EU Listing Act: Making the capital markets within the European Union more attractive

The Council of the European Union adopted the EU Listing Act, formally known as the “Regulation Amending EU Capital Markets Regulations”, on 8 October 2024. The Act is a crucial component of the broader Capital Markets Union (“CMU”) initiative, which aims to develop more integrated, and less fragmented capital markets across the European Union.

The EU Listing Act will simplify processes and paperwork when raising capital in particular by increasing the threshold in prospectus-exempt equity issues from 20% to 30% of the already listed share capital of the issuer (as calculated over a 12-month period). In addition, the EU Market Abuse Regulation will be amended to avoid an obligation to disclose intermediate steps in M&A and other protracted processes which reduce disclosure obligations to only apply to the final event once it has occurred.

The EU Listing Act will enter into force on 4 December 2024, and the application of the new rules vary from the date of publication to fifteen (15) or eighteen (18) months after publication. The application of the new rules will therefore be from 4 December 2024 (e.g., new offer and admission prospectus exemptions), 5 March 2026 (e.g, EU Follow-On Prospectus) and 5 June 2026 (e.g. disclosures in protracted process), respectively.

Introduction

Reconstruction is a process in which a financially distressed company tries to restore its economic situation through an agreement with creditors and other stakeholders. The objective of reconstruction is to avoid bankruptcy proceedings and instead rescue the company and its operations.

The Danish Parliament passed new restructuring rules in 2021 aimed at streamlining the process of transferring distressed companies. These changes introduced the possibility of a “fast-track” corporate transfer. Additionally, the coverage provided by the Employees' Guarantee Fund during the restructuring proceedings was expanded, with the same aim of ensuring a smoother and more advantageous take-over of a company under reconstruction.

This article, the third in the series, will therefore exclusively focus on the fast-track route and employee claims.

The EU Listing Act builds on previous directives to further promote the growth markets of small and medium-sized enterprises (“SMEs”). It simplifies the regulatory framework for the CMU, allowing SMEs in particular to access a wider range of funding sources beyond traditional bank lending. By creating a more attractive and accessible environment for SMEs, the EU Listing Act helps to integrate these smaller entities into the broader capital markets, thereby reducing market fragmentation. This diversification is essential for reducing risks and supporting the growth potential of companies within the European Union.

To achieve this, the EU Listing Act implements several key measures, some of which are set out on the next page, affecting the EU Prospectus Regulation, EU Market Abuse Regulation, MiFID II and MiFIR:

Key amendments to prospectus exemptions aimed at reducing paperwork when raising capital

Increasing the “admission to trading”-exemption threshold in secondary issuances from 20% to 30%: Issuers will be exempt from publishing a prospectus for the admission to trading on a regulated market of securities fungible with such securities already admitted to trading on the same regulated market, provided such securities present less than 30% of the number of securities already admitted to trading (calculated over a 12-month period). The threshold was previously 20%.

Comments: In Denmark, a share capital increase will trigger pre-emptive rights for the company’s shareholders, unless the company’s shareholders have approved (by a two-third majority) that (1) the share capital increase may take place without pre-emption rights or (2) the delegation of authority to complete a share capital increase without pre-emption rights to the board of directors. Nevertheless, the threshold increase provides publicly traded companies with additional flexibility in raising capital for matters such as M&A and growth plans.

EUR 8m exemption threshold raised to EUR 12m in offerings of securities to the public: The monetary threshold, below which issuers are exempt from publishing a prospectus for public offer(s) of securities is EUR 8m in Denmark (calculated over a 12-month period), will now be increased to a threshold of EUR 12m. Member States of the European Union, however, are entitled to reduce this threshold to EUR 5m. 

Comments: The impact of this change will depend on the position of the Danish Financial Supervisory Authority as regards amending its monetary threshold.

New volume-dependent exemption in offers of securities to the public: A new exemption is introduced pursuant to which an issuer is exempted from publishing a prospectus in connection with an offer of securities to be admitted on a regulated market or an SME growth market and that are fungible with securities already admitted to trading on the same market, provided (i) such securities present less than 30% of the number of securities already admitted to trading (calculated over a 12-month period), (ii) the issuer is not subject to insolvency proceedings or a restructuring and (iii) a short summary (maximum 11x A4 pages) is filed with the competent authority and publicly disclosed. This new exemption will for an example provide a possibility to complete rights issues without issuing a prospectus.

New volume-independent exemption in offers of securities to the public: In addition to the volume-dependent exemption above, a new volume-independent exemption is also introduced pursuant to which an issuer is exempted from publishing a prospectus in connection with an offer of securities fungible with securities that have been admitted to trading on a regulated market or an SME growth market continuously for at least the 18 months preceding the offer of the new securities, provided (i) the securities offered are not issued in connection with a takeover by means of an exchange offer, a merger or a division, (ii) the issuer is not subject to insolvency proceedings or a restructuring and (iii) a short summary (maximum 11 A4 pages) is filed with the competent authority and publicly disclosed.

Comments re. new exemptions: Historically, larger offerings have commanded a “regular” prospectus for the purpose of marketing the transaction to investors, including from a transparency perspective. With a short summary, the degree of transparency is not as great, and any utilisation of the new exemptions will also depend upon disclosure requirements in other jurisdictions than the European Union such as the U.S. It is therefore not inconceivable that certain issuers will choose to publish an EU Follow-on Prospectus (as further described below) to provide comfort.

Key amendments to EU Market Abuse Regulation (MAR) to limit disclosure obligations in protracted processes

No requirement to disclose intermediate steps in a protracted process: The general requirement to disclose inside information (as defined by MAR), will no longer apply to inside information related to intermediate steps in a protracted process, e.g., M&A transactions, including public takeovers, where those steps relate to bringing about particular circumstances or an event. In protracted processes, only the final circumstances or events must be disclosed as soon as possible after they have occurred.

Comments: The amendment will be appreciated by issuers involved in M&A processes and other corporate transactions where the new rule will require that only the final result or event will be required to be disclosed. This will allow issuers to avoid having to make difficult judgements regarding disclosure of intermediate steps in protracted processes without, in our view, prejudicing the interests of the market, as well as create more of a level playing field between listed and unlisted bidders for the same asset. 

Introduction of EU Follow-On Prospectus to simplify already listed securities

Simplified prospectus for issuers whose securities have already been traded on a regulated market for 18 months: The EU Listing Act will introduce a 50-page limit follow-on prospectus, e.g., when an already publicly traded company intends to issue additional shares. This, inter alia, requires disclosure of only one (1) year of financial information (reduced from three (3) years compared to a “regular” prospectus) and no longer requiring an Operating and Financial Review-section, i.e., management’s view of factors that historically have affected the company’s financial condition and results of factors and trends expected to have a material effect on the company’s financial condition and results in the future.

Comments: This streamlined disclosure framework will serve as a valuable and cost-efficient option for companies that cannot utilize other exemptions. This may occur if the fungible-condition is unmet or if the company issues securities as part of a takeover or restructuring process, thereby failing to satisfy the necessary conditions mentioned earlier.

Key amendments to public offering rules aimed at increased flexibility

Minimum offer period for first IPO reduced to three (3) working days: IPOs of a class of shares to be officially listed and admitted to trading on a regulated market for the first time required a minimum offer period for book building of six (6) working days. Such minimum offer period will now be reduced to three (3) working days in order to foster swift book-building processes, and to increase the attractiveness of the inclusion of retail investors in such offers.

Comments: When companies go public, they often face market risk due to the (now old) six-working-day offer period, which is relatively lengthy. This risk becomes very apparent in scenarios in which an offering has been oversubscribed within a few minutes or hours from being opened, yet the book must stay open, introducing an avoidable risk for a successful transaction. Consequently, the shortened offer period will minimise transaction risk.

Withdrawal right period in case of supplement to prospectus extended to three (3) working days: The investor’s right to withdraw acceptance during bookbuilding if an issuer publishes a supplement to a prospectus as a result of significant new factors, material mistakes or inaccuracies have been extended from two (2) working days to three (3) working days.

Comments: The extended withdrawal right period will provide investors with additional time to digest important information before making a final investment decision resulting in greater market confidence and transparency.

Dealings by directors/managers

Reporting threshold increased from EUR 5k to EUR 20k per calendar year: The reporting threshold for transactions (within the meaning of MAR Article 19) by persons discharging managerial responsibilities, and any persons closely associated with them, will increase from EUR 5,000 to EUR 20,000 per calendar year (which was already the threshold in Denmark). A competent authority (the Danish Financial Supervisory Authority (DFSA) as regards issuers subject to the DFSA’s authority) may increase or decrease the reporting threshold to EUR 50,000 or EUR 10,000, respectively.

Comments: As the reporting threshold in Denmark is already at the increased level, the impact of the increase itself is non-existent. The possibility to increase the reporting threshold may, however, ease the administrative burden if the Danish Financial Supervisory Authority should decide to increase the reporting threshold further.