The European Commission proposed new rules Thursday to give small and medium enterprises (SMEs) easier and cheaper access to financing through public markets to help them expand.
Despite the benefits of stock exchange listings, EU public markets for SMEs can struggle to attract new issuers. The Commission is looking to adapt existing EU rules on access to public markets, the latest in a number of measures from the Commission to improve access to market-based finance for SMEs.
The aim is to cut red-tape for small and medium companies trying to list and issue securities on ‘SME Growth Markets’, a new category of trading venue dedicated to small issuers, and to foster the liquidity of publicly-listed SME shares. The new rules will introduce a more proportionate approach to support SME listing while at the same time safeguarding investor protection and market integrity.
Currently, out of the 20 million SMEs in Europe, only 3,000 are listed on stock-exchanges. “We want to change this,” said Valdis Dombrovskis, EC vice-president responsible for financial services: “We propose rules that will make it easier for SMEs to access to a wide range of funding at all stages of their development and to raise capital on public markets.”
The initiative is expected to boost the number of initial public offerings (IPOs) by SMEs and enable companies listed on those markets to attract a broader range of investors. A more liquid market will facilitate the trading of SME shares thanks to a high number of buyers and sellers, says the Commission, making it easier for SMEs to get funding. At the same time investors in SMEs would be able to turn investments into cash more easily, ultimately contributing to the creation of jobs and growth in the EU.
Main proposed changes to SME listings rules:
- Adapt current obligations to keep registers of persons that have access to price-sensitive information so as to avoid excessive administrative burden for SMEs, while ensuring that competent authorities can still investigate cases of insider dealing.
- Allow issuers with at least three years of listing on SME Growth Markets to produce a lighter prospectus when transferring to a regulated market. A prospectus is a legal document with information an investor needs to have before making a decision whether to invest in the company. Today’s proposal goes even further than the already overhauled and simplified prospectus rules in terms of making it easier for firms to tap Europe’s capital markets.
- Make it easier for trading venues specialised in bond issuance to register as SME Growth Markets. This will be done by setting a new definition of debt-only issuers. Those would be companies that issue less than EUR 50 million of bonds over a 12-months period.
- Create a common set of rules on liquidity contracts for SME Growth Markets in all Member States, in parallel to national rules. This refers to agreements between issuers and financial intermediaries (a bank or an investment firm) for buying and selling shares of and on behalf of the issuer. By so doing, the financial intermediary enhances the liquidity of the shares.
This initiative encompasses a legislative proposal which brings technical amendments to the Market Abuse Regulation and the Prospectus Regulation, and further technical amendments to delegated acts under the Markets in Financial Instruments Directive (MiFID II). The proposed amendments should boost companies’ listing on SME Growth Markets in a way that preserves the core EU rules established to restore confidence in financial markets after the financial crisis.
The proposal for a regulation amending the market abuse and prospectus rules will now be discussed by the European Parliament and the Council. The amendments to the MiFID II delegated act will now be published online for a four-week consultation, after which they will be adopted by the Commission and sent to the European Parliament and the Council for their scrutiny.