COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets
Date: 2018-05-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: economic growth, investment protection, issue of securities, small and medium-sized enterprises, stock-exchange listing

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   EUROPEAN COMMISSION  Brussels, 24.5.2018  SWD(2018) 244 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  amending Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets  {COM(2018) 331 final} - {SEC(2018) 247 final} - {SWD(2018) 243 final}  
 
 
Executive Summary Sheet 

Impact assessment on Commission proposal on Fostering and promoting the use of SME Growth Markets 

A. Need for action 

Why? What is the problem being addressed?  
The initiative stands central to the Capital Markets Union (CMU) work programme and aims to facilitate access 
to public capital markets for small and medium-sized enterprises (SMEs). Specifically, it aims to tackle excessive 
administrative  burden  placed  on  SMEs  when  listing  or  issuing  equity  and  bonds  and  to  enhance  the  level  of 
liquidity  on  SME  Growth  Markets  (a  new  category  of  multilateral  trading  facilities,  created  by  the  Markets  in 
Financial Instruments II 2014/65/EU – MiFID II).  
The  EU  rulebook  currently  provides  only  a  few  alleviations  to  SME  Growth  Market  issuers  and  places 
disproportionately  high  costs  on  them.  This  is  particularly  the  case  for  one-size-fits-all  approaches  as  taken 
under the Market Abuse Regulation 596/2014 (MAR). These costs decrease the relative attractiveness of public 
issuances  of  equity  or  debt.  In  addition,  SME  shares  suffer  from  poor  liquidity.  This  increases  liquidity  and 
volatility  risks  for  investors,  which  lowers  share  valuations.  Furthermore,  the  current  definition  of  SME  debt 
issuers (for the purposes of SME Growth Markets) and the requirement for them to prepare half-yearly reports 
creates  significant  obstacles  for  operators  and  hinders  SME  debt  issuers  from  taking  advantage  of  the 
alleviations already in place as well as those envisaged by this initiative.     

What is this initiative expected to achieve?  
The initiative is expected to reduce the administrative costs for listed SMEs and increase the level of liquidity on 
SME  Growth  Markets.  In  conjunction  with  related  regulatory  and  non-regulatory  actions  taken  under  the  CMU 
work programme, the initiative will increase the relative attractiveness of public markets and improve access to 
finance for SMEs. This will make SMEs less dependent on bank financing, thereby increasing their resilience to 
economic shocks and benefitting the wider economy.    

What is the value added of action at the EU level?  
As there is almost no flexibility for Member States to adapt the Markets in Financial Instruments Directive II, the 
Market Abuse Regulation nor the Prospectus Regulation 2017/1129 to local conditions, a legislative action at EU 
level is absolutely needed in order to reduce the administrative burden placed on SME Growth Market issuers 
and  stemming  from  those  EU  Acts.  As  regards  the  regulatory  obstacles  impairing  liquidity  provision,  the  logic 
behind  EU  intervention  is  different.  Member  States  may  adopt  accepted  market  practice  (AMP)  on  liquidity 
contracts but only four have done so. This means that in many  Member States, the potential SME issuers are 
deprived  from  the  right  to  enter  into  liquidity  contracts.  This  situation  creates  a  fragmentation  of  the  Single 
Market  and  creates  a  distortion  of  competition  between  issuers  who  have  the  right  to  enter  into  a  liquidity 
contract (and therefore ensure liquidity, lower their cost of capital…) and those which do not have this possibility. 
Limited  trading  due  to  limited  free  float  may  cause  investors  to  have  a  negative  perception  of  the  liquidity  of 
securities  listed  on  SME  Growth  Markets  and  it  could  impair  the  credibility  and  attractiveness  of  those  newly-
created trading venues. Action at EU level is needed to ensure that the identified regulatory issues resulting from 
EU rules are adequately tackled and that liquidity can be increased on those markets.   

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
The baseline option in all cases was not to propose any changes in the rules applying to SME Growth Markets 
and  issuers  on  these  markets.  While  non-legislative  policy  options  can  help  to  further  enhance  the  market 
environment and  contribute  to  the  objectives  of  the initiative,  they  were  not  considered  to be  effective  tools  to 
address the specific problems.  
The preferred policy options were identified based on their respective effectiveness and efficiency to (i) reduce 
the  compliance  costs  faced  by  issuers  on  SME  Growth  Markets  and  (ii)  increase  the  liquidity  on  SME  Growth 
Markets, but at the same time (iii) maintain a high level of investor protection and market integrity. The preferred 
regulatory  adjustments  concerning  liquidity  were  chosen  based  on  their  ability  to  effectively  improve  liquidity 
while still maintaining sufficient flexibility to tailor them to local market environments. This should help to improve 
their effectiveness. The analysis demonstrated that the best approach would be to implement a European opt-in 
regime  for  liquidity  contracts  and  mandate  SME  Growth  Markets  to  apply  minimum  free  float  requirements 
without further specifications. 

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The preferred measures regarding the reduction of compliance costs were selected according to their ability to 
reduce costs while still upholding a high degree of market integrity. The analysis of options resulted in proposing 
technical amendments that provide limited reliefs as regards scope, time requirement for disclosing information, 
and record-keeping obligations resulting in particular from the MAR. It was also decided to enable SMEs to use 
an  alleviated  'transfer  prospectus'  when  moving  from  an  SME  Growth  Market  to  a  regulated  market  ('main 
market'). 

Who supports which option?  
The stakeholder consultation and prior consultative actions have shown wide support for regulatory adjustments 
to facilitate a better access to public capital markets for SMEs. Stakeholders noted in particular that the one-size-
fits  all  approach  under  MAR  places  a  disproportionate  burden  on  smaller  issuers.  Issuers,  exchanges  and 
intermediaries  generally  called  for  targeted  alleviations  to  lower  administrative  costs,  in  particular  as  regards 
manager transactions, insider lists and disclosure of inside information. Member States also showed support for 
such  action,  noting  however  that  any  adjustments  made  should  avoid  detrimental  impacts  on  market  integrity. 
Stakeholders showed similar support also for the implementation of an alleviated 'transfer prospectus'.  
Concerning the adjustment of definitions, stakeholders showed wide support for amending the definition of SME 
debt issuers. The replies were less conclusive as regards the overall definition of SME Growth Markets. While 
many stakeholders showed support for raising the market capitalisation threshold, others noted that such action 
would be premature. Based on this feedback and further analysis the preferred option is to maintain the current 
status-quo as regards the definition of SME Growth markets (except for the SME debt issuer definition).  
As regards the measures aimed at enhancing liquidity, market participants widely acknowledged the benefits of 
liquidity contracts. Among the stakeholders who expressed an opinion, a larger number agreed that there would 
be  merits  in  creating  an  EU  framework,  although  many  insisted  on  the  need  to  maintain  flexibility  for  such 
contracts  to  be  adapted  to  local  conditions.  A  few  National  Competent  Authorities  feared  that  such  practices 
could give rise to manipulative pricing behaviours. Other NCAs however saw no ground for concerns, as long as 
the  framework  would  be  calibrated  to  prevent  manipulative  behaviours  as  under  currently  existing  Accepted 
Market  Practices.  Concerning  minimum  free  float  requirements,  respondents  were  equally  split  between  those 
supporting and opposing such a measure.  

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?  
The preferred options on MAR strike the balance between reducing the administrative costs for SME listing and 
maintaining  a  high  level  of  market  integrity.  At  the  same  time,  they  avoid  any  substantial  cost  increase  for 
national  and  EU  budgets.  The  measures  in  relation  to  liquidity  ensure  that  issuers  are  able  to  improve  the 
liquidity of their shares by entering into liquidity contracts. They meanwhile still maintain sufficient flexibility for 
NCAs to tailor market practices to local conditions. The free float requirement provides equal calibration flexibility 
for market operators. The envisioned 'transfer prospectus' provides significant cost savings to issuers moving to 
main markets while still ensuring that sufficient information is made available to investors.    

What are the costs of the preferred option (if any, otherwise main ones)?  

There  are  no  substantial  costs  that  arise  from  the  regulatory  adjustments  proposed.  There  are  minimal  cost 
implications for NCAs (see below).  

How will businesses, SMEs and micro-enterprises be affected?  

SMEs will face reduced compliance costs and increased liquidity when listing on SME Growth Markets. This will 
help them to diversify funding sources away from bank lending and increase their overall capacity to raise funds, 
thereby facilitating increased growth and increasing their ability to invest in R&D.  

Will there be significant impacts on national budgets and administrations?  
There will be no significant impact on national budgets. The proposed regulatory adjustments will create minimal 
one-off costs for NCAs given required changes to internal procedures. On-going costs are expected to remain 
unchanged  or  decrease  slightly.  The  alleviations  under  MAR  will  reduce  the  supervisory  workload  of  NCAs  in 
relation to insider lists, delayed disclosure of insider information and market soundings. At the same time, NCAs 
may see a necessity to step up other supervisory measures (e.g. monitoring the execution of liquidity contracts).        

Will there be other significant impacts?  
There are no other significant impacts expected.  

When will the policy be reviewed?  

D. Follow up 

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As part of its wider plan to enhance SME access to public  markets foreseen by the Capital Market Union Mid-
term Review, the Commission services will monitor the development of SME Growth markets and SME access 
to capital market funding and review the effectiveness of the measures taken in line with the Better Regulation 
approach. 

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