European Union (EU) lawmakers yesterday reached a provisional agreement on the long-awaited package of measures designed to make EU public capital markets more attractive to EU firms – and reverse Mifid II by rebundling investment research. But are the incentives enough to halt the outflow of primary liquidity currently troubling the industry?
The provisional agreement, which was agreed late Thursday afternoon by Economic and Monetary Affairs (ECON) Committee negotiators, will be now be put to member states representatives and the European Parliament for approval.
It streamlines the listing process, cuts down on administrative red tape, amends the prospectus regulation to streamline language and reduce costs, and agreed common rules on the multiple-vote share structure (MVSS) for companies trading on MTFs and SME growth markets.
The agreement also cuts investment research rules in order to boost the level of research on SMEs in the EU. The EU Council and Parliament said that investment firms must ensure that the issuer-sponsored research they distribute is produced in compliance with the EU code of conduct, but now allows the re-bundling of payments for research and execution of orders.
Vincent Van Peteghem, minister of finance of Belgium, said: “The agreement found on the Listing Package will reduce the administrative burden for companies and contribute to making EU capital markets more attractive, fully in line with the objectives of the capital markets union.”
“It is important that we continue to encourage companies to list on the stock exchange while at the same time ensuring high levels of investor protection and market integrity throughout the Union,” Van Peteghem added.
Industry reaction was positive, if cautious, with some pointing out there was still work to do to make the EU a more attractive place for firms to list.
Stefan Maassen, head of capital markets and corporates, Deutsche Börse, told BEST EXECUTION: “The agreement on the EU Listing Act is a good signal for Europe’s capital market. We need to unlock the full potential of the capital markets in Europe to remain internationally competitive and need those regulatory updates. Through a more practical listing regime the EU Listing Act creates an opportunity to make capital markets funding significantly more attractive for companies.”
“Although the reform is a step in the right direction, it is not a general game changer. For example, we need to mobilise the capital available and introduce incentives for investors to invest more in growth companies. Thus, the Listing Act is not the end of the story, but must be accompanied by further reforms,” Maassen added.
Beatriz Alonso-Majagranzas, head of BME Exchange, part of the SIX Group, said: “Today’s agreement on the Listing Act marks a significant stride towards fostering a more attractive landscape for EU companies.”
“This move has the potential to increase the appeal of EU public markets and also empower companies, encouraging them to seek and maintain listings. We welcome this progressive initiative, anticipating a positive ripple effect as one step forward in contributing to a more vibrant and diversified economic ecosystem in Europe, paired with efforts from all actors.”
Gary Simmons, managing director of equity capital markets at the Association for Financial Markets in Europe (AFME), said the political agreement on the EU Listing Act is a promising first step towards increasing Europe’s attractiveness as a desirable location for companies to list.
“While this is a step in the right direction, the proposals are not perfect. AFME has some concerns about certain elements, including prescriptive page limits. Arbitrary page limits on prospectuses and other disclosure documents’ length will not only potentially increase litigation risks for issuers, controlling shareholders, directors and underwriters, but may also result in material risk for investors in not being completely sure that they are being given all of the necessary information to make an investment decision.”
“In light of the dwindling number of EU Initial Public Offerings, the Listing Act alone will not be enough to ensure that the EU is the best place for corporates to go public”
“In light of the dwindling number of EU Initial Public Offerings, the Listing Act alone will not be enough to ensure that the EU is the best place for corporates to go public,” Simmons said.
More work must be done on a “meaningful” consolidated tape, Simmons said, to make the EU more attractive for firms to list. The Union should also revisit its “jurisdictionally unusual” rules that ringfence EU investors to certain venues and the capping of their trading volumes via certain trading mechanisms, Simmons added.
On 7 December 2022, the EU Commission proposed measures to reduce the burden for companies of all sizes, in particular SMEs, so that they can better access public capital market funding.
The package sought to amend the prospectus regulation, market abuse regulation and the markets in financial instruments regulation; and amend the markets in financial instruments directive and repeal the listing directive. It also contained a directive on multiple-vote shares.
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