On 7 December 2022, the European Commission introduced its proposal for the new Listing Act Package which comprises of significant amendments to EU’s Prospectus Regulation (2017/1129/EU, the “Prospectus Regulation”), Market Abuse Regulation (596/2014/EU, the ”MAR”) and Markets in Financial Instruments Directive (2014/65/EU, the ”MiFID II”).
The proposed amendment’s main objective is to enhance the European capital markets and facilitate particularly small and medium-sized companies’ (the “SMEs”) access to capital markets through listings and capital raisings from public markets. Moreover, the amendments aim to lighten the regulatory burden of already listed issuers and to reduce costs.
The Commission’s proposal includes also further amendments than the ones contemplated herein. In this article we have described the most important proposed changes from the perspective of listed companies and companies contemplating listing on public market.
The threshold for the requirement to publish a prospectus would be increased when offering securities to the public
Pursuant to the proposal, the threshold to publish a prospectus would be increased to EUR 12 million (the aggregate considerations in the EU in the period of 12 months) when offering securities to the public. The current threshold implemented by Finland is EUR 8 million and hence, in the future, it could be possible for companies to gather EUR 4 million more without having to publish a prospectus. In such Member States where the implemented threshold is lower, the change would be even greater. On a national level, Member States would be allowed to require national disclosure documents for public offerings which fall below the EUR 12 million threshold. At this moment an equivalent requirement is already implemented in Finland (issuers have a requirement to draft and publish a basic information document for offers between EUR 1 and 8 million, as stipulated in the Finnish Securities Markets Act) and this practice can be expected to continue in the future with the proposed higher prospectus threshold as well.
The exemptions for secondary issuances of securities would be extended
Current Prospectus Regulation contains an exemption from the obligation to publish a prospectus in situations where securities are admitted to trading on a regulated market when the securities are 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 percent of the number of securities already admitted to trading to the same regulated market. The exemption is regularly used in the Finnish market, inter alia, when securities issued in an accelerated book building process are admitted to trading.
According to the proposal, the said 20 percent threshold would be increased to 40 percent and the exemption would also be extended to include securities offered to the public. Further, the exemption would be applicable to securities subject to trading on a SME growth market (in Finland First North Finland), when securities are offered to the public. The proposal would thus significantly increase the possibilities of listed companies to obtain capital from the markets without the requirement to publish a prospectus.
Furthermore, the proposal includes an entirely new exemption from the obligation to publish a prospectus, according to which the requirement to publish a prospectus will not be applicable (i) to an offer of securities to the public when new securities are fungible with securities that have been admitted to trading on a regulated market or an SME growth market continuously for at least the 18 months preceding the offer of the new securities, and (ii) to admission to trading on a regulated market when new securities are fungible either with securities that have been admitted to trading on a regulated market continuously for at least the last 18 months before the admission to trading of the new securities or with securities that have been offered to the public with a prospectus and admitted to trading on an SME growth market continuously for at least the last 18 months before the admission to trading of the new securities. The application of the exemption requires that:
- the securities are not issued in connection with a takeover by means of an exchange offer, a merger or a demerger;
- the issuer of the securities is not under an insolvency or restructuring procedure;
- the issuer of the securities publishes a document containing the information set out in Annex IX (new Annex) of the Prospectus Regulation (the information in the document mainly comprising of risk factors, description of the use of proceeds and rationale of the offering, the terms and conditions of the public offering as well as of the issuer’s confirmation of compliance concerning periodic and on-going disclosure obligations). The proposed maximum length of the document is 10 pages, which may turn out to be challenging in practice, especially in case of a public offering when the terms and conditions of the offering should be included in the document.
The proposed new exemption would signify a substantial change to the current prospectus legislation since it would, inter alia, enable the use of a quite straightforward information document when transferring to the regulated market as well as when arranging sizable right issues or public offerings.
New Follow-on Prospectus would replace Simplified Prospectus
- A Follow-on Prospectus could be utilized when offering securities to the public as well as when seeking admission to trading on a regulated market.
- The use of a Follow-on Prospectus requires that the issuer’s securities have been admitted to trading on a regulated market or an SME growth market continuously for at least the last 18 months before the offer to the public and/or seeking admission to trading.
- A Follow-on Prospectus has a standardized format and structure.
- The maximum length of a Follow-on Prospectus is limited to 50 pages when the prospectus is connected to offering of shares and/or seeking admission to trading on a regulated market.
- A Follow-on Prospectus may only be drafted in English (excluding the summary).
New EU Growth Issuance Document would replace EU Growth Prospectus
- An EU Growth Issuance Document would be used when offering securities to the public and the issuer’s securities have not been previously admitted to trading on a regulated market.
- An EU Growth Issuance Document could be used by issuers pre-defined in the regulation, including SME’s and companies whose securities have been admitted or are to be admitted on an EU Growth Market (in Finland on the Nasdaq First North Finland).
- On secondary issuance, companies may decide to use a Follow-on Prospectus instead of an EU Growth Issuance Document.
- An EU Growth Issuance Document has a standardized format and structure.
- The maximum length of an EU Growth Issuance Document is limited to 75 pages when the prospectus is connected to offering of shares to the public.
- An EU Growth Issuance Document may only be drafted in English (excluding the summary).
The minimum subscription period for IPOs would be shortened
The current Prospectus Regulation mandates that in an initial offer to the public of a class of shares that is admitted to trading on a regulated market for the first time, the prospectus must be made available to the public at least six working days before the end of the offer. According to the proposal, this period would be shortened to three working days in order to facilitate swift book-building process.
Other proposed amendments.
- The content and format of a full-blown EU Prospectus and its summary is standardised and a page-limit of 300 pages is introduced to prospectuses published in initial public offerings (not including the summary, the information incorporated by reference or the descriptions of the issuer’s complex financial history and/or significant financial commitments).
- Investors right to receive a paper copy of the prospectus would be removed.
- Incorporating certain information by reference would be mandatory.
- Investors right to withdraw their subscription within three working days after the issuer has published a supplement to the prospectus is made permanent.
- The prospectus could be drafted in English only (excluding the summary).
Market Abuse Regulation
Clarifications to the disclosure and delayed disclosure of inside information
According to MAR, an intermediate step of a protracted process is considered to be inside information if it itself qualifies as inside information. The Commission proposes that the disclosure obligation does not cover the intermediate steps of the process and the inside information would need to be disclosed once it consists of an event that is intended to complete a protracted process. The proposition outlines that Commission would be empowered to set out other stipulations regarding the assessment of inside information and the moment when the disclosure is expected to occur.
Further, the Commission has introduced new explicit criteria to the requirement set forth in MAR for the delay of disclosure according to which the disclosure of inside information may be delayed provided that the delay is not likely to mislead the public. Pursuant to the proposal, the said requirement would be replaced with specific conditions according to which the inside information being delayed cannot relate to profit warnings nor can it significantly differ from information previously published by the issuer or signals given to the public by the issuer.
The Commission further proposes that the national competent authority must be notified of delayed disclosure immediately after the issuer has made the decision to delay disclosure (currently in Finland, the notification is made when the information is published).
The threshold above which PDMRs must notify their transactions would be raised
The Commission proposes to raise the current yearly aggregate threshold above which transactions conducted by persons discharging managerial responsibilities must be notified from EUR 5,000 to EUR 20,000. The proposal would also empower the national competent authorities to raise the said limit to EUR 50,000 on a national level. The proposed amendment would lighten the regulatory burden of listed companies and their managers.
Permanent insider list would replace project-specific insider lists maintained by the issuer
Pursuant to the proposal, listed companies would have the obligation to draft a permanent insider list instead of a project-specific insider list. The obligation would cover both companies listed on the regulated market and on the SME growth market. The national competent authorities would have the right to mandate that project-specific insider lists are drafted and maintained by those issuers, whose securities have been admitted to trading on a regulated market for at least five years. Persons acting on behalf of the issuer (such as external advisors) would still have the obligation to maintain project-specific insider lists, just as they are currently obligated to. The proposal is somewhat ambiguous as to persons who are employed by the issuer and who receive inside information only once in relation to a particular insider project. Since permanent insider list is to be updated just as a project-specific insider list, it seems that the said persons ought to be also included in the permanent insider list. Moreover, the practical usefulness of this particular amendment in current Finnish practice is somewhat unclear.
Clarifications on the market sounding procedures
The Commission’s proposal emphasises the voluntary nature of market sounding processes and clarifies that the rationale for the disclosure of inside information must be well documented and delivered to the national competent authority at their request regardless on whether the safe-harbour regime has been utilized. The amendment could be considered to clarify and strengthen the current market practices.
Markets in Financial Instruments Directive
According to the proposal, regulated market’s minimum free float requirement would be decreased from current 25 percent to 10 percent. Further, producer of issuer-sponsored research would be obligated to comply with a code of conduct issued by national competent authority or the marketplace, which aims to determine the minimum independence requirements for the independence of the persons producing the research.
Reduction of the said minimum free float requirement would indicate a quite significant change to the requirements set for companies whose securities are to be listed on a regulated market and the amendments could facilitate companies listed on SME growth market with concentrated ownership structures to transfer into a regulated market.
Timeline for the amendments
The feedback period for the Commission’s proposal is currently open and is expected to end on 7 February 2023. Afterwards, the feedback is condensed into a summary, which will be delivered to the European Parliament and Council for further consideration. The overall duration of the process is hard to estimate at this point as it may be anything from couple of months to multiple years. Additionally, the content of the proposal may change during the process.
We are of the opinion that there is a great need for schemes which aim to facilitate the efficiency of the capital markets and the attractiveness of listing on public markets, as long as investor protection and expediency of the amendments are looked after. The Commission’s proposals are not completely unproblematic; however, they clearly indicate a step into the right direction.