The European Commission has published a public and a targeted consultation with the aim of receiving feedback on making public capital markets more attractive for EU companies as well as facilitating access to capital for SMEs. The deadline for feedback is the 11^th of February 2022, allowing stakeholders to give their opinions on how the EU’s legal system could be improved.

This consultation was sparked by the fact that the EU capital market is undeveloped compared to other major jurisdictions, quoting “EU companies make less use of capital markets for debt and equity financing than their peers in other major jurisdictions around the world, with a negative impact on economic growth and macroeconomic resilience”. Due to this, the Commission’s new Capital Markets Union (CMU) has attempted to ensure that companies, particularly small and medium-sized enterprises (SMEs), are able to access proper financing, in particular in public markets.

The targeted consultation aims to gather the views on stakeholders’ experience with the current rules and how these rules need to adapt as well as seeking feedback on the overall functioning of the regulatory framework.

Previous investigations have shown that public listing in the EU is too cumbersome and costly, especially for SMEs. The consultation asks why there is this lack of attractiveness in EU public markets, varying from excessive compliance costs to law of liquidity of securities. The new CMU Action Plan identified that SMEs do not consider listing in the EU as an easy and affordable financing method, specifically due to high administrative burdens, high costs of listing and compliance when attempting to access the public markets. Not only is it costly to initially list, but costs continue to accumulate after a company is listed, including but not limited to compliance and regulation requirements/fees. Stakeholders were asked to express their opinion on the key sources of these issues and their thoughts on how to solve it.

The coming into force of the Prospectus Regulation (2017/1129) was followed by the SME Listing Act and the Crowdfunding Regulation; however, this regime is still considered as burdensome and does not attract companies (particularly SMEs) into listing on the public markets. The drawing up and approval of the prospectus is “expensive, complex and time-consuming and that targeted yet ambitious simplification of prospectus rules could reduce significantly compliance costs for companies and lower obstacles to tapping public markets”.

Therefore, the consultation details specific elements of the prospectus and how burdens stemming from it could be alleviated without impairing investor protection and transparency. It collected data such as:

1. Amounts paid for different prospectus types
2. Amount paid for the drawing up of the prospectus
3. Which specific sections of the prospectus are cumbersome and costly to draft
4. Whether more exemptions to the prospectus should be added to increase the offers which do not require one to be drawn
5. How the prospectus should be streamlined and made more efficient through suggestions such as page limits.

It then details specific elements of the prospectus, gathering information on (1) Prospectus Summaries, (2) incorporation by reference, and (3) standard prospectuses for non-equity securities. It further questions whether the prospectus should only be provided through electronic format and only in English, and whether the prospectus should be made available closer to the offer (example, 3 working days before). It then deals with prospectuses for SMEs which can choose to draw up an EU Growth prospectus for offers of securities to the public, provided that they have no securities admitted to trading on a regulated market. Although this prospectus is more alleviated than the standard, feedback indicates that there has not been any substantial decrease in the document length. It also notes that the liability regime deters listing in the public market as it could lead to administrative sanctions and even criminal sanctions depending on national law, with the calibration of such measures.

The consultation also considers the Market Abuse Regulation (596/2014 – “MAR”), with the aim of establishing the costs and burdens stemming from the MAR and whether the minimum amount of managers’ transactions could be increased without harming the market’s integrity.

In brief, the consultation is also aimed at collecting data on:

1. Insider lists
2. Market Sounding
3. Administrative and Criminal Sanctions
4. Liquidity Contracts

and other improvements to the MAR.

The consultation also covers certain aspects of the MiFID II Directive, more specifically, the registration of segments of an MFT as an SME growth market, Dual Listing. and Equity Research coverage for SMEs.

The consultation also considers other possible areas for improvement, to ensure that all possible aspects which are deterring the use of the public market are dealt with and improved. It is in stakeholders’ interest to expressing their opinions on this consultation in hopes of achieving a system that is simpler and less costly without decreasing investor protection and transparency.

This article was written by Dr Cherise Abela Grech and Legal Trainee Ms Jodie Arpa.

For more information, please contact Dr Ian Gauci or Dr Cherise Abela Grech.

Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.