EU’s final adoption of the Listing Act package

RegCORE Client Alert | Capital Markets Union

QuickTake

On 8 October 2024, the Council of the EU, formally adopted the EU’s Listing Act packagePress release available here and here.Show Footnote. The package, which is a key priority of the EU’s Capital Markets Union (CMU), 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 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 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) as well as to any other multilateral trading facility (MTF) open to trading of SME shares. 

While the EU’s Listing Package applies primarily to “traditional” i.e., (a) equity securitiesUnderstood as shares and other transferable securities equivalent to shares in companies.Show Footnote, (b) non-equity securitiesUnderstood as debt instruments such as bonds and other forms of securitised debt.Show Footnote and/ or (c) SME Growth Market securitiesUnderstood as (equity (primarily) or non-equity) securities traded on SME growth markets, which are specialised trading venues for smaller issuers.Show Footnote, and does not explicitly mention crypto-assets, certain such crypto-assets can be designated as securities if they meet the criteria set out in MiFID II and other relevant regulations. When crypto-assets are classified as securities, for MiFID II’s and other legislative and regulatory purposes, they fall under the same framework as traditional securities and thus under the targeted amendments set out by the EU Listing Act package, including as it relates to Prospectus Regulation (as opposed to MiCAR white paper requirements), disclosure and reporting obligations, issuer-sponsored research standards and conditions for admission to trading.

The Council of the EU’s adoption of the Listing Act package means that the above-mentioned legislative instruments will be scheduled for publication in the Official Journal of the EU during the fourth quarter of 2024. These will then enter into force 20 days following their publication. As an EU Regulation, the Listing Regulation will apply once it enters into force, with certain other provisions subject to a 15-to-18-month transitional period. EU Directives require transposition into the national legislative and regulatory frameworks of the EU Member States. EU Member States will have (i) 18 months to transpose the Listing Directive and (ii) two years to transpose the Multiple-vote Directive into their national domestic frameworks. Importantly, a broader 18-month transitional period will apply from the date that the Listing Regulation comes into force which thus permits those prospectuses to continue to be governed by the EU’s existing Prospectus Regulation as applicable at the time of approval of that prospectus until the expiry of that broader 18-month transitional period.

This Client Alert assesses the Listing Act package’s key reforms to the EU’s capital markets legislative and regulatory framework and the outlook ahead for market participants. This Client Alert should be read in conjunction with further thought leadership on this topic, including publications of the European Securities and Markets Authority (ESMA) as well as on the EU’s CMU efforts more generally[Including earlier coverage on the Listing Act package (available here) and further materials on CMU as published on PwC Legal’s EU RegCORE].

Key changes and opportunities

The main elements of the EU’s Listing Act package’s reforms can be summarised as follows:

01. Listing Regulation’s reforms
This instrument introduces the following targeted amendments to existing EU Regulations to make public capital markets more attractive and accessible for companies, especially SMEs:

a. Simplification of Prospectus Regulation exemption thresholds:

The Listing Regulation addresses the complexity and high costs that may arise when prospectus documentation is required and when an exemption might apply pursuant to the Prospectus Regulation. One such exemption relates to the issuance thresholds of offers of securities to the public.

Under the existing regime these thresholds could be set between EUR 1 million and EUR 8 million of capital to be raised. Offers of securities to the public with a total consideration in the EU of less than EUR 1 million were exempt from the obligation to publish a prospectus. Member States equally had the discretion to exempt offers of securities to the public from the obligation to publish a prospectus for offers with a total consideration below a certain threshold, which could be set between EUR 1 million and EUR 8 million. This system resulted in different exemption thresholds across Member States, creating complexity and a lack of clarity for both issuers and investors.

The Listing Regulation’s reforms introduces a new “dual threshold” system to replace the previous regime which thus aims to simplify prospectus requirements. The key features of the new system are as follows:

• Principal threshold: A principal threshold of EUR 12 million per issuer or offeror, calculated over a period of 12 months, is established. Offers of securities to the public below this threshold (provided that those offers do not require passporting) are exempt from the mandatory obligation to publish a prospectus. The new system reduces the complexity and lack of clarity associated with the previous system by establishing this new principal threshold as uniformly applicable across the EU. This standardisation is expected to provide greater legal clarity for issuers and investors. This higher threshold aims to make it easier for companies, particularly SMEs, to raise capital without the burden of publishing a prospectus pursuant to the Prospectus Regulation. Even where a Prospectus Regulation compliant prospectus may not be required, offering documentation in some form will typically be required; and
• Optional lower threshold: Member States (still) have the option to apply a lower threshold of EUR 5 million per issuer or offeror, calculated over a period of 12 months. This allows Member States to maintain some flexibility while reducing the complexity of having multiple thresholds that differ across EU Member States. This optional yet uniform lower threshold allows for some flexibility to accommodate the varying sizes of national capital markets within the EU i.e., where 5 million may be more appropriate than 12 million. The previous lower threshold of EUR 1 million, below which the Prospectus Regulation obligation for a prospectus did not apply, has been removed in its entirety. This change aims to simplify the regulatory framework and foster legal clarity allowing more leeway up to the EUR 5 million (optional) or 12 million (principal) threshold.

The Listing Regulation equally introduces a new exemption for secondary issuances of securities fungible with securities already admitted to trading on a regulated market or an SME Growth Market. This makes sense given that much of the required content of a prospectus may already be publicly available and investors will be able to trade on the basis of that information. However, such exemption is subject to preconditions to ensure that the company issuing the securities has complied with the periodic and ongoing disclosure requirements under EU law and is not subject to a restructuring or to the opening of insolvency proceedings, as defined under EU law. Furthermore, to ensure the protection of investors, in particular retail investors, a short-form document with key information for investors should still be made available to the public but will not be subject to regulatory approval. Where subscription rights are connected to securities covered by the exemption for the offer to the public or the admission to trading on a regulated market the exemption should, consequently, also be applicable to subscription rights representing the preferential right of existing shareholders to subscribe for the securities covered by the exemption. Conversely, where the scope of the new exemption makes other existing exemptions redundant, those other exemptions are removed.

Another exemption has now been expanded so that, under previous rules, credit institutions, i.e. banks are not subject to an obligation to publish a prospectus in the case of an offer or admission to trading on a regulated market of certain non-equity securities issued in a continuous or repeated manner up to an aggregated consideration of EUR 75 million (as amended by the Capital Markets Recovery Package for a limited time to EUR 150 million) over a 12 month period. This temporary increase to EUR 150 million over a 12-month period has been made permanent.

b. New types of prospectuses:

In addition to the above, the Listing Regulation introduces three new types of prospectuses, which have lighter disclosure and content requirements compared to standard prospectuses. These new types of prospectuses include (i) the EU Follow-On ProspectusDesigned for secondary issuances by companies already admitted to trading on a regulated market or SME growth market for at least 18 months. This prospectus has reduced disclosure requirements and a maximum length of 50 pages for shares. The EU Follow-on Prospectus is subject to a reduced scrutiny period of seven working days, provided the issuer informs the competent authority at least five working days before the submission of the application for approval.Show Footnote, (ii) the EU Growth Issuance ProspectusTailored for SMEs and other eligible issuers, this prospectus is intended to reduce the complexity and cost of preparing a prospectus. It has a maximum length of 75 pages for shares and includes proportionate information necessary for investors.Show Footnote and (iii) the EU Growth Admission Document, which are tailored to the needs and characteristics of different issuers and securities and subject to reduced content, format and approval standards.

While these new prospectuses have reduced disclosure requirements, they are, like standard prospectuses, now subject to maximum page limits with an aim to enhance readability and reduce preparation costs but this might equally present other operational issues. The maximum page limits for prospectuses (according to type) are thus:

1. 300 pages for standard prospectuses related to shares.
2. 50 pages for the EU Follow-On Prospectus related to shares.
3. 75 pages for the EU Growth Issuance Prospectus related to shares.

Moreover, a “Prospectus Summary” must be concise, clear, and user-friendly, with a maximum length of seven pages for the EU Follow-On Prospectus and the EU Growth Issuance Prospectus. It may include charts, graphs, or tables to enhance comprehensibility.

Another change is to now move away from paper-based production and submissions. Prospectuses must be delivered to potential investors in electronic format, upon request and free of charge, promoting digitalisation and reducing unnecessary costs.

A further welcome change amongst the Listing Regulation’s reforms includes the ability for issuers to (i) draw up prospectuses in a language customary in the sphere of international finance (i.e. English), subject to certain exceptions and conditions, and (ii) to use third-country prospectuses that have been approved by an equivalent third-country authority, subject to certain cooperation arrangements.

c. Enhanced disclosure and investor protection:

The Listing Regulation amends the rules (and ESMA’s guidance) on risk factors, incorporation by reference, supplements and validity of prospectuses, and empowers the Commission to adopt delegated and implementing acts to specify certain aspects of this now revised Prospectus Regulation regime. On incorporation by reference this now more clearly permits cross-reference to such information that has been previously or simultaneously published electronically (thus cross-reference to links) thereby reducing duplication and the burden of including (i.e. copying-out) all information directly in the prospectus.

The Listing Regulation’s targeted amendments also introduce a standardised format and standardised sequence of headers and sections for prospectuses (or both equity and non-equity securities) to improve consistency and comparability across the EU. This includes specific sections and order of information to be disclosed, ensuring consistency across the EU. ESMA is empowered to provide further guidance by way of implementing technical standards (ITS) and regulatory technical standards (RTS) on template and layout of prospectuses, including font size and style requirements depending on the type of prospectus and the investors targeted. ESMA is also empowered to develop guidelines on comprehensibility and the use of plain language in prospectuses to ensure that the information provided therein is concise, clear and user-friendly having regard to the type of prospectus and the type of investors targeted. Similar tasks are conferred on ESMA with respect to the Prospectus Summaries.

Lastly, and unsurprisingly, the Listing Regulation mandates that ESG-advertised securities must disclose ESG factors. Information will be specified in commission-delegated acts. When an issuer is aligned with the EU Green Bond Standard (EU GBS), the prospectus can reference the factsheet. The prospectus for a bond issued under the EU GBS optional disclosure system (marketed as environmentally sustainable or with environmental key performance indicators) must include the required information. Prospectuses not related to the EU GBS Regulation will also be covered by the Commission’s delegated legislative instruments.

d. Adjustments to the EU’s MAR:

Amendments to the EU’s MAR include simplified reporting and disclosure obligations for buy-back programmes. These programmes, which involve companies repurchasing their own shares, previously required extensive reporting to ensure transparency and prevent market manipulation. The new amendments streamline these requirements, making it easier for issuers to conduct buy-back programmes without compromising market integrity.

The Listing Act package provides clarifications on the market sounding regime, which involves the communication of information to potential investors before a transaction is announced.  Under the previous regime, issuers faced complex requirements to ensure that such communications did not constitute unlawful disclosure of inside information.  The amendments clarify that compliance with market sounding requirements is optional but provides protection from allegations of unlawful disclosure. This reduces the administrative burden on issuers while still offering a safeguard against market abuse.

The amendments to the EU's MAR also include adjustments to the definition of inside information. The revised definition now covers more categories of persons, ensuring that the regulation is comprehensive and up to date with market practices. This change aims to provide clearer guidance to issuers on what constitutes inside information, reducing the risk of inadvertent, non-compliance and simplifying the decision-making process for disclosures.

The Listing Act package introduces changes to the insider list requirements specifically for SME Growth Markets. These changes aim to reduce the administrative burden on SMEs by simplifying the requirements for maintaining and updating insider lists. This is particularly beneficial for smaller companies, which may have limited resources to comply with extensive regulatory obligations.

Lastly, in terms of MAR-driven changes, the Listing Act package also introduces measures to enhance the cooperation and exchange of information between competent authorities and ESMA. This includes the establishment of a mechanism for the exchange of order data among competent authorities. These measures are designed to improve the efficiency and effectiveness of market surveillance, reducing the need for issuers to duplicate reporting efforts across different jurisdictions.

e. Cross-border offers and third-country issuers:

The Listing Regulation facilitates the access of third-country issuers to EU public markets by allowing the use of equivalent third-country prospectuses, subject to certain conditions and cooperation arrangements between EU and third-country supervisory authorities.

In terms of the “Prospectus Equivalence Regime”, the amendments clarify and expand the equivalence regime for third-country prospectuses. A third-country issuer can offer securities to the public in the EU or seek admission to trading on a regulated market after prior publication of a prospectus drawn up and approved in accordance with the national laws of a third country, provided certain conditions are met. These conditions include:

1. The Commission adopting an implementing act determining that the third country's legal and supervisory framework is equivalent to the EU's requirements;
2. The third-country issuer filing the prospectus with the competent authority of its home Member State; and
3. The prospectus fulfilling the language requirements and being accompanied by relevant advertisements that comply with EU standards. 

On enhanced cooperation arrangements, the Listing Regulation’s changes aim to ensure effective supervision and enforcement. The amendments require competent authorities of Member States or ESMA to establish (or step-up) cooperation arrangements with the relevant supervisory authorities of third countries.  These arrangements must ensure an efficient exchange of information and professional secrecy equivalent to EU standards.

As in most EU legislative and regulatory instruments certain provisions seek to exclude so-called “Non-Cooperative Jurisdictions”. The Listing Regulation’s amendments explicitly exclude cooperation arrangements with third countries that are on the EU list of non-cooperative tax jurisdictions or have strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes. This measure aims to protect investors and ensure a level playing field between EU and third-country issuers.

f. Targeted changes to administrative sanctions and measures:

The Listing Regulation ensures that administrative sanctions and measures are effective, proportionate, and dissuasive. On proportionality, the final amount of sanctions for disclosure-related infringements is set to be proportionate to the size of the company, with specific provisions for SMEs.

Further changes on supervisory architecture include more targeted efforts to enhanced cooperation arrangements with third-country supervisory authorities to ensure effective enforcement and information exchange.

2. Listing Directive’s reforms

This Listing Directive makes targeted amendments to MiFID II to further strengthen the attractiveness of public capital markets and facilitate access to capital for SMEs in particular to enhance the visibility and research coverage of listed companies, especially SMEs.

The Listing Directive requires trading venues to publish and disseminate free of charge information on the prices, volumes and other data relating to the trading of securities admitted to trading on their systems and to make such information available to the European Single Access Point (ESAP).

The Listing Directive empowers the European Commission to adopt delegated acts to specify the minimum content and the template of the EU Growth Admission Document, which, as described above, is a simplified and harmonised document for the admission of securities to trading on an SME growth market. The Listing Directive also empowers the Commission to adopt delegated acts to amend the listing rules in the EU, taking into account market practice and the need to improve the requirements for issuers.

Other changes include the following:

a. Research unbundling rules:

The Listing Directive removes the market capitalisation threshold for companies for which bundled payments for execution services and research are allowed. This change aims to revitalise the market for investment research, in particular for small- and middle-capitalisation companies.

Investment firms are required to inform clients about their payment methods for execution services and research, ensuring transparency and compliance with the firm's policy.

b. Issuer-sponsored research:

The Listing Directive introduces an EU “code of conduct for issuer-sponsored research”, developed by ESMA, to ensure independence and objectivity. Issuer-sponsored research that complies with this code can be labelled as such, enhancing its credibility and visibility.

Issuers are allowed to submit issuer-sponsored research to a centralised collection body, making it more accessible to the public.

c. SME Growth Markets:

The Listing Directive allows segments of multilateral trading facilities (MTFs) to apply for registration as SME growth markets, provided they are clearly separated from the rest of the MTF. It also extends the requirement for issuer non-objection to the admission of financial instruments to trading on any type of trading venue, not just SME growth markets, to reduce liquidity fragmentation.

d. Repeal of Directive 2001/34/EC:

The Listing Directive repeals Directive 2001/34/EC, which has become largely redundant due to subsequent legislative developments. Relevant provisions are transferred to MiFID II to ensure continuity and coherence in the EU’s legislative and regulatory framework.

3. Multiple-vote Directive’s reforms

Multiple-vote share structures allow shareholders to retain decision-making power while accessing public capital markets. This structure allows controlling shareholders to retain decision-making power while raising funds, with safeguards to protect the rights of other shareholders. The Directive specifically focuses on enabling companies to adopt multiple-vote share structures when seeking admission to trading on SME Growth Markets. This aims to reduce regulatory barriers and inequalities for companies seeking to raise funds on SME Growth Markets and other markets with SME shares. It addresses the fear of losing control, which is a significant deterrent for controlling shareholders. It includes provisions for transparency and safeguards to protect the interests of all shareholders. The Directive is expected to be reviewed seven years after its entry into force to assess its implementation and effects. The following sets out some key principles and provisions of the Directive:

1. Adoption of multiple-vote share structures (Article 4): Member States must ensure that companies have the right to adopt multiple-vote share structures for the admission to trading on SME Growth Markets. This decision must be taken by the general meeting with at least a qualified majority. The Directive also allows for the adoption of such structures before seeking admission to trading.
2. Safeguards (Article 5): To protect shareholders with lower voting rights, Member States must implement safeguards. These include requiring a qualified majority for decisions affecting voting rights and limiting the impact of multiple-vote shares on general meeting decisions. Member States may introduce additional safeguards, such as sunset clauses.
3. Transparency (Article 6): Companies must disclose information about their share structure, including the identity of larger holders of multiple-vote shares, when seeking admission to trading. This ensures informed investment decision-making and investor confidence.

Key considerations for market participants

The Listing Act package will, even ahead of its full operationalisation in by 2026, likely open up a number of benefits for market participants in the EU as well as those seeking to do so, namely:

1. For (prospective) issuers:
   
   a. Potential for reduced compliance costs: The Listing Act package simplifies prospectus requirements and introduces new types of prospectuses, such as the EU Follow-On Prospectus and the EU Growth Issuance Prospectus. These new prospectuses have lighter disclosure and content requirements compared to standard prospectuses, which can significantly reduce the administrative burden and costs associated with public offerings. This is particularly beneficial for SMEs, which often face higher relative costs in meeting regulatory requirements.
   
   b. Enhanced market access: The introduction of a dual-threshold system for prospectus exemptions simplifies the regulatory framework and provides greater legal clarity. This standardisation is expected to make it easier for companies to raise capital without the burden of publishing a prospectus, thereby enhancing market access.
   
   c. Increased visibility: The ability to submit issuer-sponsored research to a centralised collection body and the introduction of an EU code of conduct for such research enhance the visibility and credibility of issuers. This is particularly advantageous for SMEs, as it increases their exposure to potential investors and improves their chances of successful capital raising.

2. For (prospective) investors:
   
   a. Improved information quality: The standardisation of prospectus formats and the inclusion of ESG-related information provide investors with clearer, more comparable, and relevant information for making informed investment decisions. The new types of prospectuses, with their reduced content requirements, still ensure that key information is available to investors, thereby maintaining transparency and trust in the market.

   b. Enhanced investor protection: The adjustments to the EU’s MAR and the introduction of simplified prospectuses ensure that investor protection is maintained while reducing unnecessary regulatory burdens.

3. For investment firms:
   
   a. Flexibility in research payments: The removal of the market capitalisation threshold for bundled payments for execution services and research allows investment firms to choose the most appropriate payment method, potentially revitalising the market for investment research. This change aims to revitalise the market for investment research, in particular for small- and middle-capitalisation companies, by making it more economically viable for investment firms to provide research services.

   b. Transparency and compliance: The requirement to inform clients about payment methods and the quality assessment of research ensures transparency and compliance with regulatory standards in a potentially more efficient manner.

Outlook

The EU's Listing Act package is poised to bring about significant benefits for market participants by reducing compliance costs, enhancing market access, increasing visibility for issuers, improving information quality for investors, and providing greater flexibility and transparency for investment firms. These reforms are expected to make EU public capital markets more attractive and accessible, in particular for SMEs, thereby fostering a more dynamic and inclusive financial market environment.

Much further detail is expected in the ITS and RTS as well as further guidance that ESMA and the European Commission are tasked to deliver including over the transitional periods ahead of the Listing Act package’s full operationalisation. As these reforms take effect, they are expected to create a more dynamic and integrated capital market environment in the EU, fostering growth and innovation across the financial services sector.

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