On 8 October 2024, the European Council adopted the Listing Act, a significant legislative package designed to make EU capital markets more attractive and accessible to companies, in particular to small and medium-sized enterprises (SMEs) and to enhance transparency, market integrity and investor protection.
This package consists of inter alia two key instruments: (i) Regulation (EU) 2024/2809[1] of the European Parliament and of the Council amending the Prospectus Regulation, the Market Abuse Regulation (MAR) and MiFIR (the Listing Act Regulation), and (ii) Directive (EU) 2024/2811[2] of the European Parliament and of the Council amending MiFID II (the Listing Act Directive) to make public capital markets in the European Union more attractive for companies and to facilitate access to capital for SMEs.
After exploring in Part I of our two-part series, the relevant changes brought by the Listing Act Regulation to the prospectus regime (please access our previous newsletter [here/link]), this second part pays a particular focus on the MAR implications.
As one of the core regulatory framework governing market integrity within the European Union, MAR establishes stringent rules to preserve strong protections against market abuse. The Listing Act Regulation introduces amendments to MAR designed to streamline compliance for issuers, particularly SMEs. These measures aim at reducing administrative burdens, harmonising regulatory frameworks across the Member States, make EU public markets more attractive, and facilitating capital access for SMEs.
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The MAR[3], which aims at preventing market abuse, including insider trading and market manipulation, has faced criticism for imposing a heavy compliance burden, particularly on SMEs. Additionally, the definition of "inside information" is often considered vague, and the regulation's stringent requirements on insider trading and immediate disclosure are believed to potentially reduce market liquidity and efficiency. In response to these concerns, the Listing Act has introduced amendments designed to improve the regulation and address some of its challenges.
1. Inside information and market soundings
1.1. Expanded definition of inside information in the context of front-running conduct
The definition of inside information with respect to front running conduct has been expanded to also capture not only persons responsible for the execution of orders concerning financial instruments but also other category of persons, who may be aware of a future relevant order i.e., information conveyed by persons acting on behalf of the client or information obtained from managing a proprietary account or a managed fund[4]. This clarification ensures that all categories of persons who might in fact be aware of a forthcoming order are covered and are aligned with practice.
1.2. Optional market sounding regime
Market sounding is defined in Article 11 of MAR and refers to the practice of engaging with potential investors or market participants to gauge their interest and assess market conditions before launching a new financial instrument, such as a bond or equity issuance. This process allows issuers to gather feedbacks on pricing, structure, and timing, evaluating the appetite for the proposed offering. Market sounding helps reducing uncertainty and assists issuers in making an informed decision, ensuring that the final terms of the transaction align with market expectations and maximise the chances of a successful investment.
1.2.1. Optional Compliance
The most notable change is that the market sounding regime has now clearly become an optional one, offering protection against allegations of unlawful disclosure of inside information[5].
The former market sounding regime created cumbersome requirements such as obtaining the recipient’s consent, record keeping obligations, etc[6].
The revised regime now leaves it up to each market participant to decide whether to adhere to the market sounding safe harbour. Disclosures that do not comply with these obligations are not automatically considered unlawful, but one will need to ensure that any such disclosure was done in the normal exercise of a person’s employment, profession or duties. This change aims at reducing the administrative burden on issuers while still providing safeguards against market abuse.
1.2.2. Extended definition
The definition of market sounding now includes communications of information not followed by any specific announcement of a transaction, ensuring that issuers can benefit from the protection against allegations of unlawful disclosure of inside information[7].
The amendment redefines the scope of market soundings, highlighting that these communications are pre-transactional and aimed at gauging investor interest in prospective deals. This brings greater clarity to the timing and purpose of market soundings.
2. Buy-back programmes: simplified reporting obligations
The Listing Act Regulation now simplifies reporting obligations for buy-back programmes, requiring issuers to report transactions only to the competent authority of the most relevant market in terms of liquidity for their shares, rather than to all competent authorities of the trading venues where the shares are listed. This significantly reduces reporting costs for issuers[8].
Issuers should now disclose to the public aggregated information on buy-back transactions, indicating the aggregated volume and the weighted average price per day and per trading venue, hence simplifying the disclosure process[9].
3. Disclosure of inside information and confidentiality
Under the former MAR regime, each step in a protracted process may qualify as inside information resulting in the obligation for the issuer to disclose it (subject to the requirement laid down by MAR for delayed disclosure of inside information)[10]. In practice disclosing information at a very early stage when said event has not reached a high level of certainty may be counterproductive and misleading[11].
The revised regime acknowledges that during long-term, multi-step processes, disclosing information about intermediate steps can be problematic and not always relevant. The revised regime now removes the obligation to disclose each step in a protracted process. In such circumstances the rules relating to delayed disclosure need not to be applied. The issuer should only disclose information related to the particular circumstances or the particular event that the protracted process intends to bring about or results in i.e., the final event. The amendments further align the regulation with practical business realities.
The European Commission is empowered to further define the rules on delayed disclosures and protracted processes through the adoption of delegated acts[12]
4. Insider Lists
Pursuant to the Listing Act Regulation, the European Securities and Markets Authority has been appointed to review the implementing technical standards in order to extend the alleviated format[13] for insider lists, applicable only to issuers whose financial instruments are admitted to trading on an SME growth market, to all issuers by early 5 September 2025. This format which requires less information, will most certainly reduce issuers’ administrative burden going forward[14].
5. Threshold for managerial transactions and closed period
The threshold for reporting transactions by persons discharging managerial responsibilities (PDMRs) has been raised from EUR 5,000 to EUR 20,000 per calendar year (without netting)[15]. National competent authorities may increase this threshold to EUR 50,000 or decrease it to EUR 10,000[16]. This amendment allows each Member State to set a threshold that is better suited to its market conditions.
The current MAR regime further prohibits PDMRs from conducting transactions on the issuer’s financial instruments during a 30 calendar days period before the announcement of mandatory interim or year-end financial reports except under certain circumstances[17]. The Listing Act Regulation now extends these existing exemptions:
- the exemption relating to severe financial difficulties, employee schemes and share qualification or entitlements now also covers financial instruments other than shares[18]; and
- a new general exemption has been introduced for transactions that involve no active investment decisions by PDMRs, such as activities arising from external factors, third-party actions or transactions based on predetermined terms, including the exercise of derivative[19].
6. Administrative Sanctions
While MAR establishes a minimum and maximum amount to be set at the discretion of the Member States, the final amount of sanctions for infringements relating to disclosure requirements committed by legal persons must now be proportionate to the size of the issuer[20] based on its total annual turnover (ranging from 0.8% to 15%). Member States can apply lower maximum levels of sanctions for SMEs to ensure their proportionate treatment[21]. Consequently, administrative fines of at least EUR 2,500,000 may be imposed (or EUR 1,000,000 for SMEs) to ensure that the penalties are proportionate.
7. Entry into force
The revised MAR regime will take effect 20 days after the publication of the Listing Act Regulation, on 4 December 2024.
However, the provisions related to the disclosure of inside information during a protracted process and the delay of such disclosure will apply as from 5 June 2026[22].
Conclusion
The Listing Act has brought several important changes, which will likely require adjustments to the Luxembourg’s legislation. In practice, these changes are a positive step, addressing many of the criticisms towards previous European regulations and filling the existing gaps, making the framework more effective and responsive to current market needs strengthening and increasing the attractiveness of the EU capital markets. The entry into force of the Listing Act package should provide greater access to financing for companies on the capital markets, enhance investors protection, while at the same time, reducing regulatory burdens.
[1] Regulation (EU) 2024/2809 of the European Parliament and of the Council of 23 October 2024 amending Regulations (EU) 2017/1129, (EU) No 596/2014 and (EU) No 600/2014 to make public capital markets in the Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises available on https://eur-lex.europa.eu/
[2] Directive (EU) 2024/2811 of the European Parliament and of the Council of 23 October 2024 amending Directive 2014/65/EU to make public capital markets in the Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises and repealing Directive 2001/34/EC available on https://eur-lex.europa.eu/
[3]Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC available on https://eur-lex.europa.eu/
[4] Preamble n°63 of the Listing Act Regulation, spec. Article 2 (3) amending Article 7 (1) point (d) of MAR.
[5] Preamble n°65 of the Listing Act Regulation, spec. Article 2 (4) replacing Article 11 §4 of MAR.
[6] Ibidem.
[7] Preamble n°64 of the Listing Act Regulation, spec. Article 2 (4) amending Article 11 §1 of MAR.
[8] Preamble n°62 of Listing Act Regulation, spec. Article 2 (2) amending Article 5 of MAR.
[9] Ibidem.
[10] Preamble n°67 of the Listing Act Regulation, spec. Article 2 (6) amending Article 17§4 of MAR.
[11] Preamble n°69 of the Listing Act Regulation, spec. Article 2 (6) inserting Article 17 §1 point 1a in MAR.
[12] Preamble n°69 of the Listing Act Regulation, spec. Article 2 (6) inserting Article 17 §11 of MAR.
[13] Preamble n°72 of the Listing Act Regulation, spec. Article 2 (7) amending Article 18 §9 of MAR.
[14] Preamble n°72 of the Listing Act Regulation, spec. Article 2 (7) amending Article 18 §6 of MAR.
[15] Preamble n°74 of the Listing Act Regulation, spec. Article 2 (8) amending Article 19 §8 of MAR.
[16] Preamble n°74 of the Listing Act Regulation, spec. Article 2 (8) amending Article 19 §9 of MAR.
[17] Article 19 §11 of MAR.
[18] Preamble n°75 of the Listing Act Regulation, spec. Article 2 (8) amending Article 19 §12 of MAR.
[19] Preamble n°75 of the Listing Act Regulation, spec. Article 2 (8) amending Article 19 §12a of MAR.
[20] Preamble n°80 of the Listing Act Regulation.
[21] Article 2 (14) of the Listing Act Regulation, amending Article 30 of MAR.
[22] Article 4 of the Listing Act Regulation.
