The European Parliament has approved the new ‘Listing Act’ package, a set of legislative measures designed to make EU capital markets more attractive to companies and to facilitate access to capital for SMEs.

At its plenary session on Wednesday 24 April 2024, the European Parliament validated the provisional political agreement reached in February on the proposed EU ‘Listing Act’, a legislative package aimed at making it easier for European companies, particularly small and medium-sized enterprises (SMEs), to raise capital on EU public markets.

The Listing Act specifically aims to:

• simplify and reduce the costs associated with drafting a prospectus, making it more affordable for companies to list on EU public markets;
• clarify what constitutes inside information and when the disclosure of inside information may be delayed; and
• facilitate the use of multiple vote share structures in companies that seek the admission to trading of their shares on an SME growth market.

Proposed Changes

The Listing Act comprises three legislative proposals:

• a regulation amending the Prospectus Regulation, the Market Abuse Regulation (MAR) and the Markets in Financial Instruments Regulation (MiFIR);
• a directive amending the Markets in Financial Instruments Directive (MiFID II) and repealing the Listing Directive; and
• a new directive on multiple-voting right shares.

Key Proposed Changes to the Prospectus Regulation

The current Prospectus Regulation contains an exemption from the obligation to publish a prospectus in situations where securities are admitted to trading on a regulated market when the securities are of the same class of their shares already admitted to trading on the same regulated market, provided that the newly admitted securities represent over a period of 12 months less than 20% of the number of securities already admitted to trading to the same regulated market. The proposed amendments would widen the scope of this exemption by (i) increasing the 20% threshold to 30%; and (ii) making it also applicable to an “offering to the public” (in addition to the current “admission to trading” exemption), where the securities being offered are of the same class as securities already admitted to trading on the same market.

The current Prospectus Regulation gives Member States the choice to exempt offers of securities to the public from the obligation to publish a prospectus if the total value of the offer is less than €8m over a period of 12 months. The proposed amendments would increase this threshold to €12m.

Other changes include: (i) the reduction of the minimum offer period in an IPO from six to three business days; (ii) the reduction in the number of pages in a prospectus that relates to shares to 300 A4 pages (with certain exemptions e.g. for issuers which a complex financial history); and (iii) the replacement of the simplified prospectus procedure with a new ‘follow-on’ prospectus.

Key Proposed Changes to MAR

The Listing Act proposes to narrow the current scope of the disclosure obligation in respect of protracted processes (multi-stage events), such that the immediate disclosure obligation of inside information arising from a protracted process no longer covers the intermediate steps. Under the proposed changes, issuers instead would only need to disclose inside information related to the concluding event of the protracted process.

The Listing Act also proposes to amend the conditions with which issuers must comply to delay the disclosure of inside information. Under MAR, delayed disclosure currently is permitted if (i) immediate disclosure is likely to prejudice the company’s legitimate interests; (ii) delay of disclosure is not likely to mislead the public; and (iii) the company is able to ensure the ongoing confidentiality of the information until it is disclosed. The Listing Act proposed to replace the second condition, that the delay should not mislead the public, with a specific condition that the inside information that the company intends to delay is not contrary to the most recent previous public announcement by the company on the matter to which the inside information relates.

Key Proposed Changes to MiFID II

The Listing Act proposes to alleviate investment research rules currently imposed under MiFID II in respect of SMEs. This proposal aims to boost the level of research on SMEs and to inform potential investors about the prospect of investing in SMEs. This proposed change also allows for combined payments for execution and research services. The investment firms conducting this issuer-sponsored research would be obligated to comply with a code of conduct issued by a national competent authority or ESMA, which would include minimum independence requirements of the firms conducting and distributing the research.

New Directive on Multiple-voting Right Shares

A key concern of SMEs considering listing on an SME growth market is the loss of control by the entry of new shareholders. The Directive on multiple vote share structures seeks to address this concern. It proposes to enable founding shareholders maintain control over their company by having more voting rights per share compared with other investors.

Multiple-voting share structures are currently dealt with at a domestic level, with some Member States permitting the use of such structures, and other Member States banning them. The Directive provides for a minimum set of harmonised national laws on multiple vote share structures of companies listing on SME growth markets, while leaving flexibility to Member States for its implementation. The Directive also sets a requirement on companies who avail of multiple vote share structures to make public certain information relating to their capital structure.

Next Steps

The Listing Act is undoubtedly a welcome reform of the regulatory landscape of EU Capital Markets. The changes aim to reduce burdens on European issuers while maintaining market integrity and investor protection. The Listing Act will now be submitted to Member State representatives for approval. If approved, the Council and the European Parliament will formally adopt the legislative package. We are monitoring these developments and will be ready to advise you on your obligations under the new Listing Act.

For further information on the Listing Act, please contact Mark Talbot, Brian Butterwick, or your usual William Fry contact.

Contributed by Lulu Trainor.