On November 14, 2024, the Listing Act was published in the Official Journal of the European Union, which portrays a crucial step in implementing the European Commission’s strategy for the Capital Markets Union. The Act delivers a lot of crucial changes to the European regulatory world, making it a lot easier for firms to handle prospectus requirements and alternative investment solutions that will improve market access for investors, issuers and investment firms. This blog dives deep into this act with providing an overview of its key elements, mainly concentrating on changes to prospectus obligations and the new thresholds introduced and investigates the proposed national regulations in Germany that will complement the European Framework. The Act comprises of these two parts of legislation from the Official Journal of the European Union:
The Listing Act package is more than prepared to offer a range of benefits for market participants in the EU, even before it entirely launches and comes into play by 2026. A few elements are as follows:
1.Reduced Compliance Costs- The Listing Act simplifies the requirements for creating a prospectus and introduces new options like the EU Follow-On Prospectus and the EU Growth Issuance Prospectus, which come with much lightweight disclosure obligations. This simplification benefits companies as it reduces the administrative burden and costs associated with public offers
2.Increased Visibility- Issuers will have the chance to submit their sponsored research to a centralized body, helping their credibility and visibility grow. This is very for SMEs aiming to attract investors.
3.Easier Market Access- Better alternatives for SME business loans: A new dual-threshold system for prospectus exemptions simplifies the process for companies to raise capital, particularly benefiting small and medium-sized enterprises (SMEs). Now they have various funding options other than just bank lending.
1.Enhancement of Information- The standardization of prospectus formats, along with the inclusion of environmental, social and governance (esg analysis) information, will help investors make more informed decisions.
2.Better Protection- Changes to the EU’s Market Abuse Regulation (MAR) will help ensure that investor protection remains strong along with the reduction of unnecessary regulatory barriers they faced before.
1.Flexible Research Payments- The removal of market capitalization thresholds for bundled payments allows firms to be more flexible in choosing how to pay for research services, and reenergize the market for investment research, especially for smaller companies.
2.Transparency and Compliance- New requirements ensure transparency to clients about payment methods and quality assessments of research, ensuring that firms maintain transparency while meeting regulatory standards.
EU Growth Issuance Prospectus- Tailored to SMEs and issuers on SME growth markets or those offering securities valued below € 50 million within 12 months. The growth prospectus is capped at only 75 pages and features simplified content tailored to smaller issues. The EU Growth Issuance Prospectus is available to SMEs, issuers whose securities are admitted or intended to be admitted to trading on an SME Growth Market, and issuers whose total aggregate value of securities publicly offered is less than € 50 million over a period of 12 months, provided no securities of these issuers are traded on an MTF, and their average number of employees in the last financial year did not exceed 499.
The Listing Act introduces several significant changes, categorized by their implementation dates: Effective from December 4, 2024
Furthermore, the previous exemption for public offerings of securities with an aggregate value below € 1 million within a 12-month period has been abolished. This threshold, which previously allowed issuers to avoid publishing a prospectus for small-scale offerings, is no longer applicable. However, national regulations may apply. Currently, German regulations require the publication of a securities information sheet for public offerings of € 100,000 to € 8 million.
Dual-Threshold System for Prospectus Exemptions, that replaces the prior €1 million threshold and eliminates the optional national threshold of up to € 8 million:
1.Principal Threshold- A main threshold of € 12 million per issuer or offeror (calculated over 12 months) exempts offers below this amount from the need for a full prospectus. This change provides clarity and consistency across the EU, easing the process for companies, particularly SMEs, to raise capital.
2.Optional Lower Threshold- Member States can choose to set a lower threshold of € 5 million per issuer or offeror. This flexibility allows countries to tailor their approach to the needs of their capital markets, accommodating varying sizes.
In conjunction with the Listing Act, the German government has proposed important changes in the draft of the Second Future Financing Act. These changes are still in proposal form and have not yet come into effect:
1. No German Summary for English Prospectuses- The requirement to create a German summary for English prospectuses is proposed to be removed, which should simplify the issuance process for cross-border offerings.
2. Adjustments to Prospectus Exemption Thresholds- The threshold for public offerings without a prospectus is set to rise from € 8 million to € 12 million, allowing companies to offer more capital without the need for a prospectus.
The regulatory reforms at EU level and the proposed changes in Germany signal a change in the way how securities emissions will be regulated. By simplifying prospectus requirements and raising the thresholds for public offerings, these updates aim to foster capital-raising activities, particularly for SMEs. Do you think these changes will encourage more companies to enter public markets. Guess time will only tell!
