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Article by Eduardo Fonseca, Senior Associate at DLA Piper as published in Insight/Out magazine #32
The CMU
The Capital Markets Union (“CMU“) represents the European Union’s ambitious initiative to establish a unified capital market, aimed at enhancing the flow of investments and savings across the European Union (“EU“). It seeks to provide diverse funding sources for businesses, offer more options for savers, and strengthen the resilience of the European economy.
A robust CMU is increasingly essential to support economic growth, finance the green and digital transitions, and address societal challenges such as an ageing population. Moreover, integrated capital markets are vital for enhancing the EU’s global competitiveness and autonomy.
Despite progress since the inception of the CMU, European public markets continue to underperform, particularly compared to other major economies in terms of market capitalisation and the number and value of initial public offerings (“IPOs“).
The 2020 Action Plan
In September 2020, the European Commission unveiled a new CMU action plan outlining three key pillars: (i) supporting a green, digital, inclusive and resilient economic recovery by making financing more accessible to European companies; (ii) making the EU a safer place for individuals to save and invest long-term; and (iii) integrating national capital markets into a genuine single market.
One of the main actions of the first pillar, includes improving access to public markets by simplifying listing rules to lower compliance costs, helping small and innovative companies access funding more easily.
Central to this action is the commitment to broaden market-based financing options for small and medium-sized enterprises (“SMEs“) at all development stages. In line with this goal, the Commission established the Technical Expert Stakeholder Group on SMEs (“TESG“) in October 2020 to assess and enhance SMEs’ access to public funding.
The TESG’s work resulted in a final report containing 12 recommendations aimed at fostering SME listings. Building on these insights, the Commission adopted a legislative package known as the Listing Act on 7 December 2022, which was later adopted by the European Parliament on 24 April 2024 and by the Council more recently, on 8 October 2024.
The Listing Act
Although one of the stated objectives of the Listing Act is to enhance capital access for SMEs, its scope is broader, affecting all listed companies as well as those pursuing a listing.
Indeed, the objective is to reduce bureaucratic barriers for all companies seeking to raise funds in EU public markets while ensuring market integrity and investor protection, thus revitalising the EU’s capital markets.
The Listing Act amends the following legal frameworks:
- Regulation 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (“Prospectus Regulation“);
- Regulation 596/2014 on market abuse (“MAR“); and
- Directive 2014/65 on markets in financial instruments (“MiFID II“) and Regulation (EU) No. 600/2014 on markets in financial instruments (“MiFIR”).
The Listing Act consists of (i) a regulation amending the Prospectus Regulation, MAR, and MiFIR, (ii) a directive amending MiFID II, and (iii) a directive on multiple-vote shares aimed at facilitating the issuance and use of multiple-vote shares.
Amendments to the Prospectus Regulation
The amendments to the Prospectus Regulation stem from a need to reduce the excessive length of IPO prospectuses, which are considered overly burdensome for SMEs.
Moreover, the Listing Act introduces additional exemptions to the prospectus requirement, further expanding existing ones.
The TESG mentions in its final report a 2019 analysis that revealed that the median length of an IPO prospectus in Europe was 400 pages, with considerable variation across countries. This excessive documentation is costly and time-consuming for SMEs and complicates information access for investors, often discouraging them from engaging with the material.
The amendments to the Prospectus Regulation contemplate, among others, the standardisation and streamlining of the prospectus for primary issuances to the public or admissions to trading on a regulated market. Prospectuses for shares IPOs will be limited to 300 A4 pages. Amendments also streamline risk factors, make incorporation by reference mandatory, remove the option for investors to request paper copies of the prospectus, and allow issuers to draw-up the prospectus in English only, except for the summary.
Additionally, the Listing Act extends the exemption from publishing a prospectus for secondary issuances. The threshold for the admission to trading exemption is raised from 20% to 30% and is extended to public offerings, allowing companies to issue shares up to 30% of their outstanding share capital without the need to prepare and publish a prospectus.
The threshold for exempting small offers is harmonised at EUR 12 million (increased from the current EUR 8 million), below which securities’ offerings are exempt from the prospectus requirement.
Finally, it is worth mentioning the introduction of a new prospectus, the EU Follow-on Prospectus, which replaces the simplified prospectus for secondary issuances and applies to secondary issuances that do not fall under an exemption.
Amendments to the MAR
The current market abuse rules, designed to prevent insider trading and market manipulation, can be complex and expensive for companies to comply with, especially smaller ones. In this regard, the TESG identified several issues within the current market abuse regime that hinder issuers:
- High compliance costs: ongoing regulatory requirements under MAR impose significant costs, discouraging companies from remaining listed.
- Legal uncertainty: clearer definitions of inside information and disclosure obligations are needed to reduce compliance costs for issuers.
- Issuer responsibilities: issuers should not function as gatekeepers for competent authorities, as investigation costs can burden companies lacking adequate resources.
- Compliance risks: the risk of inadvertent breaches of MAR, along with associated sanctions.
- Proportional sanctions: administrative sanctions should be harmonised across the EU and be proportionate to the nature of violations, while retaining the option for criminal sanctions in severe cases.
- Simplifying disclosure requirements: disproportionate requirements related to recommendations and disclosures should be simplified.
In response to these issues, the Listing Act limits the disclosure obligation for multi-staged events (protracted processes), such as mergers or litigation, by clarifying that issuers are only required to disclose information related to the event completing the process, not intermediate steps.
The Listing Act also clarifies the conditions under which issuers can delay the disclosure of inside information. Issuers may delay disclosure when immediate disclosure would prejudice their legitimate interest, when the information that is intended to be delayed is not in contrast with the latest public announcement or other type of communication by the issuer on the same matter and when the issuer is able to ensure confidentiality.
Additionally, the Listing Act extends the simplified insiders list regime, previously introduced for SME growth markets, to all issuers, including those on regulated markets. Issuers will now maintain a less burdensome list of “permanent insiders,” covering individuals with regular access to inside information due to their role (e.g., board members, executives, or administrative staff). This alleviation applies only to issuers and does not affect third parties acting on their behalf, such as lawyers or rating agencies, who must maintain their own insider lists.
There are also amendments to the notification of managers’ transactions. The Listing Act raises the threshold for notification to EUR 20,000 (up from EUR 5,000), addressing concerns over disclosing immaterial transactions. Moreover, the scope of exempted transactions during the closed period is expanded to include employee schemes and transactions where no investment decision is made by the managers.
Amendments to MiFID II
EU SMEs have long struggled with limited or no equity research coverage, making it difficult for investors to properly assess investment opportunities.
This situation was worsened by MiFID II’s unbundling rules, which require brokers to separate payments for research and execution. According to the Commission, these rules led to less research availability, especially for SMEs.
To address this, the Listing Act removes the market capitalisation threshold below which MiFID II research unbundling rules do not apply, allowing firms providing research to bundle the cost of research with brokerage services.
Additionally, the Listing Act recognises that the Directive on the admission of securities to official stock exchange listing is outdated and largely redundant. Therefore, the Listing Act repeals this Directive and incorporates the relevant provisions into its text.
Next steps and timings
The regulation amending the Prospectus Regulation and MAR, and both directives, are yet to be published in the Official Journal of the EU.
Once published, they will enter into force after 20 days.
For both directives, Member States will have 18 months to transpose the directive amending MiFID II and two years to transpose the directive on multiple-vote shares into national law.
