We understand that the Irish Stock Exchange (ISE), which is now trading as Euronext Dublin, is currently considering applying for the designation of the Enterprise Securities Market (ESM) of the ISE as an "SME Growth Market", as permitted by MiFID II. It is likely that this is as a result of two recent developments: (1) the designation, in January of this year, of the UK's broadly equivalent AIM market as an SME Growth Market, and (2) a recent proposal by the EU Commission which, if implemented, would result in a relaxation of some EU Market Abuse Regulation (MAR) and Prospectus Regulation compliance obligations, for the benefit of SME Growth Market issuers.
The full text of the proposal amending MAR and the Prospectus Regulation, published by the Commission on 24 May 2018, is available here. The Commission's proposals are primarily aimed at promoting the use of SME Growth Markets.
However, while the proposals would go some way towards reducing red tape (especially in relation to the proposed new notification timelines under MAR for managers' transactions, referred to below), it is debatable if they go far enough, and if they will act as a strong incentive for potential new SME issuers to seek a listing on the ESM and/or AIM, as opposed to another stock exchange, or give a significant advantage to issuers which are already listed there.
What are SME Growth Markets?
SME Growth Markets are a sub-category of MTFs (multilateral trading facilities) introduced by MiFID II. MiFID II permits the operator of an MTF (in the case of the ESM, this is Euronext Dublin) to apply to its home competent authority to have the MTF registered as an SME Growth Market. In order to qualify for designation as an SME Growth Market, Article 33 of MiFID II provides that a number of conditions must be satisfied, including that at least 50 % of the issuers whose financial instruments are admitted to trading at the time of registration and in any calendar year thereafter are SMEs, as defined.
What is an SME?
SMEs, for the purposes of MiFID II (as amended by Commission Delegated Regulation (EU) 2017/565), are :
- companies whose average market capitalisation is less than EUR 200 million for the previous 3 calendar years;
- companies whose shares have been admitted to trading for less than three years, and whose market capitalisation is below EUR 200 million based on any of the following: (a) the closing share price of the first day of trading, if its shares have been admitted to trading for less than one year; (b) the last closing share price of the first year of trading, if its shares have been admitted to trading for more than one year but less than two years; and (c) the average of the last closing share prices of each of the first two years of trading, if its shares have been admitted to trading for more than two years but less than three years; and
- non-equity issuers who meet at least two of the following three criteria: an average number of employees during the financial year of less than 250, a total balance sheet not exceeding EUR 43 000 000, and an annual net turnover not exceeding EUR 50 million. However, part of the Commission's reform proposals will also amend the criteria in relation to non-equity issuers. If adopted, the sole criterion for an SME non-equity issuer would be that the total size of its debt issuances does not exceed EUR 50 million over a period of 12 months on all trading venues across the Union.
Listing on an SME Growth Market - existing advantages
SME Growth Market issuers currently already benefit from certain relaxations of the compliance obligations under MAR as well as the new Prospectus Regulation, including the following:
- Inside information may be posted by SME Growth Market issuers on the trading venue's website rather than on the website of the issuer, where the trading venue chooses to provide this facility for issuers on that market (Article 17(9) of MAR).
- SME Growth Market Issuers are not required to maintain insider lists on an on-going basis, as long as (i) the issuer takes all the reasonable steps to ensure that any person with access to inside information acknowledges the legal and regulatory duties which follow and is aware of the applicable sanction, and (ii) the issuer is able to provide the National Competent Authority with the insider list on request (Article 18(6) of MAR).
- Certain SME Growth Market issuers are able to draw up a simplified prospectus under the simplified disclosure regime for secondary issuances, in the case of an offer of securities to the public or of an admission to trading of securities on a regulated market (Article 14 of the Prospectus Regulation).
Listing on an SME Growth Market – proposed additional relaxations
Among the Commission's proposals are the following key relaxations of MAR and Prospectus compliance obligations, for the benefit of SME Growth Market Issuers:
- Permanent Insiders List: SME Growth Market Issuers would in future be required to draw up a less burdensome 'list of permanent insiders', i.e. those persons who have regular access to inside information due to their function or position within the issuer, and produce this to the national competent authority on request.
- Justification of delay in disclosing inside information upon request: SME Growth Market Issuers will be obliged to notify a decision to delay the public disclosure of inside information to the national competent authority, but would no longer be required to also provide the reasons for the delay in making public inside information in all circumstances, but rather only upon the request of the competent authority. However, as the proposal currently stands, the competent authority will retain the power to request, at any time, the production of such reasons, and so it would be inadvisable for a SME Growth Market Issuer not to justify, and document, the reasons for the delay, in any case in which this is done.
- Time extension for making public manager's transactions: SME Growth Market Issuers would have two business days following receipt of a notification (as opposed to the current MAR timeline of three business days after the transaction has been carried out) to make public the details of a manager's transaction after receiving notification from a PDMR (or PCA). This belatedly recognises the fact that it can be very difficult, and in some cases impossible, for a company to meet the current three business day deadline, where the PDMR/PCA is late in delivering the required information to the company.
- Extension of the simplified prospectus regime: Under the current rules, SME Growth Market Issuers are obliged to produce a full prospectus if they want to graduate to an EU regulated market. Under the new proposals, such issuers would be able to avail of the simplified prospectus disclosure regime, if listed for at least three years on an SME Growth Market and wishing to move up to an EU regulated market, such as the Main Securities Market of the ISE. The purpose of this amendment is to create an alleviated "transfer prospectus" regime for such companies.
We will be monitoring the Commission's proposals, and Euronext Dublin's plans (if any) in this area, and will let you know if there are any developments of note.