On 7 December 2022, the European Commission ("EC") released a proposal to amend:
- the Prospectus Regulation (Regulation (EU) 2017/1129) ("PR");
- the Market Abuse Regulation (Regulation (EU) No 596/2014) ("MAR"); and
- the Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014) ("MiFIR").
- a proposal for a directive amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council (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; and
- 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.
We provide an overview of the key Listing Act amendments to the PR, MAR and MiFIR below.
1 – Amendments to the PR
More standardised and streamlined prospectus requirements for primary issuances.
The proposal amends PR Articles 6(2) and 7 to introduce a standardised format and sequence of disclosure included in the prospectus and the summary, as well as a 300-page limit for IPO prospectuses, excluding the summary, information incorporated by reference and additional information to be provided by issuers with complex financial histories or significant financial commitments. The summary, in turn, is also to follow a standardised sequence and its maximum length may be increased by three rather than one additional pages where there are multiple guarantors. In addition, the proposal removes the possibility for investors to request paper copies (PR Article 21); and ensures prospectuses can be prepared in English only, except for the summary (PR Article 27).
CSRD and ESG disclosure requirements to be adopted.
The proposal also clarifies that the delegated acts setting out specific requirements should also consider:
- for issuers of equity securities, whether the issuer is subject to the sustainability reporting under the upcoming Corporate Sustainability Reporting Directive; and
- for issuers of non-equity securities, whether those non-equity securities are marketed as taking into account ESG factors or pursuing ESG objectives.
Streamlined risk factors.
With a view to enhance the efficiency and effectiveness of the prospectus requirements, PR Article 16 is amended to specify that:
- a prospectus must not contain risk factors that are generic, only serve as disclaimers, or do not give a sufficiently clear picture of the specific risk factors of which investors are to be aware;
- each risk factor must be adequately described, and how that risk factor affects the issuer or the securities being offered or to be admitted to trading must be explained; and
- the assessment of the materiality of the risk factors may be disclosed, using a qualitative scale of low, medium or high, at the discretion of the issuer, offeror or person requesting admission to trading on a regulated market.
Moreover, the ranking requirement that the risk factors that have been assessed as the most material must be mentioned first has been removed.
Mandatory incorporation by reference and removal of requirement for certain prospectus supplements to reflect fresh financial information.
PR Article 19 is amended to set out that the following information that is to be included in a prospectus pursuant to PR and the delegated acts must be incorporated by reference in that prospectus where it has been previously or simultaneously published electronically:
- documents approved by a competent authority;
- alternative disclosure documents prepared in line with exemptions included in PR Article 1 (4) and (5);
- regulated information;
- annual and interim financial information;
- audit reports and financial statements;
- management reports, including, where applicable, sustainability reporting;
- corporate governance statements;
- reports on the determination of the value of an asset or a company;
- remuneration reports;
- annual reports; and
- memorandum and articles of association.
Additional information meeting the requirements of PR may be incorporated by reference on a voluntary basis.
Moreover, an issuer, offeror or person asking for admission to trading on a regulated market is no longer required to publish a supplement for updating annual or interim financial information incorporated by reference in a base prospectus that is still valid under PR Article 12(1).
New EU Follow-On Prospectus replaces simplified disclosure regime for secondary issuances and EU Recovery Prospectus.
The proposal introduces a new EU Follow-On Prospectus, which replaces on a permanent basis the simplified prospectus for secondary issuances as well as the EU Recovery Prospectus.
The regime for the EU Follow-On Prospectus is set forth in the new PR Articles 7(12b), 14b, 20(6b), 21(5b), and Annexes IV and V, and provides for a standardised format and sequence, is subject to a 50-page limit in the case of secondary issuances of shares (excluding the summary, information incorporated by reference and additional information to be provided by issuers with complex financial histories or significant financial commitments), and can be prepared in a language customary in the sphere of international corporate finance (except for the summary).
New EU Growth Issuance Document replaces EU Growth Prospectus.
The proposal introduces a new EU Growth Issuance Document, which replaces on a permanent basis the EU Growth Prospectus.
The new regime for the EU Growth Issuance Document is set forth in the new PR Articles 7(12b), 15a, 21(5c) and Annexes VII and VIII and provides that the EU Growth Issuance Document has to be prepared and published, except when an exemption from the obligation to publish a prospectus applies, for offers of securities to the public by certain categories of offerors, including SMEs and issuers whose securities are admitted or to be admitted to trading on an SME growth market if they do not already have securities admitted to trading on a regulated market. In the case of secondary issuances, SMEs and issuers on SME growth markets may still opt to prepare an EU Follow-On Prospectus for an offer of securities to the public if they have securities already admitted to trading on an SME growth market continuously for at least the last 18 months and 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 75-page limit in the case of issuances of shares (excluding the summary, information incorporated by reference and additional information to be provided by issuers with complex financial histories or significant financial commitments), and can be prepared in a language customary in the sphere of international finance (except for the summary).
Simplification of universal registration document regime.
The proposal simplifies and alleviates the universal registration document regime by making it possible to prepare the document in English only and granting the status of frequent issuer after one year of approval instead of two.
New exemptions for secondary issuances of securities fungible with securities already admitted to trading.
PR Article 1(5)(a) exempts from the obligation to publish a prospectus for the admission to trading on a regulated market securities fungible with securities already admitted to trading on the same regulated market if the newly admitted securities represent, over a period of 12 months, less than 20 % of securities already admitted to trading on the same regulated market. The proposal amends Articles 1(4) and 1(5) so that the applicable threshold is increased from 20% to 40% and the exemption applies to both the offer of securities to the public and their admission to trading. This is a particularly significant change for issuers from jurisdictions such as Germany, where capital increases in excess of 10% carry with them the obligation of a subscription (pre-emptive) rights offer, which constitutes a public offer for PR purposes and triggers the requirement to prepare a full prospectus under the current regime.
The proposal also extends this exemption to companies that have had securities traded on a regulated or an SME growth market.
In addition, the proposal amends Articles 1(4) and 1(5) to add an exemption for companies issuing securities fungible with securities already admitted to trading on a regulated market or an SME growth market continuously for at least the last 18 months before the offer or the admission to trading of the concerned securities, including companies transferring from an SME growth market to a regulated market. Instead of preparing and filing a prospectus, these issuers are required to prepare and file a short (maximum 10-page) 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 that has not yet been disclosed publicly.
The new exemption 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 issuers must prepare and publish an EU Follow-On Prospectus.
Harmonised threshold for exempting small offers of securities.
PR Article 1(3), setting forth a threshold of EUR 1 million below which PR does not apply, is deleted. In its place, PR Article 3(2) is amended to establish 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. Member States are allowed to require national disclosure documents for offers of securities to the public below EUR 12 million, so long as the national disclosures do not constitute a disproportionate burden. The threshold is based on the total consideration of the aggregated offers made by the same issuer in the EU over a period of 12 months.
Lower exemption threshold for non-equity securities offers by credit institutions.
The threshold of EUR 150 million (increased from EUR 75 million) to exempt offers of non-equity securities issued in a continuous and repeated manner by credit institutions that had been introduced on a temporary basis in Articles 1(4), point (j), and 1(5), first subparagraph, point (i) is made permanent.
Shortened minimum offer period.
The proposal reduces from six to three days the minimum period between the publication of a prospectus and the end of an offer of shares.
Streamlining and improvement of convergence of prospectus scrutiny and approval.
The proposal amends PR Article 20(11) to empower the EC to specify in delegated acts:
- 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;
- the maximum time frame 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; and
- the consequences for a competent authority that fails to take a decision on the prospectus within those time limits.
Revisions to rules on prospectus supplements and withdrawal rights.
PR Article 23 is amended to make permanent the previously temporary changes that extended from two to three working days the period within which investors may withdraw from their subscriptions for securities if issuers published a supplement due to significant new factors, material mistakes or material inaccuracies and clarified which investors' financial intermediaries have to contact when a supplement is published and extended the deadline to contact those investors (from the day of the publication of the supplement to the end of the following working day). Furthermore, PR 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). In addition, a supplement to a base prospectus must not be used to introduce a new type of security for which the necessary information has not been included in that base prospectus. ESMA is to develop guidelines to specify the circumstances in which a supplement is to be considered to introduce a new type of security.
Revisions to the equivalence regime for third-country prospectuses.
Additional conditions2 are introduced in PR Article 29 to make the equivalence regime workable.
Furthermore, the approval by the competent authority of the home Member State of a prospectus prepared in line with the laws of a third country is replaced with the mere filing with that competent authority. Finally, general equivalence criteria are set out and the EC is empowered to adopt delegated acts to further specify those criteria.
Summary of practical ramifications.
The proposed PR revisions related to additional exemptions from having to prepare a prospectus, mandatory incorporation by reference, streamlined and unranked risk factors, standardised format and sequence, availability of less burdensome alternatives to the full prospectus, more stringent page limits and loosening of language requirements are generally expected to increase securities issue activity in the EEA on the whole by facilitating and enhancing issuers’ ability to access the capital markets.
The removal of the requirement to publish a supplement for updating annual or interim financial information incorporated by reference in a base prospectus will be particularly useful with respect to non-equity transactions and programmes.
The practical utility of alternatives to full prospectuses, however, may continue to be limited in connection with concurrent private placements in jurisdictions such as the US, which have specific and detailed disclosure requirements based both on regulatory provisions as well as market practice.
Furthermore, novel disclosure requirements related to CSRD and ESG may prove to be significant once they are adopted through relevant delegating acts.
It also remains to be seen what type of guidance ESMA will develop regarding the circumstances in which a supplement is to be considered to introduce a new type of security for which the necessary information has not been included in that base prospectus, e.g., whether only a brand new financial product or mere tweaks within an existing financial product would count as such a change.
The reduction of the minimum share offer period to three days is expected to facilitate swift book-building processes (especially in fast-moving markets) and increase the attractiveness of the inclusion of retail investors in IPOs.
The wholesale revision of the equivalence regime can generally be expected to increase EEA market activity by third-country issuers.
2 – MAR Amendments
Clarification as to what information needs to be disclosed and when.
The proposal enhances legal clarity as to which inside information falls under the scope of the disclosure obligation and the timing of disclosure by enabling the EC to adopt a delegated act to set out a non-exhaustive list of relevant information along with an indication (for each piece of information) of the moment when disclosure is expected to be made.
Narrower scope of obligation to disclose inside information.
The proposal narrows down the scope of the disclosure obligation set out in MAR Article 17(1) in the case of the so-called protracted process (i.e. multi-staged events, such as a merger) by setting forth 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 set out 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 if a leak occurs.
Clarification of the conditions under which issuers may delay disclosure of inside information.
The proposal amends MAR Article 17(4) to replace the general condition that the delay should not mislead the public by a list of specific conditions and that the inside information that the issuer intends to delay must satisfy, namely:
- it is not materially different from the issuer's previous public announcements on the matter to which the inside information refers;
- it does not regard the fact that the issuer's financial objectives are not likely to be met where such objectives were previously publicly announced; and
- it is not in contrast with the market's expectations where such expectations are based on signals that the issuer has previously sent to the market.
In addition, the timing of the notification of the delay to the competent authority is moved up to the moment immediately after the issuer makes a decision to delay disclosure, rather than the moment immediately after it discloses the information to the public.
Simplification of the insider lists regime.
The proposal amends MAR Article 18 to extend the alleviations previously 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). Specifically, the proposal requires issuers to prepare and maintain a less burdensome list of so-called "permanent insiders", including all persons who have 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 alleviation, however, 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 and rating agencies) to prepare, update and provide their own insider lists to the competent authorities upon their request. Furthermore, for issuers whose securities have been admitted to trading on a regulated market for at least the last five years, the proposal allows Member States to opt out and require the preparation 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 applicable.
Increased threshold for management transaction notices.
The proposal amends MAR 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 with PDMRs on their own account and relating to the shares or debt instruments of that issuer or to derivatives or other financial instruments linked thereto have to be notified to the issuer and to the competent authority. The proposal also raises from EUR 20,000 to EUR 50,000 the value to which national authorities may decide to increase the threshold that applies at the national level.
Expansion of exempted management transactions during closed period.
The proposal adds certain transactions in the scope of the exemptions to the prohibition for PDMRs to carry out transactions in the closed period (i.e. 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). Specifically, these are 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).
Clarification of the safe-harbour nature of the market-sounding procedure.
MAR 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 a "safe-harbour" option for disclosing market participants ("DMPs") to benefit from the protection against the allegation of unlawful disclosure of inside information. It follows that DMPs choosing to carry out market soundings in accordance with certain information and record-keeping requirements are granted full protection against the allegation of unlawfully disclosing 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. In the case of non-compliance, however, there is no presumption that DMPs have unlawfully disclosed inside information.
At the same time, to enable competent authorities to obtain an audit trail of a process that may imply disclosure of inside information to third parties, the proposal specifies that all DMPs (regardless of whether they intend to benefit from the safe harbour or not) must 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 underlying reasons and provide it to competent authorities upon their request.
In addition, the definition of market sounding is expanded to include cases where a transaction is not eventually announced.
Clarifications to exceptions for buy-back programmes and stabilisation.
MAR Article 5 contains an exception for buy-back programmes and stabilisation to the prohibitions contained in MAR Articles 14 and 15 on insider dealing, the unlawful disclosure of inside information, and market manipulation. The proposal amends MAR Article 5 to simplify the reporting mechanism that an issuer must follow in order for its buy-back programme to benefit from those exceptions. Under the proposed amendments, issuers must report the information only to the competent authority 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 also covers 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 introduces a new MAR Article 25(a) to set up a cross-market order book surveillance mechanism that allows competent authorities to exchange order book data collected from exchanges to detect market abuse in a cross-border context.
The proposal brings benchmark administrators and contributors expressly into the scope of a MAR administrative sanctioning regime by amending MAR Article 30(2), points (e) to (g).
The proposal amends MAR Article 30(2)(i) and (4) 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 infringement are by default calculated as a percentage of the issuer's total annual turnover. Still, 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 MAR 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.
Summary of practical ramifications.
The list of relevant information and indication when disclosure is expected to be made will likely provide useful guidance to issuers in navigating their inside information disclosure obligations. The removal of intermediate steps in protracted processes is expected to reduce the volume of notices and provides a more practical regime for managing public disclosures related to such transactions.
The simplification of insider lists will be a welcome change to issuers given the relatively burdensome nature of the current requirements. Moreover, the EC expects the simplified lists to be easier for issuers to produce while still being meaningful for the investigations of competent authorities on insider dealing cases.
The additional exemptions related to managerial transaction reporting will also likely help generate market efficiencies by streamlining related notifications and responsibilities.
3 – MiFIR Amendments
In connection with the introduction of the cross-market order book surveillance 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.
According to the EC, for issuers the estimated cost savings in connection with PR compliance would amount to approximately EUR 67 million per year. Investors would take advantage of a lighter and more streamlined document, which is easier to read and navigate. The more standardised format would facilitate the comprehensibility of prospectuses and their comparability across the EU.
In relation to ongoing reporting obligations, the proposal 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. The proposed measures seek to 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. According to the EC, the estimated reduction in MAR inside information annual compliance costs amounts to approximately EUR 89 million. The targeted amendments to the delayed disclosure rules could additionally reduce costs for companies by EUR 11 million.
- the third country's legally binding requirements must ensure that the third-country prospectus contains the necessary information that is material to enable investors to make an informed investment decision in an equivalent way as PR requirements;
- where retail investors are enabled to invest in securities for which a third-country prospectus has been prepared, that prospectus contains a summary providing the key information that retail investors need to understand the nature and the risks of the issuer, the securities and, where applicable, the guarantor;
- the third country's laws, regulations and administrative provisions on civil liability apply to the persons responsible for the information given in the prospectus, including at least to the issuer or its administrative, management or supervisory bodies, the offeror, the person asking for the admission to trading on a regulated market and, where applicable, the guarantor;
- the third country's legally binding requirements specify the validity of the third-country prospectus and the obligation to supplement the third-country prospectus where a significant new factor, material mistake or material inaccuracy of the information included in that prospectus could affect the assessment of the securities, as well as the conditions for investors to exercise their withdrawal rights in such a case; and
- the third country's supervisory framework for the scrutiny and approval of third-country prospectuses and the arrangements for the publication of third-country prospectuses have an equivalent effect as the provisions referred to in PR Articles 20 and 21.