EU Listing Act Proposal - Part 1
European Commission publishes proposal to amend Market Abuse Regulation
On 7 December 2022, the European Commission submitted a proposal for an “EU Listing Act”, an EU initiative to make European capital markets more attractive for EU enterprises and simplify access to capital markets for small and medium-sized enterprises (SMEs). The EU Listing Act includes amendments to Regulation (EU) no 596/2014 of the European Parliament and of the Council on market abuse (Market Abuse Regulation – “MAR”) for the purposes of removing legal uncertainty during an existing listing, reducing the time and money expended by issuers to fulfil obligations arising from listing and making provisions on sanctions more reasonable, especially for SMEs.
The European Commission’s most important suggestions can be summarised as follows:
I. Ad hoc publication
1. Delayed publication obligation for protracted processes
For protracted processes such as an M&A or capital market transaction, the proposal provides for extensive and practical amendments regarding ad hoc publication. Article 17(1) MAR requires issuers to promptly publish inside information that directly affects them. When processes are protracted, this disclosure obligation applies not only in regard to the final event (such as entering into a company acquisition agreement in the event of an M&A transaction), but also in regard to the intermediate steps (such as conducting due diligence before entering into the company acquisition agreement). According to the current legal situation, even such intermediate steps can constitute inside information and trigger a publication obligation for the issuer, regardless of whether there is a likely prospect that the final event will occur.
For protracted processes, the proposal provides that the obligation to promptly publish inside information would no longer apply to intermediate steps. Instead, issuers would merely be obliged to publish the final event of the protracted process.
Despite what was under consideration when the public consultation regarding the EU Listing Act was announced, the definition of inside information in Article 7(1)a) MAR will not be changed. The result is that the prohibition of insider dealing as found in Article 14 MAR will still be triggered by “intermediate step inside information” during protracted processes; thus, in such a case, only the publication obligation according to Article 17(1) MAR will no longer exist.
Consequently, it will be necessary to differentiate between inside information that “only” triggers the prohibition of insider dealing and inside information that also triggers a prompt publication obligation according to Article 17(1) MAR.
2. Guidance in the form of a list of potential inside information
The proposal also includes empowering the Commission to draw up a non-exhaustive list of potential inside information and state for each type of information the point in time at which the issuer can be expected to disclose it in compliance with the ad hoc publication requirement.
3. Specifying prerequisites for delaying publication of inside information
The legal provisions regarding delayed publication of inside information are to be made more concrete. At present, it is only permissible according to Article 17(4)b) MAR to delay publication of inside information if the delay is not likely to mislead the public. This condition is to be made more concrete by adding directly to Article 17(4) MAR the examples of “misleading the public” currently found in the ESMA Guidelines (Guidelines on delay in the disclosure of inside information and interactions with prudential supervision (ESMA70-159-4966 EN)).
4. Sending explanations for delays to competent authority earlier
The Commission is also proposing a change to the point in time when the competent authority is to be informed of a delay. According to Article 17(4) third paragraph MAR, such notification is only required directly after delayed publication of the inside information. According to the proposal, it will now be required immediately after the issuer’s decision to delay publication. Although the national supervisory authorities are to be informed sooner, they will still not be required to approve the delay.
I. Market soundings
1. Safe harbour
The Commission’s proposal also includes changes related to market soundings according to Article 11 MAR. A market sounding is an interaction between a seller of financial instruments and one or more potential investors for the purpose of gauging the interest of potential investors in a possible transaction. The changes are intended to clarify that the provision on market soundings and the corresponding requirements are only an option for disclosing market participants (“DMP”) to benefit from protection against the accusation of unlawful disclosure of inside information (“safe harbour”). Market participants that completely comply with the notification and recording obligations found in Article 11 MAR have full protection from an accusation of unlawful disclosure of inside information. Conversely, market participants that do not (completely) comply with the requirements cannot claim this “safe harbour”; however, this does not constitute a presumption that they have unlawfully disclosed inside information. On the contrary, as is the case with the “safe harbour” provisions for share buy-back programmes and stabilisation measures according to Article 5 MAR, the lawfulness of the disclosure of inside information is then to be examined on a case-by-case basis.
The Commission’s proposal also provides that, when disclosing information, all DMPs, regardless of whether they intend to take advantage of the “safe harbour”, must ascertain whether such information constitutes inside information before conducting market soundings and throughout the entire process. The result of this ascertainment and the determinative reasons must be documented in writing and made available to the competent supervisory authority at its request.
2. Expansion of the definition of the term “market sounding”
The proposal also states that the definition of the term “market sounding” will be expanded to include all cases in which a transaction is ultimately not announced.
III. Introducing a permanent (instead of situation-based) insider list
The Commission’s proposal also provides for changes in regard to drawing up insider lists according to Article 18(1) MAR. Currently, issuers and any person acting on their behalf must draw up a list of all persons who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information (“insider list”). This list is to be updated with a new section when new inside information is ascertained. Consequently, a new, situation-based insider list is to be drawn up for each case of inside information. According to the current legal situation, it is possible to voluntarily add a section to this situation-based list that contains information on persons who usually have access to inside information (“permanent insiders”).
In future, it will generally be sufficient if all issuers – and not only companies listed on SME growth markets as currently required – merely draw up and maintain a list of permanent insiders (permanent insider list). This permanent insider list must include all persons who, due to their internal role or position at the issuer, usually have access to inside information, e.g. members of the administrative, management or supervisory boards. The obligation to maintain situation-based insider lists will thus be eliminated according to the Commission’s proposal.
However, for issuers whose securities have been admitted to trading on a regulated market at least in the last five years, the proposal stipulates that the Member States can require these companies to draw up and maintain a complete insider list with all persons who have (situation-based) access to inside information if this is justified to ensure market integrity.
Nevertheless, for persons who act on an issuer’s behalf or on their account (e.g. advisors, accountants or credit rating agencies), it will continue to be stipulated that they must draw up, update and, as appropriate, submit to the competent supervisory authority their own list of all persons who have access to inside information that directly relates to this issuer.
IV. Transactions for a manager’s own account (directors’ dealings)
1. Raising reporting thresholds
Additional changes are foreseen in regard to managers’ transactions for their own account (“directors’ dealings”) according to Article 19 MAR. One such change concerns the threshold value above which such transactions must be reported. Article 19(8) MAR currently provides for a reporting obligation starting at a total amount of €5,000 in a calendar year, which can be increased to €20,000 by the competent supervisory authorities according to Article 19(9) MAR. This option has been exercised by supervisory authorities in countries including Germany, France, Italy and Spain. Now, the regular threshold is to be increased to €20,000 with an option to be increased to €50,000 by national supervisory authorities.
2. Broader exceptions to trading ban
The exceptions to the trading ban for managers are also to be expanded. According to Article 19(11) MAR, it is generally prohibited for any person discharging managerial responsibilities to conduct any transactions relating to financial instruments of the issuer during a closed period of 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public. Exceptions from this trading ban are only possible under the prerequisites found in Article 19(12) MAR. These exception conditions are now to be expanded and, in particular, to be extended to include employee savings plans that are linked to financial instruments other than shares. Transactions including those in which the manager does not make any investment decisions are also to be included.
V. Share buy-back programmes
Finally, simplifications for share buy-back programmes are to be included. According to Article 5 MAR, the prohibitions of insider dealing and unlawful disclosure of inside information (Article 14 MAR) as well as the prohibition of market manipulation (Article 15 MAR) do not apply if, in the context of a share buy-back programme, there is full compliance with the prerequisites found in Article 5 MAR for conducting these measures (“safe harbour”). The obligations in the context of share buy-back programmes currently include extensive transparency and disclosure obligations towards the competent supervisory authorities and the capital market, including a current reporting and publication obligation for issuers according to Article 5(3) MAR in regard to every single transaction connected to a share buy-back programme. If an issuer’s shares are traded in more than one Member State, there is also currently an obligation to report these transactions to all competent authorities, regardless of whether the share buy-back has been conducted on the stock exchange for which that authority is competent and regardless of whether the issuer has actively initiated or merely consented to admission to trading on a stock exchange in another Member State.
In future, this reporting and publication procedure is to be simplified and reduced. In the future, issuers will only be required to report the information to the national supervisory authority of the market on which the issuer’s shares are most liquid. Providing the public with aggregate information instead of publicly announcing each individual transaction will be sufficient to benefit from the “safe harbour” rules.
- The proposed changes in regard to publication obligations in the event of managers’ transactions for their own account and in the context of share buy-back programmes are welcome without reservation because the value of this information for the capital market was questionable in the first place, and the obligations required significant expenditures of time and money from issuers.
- However, whether the changes in the publication obligation under Article 17(1) MAR will actually result in relief for issuers remains to be seen. If the final event as such constitutes inside information, it will still always have to be promptly published. The new provision will then only be applicable for situations in which the final event is not deemed to be inside information, but the intermediate step becomes so important that it is to be deemed inside information in itself. However, it can be assumed that this will not occur often. Because the insider dealing prohibition found in Article 14 MAR will also be applicable to intermediate step inside information, issuers will also have to continue to ascertain if intermediate steps have insider relevance. Thus, it is not at all certain whether the change in Article 17 MAR will have practical significance.
- The Commission’s initiative to require that the reasons for delaying publication of inside information be sent to the supervisory authority directly after making a decision/resolution on such a delay is remarkable. In such a case, it would be necessary to prepare a resolution and document it in writing as extensively as possible even before the issuer’s relevant governing instances take it into consideration in order to be able to send the resolution to the supervisory authority promptly after it is passed. Another result of the proposed amendment would be that the supervisory authorities would become aware of potential insider-relevant situations that ultimately do not result in the publication of an ad hoc announcement, e.g. if a transaction falls through. Although there is currently no legal obligation to inform the supervisory authorities of a resolution to delay publication that is documented in the course of the process, in the future, the supervisory authority would be able even in such a case to examine the delay resolution as to whether the prerequisites for a delay were given and whether the resolution was passed in good time. This is likely to significantly increase the risk of a fine and the expenditure of time and money required of issuers.
Any questions? Please feel free to contact Julian Schulze De la Cruz, Philip M. Schmoll or Sebastian de Schmidt
Practice Group: Capital Markets