first Capital Markets Union (CMU) Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular small and medium-sized enterprises (SMEs), to access public markets. In January 2018, a new category of Multilateral Trading Facilities (MTFs) is introduced - the SME growth markets, 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 (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. Finally, in 2021, the Capital Markets Recovery Package further helped issuers overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers.

This initiative 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”). It focuses on alleviating the regulatory requirements that can deter a company from deciding to list or to remain listed on regulated markets as well as SME growth markets, while ensuring a high level of investor protection and market integrity. This is particularly the case for the amendments envisioned regarding the Prospectus Regulation, Market Abuse Regulation and Listing Directive. This initiative also aims to address the regulatory barriers that emerge at the pre-listing phase and, in particular, the unequal opportunities faced by companies across the EU when choosing the appropriate governance structures when they list.

The proposed amendments are expected to:

• Simplify the prospectus documentation that companies need to prepare when they intend to list on public markets, and streamline the scrutiny processes by national supervisors, thereby speeding up and reducing the costs of the listing process whenever possible.

• Simplify and clarify some market abuse requirements, without compromising market integrity.

• Help companies be more visible to investors, by encouraging more investment research especially for small and medium capitalisation companies.

• Foster the development of SME growth markets by allowing operators of MTFs to label one segment of the MTF as SME growth market.

• Allow company owners to list on SME growth markets using multiple-vote share structures, so that they can retain sufficient control of their company after listing, while protecting the rights of all other shareholders.

These measures will further develop the CMU by cutting unnecessary red tape and costs for companies. This will encourage companies to get and remain listed on the EU public capital markets. Easier access to public capital markets will allow companies to get exposure to a broader investors’ base and better diversify and complement available sources of funding.

Estimated savings and benefits

It is expected that the initiative will provide overall net administrative cost savings of EUR 167 million annually.

Direct cost savings for issuers would result in particular from the streamlining of the prospectus requirements and the clarification of the notion of inside information. It is expected that there would be further cost reductions benefitting national competent authorities (NCAs) as the simplification and clarification of requirements will equally increase efficiencies in the related supervisory activities. Investors would also benefit from the envisaged regulatory changes, specifically from the reduction in the complexity and length of prospectuses (making them easier to read and understand), as well as the clarifications to the notion of inside information (making it clearer which information and when would have to be disclosed by issuers and hence easier to act upon).

There would, in principle, be no direct impacts on exchanges. However, in the long run, the increased attractiveness of listing and remaining listed due to the regulatory changes would increase the number of listed companies on their venues, therefore increasing their revenues.

Finally, the proposed measures would only lead to minor one-off costs for issuers and national competent authorities (NCAs). In the case of NCAs the minor one-off costs would be linked to adapting the scrutiny and approval process to the new (alleviated for issuers) prospectus regime. In the case of issuers, the one-off (limited) costs would be linked to adapting internal procedures to identify inside information and deciding when to delay the disclosure of said information. Companies willing to list with multiple-vote share structures, may incur minimum one-off cost to ensure that a listing is structured in accordance with the new rules (and more specifically, with the investor protection safeguards in place).

Fit for Future Platform

The Opinion of the Fit for Future platform on “Facilitating small and medium sized enterprises’ access to capital” puts forward three suggestions: 1) Align the concepts of SME for capital market purposes across relevant legislation; 2) Standardised and simplified rules concerning accounting obligation; and 3) Simplification of the procedures for the admissibility of securities issued by SMEs and of administrative obligations.

The Platform's opinion on facilitating SME access to capital confirmed that, while past simplifications notably to the Prospectus Regulation¹ setting EU rules on information to be provided to investors, the Markets in Financial Instruments Directive (MiFID II) and Market Abuse Regulation have eased access to public markets, access to financing remains limited to bank loans, still the main source of financing in the EU.

The Commission took up the Platform’s suggestion, in particular to simplify the procedures for admission to securities trading (such as shares, bonds, derivatives) for SMEs and other listing obligations contributed to the development of the proposal for a Listing Act tabled in December 2022².

The Listing Act focuses on lightening the regulatory requirements that can deter a company from deciding to list or remain listed on regulated markets as well as SME growth markets, while ensuring a high level of investor protection and market integrity. The proposal includes measures to simplify the documentation that companies need to list on public markets, notably the prospectus streamline the scrutiny processes by national supervisors, simplify and clarify some market abuse requirements. In addition, the proposal also puts forward a new Directive on multiple vote share structures that helps controlling shareholders retain decision-making power in the company if they list their company on public markets dedicated to SME listing. The proposal also aims to foster investment research and seeks to repeal the outdated listing legislation.

¹The Prospectus Regulation sets the EU rules on the information that must be provided by companies that want to offer securities to the public or seek admission to trading on a regulated market to attract investors, raise capital and finance their growth.

²Capital Markets Union package.

State of Play

Finalised: SWD(2022)762, 07/12/2022

Scope:

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (‘MAR’)

Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (‘Prospectus Regulation’)

Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the admission of securities to official stock exchange listing and on information to be published on those securities (‘Listing Directive’)

Evaluation findings:

The Listing Act 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 EU legislation that stakeholders consider to hinder companies’ access to and ability to remain listed 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).

The evaluation (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. 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: 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 High Level Forum on CMU and of the Technical Expert Stakeholders Group on SMEs, 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 in particular relates to 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.

Annex 7 to the impact assessment provides an overview of how the Listing Directive has been implemented by the Member States.

Estimated savings and benefits

The evaluation identified potential for administrative cost savings. Direct cost savings for issuers could result in particular from the streamlining of the prospectus requirements and the clarification of the notion of inside information. There could be further cost reductions benefitting national competent authorities (NCAs) as the simplification and clarification of requirements could equally increase efficiencies in the related supervisory activities. Investors could also benefit from the envisaged regulatory changes, specifically from the reduction in the complexity and length of prospectuses (making them easier to read and understand), as well as from the clarifications to the notion of inside information (making it clearer which information and when would have to be disclosed by issuers and hence easier to act upon). This could also have an indirect impact on exchanges, as in the long run the increased attractiveness of listing and remaining listed due to the regulatory changes could increase the number of listed companies on their venues, therefore increasing their revenues. Such changes could lead to minor one-off adaptation costs for issuers and NCAs.

State of Play

Adopted: COM(2022)760 final, COM (2022) 761 final, COM (2022) 762 final; adopted by the Commission on 07/12/2022

Which objective(s) does the Commission pursue?

The general objective of the Listing Act is to make listings on EU capital markets more attractive through streamlined and clear regulatory obligations in order to make capital-raising on public markets by companies of all sizes less costly. This would in turn diversify funding sources for companies in the EU by facilitating access to alternative sources of financing and help increasing investment, economic growth, job creation and innovation in the EU. Public markets should be made more attractive for companies that seek a first-time listing and for firms that are already listed. Larger and more liquid EU public markets, in turn, would also help improve risk sharing in the EU, with positive effects on financial stability.

The 3 major specific objectives that would contribute to the general objectives set out above are the following:

1. Reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamline the listing process and enhance legal clarity;

2. Ensure investor protection and market integrity;

3. Provide more incentives for issuers to list.

Estimated savings and benefits

It is expected that the initiative will provide overall net administrative cost savings of EUR 167 million annually.

Direct cost savings for issuers result in particular from the streamlining of the prospectus requirements and the clarification of the notion of inside information. It is expected that there would be further cost reductions benefitting national competent authorities (NCAs) as the simplification and clarification of requirements will equally increase efficiencies in the related supervisory activities. Investors would also benefit from the envisaged regulatory changes, specifically from the reduction in the complexity and length of prospectuses (making them easier to read and understand), as well as the clarifications to the notion of inside information (making it clearer which information and when would have to be disclosed by issuers and hence easier to act upon). However, there is insufficient insight on the exact costs savings that can be expected.

Finally, the proposed measures would only lead to minor one-off costs for issuers and NCAs. In the case of NCAs the minor one-off costs would be linked to adapting the scrutiny and approval process to the new (alleviated for issuers) prospectus regime. In the case of issuers, the one-off costs would be linked to adapting internal procedures to identify inside information and deciding when to delay the disclosure of said information. Companies willing to list with multiple-vote share structures, would incur minimum one-off cost to ensure that a listing is structured in accordance with the new rules (and more specifically, with the investor protection safeguards in place).