EU Listing Act comes into force

The Capital Markets Union (CMU), soon to be superseded by the Union of Savings and Investments, which aims to improve the financing of the European economy, requires an efficient and effective regulatory framework that promotes access to financial markets for businesses, including small and medium-sized enterprises (SMEs). These markets were shaken by the COVID-19 crisis and the stimulus measures in their favor ended up proving insufficient. Hence the EU Listing Act, which comprises three texts dated 23 October 2024 –Directives 2024/2810 and 2024/2811, Regulation 2024/2809. Its purpose is to make EU capital markets more attractive to businesses and facilitate access to capital markets for SMEs.

The Regulation came into force in December 2024. However, some of its provisions will not come into force before March or June 2026. The Directives must be transposed by the Member States by 5 June 2026 (Directive 2024/2811) or 5 December 2026 (Directive 2028/2010) at the latest.

Directive 2024/2810

Raising funds on a market generally leads to capital dilution and therefore a loss of control. If we want to encourage companies, and more specifically controlling shareholders, to tap the market and ask that their company’s shares be admitted to trading, we need to ensure that they can retain control. This is the idea behind the Directive on multiple-voting shares. Concomitantly, there is a risk that shareholders holding such shares will draw benefits that other shareholders would not be able to obtain; this is why the issue of such shares needs to be regulated, while safeguards need to be put in place for shareholders with a single voting right.

The issue of multiple-voting shares may only be decided by companies applying for their shares to be admitted to trading on a multilateral trading facility, which includes an SME growth market. This decision is strictly regulated, as is the protection of shareholders that do not hold multiple-voting shares: in particular, a ratio is required between the number of votes attached to the multiple-voting shares and the number of votes attached to the shares with the fewest voting rights. Transparency rules are also imposed.

Directive 2024/2811

One of the contributions of Directive 2024/2811 is the repeal of Directive 2001/34/EC of 28 May 2001. This Directive had been progressively emptied of its substance: the new Directive signals its complete disappearance and the integration of some of the provisions of the 2001 Directive into Directive 2014/2811 of 15 May 2014, known as MiFID 2, which already includes provisions concerning the listing of companies. This achieves a textual simplification while, according to the authors of the new Directive, retaining the ‘relevant provisions’ of the 2001 Directive, particularly regarding the minimum distribution of shares to the public: at least 10% of the subscribed capital represented by the class of shares concerned by the application for admission to trading. This threshold has however been lowered from 25% under the 2001 Directive.

In addition to incorporating the listing rules into MiFID 2, the new Directive also amends the provisions governing the remuneration of professionals offering research services and more specifically the rules governing the unbundling of research. The aim is to revitalize the investment research market. This aspect of the new text is not insignificant when it comes to encouraging companies to raise capital on the markets.

The changes made to the SME growth markets should also be noted. These were created in 2014 as a special category of multilateral trading facilities (MTF). It was not intended that an MTF, in the general category, have a segment registered as an SME growth market. It is this possibility that is recognized by the 23 October 2024 Directive, which has led to a change in the definition of MTFs and the adaptation of the SME growth market regime.

Regulation 2024/2809

The 23 October 2024 Regulation mainly amends the Prospectus Regulation of 14 June 2017 and the Market Abuse Regulation of 16 April 2014. The aim, as regards the former, is to remove the obstacles represented by the length, complexity and high cost of drawing up the prospectus and, as regards the latter, to enhance legal clarity, remedy the disproportionate nature of the requirements imposed on issuers and increase the overall attractiveness of the European Union’s capital markets, while ensuring an appropriate level of investor protection and market integrity. Numerous provisions of these texts have therefore been amended.

The scope of the obligation to draw up a prospectus and the exemptions from this obligation have been amended. The ‘EU Growth Prospectus’, which concerns SMEs, becomes the ‘EU Growth Issuance Prospectus’. The simplified prospectus for secondary issues and the EU Recovery Prospectus are replaced by a new document called the ‘EU Follow-On Prospectus’. It should also be noted that the securities prospectus must have a maximum length (300 A4 pages when printed), that the equivalence regime for prospectuses drawn up in accordance with the legislation of a non-Member State has been revised to make it more functional, and that the language regime has been amended to authorize, in addition to the language accepted by the Member State, the use of the ‘language customary in the international sphere’ when the offer of securities to the public or admission to trading is requested only in one Member State: previously, only the language accepted by the Member State was permitted.

Issuers must publish inside information about themselves. The regime for such disclosures is amended to exclude the disclosure of information relating to interim stages. Amendments have also been made to the rules on market soundings, as well as to the reporting obligations imposed in the event of share buybacks and to the regime for exchanging information with national authorities. A mechanism known as ‘cross-market order book surveillance’ or CMOBS is to be introduced to enable authorities to detect market manipulation more effectively on markets with a significant cross-border dimension. The sanctions regime has also been amended to make them proportionate to the size of the company, the aim being to avoid discouraging SMEs from listing on a market. A specific sanction, ‘as an alternative solution’, is provided for when the legal entity to be sanctioned is an SME.