Article 8 Insider dealing
1. For the purposes of this Regulation, insider dealing arises where a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates. The use of inside information by cancelling or amending an order concerning a financial instrument to which the information relates where the order was placed before the person concerned possessed the inside information, shall also be considered to be insider dealing. In relation to auctions of emission allowances or other auctioned products based thereon that are held pursuant to Regulation (EU) No 1031/2010, the use of inside information shall also comprise submitting, modifying or withdrawing a bid by a person for its own account or for the account of a third party. 2. For the purposes of this Regulation, recommending that another person engage in insider dealing, or inducing another person to engage in insider dealing, arises where the person possesses inside information and: (a) recommends, on the basis of that information, that another person acquire or dispose of financial instruments to which that information relates, or induces that person to make such an acquisition or disposal, or (b) recommends, on the basis of that information, that another person cancel or amend an order concerning a financial instrument to which that information relates, or induces that person to make such a cancellation or amendment. 3. The use of the recommendations or inducements referred to in paragraph 2 amounts to insider dealing within the meaning of this Article where the person using the recommendation or inducement knows or ought to know that it is based upon inside information. 4. This Article applies to any person who possesses inside information as a result of: (a) being a member of the administrative, management or supervisory bodies of the issuer or emission allowance market participant; (b) having a holding in the capital of the issuer or emission allowance market participant; (c) having access to the information through the exercise of an employment, profession or duties; or (d) being involved in criminal activities. This Article also applies to any person who possesses inside information under circumstances other than those referred to in the first subparagraph where that person knows or ought to know that it is inside information. 5. Where the person is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out the acquisition, disposal, cancellation or amendment of an order for the account of the legal person concerned.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Political context This proposal is part of the Listing Act package, a set of measures to make public markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the Capital Markets Union (CMU) core aim to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. L isted companies , including recently listed ones, often outpace privately owned companies in terms of annual revenue growth and job creation 1 . By listing on public markets, companies can diversify their investor base, reduce their dependency on bank financing, gain easier and cheaper access to additional equity capital and debt finance (through secondary offers), raise their public profile and increase brand recognition . Since the publication of the first CMU Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular SMEs, to access public markets. In January 2018, the Directive 2014/65/EU of the European Parliament and of the Council ( the Markets in Financial Instruments Directive, or ‘ MiFID II ’ ) 2 introduced a new category of Multilateral Trading Facilities (MTFs), the SME growth markets , 3 to incenti vise SMEs access to capital markets. In 2019, new EU rules were put forward by Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) to cut red tape and reduce regulatory burden for companies listing on SME growth markets while preserving a high level of investor protection and market integrity . Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers. The new CMU Action Plan adopted in September 2020 announced that ‘ in order to promote and diversify small and innovative companies’ access to funding, the Commission will seek to simplify the listing rules for public markets ’ . Following up on this and building on the 2019 SME Listing Act, the Commission set up a Technical Expert Stakeholder Group (TESG) on SMEs which confirmed stakeholders’ concerns that further legislative action is needed to support listing of companies and especially of SMEs. In its final report of May 2021 5 , the TESG made 12 recommendations to amend the listing framework both on regulated markets, as well as on SME growth markets . On 15 September 2021 , President Von der Leyen announced in her letter of intent 6 addressed to the Parliament and the Presidency of the Council a legislative proposal to facilitate SMEs’ access to capital, which has been included in the 2022 Commission work programme 7 . A company’s decision to list is a complex one and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by a legislative intervention. For instance, the features of the ecosystem that determine the cost of listing services, and more broadly geopolitical instability, Brexit, Covid-19, and inflation, have all had (and will continue to have) an impact on the decision to list, on the timing of listing, and on whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also an important factor in a company’s decision to list and remain listed. The Listing Act package represents a targeted set of measures aiming to reduce the regulatory burden where it is considered to be excessive (i.e., where regulation could ensure investor protection/market integrity in a more cost efficient manner for stakeholders) and to increase the flexibility accorded under company law to a company’s founder(s) or controlling shareholder(s) to choose how to distribute voting rights after the admission to trading of shares. The regulatory framework applying to the listing process is multifaceted. Companies must comply with regulatory requirements before, during and after the i nitial p ublic o ffering (IPO). This proposal focuses specifically on the regulatory burden that emerges at two moments: the IPO stage and the post-IPO stage. It addresses regulatory burden at the IPO stage by introducing targeted amendments to Regulation (EU) 2017/1129 of the European Parliament and of the Council 8 (the Prospectus Regulation ) and it addresses regulatory burden at the post-IPO stage by introducing targeted amendments to Regulation No 596/2014 of the European Parliament and of the Council 9 ( the Market Abuse Regulation or ‘ MAR ’ ). It also contains limited technical amendments to Regulation No 600/2014 of the European Parliament and of the Council ( the Markets in Financial Instruments Regulation or ‘ MiFIR ’ ) 10 . The proposed regulation is accompanied by two other legislative proposals: · a proposal for a d irective amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 ( the Listing Directive), which aims to both (i) streamline and clarify listing requirements and (ii) to increase the low level of investment research on SMEs; · a proposal for a new d irective on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choos ing the appropriate governance structures when they list . Reasons for the proposal When making a decision on whether or not to list, companies weigh expected benefits against the costs. If costs prevail, or if alternative sources of financing offer a less costly and easier option, companies will not seek access to public markets. Feedback from the market indicates that the initial and ongoing costs of becoming a public company have risen considerably in recent decades, both in absolute terms and relative to private equity funding, in particular for SMEs. The regulatory environment impacts all stages of the listing process and is among the driving forces of the high costs of listing and staying listed. Companies are required to comply with several disclosure and reporting requirements under EU law, especially the Prospectus Regulation and MAR. The aim of the Prospectus Regulation is to enhanc e the internal market for capital by ensur ing investor protection and market efficiency while helping companies, including SMEs, access different forms of finance in the EU 12 . The Prospectus Regulation lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market . A prospectus is a document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company. The Prospectus Regulation does not apply under certain circumstances, such as for non-equity securities issued by certain sovereign or supranational entities, or for offers of securities to the public with a total consideration in the Union below EUR 1 million over a period of 12 months. It also includes several exemptions from the obligation to publish a prospectus for offers of securities to the public or admission to trading on a regulated market. In particular, Member States may exempt from the obligation to publish a prospectus offers of securities to the public of up to EUR 8 million over a period of 12 months, provided that they do not require notification (a ‘passport’). For offers below EUR 1 million or the relevant threshold set at national level, Member States may require national disclosure documents, provided that they do not constitute a disproportionate or unnecessary burden. Hence, issuers willing to offer securities cross-border need to comply with the threshold and disclosure requirements set out by the concerned Member States, unless those issuers draw up a prospectus on a voluntary basis in order to benefit from the EU single passport. Under the CMU Action Plan, progress has already been made to make it easier and cheaper for co mpanies, in particular smaller ones, to draw-up a prospectus. The Prospectus Regulation introduced the EU Growth prospectus – an alleviated form of a standard prospectus - for SMEs listed on SME growth markets. It aimed to reduce the costs of preparing a prospectus by smaller issuers, while providing investors with material information to assess the offer and take an informed investment decision. The Prospectus Regulation also introduced a simplified prospectus for companies whose securities are admitted to trading continuously and for at least the last 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt ( follow-on or secondary issuance s ). Issuers whose securities are admitted to trading on an SME growth market can also use this simplified prospectus to transfer subsequently to regulated markets. Finally, Regulation (EU) 2021/337 of the European Parliament and of the Council 13 introduced, as part of the Capital Markets Recovery Package (CMRP), a new type of short-form prospectus (the “EU Recovery prospectus”) . The EU Recovery prospectus is available to issuers that have shares already admitted to trading o n a regulated market or an SME g rowth market continuously for at least the last 18 months and that issue additional shares to overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. Th e EU Recovery prospectus regime will however expire on 31 December 2022. Despite the alleviations introduced, feedback from stakeholders indicated that the requirement to produce a prospectus remains overly burdensome. This refers to both instances where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on of equity or non-equity securities. The current rules in particular contribute to overly lengthy prospectuses. For example, in some cases, the Prospectus Regulation requires information that may not be indispensable for investors to make an informed investment decision (i.e., not justified from the investor protection point of view). Feedback to the public consultation (echoed during the stakeholders’ meetings) confirmed the view that neither the standard prospectus nor the EU Growth prospectus strikes an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, especially SMEs. In other cases, a prospectus is required when a lot of information is already available in the public domain (in particular, in the case of follow-on issuances). The excessive length of the prospectus can also discourage some, in particular smaller, investors from consulting it and translate into a higher cost of investing for larger investors. It also requires a longer period of time for the national competent authority (NCA) to scrutinise and approve the prospectus. The current rules also contribute to very divergent prospectuses across the EU. D ata reported by Oxera 14 and by the European Securities and Markets Authorities ( ES MA ) 15 shows a large discrepancy between Member States regarding the l ength of prospectuses, which is indicative of a lack of uniformity of prospectuses in the EU . This discrepancy stems also from the fact that the current rules do not sufficiently frame supervisory scrutiny by NCAs. Feedback from stakeholders highlighted that the EU regulatory framework places overly burdensome requirements also on already listed issuers, in particular under MAR. Since its entry into application on 1 July 2016, MAR has been extended to MTFs, including SME growth markets. MAR aims to increase market integrity and investor confidence. It prohibits from: (i) engaging or attempting to engage in insider dealing 16 ; (ii) recommending that another person engages in insider dealing or induces another person to engage in insider dealing; (iii) unlawfully disclosing inside information 17 ; or (iv) engaging in or attempting to engage in market manipulation. Issuers are also subject to several disclosure and record-keeping obligations under MAR. In particular, issuers are under a general obligation to disclose all inside information to the public as soon as possible 18 . Feedback from stakeholders indicated that some aspects of the MAR disclosure regime place a disproportionately high burden on issuers. In particular, stakeholders perceive as burdensome the obligation to disclose as soon as possible all inside information. This is due to the broadness of the notion of inside information (which gives rise to difficulties for issuers when delineating between what is and what is not inside information), as well as to the fact that the same notion applies both for the purpose of the prohibition of insider dealing and for the purpose of disclosure. While the broadness of the notion of inside information allows to cater for a wide and very early prohibition of insider dealing, it also implies that issuers are required to disclose information at a very early stage, when information on circumstances or events have not yet reached a high degree of certainty. The notion of inside information covers not only events that have already occurred but also events which are “reasonably expected to occur” (i.e., for which there is a realistic prospect to occur) and, in the context of protracted processes (such as a merger), the intermediate steps which are connected with bringing about a future event. As a consequence, issuers incur high compliance costs to understand which steps of a protracted process may constitute inside information and when a certain piece of information is mature enough to be disclosed. At the same time, the effectiveness of disclosure in reducing information asymmetries between issuers and investors is limited if information is too preliminary, incomplete and still potentially subject to fundamental changes. Too early disclosure of information could mislead investors and trigger action on his/her part that could prove to be suboptimal in hindsight (e.g., divesting the stock too soon or not divesting soon enough), thus increasing the opportunity cost for investors. Furthermore, issuers face a lack of legal clarity around the conditions that need to be met to delay disclosure when immediate disclosure would be likely to prejudice the legitimate interests of the issuers (e.g., by jeopardising the successful conclusion of ongoing negotiations). A few additional reporting and disclosure requirements under MAR place a disproportionately high burden on issuers, such as the provisions on managers’ transactions, insider lists, and market sounding. Current MAR rules also create a disproportionate sanctioning regime for disclosure-related infringements, in particular for SMEs, which may potentially be sanctioned at the same level as large companies. Objectives of the proposal The overall objective of this initiative is to introduce technical adjustments to the EU rulebook in order to reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. This, in turn, is expected to help diversify funding sources for companies in the EU and increase investments, economic growth, job creation and innovation in the EU. The proposed targeted amendments to the Prospectus Regulation aim in particular to make it easier and cheaper for issuers to draw up a prospectus, while enabling investors to make the right investment decision by providing comprehensible, easy to analyse and concise information. They also seek to introduce sizable simplifications to, or even exemptions from, the prospectus requirements in cases where the issuer is already known to investors and a lot of information is already publicly available (follow-on issuances). These amendments are accompanied by amendments aimed at fostering the convergence of and streamlining the scrutiny and approval process by NCAs (for example, by narrowly frame the ability of NCAs to request issuers to include additional information in the prospectus). In the case of an offer of securities to the public or the admission to trading on a regulated market, the proposal streamlines and further standardises the standard prospectus (referring to a non-alleviated prospectus type, irrespective of whether it relates to equity or non-equity securities, or whether is drawn up as a single document or consists of separate documents). The proposal aligns the level of disclosure of the standard prospectus to the level of disclosure currently required under the EU Growth prospectus regime, introduces a fixed order of disclosure and makes incorporation by reference a legal requirement. The proposal also introduces the possibility for issuers to draw up the prospectus in English only as the language customary in the sphere of international finance (except for the summary which in practice is the only document that most retail investors consult), and to publish it in an electronic format only (i.e., no paper copies on request). At the same time, only for shares or other transferable securities equivalent to shares in companies, a limit number of pages (300 pages) is introduced to avoid overly lengthy prospectuses for companies that do not have a complex financial history. Jointly, these amendments seek to provide a tangible cost and burden reduction for issuers, while ensuring that investors can take advantage of a document that is easier to read and navigate and more easily compare financial instruments and issuers. The proposal also seeks to make it easier for SMEs to raise funds on public markets, in particular on SME growth markets, by generating further cost savings for SMEs and better tailoring disclosure to the needs of investors. For companies offering securities to the public and listing on SME growth markets (as well as for offers of securities to the public by smaller companies), the EU Growth prospectus is replaced by a mandatory new short-form EU Growth issuance document. This document builds on the level of disclosure currently required under the EU Recovery prospectus regime and existing admission documents required by SME growth markets (where the obligation to publish a prospectus does not apply), follows a fixed order of disclosure and is subject, in the case of shares and other equivalent transferable securities, to a page limit. While the proposal exempts, under certain conditions, from the prospectus requirement offers of securities fungible with securities already admitted to trading (for which the publication of a summary document will suffice), it subjects follow-on issuances of non-fungible securities to the approval and publication of a new mandatory short-form EU Follow-on prospectus, largely building on the current EU Recovery prospectus regime. These amendments seek to ensure that companies can fully benefit from the advantages of accessing public capital markets, including easier and quicker access to additional equity capital and debt finance through follow-on offers. At the same time, they safeguard investor protection as these companies are already subject to periodic and ongoing disclosure and reporting requirements and, in addition, issuers will be required to publish the most relevant information for investors. Finally, the amendments to the Prospectus Regulation aim to foster cross-border offers by harmonising and increasing to EUR 12 million the threshold for exempting small offers of securities to the public from the obligation to publish a prospectus. This amendment also seeks to benefit smaller issuers, including SMEs, as in certain cases they will no longer have to produce a prospectus, lowering substantially their regulatory costs and incentivising them to access public capital markets. The proposal also introduces amendments to the rules on equivalence for third countries prospectuses to make them workable. The proposed targeted amendments to MAR aim to reduce legal uncertainty on what constitutes inside information for the purpose of disclosure as well as on the timing of disclosure. While the proposal maintains the current broad notion of inside information for the purposes of the insider dealing regulation, it narrows down the scope of the disclosure obligation. The proposal clarifies in particular that the obligation to disclose all inside information to the public does not cover the information relating to the intermediate steps of a protracted process, as this information is too preliminary and hence not mature enough for disclosure. At the same time, the proposal introduces an empowerment for the Commission to establish, by way of a delegated act a non-exhaustive list of the relevant information as well as, for each information, an indication of the timing when issuers are expected to disclose it. Jointly, these amendments seek to make the MAR disclosure regime less costly to comply with by issuers, more predictable from the investors’ point of view and more conducive to effective price formation. The amendments to the disclosure obligation are accompanied by improvements to the regime for the exchange of information among NCAs to enable them to better identify cases of market manipulation by setting up a cross market order book surveillance (CMOBS) mechanism , 19 thus increasing the integrity of EU markets and enhancing their appeal for investors. In the same vein, the proposal introduces a possibility for ESMA to establish collaboration platforms, in particular for the purpose of monitoring wholesale commodity markets, to address concerns about market integrity and the good functioning of financial and, in particular, spot markets . Finally, the proposal seeks to make the sanctioning regime for MAR disclosure-related infringements more proportionate for SMEs to avoid discouraging smaller issuers from listing or remaining listed. The proposal also aims at alleviating the regulatory hurdles resulting from the application of the managers’ transactions, insider list and market sounding regimes while ensuring that these alleviations do not impair investor protection and market integrity. The creation of a CMOBS mechanism requires also targeted amendments to the MiFIR framework to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision, and to confer to ESMA the role to harmonise the format of the template used to store such data. The proposed targeted amendments aim to build the necessary conditions for structural improvements in EU public capital markets to occur over time. A more favourable regulatory regime would encourage the development of a more favourable ecosystem, contributing in a multi-faceted manner to the CMU objective of improving access to financing by companies. Furthermore, this proposal should be analysed in conjunction with other proposed and upcoming initiatives. The proposed amendments are part of a broader package of measures outlined in the CMU Action Plan, which aim to address other issues currently preventing companies from raising capital on public markets.
Revised version (Article 8 Insider dealing):
1. For the purposes of this Regulation, insider dealing arises where a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates. The use of inside information by cancelling or amending an order concerning a financial instrument to which the information relates where the order was placed before the person concerned possessed the inside information, shall also be considered to be insider dealing. In relation to auctions of emission allowances or other auctioned products based thereon that are held pursuant to Regulation (EU) No 1031/2010, the use of inside information shall also comprise submitting, modifying or withdrawing a bid by a person for its own account or for the account of a third party. 2. For the purposes of this Regulation, recommending that another person engage in insider dealing, or inducing another person to engage in insider dealing, arises where the person possesses inside information and: (a) recommends, on the basis of that information, that another person acquire or dispose of financial instruments to which that information relates, or induces that person to make such an acquisition or disposal, or (b) recommends, on the basis of that information, that another person cancel or amend an order concerning a financial instrument to which that information relates, or induces that person to make such a cancellation or amendment. 3. The use of the recommendations or inducements referred to in paragraph 2 amounts to insider dealing within the meaning of this Article where the person using the recommendation or inducement knows or ought to know that it is based upon inside information. This Article also applies to any person who possesses inside information under circumstances other than those referred to in the first subparagraph where that person knows or ought to know that it is inside information. 5. Where the person is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out the acquisition, disposal, cancellation or amendment of an order for the account of the legal person concerned.
Article 9 Legitimate behaviour
1. For the purposes of Articles 8 and 14, it shall not be deemed from the mere fact that a legal person is or has been in possession of inside information that that person has used that information and has thus engaged in insider dealing on the basis of an acquisition or disposal, where that legal person: (a) has established, implemented and maintained adequate and effective internal arrangements and procedures that effectively ensure that neither the natural person who made the decision on its behalf to acquire or dispose of financial instruments to which the information relates, nor another natural person who may have had an influence on that decision, was in possession of the inside information; and (b) has not encouraged, made a recommendation to, induced or otherwise influenced the natural person who, on behalf of the legal person, acquired or disposed of financial instruments to which the information relates. 2. For the purposes of Articles 8 and 14, it shall not be deemed from the mere fact that a person is in possession of inside information that that person has used that information and has thus engaged in insider dealing on the basis of an acquisition or disposal where that person: (a) for the financial instrument to which that information relates, is a market maker or a person authorised to act as a counterparty, and the acquisition or disposal of financial instruments to which that information relates is made legitimately in the normal course of the exercise of its function as a market maker or as a counterparty for that financial instrument; or (b) is authorised to execute orders on behalf of third parties, and the acquisition or disposal of financial instruments to which the order relates, is made to carry out such an order legitimately in the normal course of the exercise of that person’s employment, profession or duties. 3. For the purposes of Articles 8 and 14, it shall not be deemed from the mere fact that a person is in possession of inside information that that person has used that information and has thus engaged in insider dealing on the basis of an acquisition or disposal where that person conducts a transaction to acquire or dispose of financial instruments and that transaction is carried out in the discharge of an obligation that has become due in good faith and not to circumvent the prohibition against insider dealing and: (a) that obligation results from an order placed or an agreement concluded before the person concerned possessed inside information; or (b) that transaction is carried out to satisfy a legal or regulatory obligation that arose, before the person concerned possessed inside information. 4. For the purposes of Article 8 and 14, it shall not be deemed from the mere fact that a person is in possession of inside information that that person has used that information and has thus engaged in insider dealing, where such person has obtained that inside information in the conduct of a public takeover or merger with a company and uses that inside information solely for the purpose of proceeding with that merger or public takeover, provided that at the point of approval of the merger or acceptance of the offer by the shareholders of that company, any inside information has been made public or has otherwise ceased to constitute inside information. This paragraph shall not apply to stake-building. 5. For the purposes of Articles 8 and 14, the mere fact that a person uses its own knowledge that it has decided to acquire or dispose of financial instruments in the acquisition or disposal of those financial instruments shall not of itself constitute use of inside information. 6. Notwithstanding paragraphs 1 to 5 of this Article, an infringement of the prohibition of insider dealing set out in Article 14 may still be deemed to have occurred if the competent authority establishes that there was an illegitimate reason for the orders to trade, transactions or behaviours concerned.
Article 10 Unlawful disclosure of inside information
1. For the purposes of this Regulation, unlawful disclosure of inside information arises where a person possesses inside information and discloses that information to any other person, except where the disclosure is made in the normal exercise of an employment, a profession or duties. This paragraph applies to any natural or legal person in the situations or circumstances referred to in Article 8(4). 2. For the purposes of this Regulation the onward disclosure of recommendations or inducements referred to in Article 8(2) amounts to unlawful disclosure of inside information under this Article where the person disclosing the recommendation or inducement knows or ought to know that it was based on inside information.
Article 11 Market soundings
1. A market sounding comprises the communication of information, prior to the announcement of a transaction, in order to gauge the interest of potential investors in a possible transaction and the conditions relating to it such as its potential size or pricing, to one or more potential investors by: (a) an issuer; (b) a secondary offeror of a financial instrument, in such quantity or value that the transaction is distinct from ordinary trading and involves a selling method based on the prior assessment of potential interest from potential investors; (c) an emission allowance market participant; or (d) a third party acting on behalf or on the account of a person referred to in point (a), (b) or (c). 2. Without prejudice to Article 23(3), disclosure of inside information by a person intending to make a takeover bid for the securities of a company or a merger with a company to parties entitled to the securities, shall also constitute a market sounding, provided that: (a) the information is necessary to enable the parties entitled to the securities to form an opinion on their willingness to offer their securities: and (b) the willingness of parties entitled to the securities to offer their securities is reasonably required for the decision to make the takeover bid or merger. 3. A disclosing market participant shall, prior to conducting a market sounding, specifically consider whether the market sounding will involve the disclosure of inside information. The disclosing market participant shall make a written record of its conclusion and the reasons therefor. It shall provide such written records to the competent authority upon request. This obligation shall apply to each disclosure of information throughout the course of the market sounding. The disclosing market participant shall update the written records referred to in this paragraph accordingly. 4. For the purposes of Article 10(1), disclosure of inside information made in the course of a market sounding shall be deemed to be made in the normal exercise of a person’s employment, profession or duties where the disclosing market participant complies with paragraphs 3 and 5 of this Article. 5. For the purposes of paragraph 4, the disclosing market participant shall, before making the disclosure: (a) obtain the consent of the person receiving the market sounding to receive inside information; (b) inform the person receiving the market sounding that he is prohibited from using that information, or attempting to use that information, by acquiring or disposing of, for his own account or for the account of a third party, directly or indirectly, financial instruments relating to that information; (c) inform the person receiving the market sounding that he is prohibited from using that information, or attempting to use that information, by cancelling or amending an order which has already been placed concerning a financial instrument to which the information relates; and (d) inform the person receiving the market sounding that by agreeing to receive the information he is obliged to keep the information confidential. The disclosing market participant shall make and maintain a record of all information given to the person receiving the market sounding, including the information given in accordance with points (a) to (d) of the first subparagraph, and the identity of the potential investors to whom the information has been disclosed, including but not limited to the legal and natural persons acting on behalf of the potential investor, and the date and time of each disclosure. The disclosing market participant shall provide that record to the competent authority upon request. 6. Where information that has been disclosed in the course of a market sounding ceases to be inside information according to the assessment of the disclosing market participant, the disclosing market participant shall inform the recipient accordingly, as soon as possible. The disclosing market participant shall maintain a record of the information given in accordance with this paragraph and shall provide it to the competent authority upon request. 7. Notwithstanding the provisions of this Article, the person receiving the market sounding shall assess for itself whether it is in possession of inside information or when it ceases to be in possession of inside information. 8. The disclosing market participant shall keep the records referred to in this Article for a period of at least five years. 9. In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards to determine appropriate arrangements, procedures and record keeping requirements for persons to comply with the requirements laid down in paragraphs 4, 5, 6 and 8. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 10. In order to ensure uniform conditions of application of this Article, ESMA shall develop draft implementing technical standards to specify the systems and notification templates to be used by persons to comply with the requirements established by paragraphs 4, 5, 6 and 8 of this Article, particularly the precise format of the records referred to in paragraphs 4 to 8 and the technical means for appropriate communication of the information referred to in paragraph 6 to the person receiving the market sounding. ESMA shall submit those draft implementing technical standards to the Commission by 3 July 2015. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010. 11. ESMA shall issue guidelines in accordance with Article 16 of Regulation (EU) No 1095/2010, addressed to persons receiving market soundings, regarding: (a) the factors that such persons are to take into account when information is disclosed to them as part of a market sounding in order for them to assess whether the information amounts to inside information; (b) the steps that such persons are to take if inside information has been disclosed to them in order to comply with Articles 8 and 10 of this Regulation; and (c) the records that such persons are to maintain in order to demonstrate that they have complied with Articles 8 and 10 of this Regulation.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Political context This proposal is part of the Listing Act package, a set of measures to make public markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the Capital Markets Union (CMU) core aim to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. L isted companies , including recently listed ones, often outpace privately owned companies in terms of annual revenue growth and job creation 1 . By listing on public markets, companies can diversify their investor base, reduce their dependency on bank financing, gain easier and cheaper access to additional equity capital and debt finance (through secondary offers), raise their public profile and increase brand recognition . Since the publication of the first CMU Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular SMEs, to access public markets. In January 2018, the Directive 2014/65/EU of the European Parliament and of the Council ( the Markets in Financial Instruments Directive, or ‘ MiFID II ’ ) 2 introduced a new category of Multilateral Trading Facilities (MTFs), the SME growth markets , 3 to incenti vise SMEs access to capital markets. In 2019, new EU rules were put forward by Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) to cut red tape and reduce regulatory burden for companies listing on SME growth markets while preserving a high level of investor protection and market integrity . Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers. The new CMU Action Plan adopted in September 2020 announced that ‘ in order to promote and diversify small and innovative companies’ access to funding, the Commission will seek to simplify the listing rules for public markets ’ . Following up on this and building on the 2019 SME Listing Act, the Commission set up a Technical Expert Stakeholder Group (TESG) on SMEs which confirmed stakeholders’ concerns that further legislative action is needed to support listing of companies and especially of SMEs. In its final report of May 2021 5 , the TESG made 12 recommendations to amend the listing framework both on regulated markets, as well as on SME growth markets . On 15 September 2021 , President Von der Leyen announced in her letter of intent 6 addressed to the Parliament and the Presidency of the Council a legislative proposal to facilitate SMEs’ access to capital, which has been included in the 2022 Commission work programme 7 . A company’s decision to list is a complex one and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by a legislative intervention. For instance, the features of the ecosystem that determine the cost of listing services, and more broadly geopolitical instability, Brexit, Covid-19, and inflation, have all had (and will continue to have) an impact on the decision to list, on the timing of listing, and on whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also an important factor in a company’s decision to list and remain listed. The Listing Act package represents a targeted set of measures aiming to reduce the regulatory burden where it is considered to be excessive (i.e., where regulation could ensure investor protection/market integrity in a more cost efficient manner for stakeholders) and to increase the flexibility accorded under company law to a company’s founder(s) or controlling shareholder(s) to choose how to distribute voting rights after the admission to trading of shares. The regulatory framework applying to the listing process is multifaceted. Companies must comply with regulatory requirements before, during and after the i nitial p ublic o ffering (IPO). This proposal focuses specifically on the regulatory burden that emerges at two moments: the IPO stage and the post-IPO stage. It addresses regulatory burden at the IPO stage by introducing targeted amendments to Regulation (EU) 2017/1129 of the European Parliament and of the Council 8 (the Prospectus Regulation ) and it addresses regulatory burden at the post-IPO stage by introducing targeted amendments to Regulation No 596/2014 of the European Parliament and of the Council 9 ( the Market Abuse Regulation or ‘ MAR ’ ). It also contains limited technical amendments to Regulation No 600/2014 of the European Parliament and of the Council ( the Markets in Financial Instruments Regulation or ‘ MiFIR ’ ) 10 . The proposed regulation is accompanied by two other legislative proposals: · a proposal for a d irective amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 ( the Listing Directive), which aims to both (i) streamline and clarify listing requirements and (ii) to increase the low level of investment research on SMEs; · a proposal for a new d irective on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choos ing the appropriate governance structures when they list . Reasons for the proposal When making a decision on whether or not to list, companies weigh expected benefits against the costs. If costs prevail, or if alternative sources of financing offer a less costly and easier option, companies will not seek access to public markets. Feedback from the market indicates that the initial and ongoing costs of becoming a public company have risen considerably in recent decades, both in absolute terms and relative to private equity funding, in particular for SMEs. The regulatory environment impacts all stages of the listing process and is among the driving forces of the high costs of listing and staying listed. Companies are required to comply with several disclosure and reporting requirements under EU law, especially the Prospectus Regulation and MAR. The aim of the Prospectus Regulation is to enhanc e the internal market for capital by ensur ing investor protection and market efficiency while helping companies, including SMEs, access different forms of finance in the EU 12 . The Prospectus Regulation lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market . A prospectus is a document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company. The Prospectus Regulation does not apply under certain circumstances, such as for non-equity securities issued by certain sovereign or supranational entities, or for offers of securities to the public with a total consideration in the Union below EUR 1 million over a period of 12 months. It also includes several exemptions from the obligation to publish a prospectus for offers of securities to the public or admission to trading on a regulated market. In particular, Member States may exempt from the obligation to publish a prospectus offers of securities to the public of up to EUR 8 million over a period of 12 months, provided that they do not require notification (a ‘passport’). For offers below EUR 1 million or the relevant threshold set at national level, Member States may require national disclosure documents, provided that they do not constitute a disproportionate or unnecessary burden. Hence, issuers willing to offer securities cross-border need to comply with the threshold and disclosure requirements set out by the concerned Member States, unless those issuers draw up a prospectus on a voluntary basis in order to benefit from the EU single passport. Under the CMU Action Plan, progress has already been made to make it easier and cheaper for co mpanies, in particular smaller ones, to draw-up a prospectus. The Prospectus Regulation introduced the EU Growth prospectus – an alleviated form of a standard prospectus - for SMEs listed on SME growth markets. It aimed to reduce the costs of preparing a prospectus by smaller issuers, while providing investors with material information to assess the offer and take an informed investment decision. The Prospectus Regulation also introduced a simplified prospectus for companies whose securities are admitted to trading continuously and for at least the last 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt ( follow-on or secondary issuance s ). Issuers whose securities are admitted to trading on an SME growth market can also use this simplified prospectus to transfer subsequently to regulated markets. Finally, Regulation (EU) 2021/337 of the European Parliament and of the Council 13 introduced, as part of the Capital Markets Recovery Package (CMRP), a new type of short-form prospectus (the “EU Recovery prospectus”) . The EU Recovery prospectus is available to issuers that have shares already admitted to trading o n a regulated market or an SME g rowth market continuously for at least the last 18 months and that issue additional shares to overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. Th e EU Recovery prospectus regime will however expire on 31 December 2022. Despite the alleviations introduced, feedback from stakeholders indicated that the requirement to produce a prospectus remains overly burdensome. This refers to both instances where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on of equity or non-equity securities. The current rules in particular contribute to overly lengthy prospectuses. For example, in some cases, the Prospectus Regulation requires information that may not be indispensable for investors to make an informed investment decision (i.e., not justified from the investor protection point of view). Feedback to the public consultation (echoed during the stakeholders’ meetings) confirmed the view that neither the standard prospectus nor the EU Growth prospectus strikes an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, especially SMEs. In other cases, a prospectus is required when a lot of information is already available in the public domain (in particular, in the case of follow-on issuances). The excessive length of the prospectus can also discourage some, in particular smaller, investors from consulting it and translate into a higher cost of investing for larger investors. It also requires a longer period of time for the national competent authority (NCA) to scrutinise and approve the prospectus. The current rules also contribute to very divergent prospectuses across the EU. D ata reported by Oxera 14 and by the European Securities and Markets Authorities ( ES MA ) 15 shows a large discrepancy between Member States regarding the l ength of prospectuses, which is indicative of a lack of uniformity of prospectuses in the EU . This discrepancy stems also from the fact that the current rules do not sufficiently frame supervisory scrutiny by NCAs. Feedback from stakeholders highlighted that the EU regulatory framework places overly burdensome requirements also on already listed issuers, in particular under MAR. Since its entry into application on 1 July 2016, MAR has been extended to MTFs, including SME growth markets. MAR aims to increase market integrity and investor confidence. It prohibits from: (i) engaging or attempting to engage in insider dealing 16 ; (ii) recommending that another person engages in insider dealing or induces another person to engage in insider dealing; (iii) unlawfully disclosing inside information 17 ; or (iv) engaging in or attempting to engage in market manipulation. Issuers are also subject to several disclosure and record-keeping obligations under MAR. In particular, issuers are under a general obligation to disclose all inside information to the public as soon as possible 18 . Feedback from stakeholders indicated that some aspects of the MAR disclosure regime place a disproportionately high burden on issuers. In particular, stakeholders perceive as burdensome the obligation to disclose as soon as possible all inside information. This is due to the broadness of the notion of inside information (which gives rise to difficulties for issuers when delineating between what is and what is not inside information), as well as to the fact that the same notion applies both for the purpose of the prohibition of insider dealing and for the purpose of disclosure. While the broadness of the notion of inside information allows to cater for a wide and very early prohibition of insider dealing, it also implies that issuers are required to disclose information at a very early stage, when information on circumstances or events have not yet reached a high degree of certainty. The notion of inside information covers not only events that have already occurred but also events which are “reasonably expected to occur” (i.e., for which there is a realistic prospect to occur) and, in the context of protracted processes (such as a merger), the intermediate steps which are connected with bringing about a future event. As a consequence, issuers incur high compliance costs to understand which steps of a protracted process may constitute inside information and when a certain piece of information is mature enough to be disclosed. At the same time, the effectiveness of disclosure in reducing information asymmetries between issuers and investors is limited if information is too preliminary, incomplete and still potentially subject to fundamental changes. Too early disclosure of information could mislead investors and trigger action on his/her part that could prove to be suboptimal in hindsight (e.g., divesting the stock too soon or not divesting soon enough), thus increasing the opportunity cost for investors. Furthermore, issuers face a lack of legal clarity around the conditions that need to be met to delay disclosure when immediate disclosure would be likely to prejudice the legitimate interests of the issuers (e.g., by jeopardising the successful conclusion of ongoing negotiations). A few additional reporting and disclosure requirements under MAR place a disproportionately high burden on issuers, such as the provisions on managers’ transactions, insider lists, and market sounding. Current MAR rules also create a disproportionate sanctioning regime for disclosure-related infringements, in particular for SMEs, which may potentially be sanctioned at the same level as large companies. Objectives of the proposal The overall objective of this initiative is to introduce technical adjustments to the EU rulebook in order to reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. This, in turn, is expected to help diversify funding sources for companies in the EU and increase investments, economic growth, job creation and innovation in the EU. The proposed targeted amendments to the Prospectus Regulation aim in particular to make it easier and cheaper for issuers to draw up a prospectus, while enabling investors to make the right investment decision by providing comprehensible, easy to analyse and concise information. They also seek to introduce sizable simplifications to, or even exemptions from, the prospectus requirements in cases where the issuer is already known to investors and a lot of information is already publicly available (follow-on issuances). These amendments are accompanied by amendments aimed at fostering the convergence of and streamlining the scrutiny and approval process by NCAs (for example, by narrowly frame the ability of NCAs to request issuers to include additional information in the prospectus). In the case of an offer of securities to the public or the admission to trading on a regulated market, the proposal streamlines and further standardises the standard prospectus (referring to a non-alleviated prospectus type, irrespective of whether it relates to equity or non-equity securities, or whether is drawn up as a single document or consists of separate documents). The proposal aligns the level of disclosure of the standard prospectus to the level of disclosure currently required under the EU Growth prospectus regime, introduces a fixed order of disclosure and makes incorporation by reference a legal requirement. The proposal also introduces the possibility for issuers to draw up the prospectus in English only as the language customary in the sphere of international finance (except for the summary which in practice is the only document that most retail investors consult), and to publish it in an electronic format only (i.e., no paper copies on request). At the same time, only for shares or other transferable securities equivalent to shares in companies, a limit number of pages (300 pages) is introduced to avoid overly lengthy prospectuses for companies that do not have a complex financial history. Jointly, these amendments seek to provide a tangible cost and burden reduction for issuers, while ensuring that investors can take advantage of a document that is easier to read and navigate and more easily compare financial instruments and issuers. The proposal also seeks to make it easier for SMEs to raise funds on public markets, in particular on SME growth markets, by generating further cost savings for SMEs and better tailoring disclosure to the needs of investors. For companies offering securities to the public and listing on SME growth markets (as well as for offers of securities to the public by smaller companies), the EU Growth prospectus is replaced by a mandatory new short-form EU Growth issuance document. This document builds on the level of disclosure currently required under the EU Recovery prospectus regime and existing admission documents required by SME growth markets (where the obligation to publish a prospectus does not apply), follows a fixed order of disclosure and is subject, in the case of shares and other equivalent transferable securities, to a page limit. While the proposal exempts, under certain conditions, from the prospectus requirement offers of securities fungible with securities already admitted to trading (for which the publication of a summary document will suffice), it subjects follow-on issuances of non-fungible securities to the approval and publication of a new mandatory short-form EU Follow-on prospectus, largely building on the current EU Recovery prospectus regime. These amendments seek to ensure that companies can fully benefit from the advantages of accessing public capital markets, including easier and quicker access to additional equity capital and debt finance through follow-on offers. At the same time, they safeguard investor protection as these companies are already subject to periodic and ongoing disclosure and reporting requirements and, in addition, issuers will be required to publish the most relevant information for investors. Finally, the amendments to the Prospectus Regulation aim to foster cross-border offers by harmonising and increasing to EUR 12 million the threshold for exempting small offers of securities to the public from the obligation to publish a prospectus. This amendment also seeks to benefit smaller issuers, including SMEs, as in certain cases they will no longer have to produce a prospectus, lowering substantially their regulatory costs and incentivising them to access public capital markets. The proposal also introduces amendments to the rules on equivalence for third countries prospectuses to make them workable. The proposed targeted amendments to MAR aim to reduce legal uncertainty on what constitutes inside information for the purpose of disclosure as well as on the timing of disclosure. While the proposal maintains the current broad notion of inside information for the purposes of the insider dealing regulation, it narrows down the scope of the disclosure obligation. The proposal clarifies in particular that the obligation to disclose all inside information to the public does not cover the information relating to the intermediate steps of a protracted process, as this information is too preliminary and hence not mature enough for disclosure. At the same time, the proposal introduces an empowerment for the Commission to establish, by way of a delegated act a non-exhaustive list of the relevant information as well as, for each information, an indication of the timing when issuers are expected to disclose it. Jointly, these amendments seek to make the MAR disclosure regime less costly to comply with by issuers, more predictable from the investors’ point of view and more conducive to effective price formation. The amendments to the disclosure obligation are accompanied by improvements to the regime for the exchange of information among NCAs to enable them to better identify cases of market manipulation by setting up a cross market order book surveillance (CMOBS) mechanism , 19 thus increasing the integrity of EU markets and enhancing their appeal for investors. In the same vein, the proposal introduces a possibility for ESMA to establish collaboration platforms, in particular for the purpose of monitoring wholesale commodity markets, to address concerns about market integrity and the good functioning of financial and, in particular, spot markets . Finally, the proposal seeks to make the sanctioning regime for MAR disclosure-related infringements more proportionate for SMEs to avoid discouraging smaller issuers from listing or remaining listed. The proposal also aims at alleviating the regulatory hurdles resulting from the application of the managers’ transactions, insider list and market sounding regimes while ensuring that these alleviations do not impair investor protection and market integrity. The creation of a CMOBS mechanism requires also targeted amendments to the MiFIR framework to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision, and to confer to ESMA the role to harmonise the format of the template used to store such data. The proposed targeted amendments aim to build the necessary conditions for structural improvements in EU public capital markets to occur over time. A more favourable regulatory regime would encourage the development of a more favourable ecosystem, contributing in a multi-faceted manner to the CMU objective of improving access to financing by companies. Furthermore, this proposal should be analysed in conjunction with other proposed and upcoming initiatives. The proposed amendments are part of a broader package of measures outlined in the CMU Action Plan, which aim to address other issues currently preventing companies from raising capital on public markets.
Revised version (Article 11 Market soundings):
3. A disclosing market participant shall, prior to conducting a market sounding, specifically consider whether the market sounding will involve the disclosure of inside information. The disclosing market participant shall make a written record of its conclusion and the reasons therefor. It shall provide such written records to the competent authority upon request. This obligation shall apply to each disclosure of information throughout the course of the market sounding. The disclosing market participant shall update the written records referred to in this paragraph accordingly. 6. Where information that has been disclosed in the course of a market sounding ceases to be inside information according to the assessment of the disclosing market participant, the disclosing market participant shall inform the recipient accordingly, as soon as possible. That obligation shall not apply in cases where the information has otherwise been announced publicly. The disclosing market participant shall maintain a record of the information given in accordance with this paragraph and shall provide it to the competent authority upon request. 7. Notwithstanding this Article, persons receiving the market sounding shall assess for themselves whether they possess inside information. 8. The disclosing market participant shall keep the records referred to in this Article for a period of at least five years. 9. In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards to determine appropriate arrangements, procedures and record keeping requirements for persons to comply with the requirements laid down in paragraphs 4, 5, 6 and 8. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 10. In order to ensure uniform conditions of application of this Article, ESMA shall develop draft implementing technical standards to specify the systems and notification templates to be used by persons to comply with the requirements established by paragraphs 4, 5, 6 and 8 of this Article, particularly the precise format of the records referred to in paragraphs 4 to 8 and the technical means for appropriate communication of the information referred to in paragraph 6 to the person receiving the market sounding. ESMA shall submit those draft implementing technical standards to the Commission by 3 July 2015. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Article 12 Market manipulation
1. For the purposes of this Regulation, market manipulation shall comprise the following activities: (a) entering into a transaction, placing an order to trade or any other behaviour which: (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances; or (ii) secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level; unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with Article 13; (b) entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances, which employs a fictitious device or any other form of deception or contrivance; (c) disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances or secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level, including the dissemination of rumours, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading; (d) transmitting false or misleading information or providing false or misleading inputs in relation to a benchmark where the person who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark. 2. The following behaviour shall, inter alia, be considered as market manipulation: (a) the conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply of or demand for a financial instrument, related spot commodity contracts or auctioned products based on emission allowances which has, or is likely to have, the effect of fixing, directly or indirectly, purchase or sale prices or creates, or is likely to create, other unfair trading conditions; (b) the buying or selling of financial instruments, at the opening or closing of the market, which has or is likely to have the effect of misleading investors acting on the basis of the prices displayed, including the opening or closing prices; (c) the placing of orders to a trading venue, including any cancellation or modification thereof, by any available means of trading, including by electronic means, such as algorithmic and high-frequency trading strategies, and which has one of the effects referred to in paragraph 1(a) or (b), by: (i) disrupting or delaying the functioning of the trading system of the trading venue or being likely to do so; (ii) making it more difficult for other persons to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; or (iii) creating or being likely to create a false or misleading signal about the supply of, or demand for, or price of, a financial instrument, in particular by entering orders to initiate or exacerbate a trend; (d) the taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a financial instrument, related spot commodity contract or an auctioned product based on emission allowances (or indirectly about its issuer) while having previously taken positions on that financial instrument, a related spot commodity contract or an auctioned product based on emission allowances and profiting subsequently from the impact of the opinions voiced on the price of that instrument, related spot commodity contract or an auctioned product based on emission allowances, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way; (e) the buying or selling on the secondary market of emission allowances or related derivatives prior to the auction held pursuant to Regulation (EU) No 1031/2010 with the effect of fixing the auction clearing price for the auctioned products at an abnormal or artificial level or misleading bidders bidding in the auctions. 3. For the purposes of applying paragraph 1(a) and (b), and without prejudice to the forms of behaviour set out in paragraph 2, Annex I defines non-exhaustive indicators relating to the employment of a fictitious device or any other form of deception or contrivance, and non-exhaustive indicators related to false or misleading signals and to price securing. 4. Where the person referred to in this Article is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out activities for the account of the legal person concerned. 5. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 specifying the indicators laid down in Annex I, in order to clarify their elements and to take into account technical developments on financial markets.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for the proposal Directive 2014/65/EU (‘MiFID’) together with Regulation (EU) No 600/2014 (‘MiFIR’) was adopted in the wake of the financial crisis. MiFID and MiFIR, collectively referred to as MiFID II, covers securities markets, investment intermediaries and trading venues. The new framework reinforces and replaces the current MiFID framework. MiFID II extends the number of financial instruments covered by trading rules and ensures that trading takes place on regulated platforms. It introduces rules on high frequency trading. It improves the transparency and oversight of financial markets – including derivatives markets - and addresses the issue of price volatility in commodity derivatives. The new framework improves conditions for competition in the trading and clearing of financial instruments. Building on the rules already in place, the revised MiFID rules also strengthen the protection of investors by introducing robust organisational and conduct of business requirements. The MiFID II package consists of a Directive and a Regulation. Member States need to transpose the Directive by 3 July 2016. Both MiFID and MiFIR are scheduled to apply as of 3 January 2017. The purpose of the draft proposal is to extend the entry into application of both instruments that are comprised in the MIFID II package as a result of the technical implementation challenges met by the European Securities and Markets Authority ('ESMA'), national competent authorities ('NCAs') and stakeholders. These challenges are of such magnitude that essential data infrastructures will not be in place in time for 3 January 2017. During the legislative process, the very high level of complexity of the MiFID II package and the need for a significant number of implementing measures were recognised. To this end, a period of 30 months was foreseen between the adoption and the entry into application, instead of the usual 18-24 months. Despite this unusually long period, ESMA has made clear to the Commission that the technical implementing challenges are of such magnitude that essential data infrastructures will not be in place in time for 3 January 2017. If the date of entry into application remains unchanged, this would mean, in practice, that neither competent authorities, nor market participants, would be in a position to apply the new rules on 3 January 2017. This would lead to legal uncertainty and potential market disruption. In light of these exceptional circumstances and the particular technical implementation challenges faced by ESMA and the competent authorities in this specific case, the Commission deems it necessary to extend the entry into application of both instruments that are comprised in MIFID II. Such extension shall be strictly limited to what is necessary to allow the technical implementation work to be finalised. 1.2 The 'data' challenge ESMA have informed the Commission that neither they nor the NCAs will be in a position to apply MiFID II as of 3 January 2017. This is as a result of significant challenges in collecting the data that is necessary for the operation of the MiFID II rules. In order to ensure legal certainty and avoid potential market disruption, urgent action is needed to adjust the date of entry into application for MiFID II. The reasons for the urgency are linked to the need to establish new and extensive electronic data collection networks between trading venues, national regulators and ESMA. The new framework requires trading venues and systematic internalisers to provide competent authorities with financial instrument reference data that describes in a uniform manner the characteristics of every financial instrument subject to the scope of MiFID II. Additional data are also used for other purposes, in particular for the calculation of various liquidity and transparency thresholds used for on-venue trading of all financial instruments covered by MiFID as well as for positions reporting of commodity derivatives. In order to collect data in an efficient and harmonised manner, a new data collection infrastructure must be developed. This obliges ESMA, in conjunction with competent national authorities, to establish a Financial Instruments Reference Data System ('FIRDS'). FIRDS will need to cover the entire range of financial instruments that are included in the increased scope of MiFID II. In accomplishing this task, FIRDS will necessitate linking of data feeds between ESMA, NCAs and around 300 trading venues across the European Union. The vast majority of the new IT-systems underpinning FIRDS will need to be built from the ground, based on new parameters. The Commission recognises that as a result of the size and complexity of the data needed to be collected and processed for MiFID II to become operational, in particular for transaction reporting, transparency calculations and reporting of positions in commodity derivatives, neither stakeholders, such as trading platforms, nor NCAs nor ESMA are in a position to ensure that the necessary data collection infrastructures would be in place and become operational by 3 January 2017. Therefore, on 2 October 2015 ESMA informed the Commission that a delay in the technical implementation of MiFID II was unavoidable. 1.3. The scope of the proposal The absence of data has ramifications across multiple areas of MIFID II. As regards market regulation, it is clear that without the foundation of reference data (instrument ID) and the additional data infrastructures for transparency calculations and position reporting in place, it will not be possible to apply the majority of the market rules. In particular:  Transaction reporting : without reference data, there will be challenges to determine what instruments are within the scope. In addition, the necessary infrastructure for market participants to report to their competent authorities will not be available.  Transparency framework : the trade transparency rules for all financial instruments (equity as well as non-equity) cannot be established and applied. In addition, the calculations and thresholds for the liquidity assessment, waivers, deferred publication and, in the equity area, the double volume cap (which limits dark trading) cannot be established.  Commodity derivatives : in the absence of position reporting for commodity derivatives it will be very difficult to enforce position limits on such commodity derivative contracts. With no position reporting, there is a limited ability to effectively detect breaches of positon limits.  Microstructural regulation: many of the requirements in relation to algorithmic trading/high frequency trading are by their nature dependent on data. In particular, the key provisions on tick-size regime and the obligations in relation to market making obligations and schemes are also tailored on there being a liquid market as determined under the transparency framework. The investor protection rules, the conduct of business rules and certain associated organisational requirements under MIFID II will not be directly affected by the lack of data. The important exception is the rules on best execution , where the scope of the disclosure is designed by reference to there being a liquid market and other transparency concepts. For other investor protection rules, aside from issues relating to the definition of financial instruments or the scope of the legislation, data inter-linkages generally do not exist, as these rules directly concern distribution and not trading. It is, therefore, recognised that an alternative approach would be to extend the date of entry into application only for the parts of the legislation directly relating to data collection. However, after a careful analysis of that option, it appears that an extension for the whole package, including investor protection rules, as opposed to a staggered approach is preferable:  It avoids the risk of causing confusion and unnecessary costs that stakeholders would incur through a staggered implementation. Building various infrastructures simultaneously – as opposed to doing so in stages - would make the process more cost effective. For example, it avoids situations, where investment firms, involved in execution of orders, would have to set up organisational requirements/conduct rules in stages, which would be complicated, expensive and costly;  It avoids having to delineate between the areas that can be immediately implemented and those that cannot be, and, therefore, avoids the risk of causing unintended consequences which may not have been foreseen or sufficiently considered; and  It avoids the need for transitional rules, which by themselves would create new issues and divert resources of ESMA, NCAs and stakeholders from building the permanent framework. On the basis of the above considerations, extending the entry into application for the entire MiFID II rulebook is therefore necessary and justified. Changing the date of applicability of MiFID II does however have consequences for the applicability of other legislation, in particular Regulation (EU) 596/2014 ('MAR') and Regulation (EU) 909/2014 ('CSDR'). The market abuse framework will apply to certain definitions and concepts of MiFID II. As MAR is set to enter into application on 3 July 2016, there is already a provision in it, which ensures that before the originally foreseen date of entry into application of MiFID II, concepts and rules of MiFID I will apply. In order to ensure legal certainty for the period between the originally foreseen date of entry into application and the new date of entry into application, it is necessary to clarify in MAR that the concepts and rules as set out in MiFID I should be used until the new date of entry into application of MiFID II. MAR also refers to concepts that will be introduced by MiFID II, such as organised trading facilities ('OTFs'), small and medium-sized enterprises ('SME') growth markets, emission allowances or auctioned products based thereon. MAR sets out that its provisions shall not apply to these concepts until the originally foreseen entry into application of MiFID II. It is therefore also necessary to clarify in MAR that provisions referring to OTFs, SME growth markets, emission allowances or auctioned products based thereon shall not apply until the new date of entry into application of MiFID II. The consequences for the CSDR are twofold. First, there are consequences for the application of the rules on settlement discipline to multilateral trading facilities ('MTFs') applying for registration as SME growth markets in accordance with Directive 2014/65/EU. Specifically, these rules allow MTFs meeting the criteria for an SME growth market under MiFID II to apply a longer extension period for the settlement of transactions whilst their registration as an SME growth market under MiFID II is still ongoing. Second, in order to have a clear and coherent legislative framework for trading and settlement, CSDR relies on many of the definitions and concepts of MiFID II. In order to ensure legal certainty for the period between the previous date of entry into application and the new date of entry into application, it is necessary to clarify that until the new date of entry into application, the rules set out in MiFID I should be used. 1.4. Length of the extension An extension of one year should provide sufficient and reasonable time for ESMA, NCAs and operators to put in place the infrastructure for data collection, reporting and the transparency threshold calculations. There are five steps in the implementation process: (1) business requirements (which in this case are the necessary regulatory technical standards/implementing technical standards), (2) specifications, (3) development (4) testing and (5) deployment. ESMA estimates that it should complete these steps in relation to the reference data, transparency calculations and position reporting systems by January 2018. This assumes that there is sufficient legal clarity on the final requirements under the relevant regulatory technical standards by mid-2016. On this basis, the draft proposal therefore extends the entry into application of the whole framework until 3 January 2018 by one year. The extension of entry into application of Regulation (EU) No 600/2014 should not impact adoption of delegated acts and technical standards under Regulation (EU) No 600/2014. The Commission should adopt these measures in accordance with the procedure envisaged in order to allow the industry to set up and adjust internal systems to ensure compliance with new requirements on the date of entry into application of Regulation (EU) No 600/2014 .
Revised version (Article 12 Market manipulation):
1. For the purposes of this Regulation, market manipulation shall comprise the following activities: (a) entering into a transaction, placing an order to trade or any other behaviour which: (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances; or (ii) secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level; unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with Article 13; (a) entering into a transaction, placing an order to trade or any other behaviour which: (i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances; or (ii) secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level; unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with Article 13; (b) entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances, which employs a fictitious device or any other form of deception or contrivance; (c) disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances or secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level, including the dissemination of rumours, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading; (d) transmitting false or misleading information or providing false or misleading inputs in relation to a benchmark where the person who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark. 2. The following behaviour shall, inter alia, be considered as market manipulation: (a) the conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply of or demand for a financial instrument, related spot commodity contracts or auctioned products based on emission allowances which has, or is likely to have, the effect of fixing, directly or indirectly, purchase or sale prices or creates, or is likely to create, other unfair trading conditions; (b) the buying or selling of financial instruments, at the opening or closing of the market, which has or is likely to have the effect of misleading investors acting on the basis of the prices displayed, including the opening or closing prices; (c) the placing of orders to a trading venue, including any cancellation or modification thereof, by any available means of trading, including by electronic means, such as algorithmic and high-frequency trading strategies, and which has one of the effects referred to in paragraph 1(a) or (b), by: (i) disrupting or delaying the functioning of the trading system of the trading venue or being likely to do so; (ii) making it more difficult for other persons to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; or (iii) creating or being likely to create a false or misleading signal about the supply of, or demand for, or price of, a financial instrument, in particular by entering orders to initiate or exacerbate a trend; (c) the placing of orders to a trading venue, including any cancellation or modification thereof, by any available means of trading, including by electronic means, such as algorithmic and high-frequency trading strategies, and which has one of the effects referred to in paragraph 1(a) or (b), by: (i) disrupting or delaying the functioning of the trading system of the trading venue or being likely to do so; (ii) making it more difficult for other persons to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; or (iii) creating or being likely to create a false or misleading signal about the supply of, or demand for, or price of, a financial instrument, in particular by entering orders to initiate or exacerbate a trend; (d) the taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a financial instrument, related spot commodity contract or an auctioned product based on emission allowances (or indirectly about its issuer) while having previously taken positions on that financial instrument, a related spot commodity contract or an auctioned product based on emission allowances and profiting subsequently from the impact of the opinions voiced on the price of that instrument, related spot commodity contract or an auctioned product based on emission allowances, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way; (e) the buying or selling on the secondary market of emission allowances or related derivatives prior to the auction held pursuant to Regulation (EU) No 1031/2010 with the effect of fixing the auction clearing price for the auctioned products at an abnormal or artificial level or misleading bidders bidding in the auctions. 3. For the purposes of applying paragraph 1(a) and (b), and without prejudice to the forms of behaviour set out in paragraph 2, Annex I defines non-exhaustive indicators relating to the employment of a fictitious device or any other form of deception or contrivance, and non-exhaustive indicators related to false or misleading signals and to price securing. 4. Where the person referred to in this Article is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out activities for the account of the legal person concerned. 5. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 specifying the indicators laid down in Annex I, in order to clarify their elements and to take into account technical developments on financial markets.
Article 13 Accepted market practices
1. The prohibition in Article 15 shall not apply to the activities referred to in Article 12(1)(a), provided that the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with this Article. 2. A competent authority may establish an accepted market practice, taking into account the following criteria: (a) whether the market practice provides for a substantial level of transparency to the market; (b) whether the market practice ensures a high degree of safeguards to the operation of market forces and the proper interplay of the forces of supply and demand; (c) whether the market practice has a positive impact on market liquidity and efficiency; (d) whether the market practice takes into account the trading mechanism of the relevant market and enables market participants to react properly and in a timely manner to the new market situation created by that practice; (e) whether the market practice does not create risks for the integrity of, directly or indirectly, related markets, whether regulated or not, in the relevant financial instrument within the Union; (f) the outcome of any investigation of the relevant market practice by any competent authority or by another authority, in particular whether the relevant market practice infringed rules or regulations designed to prevent market abuse, or codes of conduct, irrespective of whether it concerns the relevant market or directly or indirectly related markets within the Union; and (g) the structural characteristics of the relevant market, inter alia, whether it is regulated or not, the types of financial instruments traded and the type of market participants, including the extent of retail-investor participation in the relevant market. A market practice that has been established by a competent authority as an accepted market practice in a particular market shall not be considered to be applicable to other markets unless the competent authorities of those other markets have accepted that practice pursuant to this Article. 3. Before establishing an accepted market practice in accordance with paragraph 2, the competent authority shall notify ESMA and the other competent authorities of its intention to establish an accepted market practice and shall provide the details of that assessment made in accordance with the criteria laid down in paragraph 2. Such a notification shall be made at least three months before the accepted market practice is intended to take effect. 4. Within two months following receipt of the notification, ESMA shall issue an opinion to the notifying competent authority assessing the compatibility of the accepted market practice with paragraph 2 and with the regulatory technical standards adopted pursuant to paragraph 7. ESMA shall also assess whether the establishment of the accepted market practice would not threaten the market confidence in the Union’s financial market. The opinion shall be published on ESMA’s website. 5. Where a competent authority establishes an accepted market practice contrary to the opinion of ESMA issued in accordance with paragraph 4, it shall publish on its website within 24 hours of establishing the accepted market practice a notice setting out in full its reasons for doing so, including why the accepted market practice does not threaten market confidence. 6. Where a competent authority considers that another competent authority has established an accepted market practice that does not meet the criteria set out in paragraph 2, ESMA shall assist the authorities concerned in reaching an agreement in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. If the competent authorities concerned fail to reach an agreement, ESMA may take a decision in accordance with Article 19(3) of Regulation (EU) No 1095/2010. 7. In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards specifying the criteria, the procedure and the requirements for establishing an accepted market practice under paragraphs 2, 3 and 4, and the requirements for maintaining it, terminating it, or modifying the conditions for its acceptance. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 8. Competent authorities shall review regularly, and at least every two years, the accepted market practices that they have established, in particular by taking into account significant changes to the relevant market environment, such as changes to trading rules or to market infrastructures, with a view to deciding whether to maintain it, to terminate it, or to modify the conditions for its acceptance. 9. ESMA shall publish on its website a list of accepted market practices and in which Member States they are applicable. 10. ESMA shall monitor the application of accepted market practices and shall submit an annual report to the Commission on how they are applied in the markets concerned. 11. Competent authorities shall notify accepted market practices that they have established before 2 July 2014 to ESMA within three months of the entry into force of the regulatory technical standards referred to in paragraph 7. The accepted market practices referred to in the first subparagraph of this paragraph shall continue to apply in the Member State concerned until the competent authority has made a decision regarding the continuation of that practice following ESMA’s opinion under paragraph 4.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Political context This proposal is part of the Listing Act package, a set of measures to make public markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the Capital Markets Union (CMU) core aim to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. L isted companies , including recently listed ones, often outpace privately owned companies in terms of annual revenue growth and job creation 1 . By listing on public markets, companies can diversify their investor base, reduce their dependency on bank financing, gain easier and cheaper access to additional equity capital and debt finance (through secondary offers), raise their public profile and increase brand recognition . Since the publication of the first CMU Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular SMEs, to access public markets. In January 2018, the Directive 2014/65/EU of the European Parliament and of the Council ( the Markets in Financial Instruments Directive, or ‘ MiFID II ’ ) 2 introduced a new category of Multilateral Trading Facilities (MTFs), the SME growth markets , 3 to incenti vise SMEs access to capital markets. In 2019, new EU rules were put forward by Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) to cut red tape and reduce regulatory burden for companies listing on SME growth markets while preserving a high level of investor protection and market integrity . Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers. The new CMU Action Plan adopted in September 2020 announced that ‘ in order to promote and diversify small and innovative companies’ access to funding, the Commission will seek to simplify the listing rules for public markets ’ . Following up on this and building on the 2019 SME Listing Act, the Commission set up a Technical Expert Stakeholder Group (TESG) on SMEs which confirmed stakeholders’ concerns that further legislative action is needed to support listing of companies and especially of SMEs. In its final report of May 2021 5 , the TESG made 12 recommendations to amend the listing framework both on regulated markets, as well as on SME growth markets . On 15 September 2021 , President Von der Leyen announced in her letter of intent 6 addressed to the Parliament and the Presidency of the Council a legislative proposal to facilitate SMEs’ access to capital, which has been included in the 2022 Commission work programme 7 . A company’s decision to list is a complex one and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by a legislative intervention. For instance, the features of the ecosystem that determine the cost of listing services, and more broadly geopolitical instability, Brexit, Covid-19, and inflation, have all had (and will continue to have) an impact on the decision to list, on the timing of listing, and on whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also an important factor in a company’s decision to list and remain listed. The Listing Act package represents a targeted set of measures aiming to reduce the regulatory burden where it is considered to be excessive (i.e., where regulation could ensure investor protection/market integrity in a more cost efficient manner for stakeholders) and to increase the flexibility accorded under company law to a company’s founder(s) or controlling shareholder(s) to choose how to distribute voting rights after the admission to trading of shares. The regulatory framework applying to the listing process is multifaceted. Companies must comply with regulatory requirements before, during and after the i nitial p ublic o ffering (IPO). This proposal focuses specifically on the regulatory burden that emerges at two moments: the IPO stage and the post-IPO stage. It addresses regulatory burden at the IPO stage by introducing targeted amendments to Regulation (EU) 2017/1129 of the European Parliament and of the Council 8 (the Prospectus Regulation ) and it addresses regulatory burden at the post-IPO stage by introducing targeted amendments to Regulation No 596/2014 of the European Parliament and of the Council 9 ( the Market Abuse Regulation or ‘ MAR ’ ). It also contains limited technical amendments to Regulation No 600/2014 of the European Parliament and of the Council ( the Markets in Financial Instruments Regulation or ‘ MiFIR ’ ) 10 . The proposed regulation is accompanied by two other legislative proposals: · a proposal for a d irective amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 ( the Listing Directive), which aims to both (i) streamline and clarify listing requirements and (ii) to increase the low level of investment research on SMEs; · a proposal for a new d irective on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choos ing the appropriate governance structures when they list . Reasons for the proposal When making a decision on whether or not to list, companies weigh expected benefits against the costs. If costs prevail, or if alternative sources of financing offer a less costly and easier option, companies will not seek access to public markets. Feedback from the market indicates that the initial and ongoing costs of becoming a public company have risen considerably in recent decades, both in absolute terms and relative to private equity funding, in particular for SMEs. The regulatory environment impacts all stages of the listing process and is among the driving forces of the high costs of listing and staying listed. Companies are required to comply with several disclosure and reporting requirements under EU law, especially the Prospectus Regulation and MAR. The aim of the Prospectus Regulation is to enhanc e the internal market for capital by ensur ing investor protection and market efficiency while helping companies, including SMEs, access different forms of finance in the EU 12 . The Prospectus Regulation lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market . A prospectus is a document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company. The Prospectus Regulation does not apply under certain circumstances, such as for non-equity securities issued by certain sovereign or supranational entities, or for offers of securities to the public with a total consideration in the Union below EUR 1 million over a period of 12 months. It also includes several exemptions from the obligation to publish a prospectus for offers of securities to the public or admission to trading on a regulated market. In particular, Member States may exempt from the obligation to publish a prospectus offers of securities to the public of up to EUR 8 million over a period of 12 months, provided that they do not require notification (a ‘passport’). For offers below EUR 1 million or the relevant threshold set at national level, Member States may require national disclosure documents, provided that they do not constitute a disproportionate or unnecessary burden. Hence, issuers willing to offer securities cross-border need to comply with the threshold and disclosure requirements set out by the concerned Member States, unless those issuers draw up a prospectus on a voluntary basis in order to benefit from the EU single passport. Under the CMU Action Plan, progress has already been made to make it easier and cheaper for co mpanies, in particular smaller ones, to draw-up a prospectus. The Prospectus Regulation introduced the EU Growth prospectus – an alleviated form of a standard prospectus - for SMEs listed on SME growth markets. It aimed to reduce the costs of preparing a prospectus by smaller issuers, while providing investors with material information to assess the offer and take an informed investment decision. The Prospectus Regulation also introduced a simplified prospectus for companies whose securities are admitted to trading continuously and for at least the last 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt ( follow-on or secondary issuance s ). Issuers whose securities are admitted to trading on an SME growth market can also use this simplified prospectus to transfer subsequently to regulated markets. Finally, Regulation (EU) 2021/337 of the European Parliament and of the Council 13 introduced, as part of the Capital Markets Recovery Package (CMRP), a new type of short-form prospectus (the “EU Recovery prospectus”) . The EU Recovery prospectus is available to issuers that have shares already admitted to trading o n a regulated market or an SME g rowth market continuously for at least the last 18 months and that issue additional shares to overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. Th e EU Recovery prospectus regime will however expire on 31 December 2022. Despite the alleviations introduced, feedback from stakeholders indicated that the requirement to produce a prospectus remains overly burdensome. This refers to both instances where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on of equity or non-equity securities. The current rules in particular contribute to overly lengthy prospectuses. For example, in some cases, the Prospectus Regulation requires information that may not be indispensable for investors to make an informed investment decision (i.e., not justified from the investor protection point of view). Feedback to the public consultation (echoed during the stakeholders’ meetings) confirmed the view that neither the standard prospectus nor the EU Growth prospectus strikes an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, especially SMEs. In other cases, a prospectus is required when a lot of information is already available in the public domain (in particular, in the case of follow-on issuances). The excessive length of the prospectus can also discourage some, in particular smaller, investors from consulting it and translate into a higher cost of investing for larger investors. It also requires a longer period of time for the national competent authority (NCA) to scrutinise and approve the prospectus. The current rules also contribute to very divergent prospectuses across the EU. D ata reported by Oxera 14 and by the European Securities and Markets Authorities ( ES MA ) 15 shows a large discrepancy between Member States regarding the l ength of prospectuses, which is indicative of a lack of uniformity of prospectuses in the EU . This discrepancy stems also from the fact that the current rules do not sufficiently frame supervisory scrutiny by NCAs. Feedback from stakeholders highlighted that the EU regulatory framework places overly burdensome requirements also on already listed issuers, in particular under MAR. Since its entry into application on 1 July 2016, MAR has been extended to MTFs, including SME growth markets. MAR aims to increase market integrity and investor confidence. It prohibits from: (i) engaging or attempting to engage in insider dealing 16 ; (ii) recommending that another person engages in insider dealing or induces another person to engage in insider dealing; (iii) unlawfully disclosing inside information 17 ; or (iv) engaging in or attempting to engage in market manipulation. Issuers are also subject to several disclosure and record-keeping obligations under MAR. In particular, issuers are under a general obligation to disclose all inside information to the public as soon as possible 18 . Feedback from stakeholders indicated that some aspects of the MAR disclosure regime place a disproportionately high burden on issuers. In particular, stakeholders perceive as burdensome the obligation to disclose as soon as possible all inside information. This is due to the broadness of the notion of inside information (which gives rise to difficulties for issuers when delineating between what is and what is not inside information), as well as to the fact that the same notion applies both for the purpose of the prohibition of insider dealing and for the purpose of disclosure. While the broadness of the notion of inside information allows to cater for a wide and very early prohibition of insider dealing, it also implies that issuers are required to disclose information at a very early stage, when information on circumstances or events have not yet reached a high degree of certainty. The notion of inside information covers not only events that have already occurred but also events which are “reasonably expected to occur” (i.e., for which there is a realistic prospect to occur) and, in the context of protracted processes (such as a merger), the intermediate steps which are connected with bringing about a future event. As a consequence, issuers incur high compliance costs to understand which steps of a protracted process may constitute inside information and when a certain piece of information is mature enough to be disclosed. At the same time, the effectiveness of disclosure in reducing information asymmetries between issuers and investors is limited if information is too preliminary, incomplete and still potentially subject to fundamental changes. Too early disclosure of information could mislead investors and trigger action on his/her part that could prove to be suboptimal in hindsight (e.g., divesting the stock too soon or not divesting soon enough), thus increasing the opportunity cost for investors. Furthermore, issuers face a lack of legal clarity around the conditions that need to be met to delay disclosure when immediate disclosure would be likely to prejudice the legitimate interests of the issuers (e.g., by jeopardising the successful conclusion of ongoing negotiations). A few additional reporting and disclosure requirements under MAR place a disproportionately high burden on issuers, such as the provisions on managers’ transactions, insider lists, and market sounding. Current MAR rules also create a disproportionate sanctioning regime for disclosure-related infringements, in particular for SMEs, which may potentially be sanctioned at the same level as large companies. Objectives of the proposal The overall objective of this initiative is to introduce technical adjustments to the EU rulebook in order to reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. This, in turn, is expected to help diversify funding sources for companies in the EU and increase investments, economic growth, job creation and innovation in the EU. The proposed targeted amendments to the Prospectus Regulation aim in particular to make it easier and cheaper for issuers to draw up a prospectus, while enabling investors to make the right investment decision by providing comprehensible, easy to analyse and concise information. They also seek to introduce sizable simplifications to, or even exemptions from, the prospectus requirements in cases where the issuer is already known to investors and a lot of information is already publicly available (follow-on issuances). These amendments are accompanied by amendments aimed at fostering the convergence of and streamlining the scrutiny and approval process by NCAs (for example, by narrowly frame the ability of NCAs to request issuers to include additional information in the prospectus). In the case of an offer of securities to the public or the admission to trading on a regulated market, the proposal streamlines and further standardises the standard prospectus (referring to a non-alleviated prospectus type, irrespective of whether it relates to equity or non-equity securities, or whether is drawn up as a single document or consists of separate documents). The proposal aligns the level of disclosure of the standard prospectus to the level of disclosure currently required under the EU Growth prospectus regime, introduces a fixed order of disclosure and makes incorporation by reference a legal requirement. The proposal also introduces the possibility for issuers to draw up the prospectus in English only as the language customary in the sphere of international finance (except for the summary which in practice is the only document that most retail investors consult), and to publish it in an electronic format only (i.e., no paper copies on request). At the same time, only for shares or other transferable securities equivalent to shares in companies, a limit number of pages (300 pages) is introduced to avoid overly lengthy prospectuses for companies that do not have a complex financial history. Jointly, these amendments seek to provide a tangible cost and burden reduction for issuers, while ensuring that investors can take advantage of a document that is easier to read and navigate and more easily compare financial instruments and issuers. The proposal also seeks to make it easier for SMEs to raise funds on public markets, in particular on SME growth markets, by generating further cost savings for SMEs and better tailoring disclosure to the needs of investors. For companies offering securities to the public and listing on SME growth markets (as well as for offers of securities to the public by smaller companies), the EU Growth prospectus is replaced by a mandatory new short-form EU Growth issuance document. This document builds on the level of disclosure currently required under the EU Recovery prospectus regime and existing admission documents required by SME growth markets (where the obligation to publish a prospectus does not apply), follows a fixed order of disclosure and is subject, in the case of shares and other equivalent transferable securities, to a page limit. While the proposal exempts, under certain conditions, from the prospectus requirement offers of securities fungible with securities already admitted to trading (for which the publication of a summary document will suffice), it subjects follow-on issuances of non-fungible securities to the approval and publication of a new mandatory short-form EU Follow-on prospectus, largely building on the current EU Recovery prospectus regime. These amendments seek to ensure that companies can fully benefit from the advantages of accessing public capital markets, including easier and quicker access to additional equity capital and debt finance through follow-on offers. At the same time, they safeguard investor protection as these companies are already subject to periodic and ongoing disclosure and reporting requirements and, in addition, issuers will be required to publish the most relevant information for investors. Finally, the amendments to the Prospectus Regulation aim to foster cross-border offers by harmonising and increasing to EUR 12 million the threshold for exempting small offers of securities to the public from the obligation to publish a prospectus. This amendment also seeks to benefit smaller issuers, including SMEs, as in certain cases they will no longer have to produce a prospectus, lowering substantially their regulatory costs and incentivising them to access public capital markets. The proposal also introduces amendments to the rules on equivalence for third countries prospectuses to make them workable. The proposed targeted amendments to MAR aim to reduce legal uncertainty on what constitutes inside information for the purpose of disclosure as well as on the timing of disclosure. While the proposal maintains the current broad notion of inside information for the purposes of the insider dealing regulation, it narrows down the scope of the disclosure obligation. The proposal clarifies in particular that the obligation to disclose all inside information to the public does not cover the information relating to the intermediate steps of a protracted process, as this information is too preliminary and hence not mature enough for disclosure. At the same time, the proposal introduces an empowerment for the Commission to establish, by way of a delegated act a non-exhaustive list of the relevant information as well as, for each information, an indication of the timing when issuers are expected to disclose it. Jointly, these amendments seek to make the MAR disclosure regime less costly to comply with by issuers, more predictable from the investors’ point of view and more conducive to effective price formation. The amendments to the disclosure obligation are accompanied by improvements to the regime for the exchange of information among NCAs to enable them to better identify cases of market manipulation by setting up a cross market order book surveillance (CMOBS) mechanism , 19 thus increasing the integrity of EU markets and enhancing their appeal for investors. In the same vein, the proposal introduces a possibility for ESMA to establish collaboration platforms, in particular for the purpose of monitoring wholesale commodity markets, to address concerns about market integrity and the good functioning of financial and, in particular, spot markets . Finally, the proposal seeks to make the sanctioning regime for MAR disclosure-related infringements more proportionate for SMEs to avoid discouraging smaller issuers from listing or remaining listed. The proposal also aims at alleviating the regulatory hurdles resulting from the application of the managers’ transactions, insider list and market sounding regimes while ensuring that these alleviations do not impair investor protection and market integrity. The creation of a CMOBS mechanism requires also targeted amendments to the MiFIR framework to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision, and to confer to ESMA the role to harmonise the format of the template used to store such data. The proposed targeted amendments aim to build the necessary conditions for structural improvements in EU public capital markets to occur over time. A more favourable regulatory regime would encourage the development of a more favourable ecosystem, contributing in a multi-faceted manner to the CMU objective of improving access to financing by companies. Furthermore, this proposal should be analysed in conjunction with other proposed and upcoming initiatives. The proposed amendments are part of a broader package of measures outlined in the CMU Action Plan, which aim to address other issues currently preventing companies from raising capital on public markets.
Revised version (Article 13 Accepted market practices):
1. The prohibition in Article 15 shall not apply to the activities referred to in Article 12(1)(a), provided that the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with this Article. A market practice that has been established by a competent authority as an accepted market practice in a particular market shall not be considered to be applicable to other markets unless the competent authorities of those other markets have accepted that practice pursuant to this Article. 3. Before establishing an accepted market practice in accordance with paragraph 2, the competent authority shall notify ESMA and the other competent authorities of its intention to establish an accepted market practice and shall provide the details of that assessment made in accordance with the criteria laid down in paragraph 2. Such a notification shall be made at least three months before the accepted market practice is intended to take effect. 4. Within two months following receipt of the notification, ESMA shall issue an opinion to the notifying competent authority assessing the compatibility of the accepted market practice with paragraph 2 and with the regulatory technical standards adopted pursuant to paragraph 7. ESMA shall also assess whether the establishment of the accepted market practice would not threaten the market confidence in the Union’s financial market. The opinion shall be published on ESMA’s website. 5. Where a competent authority establishes an accepted market practice contrary to the opinion of ESMA issued in accordance with paragraph 4, it shall publish on its website within 24 hours of establishing the accepted market practice a notice setting out in full its reasons for doing so, including why the accepted market practice does not threaten market confidence. 6. Where a competent authority considers that another competent authority has established an accepted market practice that does not meet the criteria set out in paragraph 2, ESMA shall assist the authorities concerned in reaching an agreement in accordance with its powers under Article 19 of Regulation (EU) No 1095/2010. If the competent authorities concerned fail to reach an agreement, ESMA may take a decision in accordance with Article 19(3) of Regulation (EU) No 1095/2010. 7. In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards specifying the criteria, the procedure and the requirements for establishing an accepted market practice under paragraphs 2, 3 and 4, and the requirements for maintaining it, terminating it, or modifying the conditions for its acceptance. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2015. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 8. Competent authorities shall review regularly, and at least every two years, the accepted market practices that they have established, in particular by taking into account significant changes to the relevant market environment, such as changes to trading rules or to market infrastructures, with a view to deciding whether to maintain it, to terminate it, or to modify the conditions for its acceptance. 9. ESMA shall publish on its website a list of accepted market practices and in which Member States they are applicable. 10. ESMA shall monitor the application of accepted market practices and shall submit an annual report to the Commission on how they are applied in the markets concerned. 11. Competent authorities shall notify accepted market practices that they have established before 2 July 2014 to ESMA within three months of the entry into force of the regulatory technical standards referred to in paragraph 7. The accepted market practices referred to in the first subparagraph of this paragraph shall continue to apply in the Member State concerned until the competent authority has made a decision regarding the continuation of that practice following ESMA’s opinion under paragraph 4. 13. ESMA shall develop draft regulatory technical standards to draw up a contractual template to be used for the purposes of entering into a liquidity contract in accordance with paragraph 12, in order to ensure compliance with the criteria set out in paragraph 2, including as regards transparency to the market and performance of the liquidity provision. ESMA shall submit those draft regulatory technical standards to the Commission by 1 September 2020. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 14 Prohibition of insider dealing and of unlawful disclosure of inside information
A person shall not: (a) engage or attempt to engage in insider dealing; (b) recommend that another person engage in insider dealing or induce another person to engage in insider dealing; or (c) unlawfully disclose inside information.
Article 15 Prohibition of market manipulation
A person shall not engage in or attempt to engage in market manipulation.
Article 16 Prevention and detection of market abuse
1. Market operators and investment firms that operate a trading venue shall establish and maintain effective arrangements, systems and procedures aimed at preventing and detecting insider dealing, market manipulation and attempted insider dealing and market manipulation, in accordance with Articles 31 and 54 of Directive 2014/65/EU. A person referred to in the first subparagraph shall report orders and transactions, including any cancellation or modification thereof, that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation to the competent authority of the trading venue without delay. 2. Any person professionally arranging or executing transactions shall establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. Where such a person has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation, the person shall notify the competent authority as referred to in paragraph 3 without delay. 3. Without prejudice to Article 22, persons professionally arranging or executing transactions shall be subject to the rules of notification of the Member State in which they are registered or have their head office, or, in the case of a branch, the Member State where the branch is situated. The notification shall be addressed to the competent authority of that Member State. 4. The competent authorities as referred to in paragraph 3 receiving the notification of suspicious orders and transactions shall transmit such information immediately to the competent authorities of the trading venues concerned. 5. In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards to determine: (a) appropriate arrangements, systems and procedures for persons to comply with the requirements established in paragraphs 1 and 2; and (b) the notification templates to be used by persons to comply with the requirements established in paragraphs 1 and 2. ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2016. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 17 Public disclosure of inside information
1. An issuer shall inform the public as soon as possible of inside information which directly concerns that issuer. The issuer shall ensure that the inside information is made public in a manner which enables fast access and complete, correct and timely assessment of the information by the public and, where applicable, in the officially appointed mechanism referred to in Article 21 of Directive 2004/109/EC of the European Parliament and the Council ( 24 ) . The issuer shall not combine the disclosure of inside information to the public with the marketing of its activities. The issuer shall post and maintain on its website for a period of at least five years, all inside information it is required to disclose publicly. This Article shall apply to issuers who have requested or approved admission of their financial instruments to trading on a regulated market in a Member State or, in the case of instruments only traded on an MTF or on an OTF, issuers who have approved trading of their financial instruments on an MTF or an OTF or have requested admission to trading of their financial instruments on an MTF in a Member State. 2. An emission allowance market participant shall publicly, effectively and in a timely manner disclose inside information concerning emission allowances which it holds in respect of its business, including aviation activities as specified in Annex I to Directive 2003/87/EC or installations within the meaning of Article 3(e) of that Directive which the participant concerned, or its parent undertaking or related undertaking, owns or controls or for the operational matters of which the participant, or its parent undertaking or related undertaking, is responsible, in whole or in part. With regard to installations, such disclosure shall include information relevant to the capacity and utilisation of installations, including planned or unplanned unavailability of such installations. The first subparagraph shall not apply to a participant in the emission allowance market where the installations or aviation activities that it owns, controls or is responsible for, in the preceding year have had emissions not exceeding a minimum threshold of carbon dioxide equivalent and, where they carry out combustion activities, have had a rated thermal input not exceeding a minimum threshold. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 establishing a minimum threshold of carbon dioxide equivalent and a minimum threshold of rated thermal input for the purposes of the application of the exemption provided for in the second subparagraph of this paragraph. 3. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 specifying the competent authority for the notifications of paragraphs 4 and 5 of this Article. 4. An issuer or an emission allowance market participant, may, on its own responsibility, delay disclosure to the public of inside information provided that all of the following conditions are met: (a) immediate disclosure is likely to prejudice the legitimate interests of the issuer or emission allowance market participant; (b) delay of disclosure is not likely to mislead the public; (c) the issuer or emission allowance market participant is able to ensure the confidentiality of that information. In the case of a protracted process that occurs in stages and that is intended to bring about, or that results in, a particular circumstance or a particular event, an issuer or an emission allowance market participant may on its own responsibility delay the public disclosure of inside information relating to this process, subject to points (a), (b) and (c) of the first subparagraph. Where an issuer or emission allowance market participant has delayed the disclosure of inside information under this paragraph, it shall inform the competent authority specified under paragraph 3 that disclosure of the information was delayed and shall provide a written explanation of how the conditions set out in this paragraph were met, immediately after the information is disclosed to the public. Alternatively, Member States may provide that a record of such an explanation is to be provided only upon the request of the competent authority specified under paragraph 3. 5. In order to preserve the stability of the financial system, an issuer that is a credit institution or a financial institution, may, on its own responsibility, delay the public disclosure of inside information, including information which is related to a temporary liquidity problem and, in particular, the need to receive temporary liquidity assistance from a central bank or lender of last resort, provided that all of the following conditions are met: (a) the disclosure of the inside information entails a risk of undermining the financial stability of the issuer and of the financial system; (b) it is in the public interest to delay the disclosure; (c) the confidentiality of that information can be ensured; and (d) the competent authority specified under paragraph 3 has consented to the delay on the basis that the conditions in points (a), (b) and (c) are met. 6. For the purposes of points (a) to (d) of paragraph 5, an issuer shall notify the competent authority specified under paragraph 3 of its intention to delay the disclosure of the inside information and provide evidence that the conditions set out in points (a), (b) and (c) of paragraph 5 are met. The competent authority specified under paragraph 3 shall consult, as appropriate, the national central bank or the macro-prudential authority, where instituted, or, alternatively, the following authorities: (a) where the issuer is a credit institution or an investment firm the authority designated in accordance with Article 133(1) of Directive 2013/36/EU of the European Parliament and of the Council ( 25 ) ; (b) in cases other than those referred to in point (a), any other national authority responsible for the supervision of the issuer. The competent authority specified under paragraph 3 shall ensure that disclosure of the inside information is delayed only for a period as is necessary in the public interest. The competent authority specified under paragraph 3 shall evaluate at least on a weekly basis whether the conditions set out in points (a), (b) and (c) of paragraph 5 are still met. If the competent authority specified under paragraph 3 does not consent to the delay of disclosure of the inside information, the issuer shall disclose the inside information immediately. This paragraph shall apply to cases where the issuer does not decide to delay the disclosure of inside information in accordance with paragraph 4. Reference in this paragraph to the competent authority specified under paragraph 3 is without prejudice to the ability of the competent authority to exercise its functions in any of the ways referred to in Article 23(1). 7. Where disclosure of inside information has been delayed in accordance with paragraph 4 or 5 and the confidentiality of that inside information is no longer ensured, the issuer or the emission allowance market participant shall disclose that inside information to the public as soon as possible. This paragraph includes situations where a rumour explicitly relates to inside information the disclosure of which has been delayed in accordance with paragraph 4 or 5, where that rumour is sufficiently accurate to indicate that the confidentiality of that information is no longer ensured. 8. Where an issuer or an emission allowance market participant, or a person acting on their behalf or for their account, discloses any inside information to any third party in the normal course of the exercise of an employment, profession or duties as referred to in Article 10(1), they must make complete and effective public disclosure of that information, simultaneously in the case of an intentional disclosure, and promptly in the case of a non-intentional disclosure. This paragraph shall not apply if the person receiving the information owes a duty of confidentiality, regardless of whether such duty is based on a law, on regulations, on articles of association, or on a contract. 9. Inside information relating to issuers whose financial instruments are admitted to trading on an SME growth market, may be posted on the trading venue’s website instead of on the website of the issuer where the trading venue chooses to provide this facility for issuers on that market. 10. In order to ensure uniform conditions of application of this Article, ESMA shall develop draft implementing technical standards to determine: (a) the technical means for appropriate public disclosure of inside information as referred to in paragraphs 1, 2, 8 and 9; and (b) the technical means for delaying the public disclosure of inside information as referred to in paragraphs 4 and 5. ESMA shall submit those draft implementing technical standards to the Commission by 3 July 2016. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010. 11. ESMA shall issue guidelines to establish a non-exhaustive indicative list of the legitimate interests of issuers, as referred to in point (a) of paragraph 4, and of situations in which delay of disclosure of inside information is likely to mislead the public as referred to in point (b) of paragraph 4.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Political context This proposal is part of the Listing Act package, a set of measures to make public markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs). It is in line with the Capital Markets Union (CMU) core aim to improve access to market-based sources of financing for EU companies at each stage of their development, including for smaller companies. L isted companies , including recently listed ones, often outpace privately owned companies in terms of annual revenue growth and job creation 1 . By listing on public markets, companies can diversify their investor base, reduce their dependency on bank financing, gain easier and cheaper access to additional equity capital and debt finance (through secondary offers), raise their public profile and increase brand recognition . Since the publication of the first CMU Action Plan in 2015, progress has been made to make it easier and cheaper for companies, in particular SMEs, to access public markets. In January 2018, the Directive 2014/65/EU of the European Parliament and of the Council ( the Markets in Financial Instruments Directive, or ‘ MiFID II ’ ) 2 introduced a new category of Multilateral Trading Facilities (MTFs), the SME growth markets , 3 to incenti vise SMEs access to capital markets. In 2019, new EU rules were put forward by Regulation (EU) 2019/2115 of the European Parliament and of the Council 4 (SME Listing Act) to cut red tape and reduce regulatory burden for companies listing on SME growth markets while preserving a high level of investor protection and market integrity . Nevertheless, despite this progress, stakeholders argue that further regulatory action is needed to streamline the listing process and make it more flexible for issuers. The new CMU Action Plan adopted in September 2020 announced that ‘ in order to promote and diversify small and innovative companies’ access to funding, the Commission will seek to simplify the listing rules for public markets ’ . Following up on this and building on the 2019 SME Listing Act, the Commission set up a Technical Expert Stakeholder Group (TESG) on SMEs which confirmed stakeholders’ concerns that further legislative action is needed to support listing of companies and especially of SMEs. In its final report of May 2021 5 , the TESG made 12 recommendations to amend the listing framework both on regulated markets, as well as on SME growth markets . On 15 September 2021 , President Von der Leyen announced in her letter of intent 6 addressed to the Parliament and the Presidency of the Council a legislative proposal to facilitate SMEs’ access to capital, which has been included in the 2022 Commission work programme 7 . A company’s decision to list is a complex one and is influenced by a multitude of factors, many of which are outside the reach of regulators and therefore cannot be addressed directly by a legislative intervention. For instance, the features of the ecosystem that determine the cost of listing services, and more broadly geopolitical instability, Brexit, Covid-19, and inflation, have all had (and will continue to have) an impact on the decision to list, on the timing of listing, and on whether to remain listed in the EU. Regulatory requirements and the associated costs and burden, however, are also an important factor in a company’s decision to list and remain listed. The Listing Act package represents a targeted set of measures aiming to reduce the regulatory burden where it is considered to be excessive (i.e., where regulation could ensure investor protection/market integrity in a more cost efficient manner for stakeholders) and to increase the flexibility accorded under company law to a company’s founder(s) or controlling shareholder(s) to choose how to distribute voting rights after the admission to trading of shares. The regulatory framework applying to the listing process is multifaceted. Companies must comply with regulatory requirements before, during and after the i nitial p ublic o ffering (IPO). This proposal focuses specifically on the regulatory burden that emerges at two moments: the IPO stage and the post-IPO stage. It addresses regulatory burden at the IPO stage by introducing targeted amendments to Regulation (EU) 2017/1129 of the European Parliament and of the Council 8 (the Prospectus Regulation ) and it addresses regulatory burden at the post-IPO stage by introducing targeted amendments to Regulation No 596/2014 of the European Parliament and of the Council 9 ( the Market Abuse Regulation or ‘ MAR ’ ). It also contains limited technical amendments to Regulation No 600/2014 of the European Parliament and of the Council ( the Markets in Financial Instruments Regulation or ‘ MiFIR ’ ) 10 . The proposed regulation is accompanied by two other legislative proposals: · a proposal for a d irective amending MiFID II and repealing Directive 2001/34/EC of the European Parliament and of the Council 11 ( the Listing Directive), which aims to both (i) streamline and clarify listing requirements and (ii) to increase the low level of investment research on SMEs; · a proposal for a new d irective on multiple-vote share structures, which aims to address the regulatory barriers that emerge at the pre-IPO phase and, in particular, the unequal opportunities faced by companies across the EU when choos ing the appropriate governance structures when they list . Reasons for the proposal When making a decision on whether or not to list, companies weigh expected benefits against the costs. If costs prevail, or if alternative sources of financing offer a less costly and easier option, companies will not seek access to public markets. Feedback from the market indicates that the initial and ongoing costs of becoming a public company have risen considerably in recent decades, both in absolute terms and relative to private equity funding, in particular for SMEs. The regulatory environment impacts all stages of the listing process and is among the driving forces of the high costs of listing and staying listed. Companies are required to comply with several disclosure and reporting requirements under EU law, especially the Prospectus Regulation and MAR. The aim of the Prospectus Regulation is to enhanc e the internal market for capital by ensur ing investor protection and market efficiency while helping companies, including SMEs, access different forms of finance in the EU 12 . The Prospectus Regulation lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market . A prospectus is a document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company. The Prospectus Regulation does not apply under certain circumstances, such as for non-equity securities issued by certain sovereign or supranational entities, or for offers of securities to the public with a total consideration in the Union below EUR 1 million over a period of 12 months. It also includes several exemptions from the obligation to publish a prospectus for offers of securities to the public or admission to trading on a regulated market. In particular, Member States may exempt from the obligation to publish a prospectus offers of securities to the public of up to EUR 8 million over a period of 12 months, provided that they do not require notification (a ‘passport’). For offers below EUR 1 million or the relevant threshold set at national level, Member States may require national disclosure documents, provided that they do not constitute a disproportionate or unnecessary burden. Hence, issuers willing to offer securities cross-border need to comply with the threshold and disclosure requirements set out by the concerned Member States, unless those issuers draw up a prospectus on a voluntary basis in order to benefit from the EU single passport. Under the CMU Action Plan, progress has already been made to make it easier and cheaper for co mpanies, in particular smaller ones, to draw-up a prospectus. The Prospectus Regulation introduced the EU Growth prospectus – an alleviated form of a standard prospectus - for SMEs listed on SME growth markets. It aimed to reduce the costs of preparing a prospectus by smaller issuers, while providing investors with material information to assess the offer and take an informed investment decision. The Prospectus Regulation also introduced a simplified prospectus for companies whose securities are admitted to trading continuously and for at least the last 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt ( follow-on or secondary issuance s ). Issuers whose securities are admitted to trading on an SME growth market can also use this simplified prospectus to transfer subsequently to regulated markets. Finally, Regulation (EU) 2021/337 of the European Parliament and of the Council 13 introduced, as part of the Capital Markets Recovery Package (CMRP), a new type of short-form prospectus (the “EU Recovery prospectus”) . The EU Recovery prospectus is available to issuers that have shares already admitted to trading o n a regulated market or an SME g rowth market continuously for at least the last 18 months and that issue additional shares to overcome the negative impact of the COVID-19 crisis and contain excessive indebtedness. Th e EU Recovery prospectus regime will however expire on 31 December 2022. Despite the alleviations introduced, feedback from stakeholders indicated that the requirement to produce a prospectus remains overly burdensome. This refers to both instances where companies seek access to public markets for the first time (IPO) and where they access public markets for follow-on of equity or non-equity securities. The current rules in particular contribute to overly lengthy prospectuses. For example, in some cases, the Prospectus Regulation requires information that may not be indispensable for investors to make an informed investment decision (i.e., not justified from the investor protection point of view). Feedback to the public consultation (echoed during the stakeholders’ meetings) confirmed the view that neither the standard prospectus nor the EU Growth prospectus strikes an appropriate balance between effective investor protection and the proportionate administrative burden for issuers, especially SMEs. In other cases, a prospectus is required when a lot of information is already available in the public domain (in particular, in the case of follow-on issuances). The excessive length of the prospectus can also discourage some, in particular smaller, investors from consulting it and translate into a higher cost of investing for larger investors. It also requires a longer period of time for the national competent authority (NCA) to scrutinise and approve the prospectus. The current rules also contribute to very divergent prospectuses across the EU. D ata reported by Oxera 14 and by the European Securities and Markets Authorities ( ES MA ) 15 shows a large discrepancy between Member States regarding the l ength of prospectuses, which is indicative of a lack of uniformity of prospectuses in the EU . This discrepancy stems also from the fact that the current rules do not sufficiently frame supervisory scrutiny by NCAs. Feedback from stakeholders highlighted that the EU regulatory framework places overly burdensome requirements also on already listed issuers, in particular under MAR. Since its entry into application on 1 July 2016, MAR has been extended to MTFs, including SME growth markets. MAR aims to increase market integrity and investor confidence. It prohibits from: (i) engaging or attempting to engage in insider dealing 16 ; (ii) recommending that another person engages in insider dealing or induces another person to engage in insider dealing; (iii) unlawfully disclosing inside information 17 ; or (iv) engaging in or attempting to engage in market manipulation. Issuers are also subject to several disclosure and record-keeping obligations under MAR. In particular, issuers are under a general obligation to disclose all inside information to the public as soon as possible 18 . Feedback from stakeholders indicated that some aspects of the MAR disclosure regime place a disproportionately high burden on issuers. In particular, stakeholders perceive as burdensome the obligation to disclose as soon as possible all inside information. This is due to the broadness of the notion of inside information (which gives rise to difficulties for issuers when delineating between what is and what is not inside information), as well as to the fact that the same notion applies both for the purpose of the prohibition of insider dealing and for the purpose of disclosure. While the broadness of the notion of inside information allows to cater for a wide and very early prohibition of insider dealing, it also implies that issuers are required to disclose information at a very early stage, when information on circumstances or events have not yet reached a high degree of certainty. The notion of inside information covers not only events that have already occurred but also events which are “reasonably expected to occur” (i.e., for which there is a realistic prospect to occur) and, in the context of protracted processes (such as a merger), the intermediate steps which are connected with bringing about a future event. As a consequence, issuers incur high compliance costs to understand which steps of a protracted process may constitute inside information and when a certain piece of information is mature enough to be disclosed. At the same time, the effectiveness of disclosure in reducing information asymmetries between issuers and investors is limited if information is too preliminary, incomplete and still potentially subject to fundamental changes. Too early disclosure of information could mislead investors and trigger action on his/her part that could prove to be suboptimal in hindsight (e.g., divesting the stock too soon or not divesting soon enough), thus increasing the opportunity cost for investors. Furthermore, issuers face a lack of legal clarity around the conditions that need to be met to delay disclosure when immediate disclosure would be likely to prejudice the legitimate interests of the issuers (e.g., by jeopardising the successful conclusion of ongoing negotiations). A few additional reporting and disclosure requirements under MAR place a disproportionately high burden on issuers, such as the provisions on managers’ transactions, insider lists, and market sounding. Current MAR rules also create a disproportionate sanctioning regime for disclosure-related infringements, in particular for SMEs, which may potentially be sanctioned at the same level as large companies. Objectives of the proposal The overall objective of this initiative is to introduce technical adjustments to the EU rulebook in order to reduce regulatory and compliance costs for companies seeking to list or already listed with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. This, in turn, is expected to help diversify funding sources for companies in the EU and increase investments, economic growth, job creation and innovation in the EU. The proposed targeted amendments to the Prospectus Regulation aim in particular to make it easier and cheaper for issuers to draw up a prospectus, while enabling investors to make the right investment decision by providing comprehensible, easy to analyse and concise information. They also seek to introduce sizable simplifications to, or even exemptions from, the prospectus requirements in cases where the issuer is already known to investors and a lot of information is already publicly available (follow-on issuances). These amendments are accompanied by amendments aimed at fostering the convergence of and streamlining the scrutiny and approval process by NCAs (for example, by narrowly frame the ability of NCAs to request issuers to include additional information in the prospectus). In the case of an offer of securities to the public or the admission to trading on a regulated market, the proposal streamlines and further standardises the standard prospectus (referring to a non-alleviated prospectus type, irrespective of whether it relates to equity or non-equity securities, or whether is drawn up as a single document or consists of separate documents). The proposal aligns the level of disclosure of the standard prospectus to the level of disclosure currently required under the EU Growth prospectus regime, introduces a fixed order of disclosure and makes incorporation by reference a legal requirement. The proposal also introduces the possibility for issuers to draw up the prospectus in English only as the language customary in the sphere of international finance (except for the summary which in practice is the only document that most retail investors consult), and to publish it in an electronic format only (i.e., no paper copies on request). At the same time, only for shares or other transferable securities equivalent to shares in companies, a limit number of pages (300 pages) is introduced to avoid overly lengthy prospectuses for companies that do not have a complex financial history. Jointly, these amendments seek to provide a tangible cost and burden reduction for issuers, while ensuring that investors can take advantage of a document that is easier to read and navigate and more easily compare financial instruments and issuers. The proposal also seeks to make it easier for SMEs to raise funds on public markets, in particular on SME growth markets, by generating further cost savings for SMEs and better tailoring disclosure to the needs of investors. For companies offering securities to the public and listing on SME growth markets (as well as for offers of securities to the public by smaller companies), the EU Growth prospectus is replaced by a mandatory new short-form EU Growth issuance document. This document builds on the level of disclosure currently required under the EU Recovery prospectus regime and existing admission documents required by SME growth markets (where the obligation to publish a prospectus does not apply), follows a fixed order of disclosure and is subject, in the case of shares and other equivalent transferable securities, to a page limit. While the proposal exempts, under certain conditions, from the prospectus requirement offers of securities fungible with securities already admitted to trading (for which the publication of a summary document will suffice), it subjects follow-on issuances of non-fungible securities to the approval and publication of a new mandatory short-form EU Follow-on prospectus, largely building on the current EU Recovery prospectus regime. These amendments seek to ensure that companies can fully benefit from the advantages of accessing public capital markets, including easier and quicker access to additional equity capital and debt finance through follow-on offers. At the same time, they safeguard investor protection as these companies are already subject to periodic and ongoing disclosure and reporting requirements and, in addition, issuers will be required to publish the most relevant information for investors. Finally, the amendments to the Prospectus Regulation aim to foster cross-border offers by harmonising and increasing to EUR 12 million the threshold for exempting small offers of securities to the public from the obligation to publish a prospectus. This amendment also seeks to benefit smaller issuers, including SMEs, as in certain cases they will no longer have to produce a prospectus, lowering substantially their regulatory costs and incentivising them to access public capital markets. The proposal also introduces amendments to the rules on equivalence for third countries prospectuses to make them workable. The proposed targeted amendments to MAR aim to reduce legal uncertainty on what constitutes inside information for the purpose of disclosure as well as on the timing of disclosure. While the proposal maintains the current broad notion of inside information for the purposes of the insider dealing regulation, it narrows down the scope of the disclosure obligation. The proposal clarifies in particular that the obligation to disclose all inside information to the public does not cover the information relating to the intermediate steps of a protracted process, as this information is too preliminary and hence not mature enough for disclosure. At the same time, the proposal introduces an empowerment for the Commission to establish, by way of a delegated act a non-exhaustive list of the relevant information as well as, for each information, an indication of the timing when issuers are expected to disclose it. Jointly, these amendments seek to make the MAR disclosure regime less costly to comply with by issuers, more predictable from the investors’ point of view and more conducive to effective price formation. The amendments to the disclosure obligation are accompanied by improvements to the regime for the exchange of information among NCAs to enable them to better identify cases of market manipulation by setting up a cross market order book surveillance (CMOBS) mechanism , 19 thus increasing the integrity of EU markets and enhancing their appeal for investors. In the same vein, the proposal introduces a possibility for ESMA to establish collaboration platforms, in particular for the purpose of monitoring wholesale commodity markets, to address concerns about market integrity and the good functioning of financial and, in particular, spot markets . Finally, the proposal seeks to make the sanctioning regime for MAR disclosure-related infringements more proportionate for SMEs to avoid discouraging smaller issuers from listing or remaining listed. The proposal also aims at alleviating the regulatory hurdles resulting from the application of the managers’ transactions, insider list and market sounding regimes while ensuring that these alleviations do not impair investor protection and market integrity. The creation of a CMOBS mechanism requires also targeted amendments to the MiFIR framework to specify that a competent authority can request order book data on an ongoing basis to a trading venue under its supervision, and to confer to ESMA the role to harmonise the format of the template used to store such data. The proposed targeted amendments aim to build the necessary conditions for structural improvements in EU public capital markets to occur over time. A more favourable regulatory regime would encourage the development of a more favourable ecosystem, contributing in a multi-faceted manner to the CMU objective of improving access to financing by companies. Furthermore, this proposal should be analysed in conjunction with other proposed and upcoming initiatives. The proposed amendments are part of a broader package of measures outlined in the CMU Action Plan, which aim to address other issues currently preventing companies from raising capital on public markets.
Revised version (Article 17 Public disclosure of inside information):
1. An issuer shall inform the public as soon as possible of inside information which directly concerns that issuer. The issuer shall ensure that the inside information is made public in a manner which enables fast access and complete, correct and timely assessment of the information by the public and, where applicable, in the officially appointed mechanism referred to in Article 21 of Directive 2004/109/EC of the European Parliament and the Council ( 9 ). The issuer shall not combine the disclosure of inside information to the public with the marketing of its activities. The issuer shall post and maintain on its website for a period of at least five years, all inside information it is required to disclose publicly. This Article shall apply to issuers who have requested or approved admission of their financial instruments to trading on a regulated market in a Member State or, in the case of instruments only traded on an MTF or on an OTF, issuers who have approved trading of their financial instruments on an MTF or an OTF or have requested admission to trading of their financial instruments on an MTF in a Member State. 2. An emission allowance market participant shall publicly, effectively and in a timely manner disclose inside information concerning emission allowances which it holds in respect of its business, including aviation activities as specified in Annex I to Directive 2003/87/EC or installations within the meaning of Article 3(e) of that Directive which the participant concerned, or its parent undertaking or related undertaking, owns or controls or for the operational matters of which the participant, or its parent undertaking or related undertaking, is responsible, in whole or in part. With regard to installations, such disclosure shall include information relevant to the capacity and utilisation of installations, including planned or unplanned unavailability of such installations. The first subparagraph shall not apply to a participant in the emission allowance market where the installations or aviation activities that it owns, controls or is responsible for, in the preceding year have had emissions not exceeding a minimum threshold of carbon dioxide equivalent and, where they carry out combustion activities, have had a rated thermal input not exceeding a minimum threshold. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 establishing a minimum threshold of carbon dioxide equivalent and a minimum threshold of rated thermal input for the purposes of the application of the exemption provided for in the second subparagraph of this paragraph. 3. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 specifying the competent authority for the notifications of paragraphs 4 and 5 of this Article. 4. Where an issuer or emission allowance market participant has delayed the disclosure of inside information under this paragraph, it shall inform the competent authority specified under paragraph 3 that disclosure of the information was delayed and shall provide a written explanation of how the conditions set out in this paragraph were met, immediately after the information is disclosed to the public. Alternatively, Member States may provide that a record of such an explanation is to be provided only upon the request of the competent authority specified under paragraph 3. By way of derogation from the third subparagraph of this paragraph, an issuer whose financial instruments are admitted to trading only on an SME growth market shall provide a written explanation to the competent authority specified under paragraph 3 only upon request. As long as the issuer is able to justify its decision to delay, the issuer shall not be required to keep a record of that explanation. If the competent authority specified under paragraph 3 does not consent to the delay of disclosure of the inside information, the issuer shall disclose the inside information immediately. This paragraph shall apply to cases where the issuer does not decide to delay the disclosure of inside information in accordance with paragraph 4. Reference in this paragraph to the competent authority specified under paragraph 3 is without prejudice to the ability of the competent authority to exercise its functions in any of the ways referred to in Article 23(1). 7. Where disclosure of inside information has been delayed in accordance with paragraph 4 or 5 and the confidentiality of that inside information is no longer ensured, the issuer or the emission allowance market participant shall disclose that inside information to the public as soon as possible. This paragraph includes situations where a rumour explicitly relates to inside information the disclosure of which has been delayed in accordance with paragraph 4 or 5, where that rumour is sufficiently accurate to indicate that the confidentiality of that information is no longer ensured. 8. Where an issuer or an emission allowance market participant, or a person acting on their behalf or for their account, discloses any inside information to any third party in the normal course of the exercise of an employment, profession or duties as referred to in Article 10(1), they must make complete and effective public disclosure of that information, simultaneously in the case of an intentional disclosure, and promptly in the case of a non-intentional disclosure. This paragraph shall not apply if the person receiving the information owes a duty of confidentiality, regardless of whether such duty is based on a law, on regulations, on articles of association, or on a contract. 9. Inside information relating to issuers whose financial instruments are admitted to trading on an SME growth market, may be posted on the trading venue’s website instead of on the website of the issuer where the trading venue chooses to provide this facility for issuers on that market. 10. In order to ensure uniform conditions of application of this Article, ESMA shall develop draft implementing technical standards to determine: (a) the technical means for appropriate public disclosure of inside information as referred to in paragraphs 1, 2, 8 and 9; and (b) the technical means for delaying the public disclosure of inside information as referred to in paragraphs 4 and 5. ESMA shall submit those draft implementing technical standards to the Commission by 3 July 2016. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010. 11. ESMA shall issue guidelines to establish a non-exhaustive indicative list of the legitimate interests of issuers, as referred to in paragraph 4, first subparagraph, point (a).