European Commission proposes a set of measures to simplify listing and post-listing requirements
The European Commission kicked off a major overhaul of capital markets regulation just before Christmas by submitting the EU Listing Act package to the European Parliament and the Council. If the proposals survive mangling by Member States and MEPs, the Listing Act would help listed companies and IPO candidates by considerably reducing the burden of prospectus disclosures. Offerings of new shares of established issuers such as rights issues would be largely exempted from the prospectus requirement as the public can rely on continuous previous disclosures. Where a prospectus would still be needed, the EU would limit the long-windedness of prospectus draftsmen by setting a cap on the number of pages.
Upon superficial discovery, around 20 of total of 58 share prospectuses approved by the FIN-FSA during 2021 and 2022 – record years in IPOs, by the way – might either have been avoided altogether or cleared through significantly reduced disclosures under the Listing Act. This is no small matter in Finland. Therefore, the Finnish Government has embraced proposals alleviating the burden of unnecessary and overly extensive prospectuses, and we expect Finland to be a supportive party in negotiations for the new regime.
In the past, we have seen transactions falter when parties discover that a planned structure would lead to a prospectus requirement. Sometimes this can be avoided by changing the shape of the transaction, but this is the tail wagging the dog. Occasionally prospectus level disclosures have not felt justified or proportionate to the event. Rigorous reading of ill-formulated exemptions may have led to drafting a prospectus that no one considers to be useful from the perspective of investors. Therefore, whilst prospectus drafting is a bread-and-butter function for us as a leading business law firm in Finland, we fully grasp the aims of the Listing Act. It remains to be seen whether the international market community is also able to accommodate its prevailing practices to the objectives of the Listing Act.
The Commission is more unfortunate in proposals to change the insider regime covered by the Market Abuse Regulation (MAR). From the Finnish perspective, MAR has never been an all-out step forward. The proposals include patchy and haphazard fixes that do not seem to coincide with the good intentions of the Listing Act. Forcing permanent insider lists upon issuers instead of project specific lists would increase the disorder already created by MAR. No wonder that the Finnish Government is less enthusiastic about the Commission’s proposals regarding MAR. Another ill-fitting practical change would be to require issuers to notify the regulator of delay of disclosure of inside information immediately after the decision is taken instead of the current regime under which the regulator is notified when and if the information is ultimately disclosed to the public. Finnish issuers have not notified the FIN-FSA of expired or cancelled insider projects.
In the following, we provide more details of the proposals.
The Listing Act in a nutshell
The Listing Act includes a set of proposals to decrease the administrative burden for companies by simplifying the listing and post-listing requirements to attract more companies to the EU public capital markets. The proposals aim, in particular, to improve access to market-based sources of financing for small and medium-sized enterprises that currently rely excessively on bank financing. Adoption of the proposals can take anywhere from several months to several years.
The key amendments proposed in the Listing Act relate to the Prospectus Regulation and the Market Abuse Regulation. Further, the Listing Act includes other proposals, such as proposed amendments to MiFID II and MiFIR, as well as a proposed directive on multiple-vote share structures on SME growth market listings. However, this briefing focuses on only what we believe are the key amendments proposed to the Prospectus Regulation and MAR.
Proposed amendments to the Prospectus Regulation
Exemptions for secondary issuances of securities fungible with securities already admitted to trading
The proposals seek to amend the Prospectus Regulation so that the applicable threshold would be increased from 20% to 40%, and the exemption would apply to both the offer of securities to the public and their admission to trading. Even more importantly, an offer or admission to trading of securities that are fungible with securities already admitted to trading on a regulated market or on an SME growth market continuously for at least 18 months would be exempt from prospectus requirement altogether provided that the issuer files with the authority and publishes a concise set of details on the offer and risks related thereto. The exemption would also cover issuers transferring from an SME growth market (such as Nasdaq First North Growth Market) to a regulated market (such as Nasdaq Helsinki Main Market).
The harmonised threshold for exempting small offers of securities
The current threshold under the Prospectus Regulation is proposed to be replaced with a unique harmonised threshold of EUR 12 million. Offers of securities falling below this threshold would be exempted from the requirement to publish a prospectus. Member States would still be allowed to require national disclosure documents, such as basic information documents, for offers of securities to the public below EUR 12 million.
English accepted as prospectus language and no paper copies printed
The proposal also introduces the possibility for issuers to draw up the prospectus in English only, except for the summary which should be translated into the language of the retail investors targeted. The issuers would be able to publish the prospectus in electronic format only and no paper copies would be required to be printed.
More standardised and streamlined prospectus for primary issuances of securities
The proposals introduce a more standardised format and sequence of the prospectus (including a fixed order of disclosure of the prospectus sections) to be used across the EU. Furthermore, with a view to enhancing the efficiency and effectiveness of the prospectus requirements, the proposals introduce a 300-page limit for IPO prospectuses, allow issuers to draw-up prospectus in English only, aim to streamline the presentation of risk factors in prospectuses and remove the possibility for investors to request paper copies of the prospectus.
New EU Growth Issuance Document to replace EU Growth Prospectus
The proposals introduce a new EU Growth Issuance Document, which would permanently replace the EU Growth Prospectus. The EU Growth Issuance Document would be subject to a 75-page limit and follow a standardised format and sequence. The Listing Act introduces new annexes to the Prospectus Regulation, listing the information a company needs to include in the revised EU Growth Issuance Document. Based on these annexes, the disclosure requirements for Growth Issuance Documents would be lighter than the current requirement for Growth Prospectuses.
CSRD and ESG disclosure requirements to be adopted
The proposals also clarify that the delegated acts setting out specific requirements should also consider; 1) for issuers of equity securities, whether the issuer is subject to the sustainability reporting under the upcoming Corporate Sustainability Reporting Directive; and 2)for issuers of non-equity securities, whether those non-equity securities are marketed as taking into account ESG factors or pursuing ESG objectives. However, the proposals do not specify in a detailed manner which CSRD and ESG disclosure requirements will be added to the delegated acts.
Proposed amendments to MAR
Narrowing down the scope of the obligation to disclose inside information and enhance legal clarity as to what information needs to be disclosed and when
The proposals narrow down the scope of the disclosure obligation in the case of multi-staged events (so-called protracted process), such as a merger, by setting out that the disclosure obligation would not cover the intermediate steps of that process, and that issuers would be obligated only to disclose the information relating to the event that is intended to complete a protracted process. However, intermediate steps of the process could still be deemed to constitute inside information and subject to trading and disclosure prohibitions as under the current regime. Additionally, the proposals aim to enhance legal clarity as to which information falls under the scope of the disclosure obligation as well as to the timing of disclosure by empowering the European Commission to adopt a delegated act to establish a non-exhaustive list of relevant information together with the indication (for each piece of information) of the moment when disclosure is expected to occur.
Clarifying the conditions under which issuers may delay disclosure of inside information and modify the timing of the notification of the delay to a national competent authority
The proposals would replace the general condition that the delay should not mislead the public by setting out a list of specific conditions that the inside information that the issuer intends to delay must satisfy. Furthermore, issuers would be obliged to notify the competent authority of the decision to delay disclosure at the time of making such a decision, whereas under the current regime, issuers must notify the competent authority of their decision to delay after the inside information, the disclosure of which has been delayed, has been disclosed to the public.
Clarification of the safe-harbour nature of the market-sounding procedure
The proposals clarify that so-called ”disclosing market participants” carrying out market soundings in accordance with certain information and record-keeping requirements as set out in MAR would be granted full protection against the allegation of unlawfully disclosing inside information. Furthermore, in case of non-compliance, there would be no presumption that disclosing market participants have unlawfully disclosed inside information.
Modification of insider lists regime
The proposals would require issuers to prepare and maintain 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 obligation would replace the current requirement to establish and maintain project-specific insider lists of all persons who have access to specific inside information. However, such amendment would only apply to the issuer and not persons acting for the account or on behalf of the issuer.
Other key amendments
The proposals would raise the annual threshold above which transactions conducted by Persons Discharging Managerial Responsibilities and Persons Closely Associated must be notified to the issuer and to the competent authorities from EUR 5,000 to EUR 20,000. In addition, the value to which competent authorities may decide to increase the threshold applied at the national level would be raised from EUR 20,000 to EUR 50,000. Furthermore, the proposals aim to make administrative sanctions for infringements of disclosure requirements more proportionate to the size of the issuer, and in particular for small and medium-sized enterprises.