ESMA consults on Technical Advice on Listing Act implications

RegCORE Client Alert | Capital Markets Union

QuickTake

As set out in an earlier Client Alert,Available here.Show Footnote the EU’s Listing Act package was formally adopted in October 2024, published in the EU’s Official Journal (OJ) on 14 November 2024 and entered into force on 4 December 2024. This marks a key milestone in the EU’s efforts to complete various Capital Markets Union (CMU) reforms. The EU’s Listing Act seeks to make EU public capital markets more attractive (i.e. reduce the administrative burden) for companies to list on European stock exchanges. The EU’s Listing Act package is applicable to all (EU and non-EU) companies of all sizes, in particular for small-to-medium sized enterprises (SMEs). The EU’s Listing Act package is comprised of the following three instruments:

1. The EU’s Listing Regulation – which amends the EU’s Prospectus Regulation, the EU’s Market Abuse Regulation (MAR) and the Markets in Financial Instruments Regulation (MiFIR);
2. The EU’s Listing Directive – which amends the revised Markets in Financial Instruments Directive (MiFID II) and repeals the EU’s Directive 2001/34/EC that previously set out rules on listings; and
3. The EU’s Multiple-vote Directive – which creates a minimum harmonisation at the EU level that aims to remove the obstacles to access for SMEs with multiple-vote structures to SME Growth Markets (that are designated as such under MiFIR/MiFID II – each such entity a SME GM) as well as to any other multilateral trading facility (MTF) open to trading of SME shares. 

A number of the provisions in the above texts have a deferred entry into application ranging from 15 to 18 months so that the bulk of the provisions of the EU’s Listing Act package should enter into full application in July 2026. The European Commission (the Commission) is required to adopt delegate acts across several areas within the 18 months of its entry into force.

On 6 June 2024, the European Securities and Markets Authority (ESMA) received a request for technical advice from the Commission in respect of the following specific topics:

• In relation to MiFID II on the following point specific to SME GMs: details on the delegated acts that the Commission should adopt regarding the requirements necessary for an MTF, or a segment thereof, to be registered as a SME GM; and
• In relation to MAR on the following points (applicable to all market participants): 

o    Disclosure of inside information in protracted processes: a non-exhaustive list of final events or final circumstances in “protracted processes” and, for each event or circumstance, the moment when it is deemed to have occurred and is to be disclosed pursuant to the new Article 17(1) MAR as supplemented by principles set out in a proposed Commission Delegated Regulation on the subject matter (the CDR); 

o    Conditions to delay disclosure of inside information: a non-exhaustive list of situations in which the inside information that the issuer or the emission allowance market participant intends to delay is in contrast with the latest public announcement or other type of communication by the issuer or emission allowance market participant on the same matter to which the inside information refers, as referred to in Article 17(4)(b) MAR, as supplemented by the principles set out in the CDR; and

o    Cross-market order book mechanism (CMOB-M): trading venues with cross-border activity above 50%, along with their share turnover over the past four years, to help identify those that will be subject to the CMOB-M established by Article 25a MAR.

On 12 December 2024 ESMA published a consultation paper containing draft “Technical Advice concerning MAR and MiFID II SME GM” (the draft Technical Advice).The consultation paper, the response form and a summary redline of specific changes to MAR and MiFID II (Annex III of the consultation paper) plus the draft Technical Advice (Annex IV of the consultation paper) and its own annexes, are available here.Show Footnote ESMA’s consultation is set to close on 13 February 2024 and the deadline for the final Technical Advice is 30 April 2025. As explored in this Client Alert, the proposals set out in the draft Technical Advice outlines details that service to simplify listing requirement and enhance access to public capital markets for companies and in particular SMEs.

Importantly, while the EU’s Listing Package applies primarily to “traditional” financial instruments i.e., (a) equity securities, (b) non-equity securities and/ or (c) SME GM securities, and does not explicitly mention crypto-assets, certain such crypto-assets can be designated as financial instruments if they meet the criteria set out in MiFID II and other relevant supervisory guidance (see a separate Client Alert on that topic). When crypto-assets are classified as financial instruments, in particular securities under MiFID II and other legislative and regulatory purposes, they fall under the same framework as traditional securities, as amended by targeted simplifications set out by the EU Listing Act package.

Key takeaways from the draft Technical Advice

Over the course of 80 pages, the draft Technical Advice sets out (i) the principles that the Commission had asked ESMA to consider when developing its draft Technical Advice (ii) ESMA’s views and proposed advice. ESMA’s consultation process may further shape the final form of the Technical Advice that ESMA will deliver to the Commission. The principles that the Commission asked ESMA to take into account include:

• the Internal Market: and the need to ensure the proper functioning of the internal market, notably for financial markets and a high level of investor protection;
• Proportionality: the Technical Advice should not go beyond what is necessary to achieve the objectives of the legislative instruments’ amendments. As ESMA notes “A competitive regulatory framework is not about deregulation, but about better regulation, taking into account the need to be mindful of rationalisation and avoid undue regulatory burden on companies.”;
• Comprehensibility: ESMA should provide comprehensive advice on all subject matters covered by the mandate in an easily understandable language; 
• Coherence: the Technical Advice should be coherent with the wider regulatory framework of the EU; 
• Consultation: ESMA is invited to consult market participants (e.g. sell-side, buy-side, intermediaries, exchanges), openly and transparently and provide a feedback statement justifying its choices vis-à-vis the main arguments raised. ESMA’s advice should consider the different opinions expressed by market participants. 
• Evidence: ESMA should justify its Technical Advice by identifying, where relevant, a range of technical options and undertaking an evidenced assessment of the costs and benefits of each. The results of this assessment should be submitted together with the Technical Advice to the Commission.

While market participants may wish to respond to the consultation process some may also want to forward-plan for the opportunities that the respective parts of the draft Technical Advice might offer. These can be summarised as follows:

Technical advice on SME GMs under MiFID II

The EU Listing Package’s amendments to MiFID II include provisions for the registration of segments of MTFs as SME GMs. In its draft Technical Advice ESMA outlines the requirements that an MTF, or a segment thereof, must meet to be registered as an SME GM. These include:

1. Minimum percentage of SME issuers: at least 50% of the issuers whose financial instruments are admitted to trading on the SME GM must be SMEs (i) at the time of registration and (ii) in any calendar year thereafter. SME GMs must continuously monitor the composition of their listed issuers to ensure compliance with the 50% threshold. This involves regular assessments and potential adjustments to maintain the required percentage of SME issuers. 
2. Criteria for initial and ongoing admission to trading: SME GMs must have objective and transparent criteria for the initial and ongoing admission to trading of issuers on their venue. The criteria should be clearly defined and consistently applied to ensure fair and orderly trading. This includes evaluating the appropriateness of an issuer’s management, systems, controls, and working capital. 
3. Information disclosure requirements: issuers must publish sufficient information at the time of initial admission to trading to enable investors to make informed decisions. This includes either an appropriate admission document or a prospectus if required by the Prospectus Regulation. SME GMs must ensure that issuers provide comprehensive and accurate information to the public. This includes setting rules for the content and review of admission documents to ensure they meet minimum disclosure requirements.
4. Ongoing periodic financial reporting: issuers must provide appropriate ongoing periodic financial reporting, including audited annual reports and for equity issuers, half-year reports. SME GMs must establish and enforce rules requiring issuers to publish financial reports within specified timeframes (six months for annual reports and four months for half-year reports). These reports should be subject to audits to enhance investor confidence. 
5. Compliance with MAR: issuers, persons discharging managerial responsibilities and persons closely associated with them must comply with relevant requirements under MAR. SME GMs must have systems and controls in place to prevent and detect market abuse. This includes monitoring trading activities and ensuring timely and accurate disclosure of inside information. 
6. Storage and dissemination of regulatory information: regulatory information concerning issuers must be stored and disseminated to the public. This includes prospectuses, admission documents, financial reports and inside information as defined by MAR. SME GMs must ensure that all relevant information is made publicly available on their website or through direct links to the issuers’ websites. This information must remain accessible for at least five years. 
7. Systems and controls for market integrity: SME GMs must have effective systems and controls to ensure fair and orderly trading and to prevent and detect market abuse. This involves implementing robust surveillance and compliance mechanisms to monitor trading activities and detect any irregularities or potential market abuse. 
8. Segment-specific requirements (where applicable): if an MTF operates a segment registered as an SME GM, the segment must be clearly separated from other market segments. Transactions on the SME GM segment must be clearly distinguished from other market activities. SME GMs must use a dedicated segment Market Identifier Code (MIC) under ISO 20022 to ensure clear separation and identification of transactions. They must also provide comprehensive lists of instruments listed on the SME GM segment upon request by the (national) competent authority (NCA).

The simplifications that are offered in respect of how SME GMs are set to operate aim to increase their attraction for (potential) SME issuers. The same is also true in respect of ESMA’s input on the changes to MAR.

Technical advice on MAR – and basis of proposed CDR

• Disclosure of inside information in protracted processes: the amendments to MAR introduce a new regime for the disclosure of inside information in protracted processes. Under the new Article 17(1) of MAR, issuers are required to disclose only the final circumstances or events in a protracted process, rather than intermediate steps. Accordingly, issuers must identify the final event or circumstance in a protracted process and disclose it as soon as possible after it occurs. This requires issuers to have robust internal processes to determine when a final event has occurred. Equally, such internal process will need to assess how to deal with confidentiality and rumours. This is particularly the case where the confidentiality of inside information related to intermediate steps is compromised; issuers must disclose the information immediately. This necessitates strong confidentiality measures within firms to prevent leaks. These changes described above aim to reduce the regulatory burden on issuers as well as to prevent the dissemination of potentially confusing information and thus increase legal certainty while maintaining market integrity.
• Conditions to delay disclosure of inside information: the amendments to Article 17(4) of MAR revise the conditions under which issuers can delay the disclosure of inside information. The new condition under Article 17(4)(b) states that the inside information intended for delay must not be in contrast and thus must be consistent with the latest public announcement or other type of communication by the issuer on the same matter. While this revised approach provides for clearer guidelines for issuers it may require even greater coordination of public statements and internal information to avoid contradictions and regulatory breaches. 
• Cross-market order book mechanism (CMOB-M): the new Article 25a of MAR establishes a mechanism, the CMOB-M, for the exchange of order data to improve the detection and enforcement of cross-border market abuse cases. The CMOB-M applies to trading venues with significant cross-border activity. Trading venues with significant cross-border activity will be required to share order data with participating NCAs. This may necessitate the implementation of systems to facilitate data sharing and compliance with regulatory requirements. Equally, ESMA will identify trading venues with significant cross-border activity based on specific criteria, including annual turnover and cross-border activity ratios. Affected venues must prepare for increased regulatory scrutiny and data sharing obligations – this may also have carry-over effects for issuers as well as market participants.

The changes summarised above are expected to reduce the administrative burden on issuers, making EU public capital markets more attractive. However, the success of these reforms will depend on the effective implementation and enforcement of the new requirements by NCAs and market participants.

Looking ahead, ESMA’s and NCAs’ focus will be on ensuring that the new disclosure requirements and the CMOB-M are effectively integrated into the existing regulatory framework. This will require close collaboration between ESMA, NCAs and market participants to address any challenges and ensure a smooth transition.

Outlook

The implementation of the EU’s Listing Act package’s changes and the accompanying Technical Advice from ESMA aims to significantly enhance the attractiveness of EU public capital markets, in particular for SMEs. By reducing the administrative burden and simplifying the listing process, the changes advanced through the EU’s Listing Act package aim to encourage more companies to seek public listings, thereby increasing market liquidity and providing investors with a broader range of investment opportunities.

As the bulk of the provisions of the EU’s Listing Act package are set to enter into full application by July 2026, some market participants may want to begin preparing for these changes now. This includes reviewing and updating internal processes to ensure compliance with the new disclosure requirements and ensuring that all relevant information is made publicly available in a timely and accurate manner.

Further analysis will be made available throughout various stages as the draft Technical Advice and the CDR progress towards their final forms.

About us

PwC Legal is assisting a number of financial services firms and market participants in forward planning for changes stemming from relevant related developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients to navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators.

In order to assist firms in staying ahead of their compliance obligations we have developed a number of RegTech and SupTech tools for supervised firms. This includes PwC Legal’s Rule Scanner tool, backed by a trusted set of managed solutions from PwC Legal Business Solutions, allowing for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from more than 2,000+ legislative and regulatory policymakers and other industry voices in over 170 jurisdictions impacting financial services firms and their business.

Equally, in leveraging our Rule Scanner technology, we offer a further solution for clients to digitise financial services firms’ relevant internal policies and procedures, create a comprehensive documentation inventory with an established documentation hierarchy and embedded glossary that has version control over a defined backward plus forward looking timeline to be able to ensure changes in one policy are carried through over to other policy and procedure documents, critical path dependencies are mapped and legislative and regulatory developments are flagged where these may require actions to be taken in such policies and procedures.

The PwC Legal Team behind Rule Scanner are proud recipients of ALM Law.com’s coveted “2024 Disruptive Technology of the Year Award”. 

If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via de_regcore@pwc.com or our website.