EU Listing Act Has Been Adopted: Countdown to Application Has Started

Authors: Jon Termonen, Annemari Rosi, Samuel Åkerlund, and Tobias Palmgren

Highlights

Prospectus Regulation

• Private placement exemption expanded to 30%
• New exemptions from the obligation to publish a prospectus
• New and revised prospectus regimes

Market Abuse Regulation

• Disclosure obligation for protracted processes narrowed down
• Various other clarifications and alleviating amendments to the Market Abuse Regulation

On 8 October 2024, the Council of the EU accepted the position of the European Parliament (Parliament), thus adopting the EU Listing Act legislative package which consists of, among other things, amendments to the Prospectus Regulation (PR) and the Market Abuse Regulation (MAR). The Listing Act aims at further developing the Capital Markets Union by alleviating the administrative burden under EU capital markets rules for companies of all sizes, including SMEs. The different measures of the Listing Act will enter into force 20 days after their publication in the Official Journal of the EU, which is expected to take place during the last quarter of 2024, however, some of the amendments become applicable 15 or 18 months later.

The key objective of the Listing Act is to ensure greater access to, and attract more companies to seek, public capital market financing within the EU. The amendments will have implications for both initial public offerings and secondary issuances in terms of making the listing of securities more straight-forward and inexpensive. Disclosure requirements are also simplified regarding both inside information and ongoing disclosure requirements of listed companies. In this blog post, we summarise the key amendments contained in the Listing Act pertaining to the PR and MAR as well as the timetable for their entry into force. The amendments will be directly applicable and do not require national implementation by Member States.

Prospectus Regulation

The amendments to the PR are aimed at making access to EU public capital markets more attractive and make the regulatory treatment of companies more flexible and proportionate to their size. The Listing Act aims at standardising the prospectus format by e.g., limiting the number of pages. The amendments concern instances both where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on issuances of equity or non-equity securities.

The key elements of the amendments:

• expand the existing “private placement” exemption for secondary issuances from the obligation to publish a prospectus for the admission to trading of securities fungible with securities already admitted to trading on the same regulated market by increasing the threshold from 20% to 30% over a period of 12 months. To reduce complexity, the same threshold is also made available for offers of securities to the public to be admitted to trading either on a regulated market or an SME growth market, provided that the fungibility criterion is fulfilled. Issuers are thus enabled to issue up to 30% of the number of securities already admitted to trading on the same regulated market. Moreover, issuers will be permitted to combine an admission to trading with an offer of securities to the public, without having to draw up and publish a prospectus as long as such combination does not lead to the immediate or deferred admission to trading exceeding the 30% threshold. The EU Commission had originally proposed a threshold of 40%, but this was revised downwards in subsequent EU interinstitutional negotiations. The exemption now extended to offers of securities to the public is subject to the issuer:

1. 1. not being subject to insolvency proceedings or a restructuring; and
   2. the company having published and filed a short summary document with the national competent authority (NCA) with a maximum length of 11 pages and having made it available to the public at the same time as it is filed with the NCA (does not require NCA approval).

Making the “private placement” exemption available also to public offers may facilitate equity raises through rights offerings, which heretofore have usually required a prospectus due to constituting a public offering.

The expanded “private placement” exemption is expected to be available later this year (20 days from publishing of the amending regulation);

• introduce new exemptions from the obligation to publish a prospectus for a) the admission to trading on a regulated market of new securities fungible with securities that have been admitted to trading on a regulated market continuously for at least the last 18 months, and b) offers of securities to the public of new securities fungible with securities that have been admitted to trading on a regulated market or an SME growth market continuously for at least the 18 months preceding the offer of the new securities. The exemptions are subject to:

1. 1. the securities to be admitted to trading or offered to the public not being issued in connection with a takeover by means of an exchange offer, a merger or a division;
   2. the issuer not being subject to a restructuring or insolvency proceedings; and
   3. the company having published and filed a short summary document with the NCA with a maximum length of 11 pages and having made it available to the public at the same time as it is filed with the NCA (does not require NCA approval).

The new exemptions are noteworthy additions which facilitate follow-on issuances without triggering the obligation to draw up and publish a prospectus. However, listed companies issuing securities as consideration in connection with e.g., a share exchange offer, merger, or demerger will nevertheless continue to be under an obligation to draw up and publish a prospectus.

The EU Commission’s proposal to also include SME growth markets in the new exemption regarding admission to trading was omitted in the interinstitutional negotiations, meaning that e.g., issuers applying for a list transfer from an SME growth market to a regulated market will not be able to rely on the exemption, as would have been the case under the EU Commission’s original proposal.

These new exemptions are expected to be available later this year (20 days from publishing of the amending regulation);

• set a dual threshold of EUR 12 million and EUR 5 million (on a 12-month basis), below which offers of securities to the public are exempted from the prospectus requirement. The principal EU threshold will be increased to a total aggregated consideration of EUR 12 million (currently EUR 8 million), however, Member States are allowed to apply a lower exemption threshold of EUR 5 million and require the issuer to disclose a summary where securities are offered to the public under this exemption. Offers of securities to the public, for which a prospectus was published or that were subject to an exemption from the obligation to publish a prospectus, are not considered when calculating the total aggregated consideration. All types and classes of securities offered are included when calculating the total aggregated consideration. The approved amendment marks a roll-back of the original proposal, as the EU Commission had proposed a unique harmonised threshold of EUR 12 million, only allowing Member States to apply certain limited disclosure requirements below it, not a lower threshold.

The new threshold will apply 18 months from entry into force of the amending regulation;

• introduce a new EU Follow-on prospectus, which permanently replaces (for equity and non-equity securities) the simplified prospectus for secondary issuances and the EU Recovery prospectus. The regime will apply to secondary issuances that do not fall under any exemption (e.g., where the fungibility criterion is not fulfilled). The maximum length of an EU Follow-on prospectus that relates to shares will be 50 pages (excluding the summary and certain additional information). The EU Commission will be obliged to adopt delegated acts specifying the content, format, and sequence of the EU Follow-on prospectus. Issuers applying for a list transfer from an SME growth market to a regulated market will be able to draw up an EU Follow-on prospectus, if their shares have been admitted to trading on an SME growth market continuously for at least 18 months preceding the list transfer. Issuers having only non-equity securities admitted to trading will not, however, be allowed to draw up an EU Follow-on prospectus for the admission to trading of equity securities on a regulated market.

The EU Follow-on prospectus regime will be available 15 months from entry into force of the amending regulation;

• rename and revise the existing EU Growth prospectus into the EU Growth issuance prospectus. The EU Growth issuance prospectus requirements are intended to be light and make the listing documentation for SMEs even less complex and burdensome so as to enable SMEs to achieve savings. SMEs and issuers whose securities are, or are to be, admitted to trading on an SME growth market will be eligible to draw up an EU Growth issuance prospectus in the case of an offer of securities to the public, provided that they have no securities admitted to trading on a regulated market. An EU Growth issuance prospectus that relates to shares will be subject to a maximum length of 75 pages.

The EU Growth issuance prospectus regime will be available 15 months from entry into force of the amending regulation;

• shorten the minimum IPO offer period from six to three working days, thus potentially significantly reducing the market exposure risk. The shorter minimum offer period is expected to be available later this year (20 days from publishing of the amending regulation);
• introduce a standardised format and sequence of the prospectus as well as the prospectus summary and a 300-page-limit for prospectuses relating to shares, subject to certain exceptions (applicable 18 months from entry into force of the amending regulation);
• replace the requirement to rank risk factors featured in a prospectus according to materiality by a requirement to list, in each category, the most material risk factors in accordance with the assessment of the issuer. We consider the practical impact of the amendment to be limited compared to current praxis;
• introduce a new provision according to which prospectuses shall not contain risk factors that are generic. We consider this to be a technical clarification, in line with both current ESMA recommendations and FIN-FSA praxis;
• introduce a mandatory statement in the prospectus summary on whether the issuer’s activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. This will only apply to issuers under obligation to publish non-financial information. The requirement to include a statement will apply 18 months from entry into force of the amending regulation;
• clarify that the EU Commission’s delegated acts should consider whether the issuer of equity securities is required to provide sustainability reporting under the new Corporate Sustainability Reporting Directive and whether non-equity securities are advertised as taking into account ESG factors or pursuing ESG objectives; and
• introduce the possibility for issuers to draw up the prospectus in English only (except for the summary) and to publish it in an electronic format only (i.e., no paper copies on request). An option for Member States to opt out and require that the prospectus is drawn up in a language accepted by the NCA of that Member State was added in the interinstitutional negotiations. It remains to be seen whether the FIN-FSA will exercise the option to opt-out. We note that permission to publish a prospectus in English only, subject to the discretionary exemption available under current rules, has heretofore rarely been granted by the FIN-FSA.

Market Abuse Regulation

The principal objectives of the amendments to the MAR are aimed at alleviating costs incurred by listed companies due to legal uncertainty regarding what constitutes inside information for the purpose of disclosure, and the timing of disclosure, by narrowing down the disclosure obligation. In addition, other clarifying and alleviating amendments are intended to simplify and harmonise the MAR regime.

The key elements of the amendments:

• narrow down the disclosure obligation of inside information for so-called “protracted processes” (i.e., multi-staged events, such as mergers, acquisitions, and litigations). The disclosure obligation will not cover intermediate steps of protracted processes (e.g., mere intentions, ongoing negotiations or, depending on the circumstances, progresses of negotiations), even if such steps separately would constitute inside information. Instead, only the final event will be required to be disclosed as soon as possible after it has occurred (e.g., regarding mergers, once management has taken the decision to sign off on the merger agreement and the core elements of the merger are in agreed form and for contractual agreements, when the key terms of the relevant agreement have been agreed upon).

In protracted processes, this means that an issuer will no longer need to formally decide on delaying the disclosure of the inside information, provided that the confidentiality of information related to intermediate steps can be ensured. The prohibition on insider dealing continues to apply to protracted processes up until the inside information has been disclosed. Therefore, issuers will still have to analyse whether an intermediate step constitutes inside information for the purpose of ensuring compliance. The EU Commission has also been empowered to adopt a delegated act to set out a non-exhaustive list of the final events in protracted processes and, for each event, the moment when it is deemed to have occurred and is to be disclosed;

• make decisions to delay disclosure of inside information conditional on the information in question not being in contrast with the latest public announcement or other type of communication by the issuer on the same matter. In practice, the effects should be limited, as the new requirement is materially similar to the current one that a delay of disclosure may not be “likely to mislead the public”;
• remove the requirement on issuers listed only on an SME growth market to inform the NCA of decisions to delay disclosure of inside information. A written explanation to the NCA will only need to be provided upon request. The EU Commission’s proposal that the timing of notifications of decisions to delay disclosure to the NCA would be advanced to the moment immediately after such decision was omitted;
• permit Member States to require issuers listed on an SME growth market to include all persons who have access to inside information on their insider lists, in addition to only the so-called “permanent insiders” required under the current rules. Currently, it is not known whether this requirement will be expanded to issuers admitted to trading on Nasdaq First North Finland. The EU Commission had originally proposed extending the “permanent insider” regime to regulated markets as well, but following the interinstitutional negotiations that proposal was omitted;
• raise the notification threshold for managers’ transactions (PDMR) from EUR 5,000 to EUR 20,000 per year while also giving NCAs the option to either increase the threshold at national levels to EUR 50,000 or decrease it to EUR 10,000. The Parliament had proposed the addition that thresholds for different securities would be calculated separately but this was omitted in the interinstitutional negotiations;
• clarify that the prohibition on PDMR transactions during a closed period does not apply to transactions or trade activities that do not relate to active investment decisions by the PDMR. Transactions resulting exclusively from external factors or actions of third parties, or transactions or trade activities, including the exercise of derivatives, based on predetermined terms are thus clarified to be permitted during a closed period. This is a welcome clarification concerning PDMR transactions in the form of e.g., exercises of options and asset management mandates, where the investment decision is taken outside of a closed period;
• clarify the optional safe-harbour nature of market soundings by confirming that disclosing market participants (DMPs) carrying out market soundings in accordance with certain information and record-keeping requirements, as set out in the MAR, are granted full protection against the allegation of unlawful disclosure of inside information (safe-harbour protection). Moreover, it is specified that the market sounding regime under the MAR is a mere option for DMPs and non-compliance does not lead to a presumption that the DMP has disclosed inside information unlawfully. However, only DMPs that choose to comply with the requirements under the MAR are afforded safe-harbour protection. We deem this to be a clarification in line with the prevailing interpretation of current market sounding rules which, while providing comfort for DMPs, does not materially alter the current legal situation;
• extend the turnover based sanction regime to breaches of disclosure obligations regarding insider lists and manager’s transactions. The sanction imposed for such breaches is calculated proportionally and set at 0.8 per cent of the total annual turnover of the issuer. If the NCA, in its discretion, deem that the amount for the administrative sanction based on the total annual turnover would be disproportionately low, the NCA may impose administrative sanctions of at least EUR 1 million (EUR 400 000 where the legal person is an SME).

Other MAR amendments include simplifying the reporting mechanism that issuers shall follow in relation to buy-back programmes, and some further technical amendments. Most of the amendments to MAR are expected to enter into force later this year (20 days from publishing of the amending regulation). Provisions regarding the disclosure obligation of inside information for protracted processes and delaying disclosure of inside information will, however, only apply 18 months from entry into force of the regulation.

On a general note, the final text adopted after the interinstitutional negotiations is more issuer-friendly and in line with the original proposal put forward by the EU Commission, when compared to the October 2023 report from the Parliament’s ECON-committee. However, it remains to be seen whether the amendments will have a strong enough impact to achieve the original goals of the Listing Act and if market participants will make increased use of both expanded and new alleviations.

New Directive on Multiple-Vote Share Structures and Amendments to MiFID II

In addition to the amendments to the PR and the MAR, the Listing Act package also includes a new directive on multiple-vote share structures and amendments to MiFID II. We will address the new directive and amendments to MiFID II in separate blog posts.

Our Capital Markets Team is closely following the impact of the adopted Listing Act on the capital markets and will gladly discuss any related questions. Hannes Snellman advises issuers, sponsors, financial advisers, and other market participants in connection with all types of capital markets transactions, including IPOs, public tender offers, share issues, securities offerings, private placements, debt instruments, share buy-backs, and other regulatory matters.