On 7 December 2022, the European Commission published a series of proposed measures to further develop the EU’s Capital Markets Union. These measures included proposed amendments to the Prospectus Regulation, the Market Abuse Regulation and MiFIR as part of a legislative package known as the “Listing Act”. On 14 February 2024, following negotiation and political agreement with the European Parliament, the Council of the EU released the provisionally agreed text of the Listing Act. The Listing Act was approved by a plenary session of the European Parliament on 24 April 2024.
The overall objective of the Listing Act is to introduce technical adjustments to the EU rulebook that reduce regulatory and compliance costs for companies seeking to access the capital markets, with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. At the time of writing, we are awaiting publication of the final legislation in the Official Journal of the EU in due course. The Listing Act is currently expected to come into force in the second half of this year (although in some cases the obligations will be introduced on a staggered timeline and will not come into effect until 14 to 18 months later).
Who should be interested in the Listing Act?
This article assesses the impact of the Listing Act from a debt capital markets perspective. In this context, the Listing Act is of interest to a wide group of stakeholders, including the following:
- Institutional investors in debt capital market and securitisation transactions;
- Issuers and originators of debt capital market and securitisation transactions;
- Retail investors in debt capital market and securitisation transactions; and
- Companies who are not able, in practical terms, as issuers, investors and / or originators (as applicable) to access the EU capital markets but wish to do so.
Prospectus Regulation
The changes made by the Listing Act to the Prospectus Regulation are essentially adjustments to the current regulatory framework, rather than a fundamental change in approach.
The key changes that will apply from when the Listing Act enters into force are as follows:
- the ability for issuers to incorporate future financials by reference in to a base prospectus without a supplement;
- the walkaway right period for investors when a prospectus supplement is published being extended from 2 to 3 working days;
- the walkaway right period for investors where the final offer price and/or amount of securities to be offered to the public cannot be included in the prospectus being extended from 2 to 3 working days;
- the expansion to the prospectus exemptions. There will be a broader exemption for secondary issuances of securities fungible with securities already admitted to trading and the higher exemption threshold of €150 million for non-equity securities offers by credit institutions will be made permanent;
- more documents to be permitted to be incorporated by reference;
- amendments to the risk factor requirements. The ranking requirement that requires the most material risk factors (in the issuer’s assessment) to be mentioned first will be relaxed slightly. Furthermore, it will be made clear that a prospectus should not contain risk factors that are generic, only serve as disclaimers, or do not give a sufficiently clear picture to investors of the specific risk factors that they should be aware of; and
- clarification that new securities cannot be added into a base prospectus by way of a supplement.
The most significant changes that will be introduced on a staggered timeline are as follows:
- amendments to the standardised prospectus format, including a fixed order and presentation of disclosure;
- ESG disclosures for all green and sustainable bonds. These disclosure requirements will apply to EU Green Bond Standard (“EU GBS”) compliant bonds, EU GBS "opt -in" bonds and other green and sustainable bonds that rely on market based / ICMA principles; and
- there will be a harmonised threshold for exempting small offers of securities from the prospectus requirement. As a streamlining measure, the current discretionary €8 million offer to the public exemption will be replaced. Instead there will be a uniform €12 million exemption (aggregated over 12 months) except where offered cross-border. Member States will have discretion to set a lower threshold of €5 million and to require certain filings.
Market Abuse Regulation (“MAR”)
The Listing Act will also introduce amendments to MAR which are material from a debt capital markets perspective.
The Listing Act will make amendments to the market soundings regime in MAR when it enters into force. These amendments will make clear that the main market sounding procedures set out in MAR are optional (rather than mandatory). Disclosing market participants complying with those procedures will still benefit from a safe harbour from the prohibition against the unlawful disclosure of inside information but non-compliance will not create a presumption of unlawful disclosure. It will still be mandatory to consider whether a disclosure involves inside information and to inform a recipient when disclosed information ceases to be inside information (and to comply with the associated record-keeping requirements). However, the amendments will also simplify the 'cleansing' process by removing the obligation to inform a recipient where the information has already been publicly announced. The amendments will also make clear that the definition of a market sounding covers disclosures not followed by an announcement of a transaction.
Separately, one of the conditions under MAR to avail of the permitted delayed disclosure of inside information currently is that the delay of disclosure is not likely to mislead the public. The Listing Act will replace this condition with a specific condition that the inside information that the company intends to delay disclosure of is not contrary to the most recent previous public announcement or other type of communication by the company on the matter to which the inside information relates.
Impact of the Reforms
The policy rationale of reducing regulatory and compliance costs for companies accessing capital markets is a sensible one. Market participants will likely welcome these reforms on the basis that they are designed to facilitate and enhance issuers’ ability to access the capital markets. The removal of the requirement to publish a supplement for updating annual or interim financial information incorporated by reference in a base prospectus will be particularly useful from a practical perspective and in the context of the debt capital markets. However, it remains to be seen whether these incremental adjustments to the current regulatory framework will make the capital markets more attractive to issuers going forward.
We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress. We have separately written about the recent statement of the Eurogroup of EU Finance Ministers on the EU’s Capital Markets Union.
For further information on the Listing Act and the EU’s Capital Markets Union, please contact Turlough Galvin, Maireadh Dale, Christian Donagh, Alan Keating, William Foot, Vincent McConnon, Richard Kelly, Alan Bunbury or your usual Matheson contact.
This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.