Changes from report parliamentary committee draft to plenary report

RemovedEXPLANATORY STATEMENT

Added(4a) The adjustment of unbundling rules alone will not suffice to revitalise the market of research investment and address the longstanding shortage of research coverage of small and medium capitalisation companies. The measures introduced in this Directive should not undermine the progress made in terms of price transparency, reduction of conflicts of interest and other regulatory objectives of MiFID II. Further measures should be introduced to improve the coverage of SMEs and the promotion of independent research in the market.

RemovedThe Rapporteur welcomes the Commission’s proposal for the Listing Act and its designed overhaul of the current EU framework for company listings.

Added(5) In addition, to further support the coverage of small and medium capitalisation companies by investment research, research material paid fully or partially by issuers should be labelled as ‘issuer-sponsored research’. To ensure an adequate level of objectivity and independence of such research material, such material should be produced in line with a code of conduct developed or endorsed by ESMA by means of regulatory technical standards. For that purpose, investment firms should have in place governance and organisational procedures to ensure that the issuer-sponsored research they produce, use or distribute is produced in compliance with that code of conduct and with the requirements laid down in this Directive. Member States should ensure that competent authorities have all the necessary supervisory and investigatory powers to ensure that investment firms comply with those requirements. In order to support more visibility of the issuer-sponsored research, issuers should▌ submit their issuer-sponsored research to the relevant collection body as defined▌ in [Article 2 (2) ] of Regulation (EU) .../... of the European Parliament and the Council.

RemovedAs part of this proposal, a package of reviews to existing pieces of legislation is in front of us.

Added(6) Directive 2014/65/EU introduced the SME growth market category to increase the visibility and profile of markets specialised in SMEs and foster the development of common regulatory standards in the Union of markets specialised in SMEs. SME growth markets play a key function in facilitating access to capital for those smaller issuers by catering for their needs. To foster the development of such specialised markets and to limit the organisational burden for the operators of multilateral trading facilities (MTFs), it is necessary to allow the segment of a MTF to apply to become a SME growth market provided that such segment is clearly separated from the rest of the MTF.

RemovedThe Commission proposals comprise the following:

Added(6a) Member States should require that a financial instrument of an issuer which is admitted to trading on an SME growth market is able to be traded on another trading venue only if the issuer has been informed and has not objected. Shares in SMEs are often illiquid by nature as they have a smaller market capitalisation and a lower trading volume. Issuers should therefore be able to object to being traded on another trading venue, as that could reduce the risks of fragmentation of liquidity.

Removed A proposal to amend (i) the Prospectus Regulation to harmonise requirements for the drawing up, approval, and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (2017/1129), (ii) the regulation on market abuse (MAR) aimed at preventing and detecting market abuse, market manipulation and insider dealing (596/2014), and (iii) the regulation on markets in financial instruments (MiFIR), which provides a legal framework for securities markets, investment intermediaries, and trading venues (600/2014);

Added(7) Directive 2001/34/EC of the European Parliament and of the Council lays down rules concerning listing on Union markets. That Directive aims at coordinating the rules on the admission of securities to official stock exchange listing and on information to be published on those securities to provide equivalent protection for investors at Union level. That Directive also lays down the rules of the regulatory and supervisory framework for Union primary markets. In the course of the years, Directive 2001/34/EC has been amended significantly several times. Directives 2003/71/EC of the European Parliament and of the Council and Directive 2004/109/EC of the European Parliament and of the Council have replaced most of the provisions harmonising the conditions for the provision of information regarding requests for the admission of securities to official stock exchange listing and the information on securities admitted to trading, and have made large parts of Directive 2001/34/EC redundant. Directive 2001/34/EC as a minimum harmonisation Directive gives Member States a rather broad discretion to deviate from the rules laid down in that Directive, which has led to market fragmentation in the Union. To drive market harmonisation at Union level and create a single rule book, Directive 2001/34/EC should be repealed.

Removed A proposal to amend the directive on markets in financial instruments, MiFID II, designed to regulate financial markets and improve protections for investors (2014/65/EU), and to repeal the Listing Directive coordinating the conditions for admission of securities to official stock exchange listings and the information to be published on those securities (2001/34/EC);

Added(8) Directive 2014/65/EU, like Directive 2001/34/EC, provides for the regulation of markets of financial instruments and strengthens investor protection in the Union. Directive 2014/65/EU also sets out rules on the admission of financial instruments to trading. By extending the scope of Directive 2014/65/EU to cover specific provisions from Directive 2001/34/EC will ensure that all relevant provisions from Directive 2001/34/EC are maintained. A number of provisions of Directive 2001/34/EC, including the requirements on free float and market capitalisation which still apply, are enforced by competent authorities and are considered important rules for seeking admission to trading of shares on regulated markets in the Union by market participants. It is therefore necessary to transfer those rules in Directive 2014/65/EU to set out, in a new provision of that Directive, specific minimum conditions for the admission to trading of shares on regulated markets. The application of that new provision should complement the general provisions on the admission of financial instrument to trading laid down in Directive 2014/65/EU.

Removed A proposal for a new directive on multiple-vote share structures in companies that seek the admission to trading of their shares on an SME growth market. The proposal aims to address the regulatory burden faced by companies during the phase preceding the initial public offering (IPO) and the imbalance across the EU when choosing appropriate governance structures when they list (2022/0406).

Added(9) To allow for more flexibility for issuers and to make Union capital markets more competitive, the minimum free float requirement should be decreased to 10%, which is a threshold that ensures for a sufficient level of liquidity in the market. The free float requirement laid down in Directive 2001/34/EC that a sufficient number of shares is to be distributed to the public in one or more Member States refers to the public within the Union and the European Economic Area (EU/EEA). That geographical restriction of the free float requirement to the EU/EEA should not be maintained as Directive 2014/65/EU does not provide for such restriction for financial instruments admitted to trading. The requirement that a company is to have published or filed its annual accounts for a specific period of time should not be transferred to Directive 2014/65/EU since Regulation (EU) 2017/1129 of the European Parliament and of the Council already contains a provision to that effect. Directive 2014/65/EU already lays down provisions to designate competent authorities. Thus, the provisions laid down in Directive 2001/34/EC to appoint one or more competent authorities are redundant. The requirement for debt securities that the amount of the loan is not be less than EUR 200 000 are considered obsolete in light of current market practice.

RemovedAs a general approach, the Rapporteur approves simplification and standardisation of the listing framework in the EU, as long as this is not to the detriment of investors and/or the market. There is a general acceptance from all sides: work on the CMU has fallen too far behind, and it is not delivering results.

Added(10) The concept of admission of securities to official listing on stock exchanges provided for in Directive 2001/34/EC is no longer frequently used given market developments, as Directive 2014/65/EU already provides for the concept of ‘admission of financial instruments to trading on a regulated market’. The two concepts ‘admission to official listing’ and ‘admission to trading on a regulated market’ are often used interchangeably in some Member States. That means that, in some Member States, no distinction is made between the two concepts. Furthermore, the dual regime of admission to trading, on the one hand, and admission to official listing, on the other hand, could lead to legal uncertainty at Union level, in particular, due to the fact that the requirements laid down in Directive 2003/71/EC, Directive 2004/109/EC and Directive 2014/57/EU of the European Parliament and of the Council do not apply to instruments admitted to official listing, while those requirements apply to instruments admitted to trading on a regulated market.

RemovedThe EU capital market continues to lose ground when compared to other continent-wide markets. In relative terms but not only, the share of market capitalisation worldwide has been shrinking these last three years, and this with Brexit taken into account.

Added(11) To enhance the visibility of listed companies, in particular SMEs and to adapt the listing conditions to improve requirements for issuers, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of amending Directive 2014/65/EU. The market capitalisation threshold for companies, for which the re-bundling of trading execution and research fees would be possible, should be removed while introducing safeguards to ensure investor protection and maintain a level of transparency regarding the costs associated with research. The adaption of the listing rules in the Union should also reflect market practice for it to be effective and promote competition. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

RemovedThe Listing Act aims to reduce regulatory burdens, generally perceived as one of the main obstacles to progress towards a flourishing EU capital market. A reduction in regulatory burdens associated with listing must, however, not come at the expense of keeping strong investor protection rules in place.

Added(12) Directive 2014/65/EU should therefore be amended accordingly.

RemovedIn the spirit of attaining a balanced approach, the Rapporteur has met with a great number of market participants and regulators. On this basis, the Rapporteur is proposing to amend the Commission’s proposal on a number of elements while maintaining and enhancing its main raison d’etre.

Added(13) Since the objectives of this Directive, namely to ease Union small and medium capitalisation companies’ access to capital markets, and to increase the coherence of Union listing rules cannot be sufficiently achieved by the Member States but can rather, by reason of the improvements and effects sought, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

RemovedThe major changes relate to the following issues: threshold for prospectus requirements; length of the prospectus; strengthening of ESG requirements; MAR’s revision on insiders; proposed changes to the Mifid II Directive; and the widening of the Multiple Voting Structure Directive.

AddedHAVE ADOPTED THIS DIRECTIVE:

RemovedThreshold for prospectus requirements

AddedDirective 2014/65/EU is amended as follows:

RemovedThe Rapporteur believes that due to the current European market architecture, a uniform EUR 12 million threshold for exempting small offers of securities to the public from the obligation to publish a prospectus is not in the best interest of maintaining satisfactory regulation over the market at national level. Therefore, it is proposed to adopt the Commission’s approach on the sequencing of the prospectus, to also allow an increase of the threshold to EUR 12 million but at the same time giving flexibility to Member States to adopt lower thresholds with a minimum of EUR 5 million threshold.

Added(1) in Article 4(1), point (12) is replaced by the following:

RemovedLength of the prospectus

Added‘(12) ‘SME growth market’ means a MTF, or a segment of a MTF, that is registered as an SME growth market in accordance with Article 33;’;

RemovedAs part of the Listing Act proposal, the Commission is attempting to create an EU-level standardisation for prospectuses. This approach is generally welcomed by the Rapporteur. He fully agrees with the view that a uniform structure based on sequencing is ideal for all players on the market since it makes prospectuses more readable and comprehensible for both retail and professional investors.

Added(2) Article 24 is amended as follows:

RemovedYet, the Commission also seeks to introduce a blanket length limit at 300 pages for prospectuses in order, it claims, to make it easier for retail investors to read such prospectuses. The Rapporteur recognises that prospectuses are lengthy and possibly unreadable for the average retail investor. Yet, data shows that retail investors do not read prospectuses, even in countries where prospectuses are lower than 300 pages. The prospectus in fact remains a professional document prepared for professional investors. It is seen as an instrument that covers issuers for legal liability, mostly read by professional investors or advisors operating out of investing funding agencies. They have, or should have, no problem with reading and understanding prospectuses, no matter their length. For these stated reasons, the Rapporteur adopts the Commission’s view on the sequencing of prospectuses while suggesting to remove page limits on prospectus documents.

Added(a) the following paragraphs ▌are inserted:

RemovedStrengthening of ESG requirements

Added‘3a. research used or distributed to clients or potential clients by▌ investment firms providing portfolio management or other investment or ancillary services that has been produced by those firms, or produced by third parties and provided to those firms, shall be fair, clear and not misleading. Research shall be clearly identifiable as such or in similar terms, provided that all conditions applicable to the research are met.

RemovedThe Rapporteur welcomes the inclusion of ESG rules in the proposed framework, and is of the view that the placement of ESG rules needs to be strengthened in the prospectus presentation and elsewhere. Changes to the prospectus regulation must, in the Rapporteur’s view, remain coherent with the ongoing general EU reform commitment across this essential policy area, about which there is wide-ranging agreement.

Added3b. Where the research is paid, fully or partially, by the issuer and disseminated to the public or to investment firms or to the clients of investment firms providing portfolio management or other investment or ancillary services, such research shall be labelled as “issuer-sponsored research” provided that it is produced in compliance with a Union code of conduct for issuer-sponsored research to be developed▌ by ESMA in accordance with the second subparagraph.

RemovedMAR’s revision on insiders

AddedESMA shall develop draft regulatory technical standards to establish a harmonised Union code of conduct for issuer-sponsored research. The code of conduct shall set out minimum standards of independency and objectivity to be complied with by the providers of such research, and specify procedures for the identification and prevention of conflicts of interest.

RemovedThe Listing Act’s proposals for changes to the MAR are generally welcomed although the Rapporteur recognises the controversial nature of the Commission’s proposed revision on insiders and how to identify and monitor them. Here, the Rapporteur notes ESMA’s warning regarding the simplifications being proposed, which could harm the capacity of national supervisors to easily enforce the rules against market abuse. Therefore, the Draft Report proposes the removal of the Commission’s text on insiders list.

AddedFor the purpose of developing those regulatory technical standards, ESMA shall take into account relevant codes of conduct which have been established at national level. ESMA shall submit those draft regulatory technical standards to the Commission by … [12 months from the date of entry into force of this amending Directive].

RemovedProposed changes to the Mifid II Directive

AddedPower is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council*.

RemovedOn a general note, the Rapporteur welcomes the elements introduced by the Commission to the Mifid II Directive and in this context recognises the efforts aimed at facilitating the listing of companies.

AddedThe Union-wide code of conduct for issuer-sponsored research shall be made publicly available on ESMA’s website.

RemovedWith the aim of improving on the Commission’s proposals, the Rapporteur introduces the idea of regulatory technical standards by ESMA to establish an EU harmonised code of conduct for issuer-sponsored research. Furthermore, in view of reducing the risks of fragmentation of liquidity, the Rapporteur, extends the issuer non-objection requirement concerning the admission to trading of an instrument already admitted on SME Growth Markets, to any trading venue.

Added3c. Member States shall ensure that any issuer may submit its issuer-sponsored research, as referred to in paragraph 3b of this Article, to the relevant collection body as defined in [Article 2(2)] of▌ Regulation (EU) …/… of the European Parliament and of the Council**.

RemovedWidening of Multiple Voting Structures while safeguarding investors

AddedWhen submitting such information to the collection body, the issuer shall ensure that it is accompanied by metadata specifying that the information complies with the Union code of conduct for issuer-sponsored research but that it is not to be considered regulated information within the meaning of Directive 2004/109/EU of the European Parliament and of the Council*** nor investment research within the meaning of Directive 2014/65/EU and is therefore not subject to the same level of regulatory scrutiny as such regulated information or investment research.

RemovedThe Commission’s proposal for this Directive is that companies should be able to choose governance structures that best suit their development stage. The Rapporteur agrees with the approach with some proposed adjustments.

Added3d. Research that is labelled as issuer-sponsored research shall indicate on its front page in a clear and prominent way that it has been prepared in accordance with the Union code of conduct referred to in paragraph 3b. ▌ Any other research material paid fully or in part by the issuer but not prepared in compliance with the Union code of conduct as referred to in paragraph 3b shall be labelled as marketing communication. Member States shall ensure that competent authorities have the necessary supervisory and investigative powers to enforce compliance by investment firms producing or using issuer-sponsored research with the Union code of conduct referred to in paragraph 3b.’;

RemovedSpecifically, in order to increase the attractiveness of listing in the EU, the option for multiple voting structures should not be limited to SME growth markets but expanded to all regulated markets. Furthermore, in order to maintain a high level of trust in the market, the Rapporteur introduces a set of obligatory safeguards including a limited voting ratio and a 10-year (definite time-set) sunset clause.

Added(b) ▌paragraph 9a▌ is amended as follows:

Added(i) the first subparagraph is replaced by the following;

Added‘9a. Member States shall ensure that the provision of research by third parties to investment firms providing portfolio management or other investment or ancillary services to clients is to be regarded as fulfilling the obligations under paragraph 1 if:

Added(a) an agreement has been entered into between the investment firm and the research provider, identifying the part of any combined charges or joint payments for execution services and research that is attributable to research;

Added(b) the investment firm informs its clients about the separate or joint payments, as applicable, for execution services and research made to third party providers of research, and of the consequences of the choice of separate or joint payments for the client; and

Added(c) the investment firm regularly assesses the quality and price of the research used based on robust quality and price criteria and its ability to contribute to better investment decisions. ESMA shall develop guidelines for investment firms for the purpose of conducting these assessments.

Added(ii) the following subparagraphs are added: