On 17 November 2023, by notice No. 43747 (“Notice”), Borsa Italiana S.p.A. (“Borsa Italiana”) informed the market of the introduction of certain significant amendments to the Euronext Growth Milan Issuer R…
Last 19 November the European Commission launched a public consultation [1] in order to assess possible changes to the reference regulatory framework for companies listed on regulated markets or admitted to trading on multilateral trading systems. The public consultation will close on 11 February 2022 [2].
The Commission has indeed welcomed the idea that an action to structurally lighten the regulations applicable to issuers, especially small and medium-sized enterprises, (“SMEs”) [3], will facilitate access by European SMEs to the market to finance their growth paths, while maintaining a high level of investor protection and market integrity.
The Commission's initiative is part of the new Action Plan for the creation of the Capital Markets Union, with one of its main objectives being to ensure that companies, and in particular SMEs, have rapid access to the market. In particular, the Action Plan has been able to identify the factors that discourage companies from accessing capital markets such as high administrative burden, excessive listing costs and overly stringent compliance rules.
For some time now, the importance of a union of European capital markets has been recognised by all stakeholders. On this subject, the Commission itself has recognised how, although important steps have been taken to promote the use of the venture capital market, European markets still remain particularly fragmented.
Also in this regard, in recent months, the European institutions seem to have fully understood how the Capital Market Union can be one of the decisive tools to support economic recovery following the crisis due to the continuation of the COVID-19 pandemic, being also a solution for a green and digital transition.
In consideration of the above, in October 2020, the Commission has set up a group of experts (Technical Expert Stakeholder Group, “TESG”) on SMEs [4], which, after a careful analysis of the functioning of SME growth markets, in May 2021 published a report containing twelve recommendations addressed to the Commission and Member States to help promote access by SMEs to capital markets. TESG's recommendations are based on the work already undertaken by the High Level Forum (“HLF”) [5] and the report published by ESMA for a review of MiFID II.
Just like the work done in recent months in the various European institutions, of which we have mentioned only the most recent initiatives, the Consultation Document pays particular attention to SMEs and issuers admitted to trading on SME growth markets (or “SGM”, including Euronext Growth Milan).
After formulating questions aimed at providing the Commission with a snapshot of the state of health of European capital markets [6], the second section of the consultation seeks views on certain proposed amendments to various aspects of the applicable regulations, with particular reference to the Prospectus Regulation [7], the Market Abuse Regulation [8], the MiFID II Directive [9] and the Transparency Directive [10].
Overall, it can be noted that the Commission has taken broad account of the proposals made by the groups of experts who met to understand what steps need to be taken to revitalise European markets.
More specifically, in the context of the consultation, a central role is played by the work of the TESG, whose recommendations were incorporated into the document published by the Commission.
It is not an extreme statement to assert that, should the proposals put forward in the consultation aimed at meeting the need for simplification expressed by the market be adopted, the regulatory framework applicable to listed SMEs would undergo a real revolution.
On the one hand, market access would be considerably less costly and easier and, on the other hand, the on-going obligations to which listed SMEs are subject would be proportionally reduced. All this, as clarified by the consultation document, without any danger to the protection of market integrity.
4.1 Prospectus Regulation
The Commission's attention is primarily focused on the Prospectus Regulation, in respect of which various proposals have been put out for consultation. As far as SMEs are concerned, the most important issue is represented by the novelties concerning: (i) the prospectus for secondary issuances of issuers whose securities are already listed on a regulated market or an SGM (for at least 18 months); and (ii) the simplified prospectus [11] for the transition from an SGM to the regulated market [12].
The new regime of the EU recovery prospectus (the so-called “Recovery Prospectus”) is part of the above regulatory framework [13].
Also in this respect, the Commission submits to the market the proposals of the TESG, which has made a recommendation for the introduction of a new simplified prospectus (replacing the current simplified prospectus for secondary issuances), similar in form to the Recovery Prospectus, to be adopted on a permanent basis for secondary issuances and for transfers from an SGM to a regulated market.
4.2 Market Abuse Regulation
As concerns the regulatory framework applicable to listed companies on market abuse, the major shortcoming attributed to the MAR is the fact that the regulations provided for therein apply indiscriminately to various issuers, without a differentiation of the regulatory obligations based on the different structure (and, more generally, on the size) of the individual companies.
It is clear from the work of the High Level Forum and TESG that there are certain MAR provisions and requirements that result in a disincentive to listing, without there being any appreciable benefits, in terms of transparency, for the market. In particular, the cost of complying with MAR requirements is considered to be excessively high, especially for SMEs, in addition to the legal uncertainty surrounding certain MAR provisions that needs to be remedied.
Notion of inside information
With particular reference to SMEs, there are numerous issues on which the Commission requests an opinion, starting with the notion of inside information. On this subject, the recommendation of the TESG is reiterated, which invited the legislator to make a distinction between the notion of inside information relevant for the purposes of the prohibition of insider trading and that relevant for the obligation of disclosure, considerably simplifying the obligations connected with MAR regulations.
A further element of attention for SMEs is represented by the disclosure regime connected with debt issuances. On this point, the Commission highlights how, according to the TESG, plain vanilla bonds are less exposed to the risks of market abuse, precisely because of the nature of the instrument. Consequently, also on this subject, the Commission is asked to express an opinion on the possibility of providing for less onerous disclosure obligations.
Internal dealing
The Commission also intends to assess the possibility of envisaging a revision of the regulatory framework on internal dealing pursuant to Article 19 MAR. For SMEs, the proposals put forward may be particularly relevant from two different points of view. First, it will be possible to decide to raise the relevant threshold to 50,000 Euros and to provide for the obligation to report only when the aforementioned threshold or its multiples are exceeded [14].
Second, again echoing the TESG conclusions, market participants may support the proposal to repeal the requirement to maintain the list of close associates referred to in Article 19(5) MAR, which entails costs that are disproportionate to the benefit offered, in terms of disclosure, to the market.
Insider List
Again, with reference to the list of persons with access to inside information (so-called insider list), the Commission has put certain proposals into consultation, again with a view to providing for overall more proportionate rules, in terms of compliance, for SMEs [15]. On this point, although Regulation 2115/2019 [16] has laid the foundations for the introduction of certain simplifications for companies admitted to trading on an SGM [17], the TESG has recommended removing the obligation to maintain the insider list for issuers with a market capitalisation below €1 billion [18], while introducing at the same time a rationalisation in the information to be included in the said list, for other issuers. Also in this respect, market operators will be able to agree to the TESG proposal.
Market sounding
The proposals for modification connected to the market sounding regime meet, in some ways, the same needs connected to those formulated with regard to the insider list. Indeed, also the market sounding regime represents an instrument of control for the Authorities; such rules, however, translate, once again, into rather complex fulfilments and greater costs for the issuers, especially if one considers the wide-ranging instruments of investigation already available to the Authorities.
In this regard too, the TESG recommendation is to derogate from the rules on market sounding by providing that any inside information may be disclosed if appropriate confidentiality agreements are in place. Alternatively, the TESG has proposed to extend the exemption from the market sounding discipline (currently applicable to private placements of debt instruments) to private equity placements only.
It will be possible to comment on both proposals during the consultation process.
Administrative sanctions
With reference to the sanctions regime associated with the market abuse discipline, the Consultation Document starts from an important premise: both the HLF report and the TESG recommendations highlight how the regulatory framework appears to be excessively disproportionate, especially for SMEs. The risk of committing an unintentional violation of the MAR and the penalties associated with the relevant regulations represent a considerable deterrent for companies wishing to access the market.
Well, also in this regard, the Consultation Document allows the market to express its views on a general rethinking of the sanctioning system linked to the MAR rules.
Dual listing
It seems likewise important to point out that the Consultation Document submits to the market the possibility for the legislator to intervene in order to clarify the provisions of Article 33, paragraph 7, of MiFID II, which regulates the requirements of the so-called dual listing (i.e. the admission to trading of its financial instruments in a multilateral trading facility ("MTF") different from the original one). From the reference regulatory framework it emerges that an issuer can initiate the related procedure exclusively following a request by a third party. Therefore, market participants may ask the European legislator to clarify that issuers may independently initiate the dual listing procedure.
Minimum corporate governance requirements
The Consultation Document gives the market an important opportunity to envisage a legislative amendment involving the introduction of a harmonised set of corporate governance principles, as suggested by the TESG.
Indeed, according to the most authoritative doctrine [19], a company that adopts a corporate governance system inspired by good corporate governance principles not only achieves an improvement in the ordinary management of the business, but also succeeds in achieving long-term strategic objectives by monitoring its performance.
On such point, the Consultation Document submits to the market certain proposals formulated by the TESG, aimed at introducing minimum corporate governance requirements for issuers admitted to trading on a MFT, such as: (i) disclosure to the market of transactions with related parties; (ii) disclosure of transactions for the acquisition and transfer of significant shareholdings; (iii) appointment of at least one independent director; (iv) identification of a reference person for the management of investor relations; (v) establishment of minimum requirements for delisting transactions, in order to protect minority shareholders.
To conclude, it seems that the efforts of the various working groups called upon to draw up proposals for change to the regulatory framework see, in the consultation on the Listing Act, a crucial opportunity to bring European markets closer to the levels of efficiency of other markets (especially the American and Asian markets), which have for some time been achieving much more satisfactory results for companies that decide to access the capital market.
It is hoped that the proposals put forward for consultation will meet with a broad consensus, so as to encourage the European legislator to move forward in the direction of strongly simplifying the regulatory framework.
[1] Consultation document (“Consultation Document”), Listing Act: making public capital markets more attractive for EU companies and facilitating access to capital for SMEs, available at the following link: ec.europa.eu/info/consultations/finance-2021-listing-act-targeted_it.
[2] Finally, it should be noted that, in parallel with the public consultation on the so-called Listing Act, the Commission has also opened a further twelve-week consultation. Such consultation includes questions dealing with issues of a technical nature mainly addressed to capital markets operators, competent authorities and academics.
[3] “Small and medium-sized enterprises”, according to the definition contained in the European Recommendation 361/2003, but on which the market has long been requesting an update (see TESG proposal on the subject).
[4] See the Final report of the Technical Expert Stakeholder Group (TESG) on SMEs, Empowering EU Capital Markets for SMEs – Making listing cool again, https://ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union/what-capital-markets-union_en#tesg
[5] High Level Forum on the Capital Markets Union, A new vision for Europe’s Capital Markets. Final Report, 10 June 2020, available at the following link: https://ec.europa.eu/info/sites/info/files/business_economy_euro/growth_and_investment/documents/200610-cmu-high-level-forum-final- report_en.pdf
[6] The Consultation Document is divided into two main sections. The first section contains quite general questions and aims to understand what market participants think about the current regulatory framework, including the need for its adaptation.
[7] Regulation (EU) 2017/1129, https://eur-lex.europa.eu/legal-content/IT/ALL/?uri=CELEX%3A32017R1129
[8] Regulation (EU) 2014/596 (so-called “Market Abuse Regulation” or “MAR”) https://eur-lex.europa.eu/legal-content/IT/TXT/?uri=celex%3A32014R0596
[9] Directive 2014/65/EU, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0065
[10] Directive 2004/109/EC, https://eur-lex.europa.eu/legal-content/it/TXT/?uri=CELEX:32004L0109
[11] See Article 14, paragraph 1, (d), of the Prospectus Regulation.
[12] Think, at a domestic level, of the transition from Euronext Growth Milan (formerly AIM Italy) to EuroNext Milan (formerly MTA).
[13] The EU Growth prospectus consists of a single document of only 30 pages, which allows investors to know the key information about the issuer, in order to make their own investment decisions, ensuring a reduction of costs for the issuer.
[14] According to the TESG (in line with the suggestions of the High Level Forum), the threshold should be calculated (on an aggregate basis) having regard to the market capitalisation of the issuer.
