COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets

EN EN
EUROPEAN
COMMISSION
Brussels, 24.5.2018
SWD(2018) 243 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the document
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL
amending Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the promotion
of the use of SME growth markets
{COM(2018) 331 final} - {SEC(2018) 247 final} - {SWD(2018) 244 final}
Europaudvalget 2018
KOM (2018) 0331
Offentligt
1
Table of Contents
Table of Figures.................................................................................................................. 3
Glossary.............................................................................................................................. 4
1 Introduction: Political, legal and market context........................................................... 5
1.1 Legal background ................................................................................................... 5
1.2 Policy context ......................................................................................................... 7
1.3 Market context...................................................................................................... 10
1.3.1 A persistently low and concentrated SME IPO activity.............................. 10
1.3.2 Underdeveloped SME bond markets .......................................................... 11
2 Problem definition ....................................................................................................... 11
2.1 What are the problems.......................................................................................... 12
2.1.1 Supply side: high compliance costs for listed SMEs .................................. 12
2.1.2 Demand side: Insufficient liquidity on SME-dedicated markets ................ 13
2.2 What are the problem drivers?.............................................................................. 15
2.2.1 Administrative and regulatory burden on SME issuers stemming from the
application of MAR and the Prospectus Regulation............................................... 15
2.2.2 Inadequate definition of SME Growth Markets.......................................... 18
2.2.3 Lack of schemes (mechanisms) to promote trading and liquidity on SME
Growth Markets ...................................................................................................... 20
2.2.4 Out-of-scope drivers.................................................................................... 21
2.3 Consequences: less capital raised by SMEs on public markets............................ 21
2.4 Wider consequences ............................................................................................. 23
2.5 How will the problem evolve?.............................................................................. 25
3 Why should the EU act? .............................................................................................. 26
3.1 Legal basis ............................................................................................................ 26
3.2 Subsidiarity: Necessity of action of the European Union..................................... 26
3.3 Subsidiarity: Added value of EU action............................................................... 27
4 Objectives: What is to be achieved?............................................................................ 28
5 What are the available policy options?........................................................................ 28
5.1 What is the baseline from which options are assessed? ....................................... 29
5.2 Policy options addressing administrative compliance costs................................. 30
5.2.1 Options under the Market Abuse Regulation.............................................. 30
5.2.2 Options under the Prospectus Regulation ................................................... 32
5.3 Policy options concerning the SME Growth Market definition........................... 32
5.3.1 Defining criteria and thresholds for equity and debt-only issuers .............. 32
5.3.2 Half-yearly reports ...................................................................................... 33
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5.4 Policy options to address liquidity on SME Growth Markets.............................. 33
5.5 Options discarded at an early stage ...................................................................... 34
6 What are the impacts of the policy options?................................................................ 34
6.1 Policy options addressing administrative compliance costs................................. 34
6.1.1 Market Abuse Regulation ........................................................................... 34
6.1.2 Prospectus/ transfer of listing from an SME Growth market to a regulated
market ..................................................................................................................... 41
6.2 Policy options concerning the SME Growth Market concept .............................. 43
6.2.1 SME Growth Market defining criteria and thresholds................................ 43
6.2.2 Half-yearly report........................................................................................ 48
6.3 Policy options to address liquidity in SME Growth Markets............................... 50
7 Preferred option ........................................................................................................... 53
7.1 Overall impact of the preferred option ................................................................. 53
7.2 Macro-economic impacts ..................................................................................... 56
7.3 Small and medium-sized enterprises .................................................................... 57
7.4 UK leaving the EU ............................................................................................... 57
7.5 EU and Member State budgets ............................................................................. 58
7.6 Social impacts....................................................................................................... 58
7.7 Impact on third countries...................................................................................... 59
7.8 Environmental impacts......................................................................................... 59
7.9 Impact on competitiveness ................................................................................... 59
7.10 Coherence ............................................................................................................. 59
7.11 REFIT (simplification and improved efficiency) ................................................. 60
8 How will actual impacts be monitored and evaluated? ............................................... 61
Annex 1: Procedural information..................................................................................... 63
Annex 2: Stakeholder consultation................................................................................... 65
Annex 3: Who is affected and how?................................................................................. 77
Annex 4: Definitions ........................................................................................................ 82
Annex 5: Out-of-scope drivers......................................................................................... 84
Annex 6: Discarded options ............................................................................................. 87
Annex 7: Additional Market Background........................................................................ 90
Annex 8: The impact of developed SME Growth Markets on the whole funding escalator
of companies..................................................................................................................... 92
Annex 9: business models of SME brokers and liquidity issue ....................................... 95
Annex 10: Implications of the European Tick Size Regime for liquidity on SME Growth
Markets............................................................................................................................. 96
Annex 11: Market Abuse data received from National Competent Authorities .............. 99
Annex 12: Determining the appropriate debt issuance size to define an SME issuer on
debt-only SME Growth Markets .................................................................................... 100
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Annex 13: Market Data collected from European MTFs............................................... 102
Annex 14: The current regulatory environment of 'SME Growth Markets'................... 110
Annex 15: EU Acts and alleviations granted to SME Growth markets issuers ............. 112
Annex 16: Assessment of Policy Options - Synthesis Table ......................................... 113
Annex 17: Explanatory graph on the extension of the time-period to disclose managers’
transactions..................................................................................................................... 114
TABLE OF FIGURES
Figure 1 - Legislative scope of regulated markets vs. SME Growth Markets ................... 7
Figure 2 – SME Listing Package actions and objectives ................................................... 9
Figure 3 – IPO values, number of IPOs, average capitalisation and average number of
listed companies on European junior markets.................................................................. 10
Figure 4 – Comparison of selected alternative markets: turnover ratio ........................... 13
Figure 5 – Comparison of selected regulated markets: turnover ratio ............................. 14
Figure 6 – Companies moving from SME-dedicated markets to regulated markets ....... 17
Figure 7 – Average annual value of shares traded by market cap band, AIM ................. 18
Figure 8 – Initial Public Offerings and Secondary Public Offerings by Growth
Companies in Advanced economies (Billions, USD, 2014) ............................................ 22
Figure 9 – Problem tree................................................................................................... 25
Figure 10 – Average market capitalisation of companies listed on a selection of SME-
dedicated MTFs................................................................................................................ 46
Figure 11 – Average value of outstanding issuances per issuer per year......................... 47
Figure 12 – Summary of the preferred options ................................................................ 55
Figure 13 – Distribution of retail and institutional investors in selected EU MTFs vs.
regulated markets ............................................................................................................. 90
Figure 14 – Distribution of domestic and foreign investors in selected EU MTFs vs.
regulated markets ............................................................................................................. 90
Figure 15 – Free float requirement and minimum capitalisation on EU SME-dedicated
MTFs ................................................................................................................................ 91
Figure 16 – Evolution of market capitalisation segments ................................................ 93
Figure 17 – Average brokerage fees by market capitalisation ......................................... 95
Figure 18 – Tick sizes mandated by Commission Delegated Regulation 2017/588 for
liquidity bands and price ranges respectively................................................................... 98
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GLOSSARY
Acronym Meaning or definition
AMP Accepted Market Practice
CEE Central and Eastern Europe
CMU Capital Markets Union
CRA Credit Rating Agency
CSDR Central Securities Depositories Regulation
EGESC Expert Group of the European Securities Committee
ELTIFs European long-term investment funds Regulation:
ESMA European Securities and Markets Authority
EU European Union
GAAP Generally accepted accounting principles
HFT High-Frequency Trading
IAS International Accounting Standards
IASB International Accounting Standards Board
IBO Initial Bond Offering
IFRS International Financial Reporting Standards
IPO Initial Public Offering
MAR/MAD Market Abuse Regulation/Directive
MiFID II Markets in Financial Instruments Directive II
MTF Multilateral Trading Facility
NCA National Competent Authority
OECD The Organisation for Economic Co-operation and Development
PCA Person Closely Associated
PDMR Person Discharging Managerial Responsibilities
PE Private Equity
PP Private Placement
PR Prospectus Regulation
RM Regulated markets (also called 'main markets')
SME Small and medium-sized enterprise
STOR Suspicious Transaction and Order Reports
TFEU Treaty on the Functioning of the European Union
VC Venture Capital
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1 INTRODUCTION: POLITICAL, LEGAL AND MARKET CONTEXT
The Capital Markets Union (CMU) initiative aims at diversifying sources of financing for
European companies, in order to stimulate investment, economic growth, job creation and
sustainable development. Through both the CMU Action Plan and CMU Mid-Term Review,
the Commission adopted many proposals to foster corporates' access to capital in their early
development stages, including the review of EU regulations on venture capital1
and the
proposals on crowdfunding2
. In order to further ease companies' growth and scaling up, more
needs to be done at the following stage, i.e. to raise capital on public markets. Although
listing on a regulated market is more suitable for large firms, small and medium-sized
enterprises (SMEs) can list their shares and bonds on so-called junior markets. These markets
are important precisely as they make the link between private equity financing and the main
public markets. Over the past decade, however, most of these junior markets in Europe have
been struggling. Among other factors, the lack of SME visibility towards investors, low
levels of liquidity, SMEs’ insufficient knowledge of the listing process and high compliance
costs can explain why few SMEs seek financing on public capital markets.
This Impact Assessment accompanies a proposal for a regulation and a Commission
Delegated Regulation that would tackle certain regulatory impediments for issuers on junior
capital markets. In particular, it examines a number of technical amendments aiming to
reduce the regulatory burden on SMEs listed on public markets and to enhance the liquidity
of these markets. These targeted changes will not fully revive junior markets in Europe on
their own. Nevertheless, they address regulatory barriers flagged by stakeholders as inhibiting
SME access to public markets. They do so whilst preserving the highest standards of investor
protection and market integrity. Moreover, the adjustments should be considered to be only
one part of a broader package of measures, the 'SME listing package'3
, which also targets the
remaining issues preventing SMEs from raising capital on public markets. Any changes
proposed as a result of this analysis should therefore be understood as a first step in the right
direction, and not as a single remedy in itself. While this impact assessment considers the
problems that can be tackled through regulatory amendments, the other measures making up
the SME listing package are non-regulatory.
1.1 Legal background
When companies choose to raise capital through the issuance of shares or bonds in the EU,
they can do so either on regulated markets (‘RMs’, also called 'main markets') or on a
Multilateral Trading Facility (MTF)4
, both categories being defined by the Markets in
Financial Instruments Directive II (MiFID II). While either type of market is accessible to
companies of all sizes, regulated markets are generally more appropriate for large and mature
businesses. Listing on these markets will provide access to deeper pools of capital and
1 Proposal 461/2016 of the European Commission for a Regulation of the European Parliament and of the Council amending
Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social
entrepreneurship funds
2 Proposal 113/2018 of the European Commission for a Regulation of the European Parliament and of the Council on
European Crowdfunding Service Providers (ECSP) for Business and Proposal 99/2018 of the European Commission for a
Directive of the European Parliament and of the Council amending Directive 2014/65/EU on markets in financial
instruments
3 Communication from the Commission on the mid-term review of the capital markets union action plan ({SWD(2017) 224
final} and {SWD(2017) 225 final} of 8 June 2017)
4 A Multilateral Trading Facility (MTF) is a trading venue where companies may list their financial instruments, with lower
regulatory requirements than on main regulated markets
6
liquidity, and companies will benefit from a higher public profile (media coverage,
investment research, etc.). However, regulated markets require companies to comply with a
wider range of EU regulations concerning initial and ongoing disclosure, market abuses, and
accounting among others (such as the Transparency Directive5
, the Shareholders' Rights
Directive6
and the Takeover Bid Directive7
). This implies a significantly higher cost of
listing. While the benefits will offset these costs for larger companies, smaller companies will
usually reap fewer benefits from a regulated market listing and often lack the resources to
meet the higher regulatory requirements.
MTFs are generally more appropriate for smaller, fast-growing companies, as issuers on these
markets do not have to comply with all the European legislation applicable to companies
listed on a regulated market. MTFs are usually regulated through the listing rules of the
exchange. Across the European Union, a large number of regulated market operators also
have alternative MTFs, targeting specifically smaller issuers. These 'junior markets' (also
called alternative markets or trading platforms) "offer more flexible listing criteria, eased
disclosure requirements and comparatively low admission costs, so as to cater to SMEs'
inherent characteristics"8
. According to Europe Economics, there were 40 MTFs dedicated to
small and medium-sized enterprises across the European Union in February 20159
.
Since January 2018, the Markets in Financial Instruments Directive II has also introduced a
new category of MTFs, the SME Growth Markets, to "make it attractive for investors, and
provide a lessening of administrative burdens and further incentives for SMEs to access
capital markets"10
. For an MTF to qualify as an SME Growth Market, at least 50% of the
issuers whose financial instruments are traded on the trading venue MTF need to be SMEs,
defined by the Markets in Financial Instruments Directive II as companies with an average
market capitalisation of less than EUR 200 million 11
. In order to guarantee investor
confidence, the listing rules of SME Growth Markets must also satisfy certain quality
standards, including an appropriate admission document (when a prospectus is not required)
and periodic financial reporting. The SME Growth Market framework was developed to
further acknowledge the special needs of SMEs entering the equity and bond markets for the
first time. Several acts of the European Union already refer to this new form of trading
venues, such as the recent Prospectus Regulation12
, the European Venture Capital Fund
Regulation13
and the Central Securities Depositaries Regulation14
(see annex 14 for more
details). As the cost of drawing up a prospectus can be disproportionately high for SMEs, the
Prospectus Regulation has also introduced a reduced disclosure regime for SMEs which have
no securities admitted to trading on a regulated market.
5 Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements
in relation to information about issuers whose securities are admitted to trading on a regulated market
6 Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement
7 Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids
8
OECD, Opportunities and Constraints of Market-based financing for SMEs, September 2015
9 Europe Economics, Data Gathering and Cost analysis on Draft Technical Standards Relating to the Market Abuse
Regulation (2015)
10 MiFID II Recital 132
11
On the basis of end-year quotes for the previous three calendar years
12
Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be
published when securities are offered to the public or admitted to trading on a regulated market.
13 Regulation (EU) 2017/1991 of the European Parliament and of the Council of 25 October 2017 amending Regulation (EU)
No 345/2013
14 Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities
settlement in the European Union and on central securities depositories
7
Since its entry into application on 1 July 2016, the Market Abuse Regulation15
(MAR) has
been extended to MTFs, including SME Growth Markets. It provides for two specific
alleviations for SME Growth Market issuers (see below in the Section Problem Drivers). The
Market Abuse Regulation is a comprehensive legislative framework that aims to increase
investor confidence and market integrity, by prohibiting to (i) engage or attempt to engage in
insider dealing; (ii) recommend that another person engage in insider dealing or induce
another person to engage in insider dealing; (iii) unlawfully disclose inside information16
or
(iv) engage in or attempt to engage in market manipulation. Issuers are also subject to several
disclosure and record-keeping obligations under the Market Abuse Regulation. Relevant
issuers are notably under a general obligation to disclose inside information to the public as
soon as possible.
Figure 1 - Legislative scope of regulated markets vs. SME Growth Markets
Regulated Market SME Growth Market
MIFID II
MAR
Prospectus Regulation
Only if there is offer of securities to the public
Transparency Directive
Takeover bid Directive
Shareholders' Rights Directive
Mandatory use of IFRS
Non-financial reporting Directive
Source: Commission services
1.2 Policy context
Newly listed SMEs are a key motor of new investment and job creation. Companies recently
listed often outstrip their privately-owned counterparts in terms of annual growth and
workforce increase 17
. The benefits of listing include a reduced dependency on bank
financing, a higher degree of diversification of investors, easier access to additional equity
capital and debt finance (through secondary offers) and higher public profile and brand
recognition. From the investors' angle, companies with a small market capitalisation (small
caps) have, on average, a higher risk-return profile than large companies18
.
In order to support jobs and growth in the EU, facilitating access to finance for SMEs has
been a key goal of the Capital Markets Union (CMU) from the outset. Since the publication
of the Capital Markets Union Action Plan in 2015, some targeted actions were taken to
develop adequate sources of funding for SMEs through all their stages of development.
Among others, the Commission has taken forward a comprehensive package of legislative
and non-legislative measures to scale up Venture Capital (VC) financing in Europe, including
the creation of a Venture Capital fund-of-funds supported by the EU budget and the review of
regulation on European Venture Capital and European Social Entrepreneurship funds.
15 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market
abuse regulation)
16 This arises if any natural or legal person discloses inside information in a situation other than the normal course of their
employment, profession or duties
17
For example, during the period 2006-2012, the annual turnover of companies listed on NASDAQ OMX's junior market -
First North - grew by 25 %, compared to 10 % for private companies in the Nordics.
18
European Issuers, FESE and EVCA, EU IPO Report, 23 March 2015; FESE, A blueprint for European Capital Markets,
2014; MiddleNext and La Financière de l'Echiquier, The 2016 European Small and Mid Cap Outlook, 2016
8
In its Mid-term Review of the Capital Markets Union Action Plan19
published in June 2017,
the Commission chose to raise its level of ambition and strengthened its focus on SME access
to public markets. Importantly, the Commission also recognised that there was no 'silver
bullet' to restore the markets of SME initial public offerings (IPO) across the EU.
The Commission has therefore decided to set in motion several non-legislative actions
aimed at reviving the public markets for SMEs. First, building on the conclusions of the
Call for Evidence20
, the Commission committed to assessing the impact of Markets in
Financial Instruments Directive II (MiFID II) level 2 rules, requiring the unbundling of
research from trading commissions, on SME equity and bond research coverage. Second, the
Commission will identify and share best practices of financial schemes set up by national
promotional banks that help SMEs bear initial public offering costs. Third, the Commission
will explore how an EU financial support can help SMEs at the stage of an initial public
offering. Fourth, the Commission will continue working with the International Accounting
Standard Board (IASB) and all interested stakeholders to improve International Financial
Reporting Standards (IFRS) acceptance by developing an application toolbox and by
clarifying disclosures for SMEs through the IASB's Disclosure Initiative. Although still in
discussion, these various measures will mostly aim at improving the visibility and
attractiveness of SME securities towards investors, and at reviving the ecosystem of SME-
specialised intermediaries that intervene in the listing process (cf. figure 2).
Last but not least, the Commission has committed to publishing 'an impact assessment that
will explore whether targeted amendments to relevant EU legislation could deliver a more
proportionate regulatory environment to support SME listing on public markets'. This
measure constitutes the regulatory part of the SME listing package announced in the Mid-
Term Review of the CMU Action Plan. Progress has already been made in the context of
CMU to make it easier and cheaper for smaller companies to access public markets, notably
with the creation of the alleviated 'EU Growth Prospectus' through the revised Prospectus
Regulation. Nevertheless, stakeholders expressed through various dialogues21
and previous
public consultations (such as the CMU public consultation22
, the Call for evidence on the EU
regulatory framework for financial services 23
and the CMU Mid-Term Review public
consultation24
), that more needed to be done on the regulatory side to ensure that SMEs could
reap the full benefits of public markets.
19 Communication from the Commission on the mid-term review of the capital markets union action plan ({SWD(2017) 224
final} and {SWD(2017) 225 final} – 8 June 2017)
https://ec.europa.eu/info/sites/info/files/communication-cmu-mid-term-review-june2017_en.pdf
20
Communication from the Commission – Call for evidence on the EU framework for financial services ({SWD(2016) 359
final} - 23 November 2016)
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016DC0855&from=EN
21
Technical workshops on 'Barriers to Listing for SMEs' held by the Commission on 7 October and 8 December 2016
22
Green Paper on Building a Capital Markets Union
http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm
23Call evidence on the EU regulatory framework for financial services
http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm
24
Public consultation on the Capital Markets Union Mid-term Review 2017
https://ec.europa.eu/info/consultations/public-consultation-capital-markets-union-mid-term-review-2017_en
9
Figure 2 – SME Listing Package actions and objectives
Source: European Commission services
On 29 June 2017, the Council underlined that it 'welcome[d] the Commission's commitment
to deliver a more proportionate regulatory environment to support SME listing on public
markets, which – coupled with related non legislative actions – would further promote the
development of equity capital markets across all Member States'25
.
While conducting this proportionate review of regulatory barriers to SME listing, the
Commission has decided to follow two guiding principles. First, this review should make
sure that no proposed change undermines investor protection and market integrity or weakens
core principles of acts of the European Union that were crucial in restoring confidence in
financial markets (such as the Market Abuse Regulation). Second, the Commission considers
that SMEs listed on regulated markets should remain outside the scope of this exercise.
Requirements imposed on regulated market issuers should apply in a similar way regardless
of the size of the company, so that investors on regulated markets feel confident that issuers
are subject to one single set of rules. Different requirements for SMEs compared to large
capitalisations on those trading venues are likely to confuse stakeholders, and in particular
investors. Therefore, this review will not interfere with the rulebook of the European Union
applicable to regulated market issuers. It will be strictly confined to SME Growth Markets
and companies listed on those trading venues, a position also in line with a resolution adopted
on 19 January 2016, by the European Parliament, which called on the Commission and the
Member States "to make active use of the SME Growth Market category in future financial
services regulation". As a result, only legal texts applicable to SME Growth Markets are
considered in the context of this initiative (i.e. Market Abuse Regulation, Prospectus
Regulation and the MiFID II – see figure 1 for more details).
25 Council conclusions on the Commission Communication on the mid-term review of the Capital Markets Union Action
Plan (11 July 2017) (http://www.consilium.europa.eu/en/press/press-releases/2017/07/11-conclusions-mid-term-review-
capital-markets-union-action-plan/)
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1.3 Market context
1.3.1 A persistently low and concentrated SME IPO activity
Despite the benefits of stock exchange listings, European public markets for SMEs are
struggling to attract issuers. The number of initial public offerings on SME-dedicated
markets steeply declined in the European Union in the wake of the crisis, and did not
significantly pick up since. As a result, Europe is producing only half of the SME initial
public offerings that it generated before the financial crisis (478 initial public offerings on
average per year in 2006-2007 vs. 218 between 2009 and 2017 on EU SME MTFs). Between
2006 and 2007, an average of EUR 13.8 billion was raised annually on European SME-
dedicated MTFs through initial public offerings. This amount fell to EUR 2.55 billion on
average from 2009 to 2017. While IPO markets continue to function well for larger
companies, they may have become less accessible to smaller companies26
.
Figure 3 – IPO values, number of IPOs, average capitalisation and average number of listed companies on
European junior markets
Source: Commission data on European SME-dedicated MTFs collected directly from securities exchanges
Importantly, one MTF – AIM in the UK – has been
responsible for the bulk of the activity between 2006
and 2017 (74% of the total proceeds). Although this
proportion has decreased over time, it still represented
more than half of all IPO values conducted on EU
SME markets in 2016. This fact highlights a second
important issue in the European SME IPO landscape:
the activity remains highly concentrated in the UK,
leaving other markets virtually inactive in
comparison.
26AFME, The shortage of Risk Capital for Europe's High Growth Businesses, 2017
11
Source: Commission data on European SME-dedicated MTFs collected directly from securities exchanges
In addition, the fact that 18 European SMEs carried out their initial public offerings in the US
between October 2012 and March 2014, raising a total of EUR 1,156 million of capital,
further illustrates the fact that EU IPO markets may not always suit the needs of European
SMEs27
.
1.3.2 Underdeveloped SME bond markets
The situation on debt markets is also particularly worrying. As highlighted by a dedicated
Commission Expert Group, bond markets remain largely untapped by European SMEs,
despite the creation of specialised platforms in Europe with simpler, less costly processes and
requirements28,29
. This situation is clearly reflected in the low number of companies issuing
bonds on SME-dedicated markets: out of the approximately 35,000 companies eligible to
issue mini-bonds in Italy30
, only 222 companies did so from 2012 to 201631
. Similarly, 800
Spanish SMEs are believed to be eligible to issue bonds on the Spanish SME-dedicated debt
market (MARF)32
, while there have been only 41 five issuers of debt on the market since
201333
.
2 PROBLEM DEFINITION
To create viable public markets for small and mid-capitalisation companies, SMEs must be
willing to issue securities (supply) and investors must be willing to invest in this asset class
(demand)34
. Furthermore, public markets for SMEs need to be supported by healthy local
ecosystems (i.e. a network of brokers, equity analysts, credit rating agencies, investors
specialised in SMEs, etc.) that help smaller firms both pre- and post-IPO, connect listed
SMEs with investors, and that (indirectly) ensure a sufficient level of liquidity. All these
elements are also influenced by the way regulations have been designed. In this regulatory
27 Dealogic and AFME analysis, 2016; as the data do not explicitly identify SMEs but instead distinguish issuers based on
IPO values (below EUR 100 million, below EUR 1 billion…), the 18 companies considered here are those having raised less
than EUR 100 million at the time of IPO, which typically should only cover small and midcaps.
28 "Improving European Corporate Bond Markets", Report from the Commission Expert Group on Corporate Bonds,
November 2017
29
OECD, Opportunities and constraints of market-based financing for SMEs, September 2015
30
Cerved Group, Is there a market for mini-bonds in Italy? A snapshot of unlisted companies, October 2013
31
Background document on (Italian) mini-bonds - FeBAF-VOEB event on "New Financial Instruments: the Experience of
Schuldscheindarlehen in Germany and the Comparison with Mini-Bonds in Italy", 2017
32
Data from Gabinete de estudios economicos Axesor, July 2013
33
Data collected by Commission services from European exchanges
34 EuropeanIssuers, EVCA and FESE, EU IPO Report, March 2015
12
perspective, the challenges that SME-dedicated markets are currently facing can be
categorised into two groups: (i) on the supply side, issuers have to face high compliance costs
to be able to list; (ii) on the demand side, insufficient liquidity can affect issuers, investors as
well as market intermediaries.
2.1 What are the problems
2.1.1 Supply side: high compliance costs for listed SMEs
Two categories of costs are incurred by SMEs when tapping public markets: (i) the direct
costs of becoming (at the Initial Public Offering or IBO35
stage) and remaining publicly
listed, through fees paid to several services providers (such as the underwriting banks,
auditors, legal advisors, communication specialists…); and (ii) the indirect ongoing
compliance costs to meet regulatory requirements. While making a decision on whether or
not to list, companies weigh expected benefits against the costs. If costs are higher than
benefits or if alternative sources of financing propose a better ratio, companies will not seek a
listing of their shares or an issuance of bonds on a public market36
. The focus of this impact
assessment will be on the indirect costs associated with requirements laid down in European
legislation.
Heavy reporting requirements are considered an indirect cost of remaining public37
, as
additional staff is needed to assist the issuer in complying with regulatory requirements. The
problem is magnified by the fact that EU legislation is very technical38
, that SMEs may
therefore not have the expertise or experience needed to understand and meet their
obligations (giving rise to compliance issues), and may not be prepared to obtain external
legal advice due to associated costs39
. In general, SMEs hold the view that fund-raising
through capital markets imposes a large administrative burden, which is considered one of the
main hurdles to going public. A study from the World Federation of Exchanges40
has asked
listed SMEs to compare their experience of listing with their prior expectations. The areas
where listed SMEs' experience was most out of line with expectations were 'time and costs of
meeting listing requirements', 'time and costs of reforming the corporate governance
structure' and 'time and cost of aligning financial statements'. Among other things, the
majority of unlisted SMEs mentioned that 'the ongoing cost of compliance was too high', 'the
listing requirement entailed changing too many requirements within the firm' and that they
were 'concerned about heavy and cumbersome requirements'. These responses confirm that
SMEs not only perceive capital-raising on public markets as burdensome, costly and time
consuming – a perception that may discourage them from listing – but actually experience it
as such. High compliance costs and management time spent to comply with the regulatory
burden can also lead companies listed on junior markets to cancel their admission to
trading41
.
35 IBO stands for Initial Bond Offering
36 EuropeanIssuers, EVCA and FESE, EU IPO Report
37 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
38 EuropeanIssuers, EVCA and FESE, EU IPO Report, March 2015
39 OICV, SME Financing through capital markets, July 2015
40 World Federation of Exchanges, SME Financing and Equity Markets, 2017
41 See the delisting of Norcon from AIM UK on 31 May 2016: one of the key factors mentioned for delisting was 'the
considerable cost, management time and the legal and regulatory burden associated with maintaining the Company's
admission to trading on AIM', considered disproportionate compared to the benefits. See also DDD Group that delisted on
13
The inherent small size of SMEs often makes compliance costs disproportionate42
. As the
costs associated with some requirements are largely fixed, economies of scale imply that a
disproportionately large burden is placed on smaller firms, either in terms of staff to mobilise
or actual monetary costs43
. In 2010, the total ongoing costs of remaining listed (direct and
indirect) in France were estimated to lie between EUR 150,000 to EUR 500,000 per year for
equity issuers with less than EUR 150 million of capitalization44
. One UK stakeholder
mentioned that the direct and indirect costs of having shares admitted to trading on AIM (the
London Stock Exchange SME Growth Market in the UK) are considered to be around EUR
325,000 per year45
. In the UK, complying with the Market Abuse Regulation would result in
additional costs estimated at EUR 58,000 per year and per company listed on AIM46
. In Italy,
the costs due to application of the Market Abuse Regulation to bond issuers on EXTRA-
MOT-PRO (an SME-dedicated MTF specialised in bonds) are estimated at EUR 25,000 for
the first year and between EUR 5,000 and EUR 10,000 per year for ongoing compliance.
Some companies across the EU were also reported to have delisted because of the cost and
compliance burden stemming from the Market Abuse Regulation 47
.
2.1.2 Demand side: Insufficient liquidity on SME-dedicated markets
SME markets and small cap companies traded on them tend to suffer from lower levels
of liquidity48 than their larger counterparts49
. As shown in the table below, the turnover
ratio50
of all the SME-dedicated MTFs is typically lower than the turnover of corresponding
regulated markets in the same Member State51
. Some SME-dedicated MTFs have very low
liquidity, with a turnover ratio between 0 and 5%.
Figure 4 – Comparison of selected alternative markets: turnover ratio
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
First North (Nordics) 113% 85% 60% 58% 56% 56% 126% 84% 82% 58% 53% 60%
EN.A (EL) N/A N/A 1% 2% 2% 1% 1% 1% 0% 0% 2% 2%
ESM (IE) 124% 126% 195% 133% 64% 4,6% 4,2% 2,9% 5,6% 7,9% 5,7% 13%
AIM (IT) N/A N/A N/A 2,4% 13% 7,6% 9,3% 17% 20% 30% 11% 47%
NewConnect (PL) N/A 44% 36% 42% 62% 40% 20% 14% 20% 31% 23% 24%
AeRO (RO) N/A N/A N/A N/A N/A N/A N/A N/A N/A 2% 5% 3%
MAB (ES) N/A N/A N/A 18% 10% 10% 10% 15% 123% 17% 5% 4%
AIM (UK) 77% 77% 62% 59% 60% 67% 78% 58% 77% 58% 57% 72%
Source: Commission data on European SME-dedicated MTFs collected directly from exchanges
23 May 2016, mentioning the costs associated with trading on AIM as the main reason for delisting, and stating that the
Company would have otherwise saved more than GBP 250,000 per year.
42
Kaousar Nassr, Iota and Gert Wehinger , “Opportunities and limitations of public equity markets for SMEs”, OECD
Journal: Financial Market Trends, Vol. 2015/1, 2016
43 C Leuz and P Wysocki, Economic consequence of Financial Reporting and Disclosure Regulation: A Review and
Suggestions for Future Research, Working paper, University of Chicago and MIT, 2008
44 An EU-listing small Business Act, Report by Fabrice Demarigny, March 2010
45
Note from the Quoted Companies Alliance, 3 June 2016
46 Ongoing legal fees resulting from the MAR application is around EUR 15,000 per year. Regarding the insider list system
costs, companies could incur one-time fee of EUR 4,500 for the setting up of the new system, with an added EUR 13,000
annual fee for the licence to this system. Company would also need to employ a new member of administrative staff at least
part-time, which adds the annual costs salary of approximately at EUR 30,000. Source: QCA Letter to the European
Commission
47 See the three companies Mydentist, Takko and Lincoln Financing as well as the delistings of bonds by larger US issuers
on EU markets such as Microsoft Corporation and Freddie Mac
48
According to Keynes (1930), 'a market is liquid if trades can quickly buy or sell large numbers of shares without large
price effects'
49 World Federation of Exchanges, SME Financing and Equity Markets, 2017
50
Turnover ratio is the annual turnover value to the capitalisation of companies listed on the market.
51 Association for Financial Markets in Europe (AFME), Equity Primary Market and Trading Report, Q4 2015
14
Figure 5 – Comparison of selected regulated markets: turnover ratio
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Nasdaq OMX (Nordics) 132% 134% 135% 109% 88% 89% 69% 64% 64% 68% 64% 61%
ATHEX (EL) 0 0 0% 0% 0% 0% 0% 0% 25% 45% 51% 48%
Irish SE (IE) 13% 20% 63% 36% 23% 42% 40% 66% 59% 44% 50% 27%
Borsa Italiana (IT) 154% 204% 185% 158% 163% 179% 138% 128% 153% 153% 114% 108%
Warsaw SE (PL) 24% 22% 44% 58% 45% 42% 41% 42% 36% 36.% 38% 38%
Bucharest SE (RO) 15% 17% 12% 15% 13% 22% 15% 17% 17% 11% 11% 14%
BME (ES) 114% 135% 183% 90% 119% 117% 93% 87% 108% 134% 98% 88%
LSEG (UK) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Source: Commission data on European SME-dedicated MTFs collected directly from exchanges
Low levels of liquidity act as one of the most important deterrents to investments in
SME financial instruments, and especially in shares52
. Investors (institutional and retail)
overall prefer liquid stocks (and markets) for their investments53
. A study has shown that both
retail and institutional investors consider that more liquidity in SME stocks is the main factor
that would increase their confidence in listed SMEs 54
. Without liquidity, professional
investors face increased risks ('liquidity risk') and tend to shift their assets away from SMEs
into larger capitalisation companies55
. Liquidity remains the precondition for an exit from an
investment. With insufficient liquidity, it might take several months for an investor to sell off
their holdings in a company. When liquidity is constrained, professional investors cannot get
the shares required to fulfil their portfolio requirements, deterring their participations in such
markets56
.
Low liquidity on SME-dedicated markets is an important variable for issuers. Low
liquidity increases the equity cost of capital57
and increases the likelihood that an initial
public offering could be under-priced58
compared to the actual fundamentals of the company,
as investors price in the liquidity risk. In addition, lack of liquidity may be an important
driver of delistings. If a stock is not liquid, it may be priced at a discount, which implies
lower advantages of being listed. This could imply that companies with more concentrated
ownership (less free float), less traded stocks and operating in less liquid national stock
markets will be more inclined to go private.
The lack of liquidity is also a source of concern for market intermediaries. A study has
shown that market intermediaries consider a mechanism enhancing liquidity of SME stocks'
to be the most important factor for the health of the SME ecosystem59
. Interestingly, this
result holds across all types of intermediaries, as financial institutions supplying financial
services to SMEs usually provide more than one service, several of which requiring market
liquidity (such as underwriting, brokerage or market-making services)60
. Liquidity is key in
the business model of brokers61
, especially on segments where trading volumes are thin, like
on SME segments. Evidence suggests that revenues from the fees generated by smaller
52 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016; For instance, a survey has shown that 74% of investors considered the lack of liquidity of SME shares as
a barrier that impacts investor interest (CFA Institute, Issue brief: Investors and SME Funding, 2013).
53 G. Wuyts, Stock Market Liquidity: Determinants and Implications, Tidjschrift voor Economie en Management, 2007
54 World Federation of Exchanges, SME Financing and Equity Markets, 2017
55 OECD, Opportunities and Constraints of Market-Based Financing for SMEs, September 2015
56
OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
57 G. Wuyts, Stock Market Liquidity: Determinants and Implications, Tidjschrift voor Economie en Management, 2007
58 Ellul A. and Pagano M., IPO Underpricing and After-Market Liquidity, Review of Financial Studies, p.348-421 (2006).
59 For instance, a provider of legal services should not necessarily care about liquidity
60 World Federation of Exchanges, SME Financing and Equity Markets, 2017
61 See annex 9 for more details on the business model of brokers
15
trading segments are insufficient to remunerate brokers, who bear high fixed costs and are
often locally-based62
. Due to this lack of liquidity, services providers are not incentivised to
support smaller listed companies because it is economically less attractive for them to do
so63
. This lack of profitability potentially creates problems in ensuring the existence of a
sufficiently vibrant and motivated ecosystem to support small and mid-caps. Such ecosystems
consist of investment banks specialised in SMEs, brokers, market-makers and other third
party advisors specialised in SMEs. The erosion64
or disappearance65
of the local and regional
ecosystems in Europe is cited as a major contributor to the low levels of initial public
offerings on SME markets66
.
2.2 What are the problem drivers?
While there are many factors driving SMEs' decision to go public and investors' decisions to
invest in SME financial instruments, this impact assessment focuses on selected drivers
related to specific barriers in the regulatory framework. The other 'out-of-scope' drivers are
described in Annex 5.
2.2.1 Administrative and regulatory burden on SME issuers stemming from the
application of MAR and the Prospectus Regulation
The Market Abuse Regulation has extended the scope of its obligations to issuers whose
financial instruments have been admitted to trading on an MTF (including SME Growth
Markets). In doing so, the Market Abuse Regulation has created a 'one-size-fits-all' regulatory
environment by making all its requirements applicable (except two minor alleviations
discussed below) in the same manner to all issuers, irrespective of their size or the trading
venue where their shares or bonds are admitted to trading. In the context of the Call for
Evidence on the EU regulatory framework for financial services, 'several respondents argued
that the market abuse regime places a high burden on issuers listed on SME markets, which
may ultimately result in less activity and thus reduced financing for SMEs'67
.
Some MTF issuers notably consider their obligation resulting from the Market Abuse
Regulation to notify managers' transactions as burdensome68
. Notifications by managers
of transactions carried out in relation to securities of companies they manage are informative
for price formation (market signalling): by providing the market with this notification,
managers indicate to investors their perception of the issuers’ future prospects 69
. The
obligation to disclose a manager’s transaction applies once these transactions have reached a
cumulative amount of EUR 5,000 within a calendar year (with no netting). To reduce the
number of declared transactions and associated costs, a national competent authority may
decide to increase the threshold to EUR 20,000, but only four of them have decided to use
62 MiddleNext and La Financière de l'Echiquier, The 2016 European Small and Mid Cap Outlook, 2016
63 World Federation of Exchanges, SME Financing and Equity Markets, 2017
64
European Issuers, FESE and EVCA, EU IPO Report, 23 March 2015
65 FESE, A blueprint for European Capital Markets, 2014
66 The need to re-build ecosystems was highlighted in the 2013 report from the Economic and Financial Committee's High
level Expert Group, which called on Member States to 'investigate (and report on) as a matter of urgency what is required in
their market to (re)build an ecosystem comprised of dedicated analysts, brokers, market makers, ratings, etc…that can both
advise and support issuers and investors, and foster liquidity of equity growth markets.'
67 European Commission Staff Working Document, Call for Evidence - EU regulatory framework for financial services,
SWD(2016) 359 final
68
Feedback received during workshops organised by Commission services on regulatory barriers to SME listing; Call for
evidence; Public consultation "Building a proportionate regulatory environment to support SME listing"
69 ESME Report on the Market Abuse Directive, 2007
16
this option 70
. Some stakeholders consider that this threshold is too low, making this
requirement not only burdensome for managers and issuers but also poorly informative for
the market71
. The persons caught by the managers' transactions regime (either the Persons
Discharging Managerial Responsibilities – PDMRs - or the Persons Closely Associated to
PDMRs - PCAs) shall notify the issuers within three working days as of the transaction date,
while SME issuers are obliged to disclose those managers' dealings within the same three-day
period. As the settlement of a transaction takes at least two working days and can lead to a
late notification, the current three working-day rule may not allow issuers to have sufficient
time to disclose the transactions to the market, while they face potential sanctions in case of
non-compliance with this requirement72
. This timeframe will still be particularly challenging
when the issuer is seeking legal advice about whether a specific transaction should be
disclosed or not73
.
Another administrative burden stems from the obligation to justify the reasons why the
disclosure of inside information has been delayed. The issuer can delay such disclosure in
certain cases to avoid harming its legitimate interests and provided that it would not prove
misleading for the public. However, once it has decided to delay the disclosure, the issuer
must inform its national competent authority and justify the delay. The written explanation
should be provided in all circumstances or only when the national competent authority
requests it (but only seven Member States have chosen this second option 74
). An
implementing regulation75
provides that companies must record and document in writing a
long list of information ('disclosure record')76
. This requirement can be burdensome for
SMEs that already struggle with defining what constitutes inside information. In some cases,
SMEs can also be tempted to disclose inside information earlier than they wanted (and thus
harming its legitimate interests) to avoid time-consuming justifications to the national
competent authority77
.
The private placement of SME bonds with institutional investors78
is also constrained
by the Market Abuse Regulation market sounding regime 79
. The Market Abuse
70 FI, FR, IT, NL
71 Feedback received from stakeholders during technical workshops organised by the Commission on regulatory barriers to
SME listing and Public consultation on SME listing
72 For an infringement of Article 19, NCAs have the power to impose a sanction of up to EUR 500,000 (Art. 30 MAR).
73
Public consultation "Building a proportionate regulatory environment to support SME listing"
74
BG, DK, EL, NL, AT, FI and UK
75 Implementing Regulation (EU) 2016/1055 of 29 June 2016
76 This includes among others the time and date when such information came to exist, when the decision was taken to delay
its disclosure, the identity of the persons who adopted the decision and are responsible for constantly monitoring the
conditions of the delay, and the manner in which the prerequisite conditions for such delay were met.
77 Feedback received from stakeholders during technical workshops organised by Commission services on regulatory
barriers to SME listing
78 There are several markets for negotiated privately placed bonds in the EU. Private placement transactions of debt
instruments can sometimes take the form of listed bonds. This is the case notably in France, Spain and Italy. For instance, in
2016, the Euro-PP market (essentially in France) recorded 68 deals for a total amount of EUR 4.5 billion. The number of
listed Euro-PP transactions can vary from one year to another and in general between 25 and 70% of the transactions are
listed. In Italy, the Mini-bond market is a market of debt instruments especially designed for unlisted companies. The
number of mini-bonds issued in 2016 increased to 106 and for a total volume of EUR 3.57 billion. Most of those transactions
were listed on the Extra-Mot Pro (an Italian MTF for corporate bonds and restricted to institutional investors). In Spain, EUR
2.28 billion was raised on the Mercado Alternativo de Renta Fija in 2016, a MTF which targets medium-sized firms and
professional investors (Source: BCG and Linklaters, Study on Identifying the market and regulatory Obstacles to the
Development of Private Placements of Debt instruments in the EU, 2017, Background Document on mini-bonds, FeBAF-
VOEB event on 'New Financial Instruments: the Experience of Schuldscheindarlehen in Germany and the Comparison with
mini-bonds in Italy', 2017)
17
Regulation provides for a prescriptive regime, which introduces obligations on issuers (or
investment firms acting on their behalf) carrying out soundings as well as on investors who
are sounded out. The heavy obligations imposed have a deterring effect on both potential
issuers and investors that might otherwise have been interested in entering into a negotiation
process with the issuer to concluding such a transaction80
.
Furthermore, the Market Abuse Regulation does not go far enough in differentiating
requirements for SME Growth Market issuers compared to companies listed on
regulated markets81
. The Market Abuse Regulation has made only two limited concessions
to SME Growth Market issuers. First, those issuers can disclose inside information on the
trading venue's website (rather on their own website). In practice, this concession has been
considered to be of limited value82
, as SMEs can also be required to maintain a website for
regulatory or other commercial purposes. Second, SME Growth Market issuers are also
exempted from maintaining 'insider lists' (i.e. a list of all persons who have access to inside
information) on an ongoing basis, as long as the issuer takes all reasonable steps to ensure
that any person with access to inside information acknowledges the regulatory duties which
follow and the issuer is able to provide the national competent authority, on request, with the
insider list. This exemption does not amount to a real alleviation. In practice, it can be
difficult to draw up an insider list ex-post several months after the events that gave rise to
inside information. There is also still a need for such issuers to have adequate systems and
procedures in place to produce an insider list if requested by the national competent authority.
This may lead such issuers to establish costly internal systems or processes, which increase
the administrative burden they are under.
Finally, it appears that very few companies listed on SME-dedicated markets actually
graduate to the European main (regulated) markets, while those trading venues allow
successful companies to benefit from greater liquidity and a larger investor pool 83
.
Stakeholders indicated that one regulatory impediment to such a graduation on main markets
is the obligation to draft a full prospectus when the shares are admitted to trading on a
regulated market84
.
Figure 6 – Companies moving from SME-dedicated markets to regulated markets
Dritter
Markt
(AT)
Euronext G
(FR,BE,
NL,PT)
START
(CZ)
First
North
(Nordics)
ESM
(IE)
AIM
(IT)
New
Connect
(PL)
MAB
(ES)
Aktie
Torget
(SE)
NGM
(SE)
AIM
(UK)
Total of listings from the
SME-dedicated MTF to the
regulated market
0 8 0 61 3 3 62 1 6 1 74
Total number of listed
companies since 2006 or the
creation of the SME MTF
4 276 1 426 32 120 646 93 258 83 2251
% over total number of
companies listed on market
0% 3% 0% 14% 9% 3% 10% 1% 2% 1% 3%
Source: European Commission calculations based on data collected directly from European securities exchanges
79 According to Article 11 of MAR, market soundings are defined as a communication of information, prior to the
announcement of a transaction, in order to gauge the interest of potential investors in a possible transaction and the
conditions relating to it such as its potential size or pricing, to one or more potential investors.
80 Public consultation, 2017 (AMAFI and ICMA's replies)
81
Feedback received from stakeholders during technical workshops organised by Commission services on regulatory
barriers to SME listing
82 N. Moloney, EU Securities and Financial Markets Regulation, 2014
83 World Bank Group, SME Exchanges in Emerging Market Economies, A Harwood, T Konidaris, 2015
84
The Impact Assessment of the 2015 Prospectus Regulation (SWD(2015)255) estimates that the minimum cost of an equity
prospectus range from EUR 1000 to EUR 3 million with an average of almost EUR 700,000. The maximum amount ranges
between EUR 10 000 and EUR 4 million, averaging at EUR 1.3 million
18
2.2.2 Inadequate definition of SME Growth Markets
Europe Economics has identified around 40 potential candidates for the SME Growth Market
label among the EU MTFs85
. Among those 40 SME-dedicated MTFs, only three have been
registered as SME Growth Markets so far86
.
As mentioned above, an SME Growth Market is currently defined as an MTF on which at
least '50% of issuers are SMEs'. SMEs are defined by Markets in Financial Instruments
Directive II as companies with a market capitalisation below EUR 200 million. This
definition does not prevent SME-dedicated MTFs specialised in shares to register as SME
Growth Markets, as the vast majority of their issuers do not reach this EUR 200 million
market capitalisation threshold87
. However, as the market capitalisation threshold is set at a
rather low level, this can 'adversely impact investor perception of the SME markets as they
would be regarded as only accommodating micro-cap, illiquid companies"88
. Indeed the
definition of SMEs included in Markets in Financial Instruments Directive II does not
correspond to those used in indices or by asset managers specialised in small caps89
. Some
European regulations already grant regulatory incentives to companies that have a larger
market capitalisation than the MiFID II SME definition90
. Finally, it appears that companies
with a higher market capitalisation than EUR 200 million can also suffer from liquidity
issues, thus attracting lower investor interest and making the listing less attractive. The figure
below shows that liquidity really kicks in for companies listed on AIM, when their market
capitalisation exceeds GBP 1 billion.
Figure 7 – Average annual value of shares traded by market cap band, AIM
85 Europe Economics, Data Gathering and Cost analysis on Draft Technical Standards Relating to the Market Abuse
Regulation, 2015
86 AIM (UK), AIM Italy (IT) and NEX (UK)
87
Data provided by EU exchanges show that issuers listed on SME MTFs have a very low market capitalisation, with many
markets having an average market cap below EUR 10 or even EUR 5 million (see Figure 11 and annex 13)
88 ESMA Securities and Markets Stakeholder Group, Report on Helping Small and Medium Sized Companies Access
Funding, 12 October 2012
89
The European MSCI (Morgan Stanley Capital International) indices are sub-divided into 4 market capitalisation sections:
large caps (with a median capitalisation of EUR 10.8 billion), midcaps (EUR 6.4 billion), small caps (EUR 1 billion) and
micro caps (EUR 100 million). EFAMA (the EU fund & asset management association) runs a fund classification system,
which is used by many EU fund managers to describe the nature of their funds e.g. Small-Cap funds. A fund will be
considered a small-cap fund if at least 80% of its assets are invested in small caps defined as companies with a market
capitalisation below EUR 3 billion.
90 For instance, the alleviated 'EU Growth Prospectus', created by the revised Prospectus Regulation, is available (beyond
SMEs) to companies listed on an SME Growth Market with a market capitalisation up to EUR 500 million. The European
Long-Term Investment Funds Regulation allows those funds to invest into companies listed on a MTF (including SME
Growth Markets) with a market capitalisation up to EUR 500 million.
19
Another regulatory issue arises from the fact that the level 1 of MiFID II only refers to equity
issuers. To determine whether an SME Growth Market has at least 50% of SME issuers, the
level 2 of MiFID II91
provides for a complementary approach to capture SME debt issuers on
SME Growth Markets. The level 2 states that issuers with no equity instrument traded on any
trading venue shall be deemed an SME provided that, according to its last annual or
consolidated accounts, it meets at least two of the following three criteria: (i) an average
number of employees during the financial year of less than 250; (ii) a total balance sheet not
exceeding EUR 43 million and (iii) an annual net turnover not exceeding EUR 50 million.
This definition refers to the EU 2003 Recommendation defining an SME92
, which is not fully
adapted to companies willing to issue bonds on SME-dedicated MTFs. As the OECD puts it,
the SME bond market is 'suited mostly to the upper segment of the SME size spectrum'93
. The
typical issuance size ranges between EUR 20 and 80 million on the Mercado Alternativo de
Renta Fija in Spain94
and EUR 30 million on Extra-MOT Pro95
in Italy. Therefore, after the
issuance, some SME bond issuers may not meet the balance sheet threshold (especially when
they return to the market for follow-up bond issuances). Second, in order to repay a debt of
such scale, SME bond issuers need to have stable cash-flows with a turnover prospectively
higher than EUR 50 million96
.
If the definition of SME bond-only issuers is not well-calibrated, the SME-dedicated MTFs
specialised in bond issuances and those that allow both equity and bond issuances by SMEs97
may face challenges in registering as SME Growth Markets. In turn, if the SME Growth
Market framework is not used by market operators, their issuers will not be able to benefit
from regulatory alleviations, thus increasing their compliance burden.
Beyond the SME non-equity issuer definition, another requirement may hinder the take-up of
the SME Growth Market concept. The level 2 of MiFID II also imposes periodic disclosure
requirements on SME Growth Market issuers, by requiring half-yearly and annual reports.
Financial reporting provided on a half-yearly basis is usually welcomed by investors and
contributes to attracting interest in the company. However, some market participants have
indicated that the publication of such half-yearly information can also represent a time-
consuming and costly obligation for SMEs. The absence of flexibility left to the market
operators as regards the possibility to require or not a half-yearly report can discourage some
MTFs from seeking a registration as an SME Growth Market, because they cannot tailor their
listing rules to local conditions98
.
Finally, the take-up of the SME Growth Market 'brand' is also constrained by the fact that
only few alleviations or benefits are currently foreseen in the EU legislation for the issuers
91
Art. 77 of the Commission Delegated Regulation (EU) 2017/565
92 Art. 2 of the Commission Recommendation C(2003) 1422 (2003/361/EC) of 6 May 2003 defines Small and Medium-sized
Enterprises (SMEs) as “enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding
EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.”
93 OECD, Opportunities and Constraints of Market-Based Financing for SMEs, September 2015
94 Pablo Guijarro and Pablo Mañueco, MARF: Perspectives and risks for Spain´s new alternative fixed income market
95 AFME, Raising Finance for Europe's Small & medium-sized businesses, 2015); Response of LSEG to the Public
consultation on SME Listing: 70% of issuers on EXTRA-MOT Pro in Italy raise an amount below EUR 70 million.
96
In the public consultation, the Spanish stock exchange (BME) indicated that the typical issue size on MARF is between
EUR 20 -80 million. The issuers have a typical a balance sheet ranging between EUR 60 and 100 million and a turnover
around EUR 200 million.
97 Such as Euronext Growth in FR, BE and PT and First North in SE, DK, FI, EE, LA, LV.
98
Several MTFs do not require half-yearly reports for equity issuers (such as Dritter Markt, BSSE MTF). Other MTFs do
not require such reports for non-equity issuers (such as Euronext Growth, Extra-MOT Pro or MARF).
20
listed on this new type of trading venues (See Annex 14). Some market operators and
stakeholders99
consider that the legal framework applying to SME Growth Markets does not
differentiate them much from MTFs (in terms of regulatory benefits) or regulated markets (in
terms of alleviations), making the concept insufficiently attractive.
2.2.3 Lack of schemes (mechanisms) to promote trading and liquidity on SME
Growth Markets
The limited liquidity on SME equity markets can be explained by a number of factors100
.
While SMEs tend to overlook the importance of liquidity, investors favour mechanisms that
promote trading of SME stocks101
.
There are different mechanisms through which liquidity can usually be enhanced. Market-
making (under a contract with a trading venue) is probably the most traditional system102
.
Some market operators have encouraged the development of market-making (by putting in
place some attractive fee trading schemes in return for minimum requirements to build deeper
markets). The remuneration of the market-maker typically comes from the spread (the
difference between buy and sell prices). However, these types of arrangements also rely on
the existence of market-makers that are willing to commit capital and run a market risk.
Market-making activities would currently be challenged by both regulatory reforms103
and
new technology developments104
.
Another mechanism is the liquidity provision contract, which 'consists in an issuer entering
into an agreement with a financial intermediary that is entrusted with the task of enhancing
the liquidity of the issuer’s financial instruments'. Liquidity providers play the same role as
market-makers but they do not act with their own account. Several studies show that liquidity
contracts can improve liquidity, that this improvement is particularly significant for less
liquid shares and that they help reduce liquidity risk105
. When SME issuers are allowed to
enter into a liquidity contract, be it market making or liquidity provision, they seem to largely
use this possibility106
. However, in order to be allowed by a competent authority, the liquidity
99 One market operator has for instance indicated that the SME GM regime did not offer sufficient benefits at this time to
merit registration. Another Market operator also indicated that quantifiable benefits for issuers and investors, legal and
administrative facilities offered by the SME GM regime were rather light (Source: Data from securities-exchanges received
by COM). See also: Lucas Enriques, 'What should qualify as a 'SME Growth Market?', 2018 'This new label, reserved to
multilateral trading facilities in which more than half of issuers qualify as SMEs, has not so far delivered much in terms of
alleviation of regulatory burdens.
100 It has been argued that the fragmentation of the trading landscape induced by MiFID, has resulted in increased
competition and pressures on the business model of trading venues, encouraging some of them to focus on most profitable
segments such as blue-chips trading at the expense of other less profitable segments, such as SMEs. Technological changes,
such as the entry of high frequency traders, tend to reinforce the attractiveness of blue-chips at the expense of SMEs in terms
of trading.
101
World Federation of Exchanges, SME Financing and Equity Market, 2017
102 ESMA Opinion on an AMP on liquidity contracts notified by the CNMV, December 2016
103 OECD, Opportunities and Constraints of Market-based financing for SMEs, September 2015
104 Technology developments (such as the emergence of high frequency trading) and other low trading techniques have also
curbed the economic incentives for market-making in the most liquid stock. Market-making in liquid shares is also necessary
to subsidise and sustain this activity for small and illiquid shares (OECD, Opportunities and limitations of public equity
markets for SMEs, 2016).
105 Nimalendran and Petrella, 'Do thinly-traded stocks benefit from specialist intervention', Journal of Banking and Finance,
2003; Venkataraman and Waisburd, The value of the designated market maker, Journal of Financial and Quantitative
Analysis, 2007; Anand, Tanggaard, and Weaver, Paying for market quality, Journal of Financial and Quantitative Analysis,
2009; Menkveld and Wang, How do designated market makers create value for small-cap stocks, Jounal of Financial
Markets, 2013; H. Bessembinder, J. Hao, K. Zheng, Liquidity Provision Contract and Market Quality', 2017
106 In 2015, 116 out of 175 companies (i.e. 66%) listed on Alternext (that became Euronext Growth) had a liquidity contract.
In 2017, all the issuers (88 companies) have a liquidity provision contract.
21
provision practice must be recognised as an accepted market practice (AMP) under the
Market Abuse Regulation. For an accepted market practice to be established a national
competent authority must notify the European Securities and Markets Authority and other
national regulators of its intention, and the European Securities and Markets Authority must
issue an opinion that (i) assesses the compatibility of the accepted market practice with the
Market Abuse Regulation and the related regulatory technical standard on accepted market
practices, and (ii) considers whether the accepted market practice would threaten market
confidence in the European financial markets. For the time being, only four Member States107
authorise liquidity provision contracts. This means that in 24 Member States, SME issuers do
not have the possibility to enter into a liquidity contract, but have to rely on market makers
(provided they exist).
Finally, another technique consists in requiring a minimum free float (i.e. a minimum amount
of capital in the public's hands and that can be freely traded) when an SME seeks to list its
shares on an SME-dedicated market. The relative low volume of shares traded on SME-
dedicated markets is often attributed to the small sizes and limited free float that small caps
regularly offer108
. It is likely that there will be a much smaller percentage of the shares of an
SME in public hands, as the founders of the company will probably want to hold on to a
significant stake in the ownership of the company109
. The Markets in Financial Instruments
Directive II does not prescribe any free float or minimum capitalisation requirement when a
company seeks the admission of its shares to trading on an SME Growth Market. Some SME-
dedicated MTFs110
have no requirement in terms of free float or initial minimum number of
shareholders. Other trading venues require a minimum number of shareholders (from 50 to
300) or a threshold varying from 10 to 20% of the shares (see Annex 7). Finally, most of the
SME MTFs do not set a minimum capitalisation threshold. Given this absence of free float at
the initial public offering stage, liquidity in the secondary market is insufficiently stimulated,
carrying the risk of reduced capitalisation (to reflect liquidity risk) and higher capital costs on
these markets.
2.2.4 Out-of-scope drivers
Beyond the drivers listed above, the demand for SME financial instruments is also
constrained by additional factors, such as the lack of visibility of SMEs towards institutional
and foreign investors, or the tax treatment of investments in the various Member States. The
supply of SME financial instruments is also hindered by SMEs' lack of business education.
These and other out-of-scope drivers are not addressed in the current initiative focusing on
targeted technical amendments, but are being considered in the wider plan to facilitate SME
access to public markets (see section on policy context, i.e. CMU). For more details on out-
of-scope drivers, please refer to annex 5.
2.3 Consequences: less capital raised by SMEs on public markets
SMEs will opt in favour of (or against) a public listing of their shares/bonds by weighing the
costs and benefits of such a decision. Although it would be exaggerated to claim that low
SME listing levels are the direct consequence of the regulatory issues described above, the
107 ESMA has issued a positive opinion on the SP and PT AMPs; FR and IT are working on their notifications.
108 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
109
City of London, the City's Role in providing for the Public Equity Financing of UK SMEs, March 2010, p.73
110 Dritter Markt (AT), START (CZ), ESM (IE), the MTF operated by the BSSE and AIM (UK)
22
latter do contribute to reducing the relative attractiveness of public markets for SMEs:
they increase the regulatory burden imposed on SMEs when listing on public markets, and
they limit the liquidity of listed SMEs.
The regulatory barriers considered in this impact assessment are part of a wider problem
preventing SMEs from accessing the advantages of public issuances of shares and bonds.
Concerning public equity markets, one of the main advantages lies in the ability for SMEs to
raise permanent risk capital, i.e. capital that does not have to be paid back to investors within
a given time limit111
. In addition to serving as a direct source for financing new investments,
listed shares also provide the corporation with its own currency, which may be used to
finance acquisitions112
. Concerning bond markets, the main advantages for companies stem
from the flexibility of the instrument (the terms of the issuance can be fully customised to fit
a company’s needs) and its agility (bond markets can offer quicker access and
implementation than bank or equity funding)113
.
In addition, limited access to public markets further reduces SMEs' ability to raise funding by
preventing them from resorting to secondary raisings. Going public for a company is not
only a one-off opportunity to raise capital, but offers the possibility, for both equity and
bonds, to make subsequent issuances over time and raise money again from its share- and
bondholders. The amount of equity raised through secondary or follow-on offerings is by no
means marginal or negligible. Such offerings can be made several years after the initial
public offering, in order to finance, for example, a new phase of expansion. The figure below
illustrates the total public equity financing of growth companies with an initial public
offering of less than USD 100 million in advanced economies. In every year shown in the
figure, equity proceeds through secondary public offerings of companies exceed initial public
offerings proceeds114
.
Figure 8 – Initial Public Offerings and Secondary Public Offerings by Growth Companies in Advanced
economies (Billions, USD, 2014)
Source: OECD
Moreover, public equity and debt markets enable SMEs to raise large amounts more easily
than they could through other means. Eventually, going public could also bring SMEs other
111 European Issuers, EVCA and FESE, EU IPO Report by the European IPO Task Force, March 2015
112 OECD, Growth companies, Access to Capital Markets and Corporate Governance, 2015
113 Analysis of European Corporate Bond Markets, Analytical report supporting the main report from the Commission
Expert Group, November 2017, p.7
114 OECD, Growth companies, Access to Capital Markets and Corporate Governance, 2015
23
more intangible benefits, such as increased visibility and brand recognition for potential
suppliers and customers115
.
Reduced SME access to public equity and bond markets also results in limited opportunities
for European companies to diversify their sources of funding and reduce their overreliance on
bank loans. This is all the more relevant as studies have shown that the development of public
equity markets may also foster SME access to the bond market, by increasing the availability
of, and improve conditions for, subsequent debt financing116
. A study from the OECD has
notably found a strong positive relationship between a company's public listing and its
issuing of corporate bonds117
. A number of explanations have been offered to explain why
being listed could help companies access the corporate bond market118,119
. There is also
evidence to suggest that the same positive relationship holds for listing, bank credits and
syndicated loans120
.
In addition to the complementarity between equity and bond financing, more dynamic public
equity markets can also foster the development of private equity and venture capital
financing. Healthy public equity markets can stimulate private equity and venture
capital activity by providing smooth exit opportunities121
. However, the European SME-
dedicated markets do not currently provide a stable exit mechanism for venture capitalists
and private equity funds122
. Similarly, public equity markets for SMEs could also stimulate
equity crowdfunding investments. However, at present, there is no real secondary market for
crowdfunding exits123
. As a consequence, a limited SME access to public markets has
repercussions not only on capital-raising through IPOs, but throughout the funding escalator
of companies (see annex 8 for more details).
2.4 Wider consequences
Lower capital raising activity by SMEs on public markets can translate into significant
missed opportunities for the European economy, in terms of economic growth, job creation
and innovation. A significant amount of research has documented the links between vibrant
public markets and economic growth124
. Ensuring the development of SME-dedicated
115 FESE, European Issuers, Guide to Going Public, 2015
116 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
117 OECD, Growth companies, Access to Capital Markets and Corporate Governance, 2015
118
A. Eisele, E. Nowak, (Non-Bank) Financing of SMEs in Light of Crisis and New Regulation – Do Innovations in Market
Financing have a real Impact?, 2016
119 Faulkender M. and M.A. Petersen, "Does the Source of Capital affect Capital Structure?", Review of Financial Studies,
Vol. 19, n°1, 2006. First, as public companies already publish their financial statements in accordance with regulatory
requirements, the reproduction of these statements for the bond prospectus and the following periodic disclosure do not
constitute an additional cost. Likewise, management’s prior experience with public securities offering is likely to reduce the
preparation time to offer bonds. Moreover, listed companies are typically subject to stricter corporate governance
requirements, which, in the eyes of investors, make them less prone to the classical debt-related moral hazard. Last, the fact
that the company’s shares are already publicly traded makes it less costly for underwriters to get investor attention.
120
Pagano M., Panetta F. and Zingales L., 'Why do Companies Go Public? An Empirical Analysis', Journal of Finance,
Vol.53, N. 1; Saunders A. and Steffen S., 'The Costs of Being Private: Evidence from the Loan Market', Review of Financial
Studies, Vol. 24, n°12
121 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
122
InvestEurope, 2016 European Private Equity Activity – See annex 8 for more details
123 AFME, The Shortage of Risk Capital for Europe’s High Growth Businesses, 2017
124 See for instance “Stock Markets, Banks and Economic Growth”, Ross Levine and Sara Zervos, The American Economic
Review, June 1998, p.554; "Opportunities and limitations of public equity markets for SMEs", Kaousar Nassr, Iota and Gert
Wehinger (), OECD Journal: Financial Market Trends, Vol. 2015/1, 2016p.55; "Capital Market Imperfections, High-Tech
Investment, and New Equity Financing", R. Carpenter and B. Petersen, The Economic Journal, 112 (February), 2012, F56
24
public markets is key in fostering growth, as they appear most suited to the needs of high-
growth, innovative SMEs, which would otherwise struggle to find adequate sources of
funding125,126
. Data showed that junior trading venues can significantly boost the activity of
fast-growing SMEs, as companies choosing to list on an SME-dedicated MTF have shown
very significant growth rates in their post-IPO phase127
.
Similarly, as underdeveloped public markets do not enable high-growth companies to grow
and reach their full potential, they also prevent them from recruiting and creating jobs.
Studies have highlighted that job creations by SMEs tend to accelerate after the initial public
offerings128
.
Eventually, underdeveloped SME-dedicated public markets prevent fast-growing firms from
exploiting their innovation potential129
. As explained in a study on the economic impact of
the London Stock Exchange's junior market AIM, equity capital is most suitable for
technology firms and fast-growing companies needing to make upfront investments with no
immediate or steady revenues. If such companies do not have access to funding under
appropriate conditions such as those offered by public equity markets, they are less likely to
invest in research and innovate130
.
125 AFME Paper, Raising finance for Europe's small and medium-sized businesses, p.6, p.20
126
World Bank Policy Research Working paper 3892, April 2006, p.3
127
The annual turnover of companies listed on NASDAQ OMX's junior market First North grew by 25% per year on
average over the 2006-2012 period, and by 22.6% in 2014. In comparison, the average turnover increase for non-listed
companies was of 10% per year during the 2006-2012 period, and of 7.6% in 2014. Similarly, companies listed on the
London Stock Exchange Group's SME-dedicated market AIM have had an average turnover growth of almost 45% in the
first year immediately after listing, followed by an average yearly turnover growth between 20% and 30% in the second to
fifth year after initial listing. See Capital Markets Union: The Road to Sustainable Growth in Europe, Nasdaq publication,
2016, p.9-10; Grand Thornton, Economic Impact of AIM, April 2015, p.5
128 Companies listed on London Stock Exchange’s junior market have seen their employment grow on average by 35% in the
first year immediately after listing, followed by an average yearly employment growth of 20% in the second year, and
around 15% in the third to fifth after listing. Companies listed on Nasdaq First North saw their employment grow by 17.3%
annually during the period 2006-2012 and by 4.7% in 2014. By comparison, non-listed companies saw an average annual
increase in their employment of 5% over the 2006-2012 period, and of 2.7% in 2014. This trend is even more visible for
smaller businesses, as companies with a turnover below GBP 5 million grew by more than 100% in employment in their first
year post-admission on AIM. See Grand Thornton, Economic Impact of AIM, April 2015, p.5-6; Capital Markets Union: The
Road to Sustainable Growth in Europe, Nasdaq publication, 2016, p.9-10
129 OECD, Opportunities and constraints of market-based financing for SMEs, September 2015
130
Grant Thornton, Economic Impact of AIM, April 2015, p.5-7; the study moreover illustrated the role of the UK's SME-
dedicated market in spurring innovation by highlighting the correlation between the location of AIM companies in the UK
and areas with high levels of UK patents granted.
25
Figure 9 – Problem tree
2.5 How will the problem evolve?
If no action is taken, existing market and regulatory failures would remain, SME access to
public capital markets would be impeded, and small companies would continue to be largely
dependent on bank financing. Market developments, such as the emergence of Fintech in the
financial services industry, is not expected to substantially improve the situation regarding
the particular problems at hand. What is more, in certain areas further deterioration is likely.
Considering that the majority of the European SME initial public offering activity has been
carried out in the UK for the past twelve years (see section on Market context), the departure
of the UK from the European Unionis expected to reduce the opportunities for growth
companies in continental Europe to list and raise capital on European public markets.
It should also be kept in mind that low activity on SME MTFs has repercussions on the whole
funding escalator: in the longer run, less developed junior markets also means less exit
opportunities for investors at the Venture Capital and Private Equity stage, and less
companies able to move on to the regulated market (see Annex 8 for more details).
In this context, action needs to be taken swiftly. The work conducted in this impact
assessment is all the more urgent as it aims to address issues that have been repeatedly
highlighted by stakeholders over the past four years as holding back SME access to public
markets (see annex 2 on stakeholder consultation for more details). In the public consultation
on “Building a proportionate regulatory environment to support SME listing”, high
compliance costs were rated the highest by respondents to explain the low number of SME
initial public offerings. Although the regulatory impediments presented in the previous
sections do not explain on their own the low levels of SME IPO activity in the European
Union, they further dis-incentivise smaller companies to raise capital on public markets and
exacerbate unfavourable market conditions. These detrimental impacts are unlikely to
26
decrease in magnitude without further regulatory changes. So far, they have instead increased
with the entry into application of the Market Abuse Regulation in 2016, which imposed
stricter requirements to all issuers regardless of their size. Being a regulation, it also left little
flexibility to Member States to adapt the rules.
It is also important to note that waiting longer before taking action would be highly unlikely
to bring further insight. As currently framed in MiFID II, the SME Growth Market concept
remains an “empty shell” with only little difference compared to the general MTF
framework. As a consequence, a significant number of market operators have highlighted that
they saw limited benefits to registering their MTFs as SME Growth Markets. In some
instances, they even described the current framework as unfit for purpose (especially for
debt-only issuers). In this context, the resolution of the European Parliament, which called on
making “active use of the SME Growth Market category in future financial services
regulation”, should be taken up.
3 WHY SHOULD THE EU ACT?
3.1 Legal basis
The legal basis of the Market Abuse Regulation and the Prospectus Regulation (PR) is Article
114 of the Treaty on the Functioning of the European Union (TFEU) which confers to the
European institutions the competence to lay down appropriate provisions that have as their
objective the establishment and functioning of the single market. The legal basis of the
Markets in Financial Instruments Directive II is Article 53(1)131
. Under Article 4 of TFEU,
EU action for completing the internal market has to be appraised in light of the subsidiarity
principle set out in Article 5(3) of the Treaty on European Union. According to the principle
of subsidiarity, action on European level should be taken only when the objectives of the
proposed action cannot be achieved sufficiently by Member States alone and thus mandate
action at European level.
3.2 Subsidiarity: Necessity of action of the European Union
It has to be assessed whether the issues at stake have transnational aspects and whether the
objectives of the proposed actions cannot be sufficiently achieved by Member States in the
framework of their national constitutional system (the so-called 'necessity test'). In this
regard, it should be noted that even if they are more local in nature compared to regulated
markets, SME-dedicated MTFs (and potential SME Growth markets) have a clear cross-
border dimension, in terms of investors who invest outside their Member States of origin (see
Annex 7) as well as in terms of issuers that often list their shares or bonds on a trading venue
located in another Member State132
.
The first objective of this initiative is to remove undue administrative burden and ease SME
access to public markets for shares and bonds, in order to diversify their sources of capital
131 Directives designed to coordinate Member States' rules on the taking up and pursuit of activities as self-employed persons
and the provision of services
132
In 2017, out of 209 issuers listed on Euronext Growth, 14 are foreign issuers (6.7% of the total). On NewConnect, out of
406 issuers listed on NewConnect in Poland, 9 were not Polish companies (2.2%). Out of 1107 companies listed on AIM UK
in 2012, 213 were not UK companies (19.1%).
27
from anywhere within the European Union. The second objective consists in increasing the
liquidity in financial instruments issued by SME Growth Market issuers, especially shares.
Administrative burden placed on SMEs results from the application of MiFID II, the Market
Abuse Regulation and Prospectus Regulation. The latter two items of legislation have direct
binding legal force on all Member States. Those rulebooks leave almost no flexibility for
Member States to adapt the rules to local conditions or to the size of issuers or investments
firms. Likewise, MiFID II does not provide Member States with sufficient flexibility to
address the problems identified. As such, the problems arising from those provisions can only
be effectively addressed via legislative amendments tabled at the European level133
. The
possible alternatives, i.e. non-legislative action at Union level (e.g. guidelines by ESMA, and
action at Member State level) could not sufficiently and effectively achieve the objective as
they could not amend the provisions of the Regulations. Therefore, any improvement of these
rules to make the EU framework for SME Growth Markets issuers more proportionate
requires a legislative action at EU level.
The liquidity of SME shares on the MTFs that could register as SME Growth Markets is also
hindered by regulatory shortcomings stemming from the Market Abuse Regulation and
MiFID II. Member States may adopt accepted market practice on liquidity contracts but only
four have done so. This means that in 24 Member States, the potential SME Growth Market
issuers are deprived from the right to enter into liquidity contracts. This situation creates a
fragmentation of the Single Market and creates a distortion of competition between issuers
that have the right to enter into a liquidity contract (and therefore ensure liquidity, lower their
cost of capital…) and those which do not have this possibility. Limited trading due to the
absence of free float on admission may cause investors to have a negative perception of the
liquidity of securities listed on SME Growth Markets. As the EU label will be shared by
different MTFs across the EU, this lack of liquidity on the secondary market could impair the
credibility and attractiveness of those newly-created trading venues. Action is needed at
European level to ensure that the identified regulatory shortcomings resulting from European
rules are adequately tackled and that minimum liquidity can be ensured on those markets.
3.3 Subsidiarity: Added value of EU action
It has to be considered whether the objectives would be better achieved by action at EU level
(the so-called 'test of European added-value'). As there is almost no flexibility to adapt the
Markets in Financial Instruments Directive II, the Market Abuse Regulation and Prospectus
Regulation to local conditions, a legislative action at EU level is absolutely needed in order to
reduce the administrative burden placed on SME Growth Market issuers. By its scale, EU
action could reduce the administrative burden for SME issuers while at the same time
safeguarding a high level of market integrity and investor protection (thus ensuring a level-
playing field among issuers and avoiding any distortions of competition among 'SME Growth
Markets').
Furthermore, as regards the regulatory obstacles impairing liquidity provision, action at
national level can even increase legal fragmentation and may lead to distortions in
competition of SME Growth Markets across EU Member States. Action at the European level
133
Vodafone case C-58/08: ' Where an act based on Article 95 EC has already removed any obstacle to trade in the area
that it harmonises, the Community legislature cannot be denied the possibility of adapting that act to any change in
circumstances or development of knowledge having regard to its task of safeguarding the general interests recognised by the
Treaty'
28
is better suited to ensure uniformity, and legal certainty. This will help to efficiently achieve
the objectives of the Markets in Financial Instruments Directive II (and notably the creation
of SME Growth Markets) and will better facilitate cross-border investments and competition
between exchanges while safeguarding the orderly functioning of markets.
The options proposed respect the principle of proportionality, are adequate for reaching the
objectives and do not go beyond what is necessary, striking a balance between establishing
pan-European standards while at the same time leaving sufficient flexibility to both Member
States and market operators/investment firms to adapt their SME Growth Markets to local
conditions.
4 OBJECTIVES: WHAT IS TO BE ACHIEVED?
The general objective of the proposal would be to make technical amendments to the current
regulatory requirements in order to facilitate capital-raising by SMEs on public markets
through shares or bonds issuances. This should help to increase investment, economic
growth, job creation and innovation in the EU.
Specific objectives would therefore be: 1) to reduce the regulatory compliance costs faced by
SME issuers when their shares or bonds are admitted to trading on SME Growth Markets; 2)
to increase the liquidity of equity instruments on SME Growth Markets; and 3) to ensure a
high level of investor protection and market integrity134
.
5 WHAT ARE THE AVAILABLE POLICY OPTIONS?
The policy options described and analysed in this impact assessment have been regrouped
into three topics: administrative compliance costs, SME Growth Market concept, and
liquidity. For each topic, several provisions have been analysed in parallel following a given
logic of intervention (essentially by degree of alleviation or harmonisation). This grouping
was done notably to better highlight the collective impact of all the proposed change on one
given regulation or one set of issues. Presenting all changes separately could have made it
more difficult to perceive the actual cumulative impact of the adjustments. Each change,
however, was also assessed individually, as presented in section 6.
The set of provisions analysed are those for which there was sufficient evidence of a need for
action. Commission services initially considered a much broader set of potential changes,
which emerged from the various consultation exercises, seminars organised with stakeholders
and meetings with Member State representatives. Many were however discarded after a
preliminary analysis, either due to market integrity risks, political feasibility, or lack of
evidence. For more details, please refer to annex 6 on discarded options and annex 16 on the
synthesis table of the initial options.
134 A study from IOSCO there is no available data on the difference between market abuse cases for SMEs and larger
companies. In some developed markets where information is available, the incidences or reports of market manipulation
appear to be higher in the SME market than in the senior market. This appears to be related to a number of circumstances
including greater likelihood that the float is controlled by insiders and illiquidity of the market. IOSCO, SME Financing
through Capital Markets, July 2015
29
5.1 What is the baseline from which options are assessed?
Under the baseline scenario no action would be taken beyond the non-legislative measures
that the Commission services have already committed to (see section 1.2). While recent
legislative actions such as the creation of an alleviated 'EU Growth Prospectus' will reduce
the costs of listing for SMEs, other administrative compliance costs would remain in place.
This includes in particular the costs arising from the obligations in the Market Abuse
Regulation and the financial reporting obligations in the Markets in Financial Instruments
Directive II. These obligations would continue to place a disproportionately high burden on
SME issuers, thereby dis-incentivising smaller companies to raise capital on public markets.
The SME Growth Market definition, and in particular the definition of a debt-only issuer,
would remain overly restrictive, thereby preventing most European MTFs (either specialised
in SME bonds or in SME bonds and shares) to register as SME Growth Markets. This, in
turn, would make it impossible for issuers on these markets to benefit from the regulatory
alleviations and potential other benefits that legislators envisioned for SME Growth Markets.
Investors would also remain reluctant to invest in SME shares given excessively high
liquidity risks in many small and micro-cap shares. While SME issuers have always attracted
lower levels of investor interests and thus trading activity and liquidity, certain regulatory
restrictions would continue to exacerbate this unfavourable market condition. These barriers
include in particular, the unavailability of liquidity contracts in most Member States. Given
the self-reinforcing nature of liquidity it is expected that liquidity levels will remain low
without such initial stimuli. Moreover, minimal free float percentages would continue to
restrict the total amount of shares available for trading.
As a result, SMEs would continue to face significant hurdles and disincentives to tap public
markets for capital. While recent trends indicate that the dependence of European companies
on bank loans has decreased overall, SMEs have remained largely dependent on bank
financing135
. If no further regulatory efforts are made to alleviate this dependence, SMEs will
continue to exhibit a large exposure to banking sector shocks, thereby increasing potential
contagion effects on the real economy. SMEs would also remain less flexible in their
financing decisions overall, which would impede growth especially for rapidly expanding
companies. It would also prevent SMEs from optimising their capital structure, thereby
giving rise to competitive disadvantages vis-à-vis larger companies.
These detrimental impacts are unlikely to decrease in magnitude without further regulatory
changes that are part of a wider plan to enhance SME access to public capital markets. On the
contrary, market developments such as the overwhelming dominance of alternative liquidity
provision via high frequency trading (HFT) strategies are likely to intensify liquidity issues in
SME values. It is generally not possible to apply HFT market making strategies in illiquid
financial assets, especially in the absence of efficient hedging markets. HFTs have pushed
most traditional market makers out of liquid large and mid-caps. Traditional market makers
that may also provide quotes in illiquid SME values are thus facing reduced revenues. This
has already forced some of them to exit the market. Meanwhile, the administrative costs of
listing for SMEs will remain the same. Ultimately, the disincentives of listing are expected to
increase while there is no foreseeable increase in incentives.
135
Indicated by the fact that "only credit constraints in bank financing have a significant effect" on the investment decision
of SMEs – See 'Credit constraints, firm investment and growth: evidence from survey data' – ECB, Feb. 2018
30
5.2 Policy options addressing administrative compliance costs
5.2.1 Options under the Market Abuse Regulation
Management Transactions Insider
Lists
Delay in
disclosing inside
information
Market
soundings
Option 1.
Light-touch
alleviations
strictly
confined to the
procedures
Extend to 5 days
the deadline for
PDMRs to report
transactions to
issuers and NCA
and for issuers to
publicly disclose
these transactions
Replace the fixed
threshold for
transactions requiring
disclosure by a
relative threshold
based on the issuer's
market capitalisation
(e.g. 0.02%)
SME GM
issuers only
need to
provide a list
of insiders
upon NCA
request
Justifications for
delaying the
disclosure of
inside information
only need to be
issued upon NCA
request
Exempt
private
placement of
bonds from
the market
sounding
regime when
the investors
enter directly
in the
negotiations
phase (with an
alternative
wall-crossing
procedure is in
place)
Option 2.
Relief limited
to the scope,
disclosure and
record-
keeping
obligations.
Adopt a new
deadline for issuers
to publicly disclose
transactions relative
to the notification
by PDMRs and
extend the overall
deadline to 5 days
Raise the threshold
for transactions
required to be
disclosed to EUR
20,000
SME GM
issuers only
need to
maintain a
list of
'permanent
insiders'
Justification only
upon NCA
request + no need
to keep a
disclosure record.
Option 3.
Partial
exemption
from certain
regulatory
requirements
Issuers are exempt from the responsibility to
disclose managers' transaction to the public.
The responsibility is placed on NCAs
instead [supplementary to changing
thresholds]
Exempt
SME issuers
from
maintaining
an insider
list
Exempt SME
issuers from
notifying a delay
to disclose inside
information to the
NCA.
Exempt all
private
placements of
bonds from
the market
sounding
regime
The policy options regarding the Market Abuse Regulation aim to reduce the administrative
compliance costs for SME issuers and to make obligations placed on them more
proportionate. There are three potential approaches under the Market Abuse Regulation that
could be adopted. These approaches differ in the degree of alleviation that they apply to
MAR provisions: from light-touch to more far-reaching alleviations, and finally exemptions
from the various obligations analysed. It should be understood that the Market Abuse
Regulation provisions analysed here are those for which adjustments can be made without
decreasing investor confidence or market integrity. Other changes or provisions could have
been considered in addition to the ones outlined in the table here-above, but were discarded
up front because of their risks towards market integrity (see annexes 6 on discarded options
and 16 on the synthesis table of the initial options). The purpose of the present initiative is in
no way to deconstruct the market abuse regime. Adjustments shall only focus on simplifying
procedures for issuers and redistributing the burden between issuers and National Competent
Authorities.
Option 1 would foresee to extend the deadline for Persons Discharging Managerial
Responsibilities (PDMRs) and Persons Closely Associated (PCAs) to them to report
transactions to issuers and the national competent authority to 5 days. The same deadline
would apply for SME GM issuers to publicly disclose these transactions. PDMR transactions
would furthermore only be captured by the disclosure requirement once they breach an
annual threshold set in relative terms to the respective issuer's market capitalisation (e.g.
0.02% as computed at the end of the previous calendar year). As concerns the delayed
disclosure of insider information, issuers would only need to notify the national competent
authority. A full justification for such delays would only be required upon explicit request
31
from the national competent authority. Option 1 would also exempt the private placements of
bonds from the market sounding rules, provided that institutional investors are involved in the
negotiations and when an adequate wall-crossing136
procedure is in place (such as the
signature of a non-disclosure agreement recalling the obligations in case of disclosure of
inside information). In terms of the requirement for maintaining insider lists, no changes
would apply compared to the baseline, as the current regime for insider lists applying to SME
Growth Market issuers is already alleviated.
Option 2 would provide more far-reaching alleviations from the current requirements under
the Market Abuse Regulation than option 1. It would not extend the deadline for PDMRs to
report transactions. Issuers however would receive additional time to publicly disclose these
transactions after the PDMR reports them (e.g. to disclose within 2 days following the
notification from the PDMR – see annex 17 for more details). Furthermore, the threshold for
the disclosure requirement of PDMR transactions would be increased to EUR 20,000 on a
fixed basis. Option 2 would also lower the requirements for SME Growth Market issuers to
maintain an insider list. Instead of an obligation to provide a full list of insiders to the
national competent authority on-demand, as required under the baseline, issuers would only
have to maintain a list of 'permanent insiders'137
. This list would only capture managers and
employees that have regular access to inside information and would be updated on a
continuous basis. Persons that are infrequently exposed to single sets of inside information
would not be included. As under option 1, a full justification for the delayed disclosure of
inside information would only be required on request of the NCA. In addition, SME Growth
Market issuers would be exempt from the requirement to keep a record of delayed
disclosures. As regards private placements of bonds by SME issuers, option 2 would foresee
no changes compared to option 1.
Option 3 would envision exempting SME Growth Market issuers from the current the Market
Abuse Regulation requirements in the areas specified. Issuers would no longer be required to
publicly disclose manager transactions. National competent authorities would be responsible
for the publication instead. This could be coupled with an increase in the threshold for
transactions requiring disclosure as per option 1 or 2. SME Growth Market issuers would
furthermore be exempted from both the obligation to maintain an insider list and notifying the
delay in disclosing inside information to their national competent authorities. The option
would also exempt all private placements of bonds from the market sounding regime, without
requiring an alternative wall-crossing procedure.
Scope of the Options under the Market Abuse Regulation
Type of issuers
Option 1. Restricted scope for alleviations under MAR SME listed on SME Growth Companies
Option 2. Extended scope for alleviations under MAR All SME Growth Market issuers
Under Option 1, only SMEs (defined as equity issuers with a market capitalisation below
EUR 200 million or debt-only issuers meeting two of the three criteria set by the 2003
Recommendation on the definition of SMEs) listed on an SME Growth Market would be able
to benefit from the above-mentioned targeted alleviations under the Market Abuse
Regulation.
136 Wall crossing is the act of making a person an “insider” by providing them with inside information
137
This list could be equivalent to the list of PDMRs
32
Under Option 2, all the SME Growth Market issuers (irrespective of their size) would benefit
from the potential alleviations under the Market Abuse Regulation.
5.2.2 Options under the Prospectus Regulation
Requirements to transfer from an SME Growth Market to a regulated market
Option 1. Partial
alleviation
Create a lighter "transfer prospectus" for issuers having been listed for a certain
amount of time on an SME Growth Market (e.g. 3 years)
Option 2.
Admission
document
Require an admission document (no approval by an NCA) instead of a full prospectus
for companies that have been listed on an SME Growth Market for a certain amount
of time (e.g. 3 years)
The two options aim at reducing the administrative burden imposed by the publication of a
full prospectus in case of a transfer to a regulated market for issuers already listed on an SME
Growth Market for a certain amount of time. Under Option 1, this alleviation would take the
form of a new lightened prospectus ('a transfer prospectus'). Option 2 would exempt the
issuers from the prospectus publication obligation, provided that an admission document is
produced in accordance with the regulated market's listing rules.
5.3 Policy options concerning the SME Growth Market definition
5.3.1 Defining criteria and thresholds for equity and debt-only issuers
Definition of SME Growth Market
Definition of SME debt-
only issuers
Definition of SME
equity issuers
Proportion of SMEs
Option 1. Unique
definition of SMEs
Increase the thresholds of the 2003 recommendation
definition to match the profile of SMEs today
Left unchanged (at
least 50%)
Option 2. Market
definition for debt
issuers, raised threshold
for equity issuer and
raised SME proportion
Define an SME debt issuer
based on the value of the
issuance (50 million over
one year)
Raising the market
capitalisation threshold
for equity issuers from
EUR 200 to EUR 500
million
Raised to 75% (at
least)
Option 3. Alternative
market definition for
debt issuer and raised
threshold for equity
issuer
Define an SME debt issuer
based on the value of its
outstanding bonds (EUR 150
million)
Left unchanged (at
least 50%)
Option 1 would consist in creating a single definition for SMEs (either equity issuer or debt-
only issuer) listed on an SME Growth Market. This definition would be based on the criteria
from the 2003 Recommendation on SME definition138
while raising the thresholds it sets.
Under this Option, an issuer would be deemed an SME if it meets two of the three following
criteria: (i) an annual turnover below EUR 200 million, (ii) a total balance sheet below EUR
200 million and (iii) a number of employees up to 499. Under this option, the proportion of
SMEs would be left unchanged compared to the baseline (at least 50%).
Option 2 would amend the definition of an SME debt-only issuer based on the value of the
issuance. The threshold for qualifying as an SME debt-only issuer would be set at EUR 50
million over a period of 12 months. As regards the equity issuer definition, the market
138
Under the 2003 Recommendation, two of the three criteria should be met: number of employees below 250, annual turnover below EUR
50 million and size of balance sheet below EUR 43 million)
33
capitalisation threshold would be raised from EUR 200 to EUR 500 million. Finally, at least
75% of SMEs would be required on an SME Growth Market.
Option 3 would define an SME debt issuer on the basis of an issuer’s total nominal value of
outstanding bonds. The threshold would be set at EUR 150 million. Like option 2, the market
capitalisation threshold defining an SME would be raised to EUR 500 million. However, the
proportion of SMEs would be left unchanged compared to the baseline (at least 50%).
5.3.2 Half-yearly reports
Half yearly reports
Option 1. Exemption
for non-equity issuers
Allow SME Growth Market operators to decide whether or not to apply an
obligation for half-yearly reports to non-equity issuers
Option 2. Exemption
for equity and non-
equity issuers
Allow SME Growth Market operators to decide whether or not to apply an
obligation for half-yearly reports to equity and non-equity issuers
Option 1 would remove the obligation for non-equity issuers to publish half-yearly reports
when their bonds are listed on an SME Growth Market. Market operators could however
decide to impose half-yearly reports as part of their internal listing rules.
Like option 1, option 2 would remove the obligation for non-equity issuers to publish half-
yearly reports but it would also exempt equity issuers from this requirement. Discretion
would be left to market operators to impose half-yearly reports on equity and/or non-equity
issuers through their listing rules.
5.4 Policy options to address liquidity on SME Growth Markets
Option 1 would consist in imposing a minimum free float requirement on issuers’ capital at
the time of admission to trading, and in authorising liquidity contracts in all Member States
through the creation of a dedicated EU legal framework (a 29th
regime) on liquidity contracts.
This option would allow for some flexibility. National regulators would still be allowed to
establish in parallel an accepted market practice (AMP) on liquidity contracts in order to
better adapt such contracts to their local markets. Concerning free float, the value and nature
of the required minimum would be set by each market operator to fit their local contexts.
Option 2 would also require all SME Growth Market operators to impose a minimum free
float at admission, and authorise liquidity contracts in all Member States. However, as
opposed to option 1, no deviation from the European standard would be possible: the free
float requirement (including its criteria) would be set at EU level, and national authorities
would not be allowed to establish accepted market practices to deviate from the EU liquidity
contract regime.
Liquidity contracts Free float requirements
Option 1. 29th
regime + free
float
Create a European regime for liquidity contracts,
while authorising NCAs to submit an AMP and
develop a parallel regime tailored to local conditions.
Oblige SME GMs to impose a
free float requirement but provide
flexibility on exact criteria
Option 2.
Full
harmonisation
Create a fully harmonised EU liquidity provision
scheme with all conditions set out at EU level,
without the possibility for NCAs to submit an AMP
tailored to local conditions.
Impose precise free float criteria
for SME GMs
34
5.5 Options discarded at an early stage
Several potential adjustments, initially included in the public consultation "Building a
proportionate regulatory environment to support SME listing", have been discarded after
preliminary analyses, due to either lack of evidence, lack of overall support, market integrity
risks or potential additional costs to issuers. These options include requiring key advisers,
harmonising delisting rules on SME Growth Markets, simplifying transfers of listing from a
regulated to an SME Growth Market, reducing disclosure requirements of inside information
by SME Growth Market bond issuers, and amending the tick-size regime applicable to equity
instruments listed on SME Growth Markets. For more details, please refer to annex 6.
6 WHAT ARE THE IMPACTS OF THE POLICY OPTIONS?
6.1 Policy options addressing administrative compliance costs
6.1.1 Market Abuse Regulation
Management Transactions Insider Lists Delay in
disclosing inside
information
Market
soundings
Option 1.
Light-touch
alleviations
strictly
confined to the
procedures
Extend to 5 days
the deadline for
PDMRs to report
transactions to
issuers and NCA
and for issuers to
publicly disclose
these transactions
Replace the fixed
threshold for
transactions
requiring disclosure
by a relative
threshold based on
the issuer's market
capitalisation (e.g.
0.02%)
SME GM
issuers only
need to
provide a list
of insiders
upon NCA
request
Justifications for
delaying the
disclosure of
inside information
only need to be
issued upon NCA
request
Exempt private
placement of
bonds from the
market sounding
regime when the
investors
enter directly in
the negotiation
phase
(with an
alternative wall-
crossing
procedure is in
place)
Option 2.
Relief limited
to the scope,
disclosure and
record-
keeping
obligations.
Adopt a new
deadline for issuers
to publicly disclose
transactions relative
to the notification
by PDMRs and
extend the overall
deadline to 5 days
Raise the threshold
for transactions
required to be
disclosed to EUR
20,000
SME GM
issuers only
need to
maintain a list
of 'permanent
insiders'
Justification only
upon NCA
request + no need
to keep a
disclosure record.
Option 3.
Partial
exemption
from certain
regulatory
requirements
Issuers are exempt from the responsibility
to disclose managers' transaction to the
public. The responsibility is placed on
NCAs instead [supplementary to changing
thresholds]
Exempt SME
issuers from
maintaining an
insider list
Exempt SME
issuers from
notifying a delay
to disclose inside
information to the
NCA.
Exempt all
private
placements of
bonds from the
market sounding
regime
Option 1: Light-touch alleviations strictly confined to the procedures
Option 1 would provide additional time for the disclosure of management transaction and
would re-calibrate the threshold above which transactions need to be notified on a relative
basis compared to the respective issuer's market capitalisation (e.g. 0.02%)139
. For investors,
this solution would mean that the managers' transactions that are the most informative for the
market (as they exceed a certain percentage of the market capitalisation) would be disclosed.
For managers and issuers, the use of a market capitalisation criterion would not necessarily
139 An EU small Business Act (report by F Demarigny), 2009
35
translate into fewer transactions to be notified and disclosed. As shown in the Table below,
with a relative threshold set at 0.02% of market capitalisation, the alleviation compared to the
current threshold of EUR 5,000 would only kick in for companies with a market
capitalisation above EUR 25 million. Furthermore, some stakeholders have underlined that it
can be challenging for managers and closely associated persons to keep track of the current
EUR 5,000 threshold140
. Their task would be made even more complex by a threshold
expressed in a market capitalisation percentage.
Issuer's
capitalisation
EUR 10
million
EUR 25
million
EUR 50
million
EUR 100
million
EUR 200
million
EUR 500
Million
EUR 1
billion
Threshold of
notification
EUR
2,000
EUR
5,000
EUR
10,000
EUR
20,000
EUR
40,000
EUR
100,000
EUR
200,000
Under this Option, the additional time for the notification would provide both managers and
issuers with greater flexibility, thus further reducing their administrative burden141
. However,
this extension of delay would not solve one difficulty frequently mentioned by respondents to
the public consultation: the transactions are sometimes notified to the issuer lately, which
often leaves little to no time at all to disclose those transactions to the market. Both
amendments on managers' transactions would have little to no impact on market integrity.
This extension of delay would mean that investors would still be informed of managers'
transactions (five days after the transaction instead of three days142
). While increasing the
threshold may have a marginal impact on the ability of national competent authorities to
detect insider trading, other supervisory tools (e.g. suspicious transactions reports) would
similarly trigger alerts which could then be further investigated.
The envisioned change to provide a justification for the delay of disclosing insider
information only upon request of the responsible national competent authority would
similarly reduce administrative burden for issuers while incurring a minimal impact on the
ability of national competent authorities to monitor the lawful disclosure of such information.
Since issuers would still notify the national competent authority when there is a delay in the
disclosure of information, any suspicion of irregularities could be directly examined by
issuing a respective request for justification. However, the burden alleviation for issuers
would have a limited impact, as the issuer would still be obliged to keep 'a disclosure record'
to provide the national competent authorities with the necessary justifications when
requested.
Option 1 would bring legal clarification by exempting private placements of bonds issued by
SME Growth Market issuers from the market sounding regime under the the Market Abuse
Regulation. This would reduce the administrative burden on issuers and those acting on their
behalf (such as the arranger banks). By lightening the administrative constraints on
prospective investors that could participate in the structuring of private placement
transactions, this would also facilitate debt issuances by SMEs. Such a modification would
also better reflect the nature of private placements of bonds, where 'investor contacts form
140 Public consultation on SME listing (responses from Swedish Securities Dealer Association, Nordic Growth Market,
AktieTorget and QCA)
141
One way to reduce the administrative burden placed on SMEs is to give them more time than large companies to fulfil
their obligations (See: European Commission, 'Models to reduce the disproportionate burden on SMEs, 2009).
142 This would correspond to the market standard before the entry into application of the Market Abuse Regulation in July
2016. Under MAD, 22 Member States (AT, BE, BG, CZ, DE, EE, ES, FR, IE, IT, LT, LU, LV, MT, NL, PL, PT, RO, SE,
SK, SI) required that the notification of managers' transactions shall be made within five working days (Source: CESR/09-
1120).
36
part of an inherent process of negotiations with the entire set of potential investors with
whom a transaction might occur, rather than a (helpful, though not inherently necessary)
mean to test an offering's viability before presentation to a wider group of investors'143
.
Under this Option, both issuers and those acting on their behalf would have to apply an
adequate wall-crossing procedure, as negotiated private placements may give rise to
disclosure of inside information (e.g. on the issuer's creditworthiness). This wall-crossing
procedure could take the form of the mandatory signature of a non-disclosure agreement
between institutional investors involved in the subsequent negotiations with the issuer and/or
its arranger, which would make sure that all parties are aware of their obligations regarding
inside information disclosure 144
. The signature of a non-disclosure agreement (that
corresponds to current market practice) would help preserve market integrity, while placing a
less significant burden on issuers that would not deter them from negotiating a private
placement.
Option 2. Relief limited to the scope, disclosure and record-keeping obligations
Similar to option 1, option 2 foresees targeted amendments to the current requirements that
would lower the administrative compliance costs for SME Growth Market issuers. The
amendments under option 2 would however imply more far-reaching alleviations.
In terms of the requirements to disclose managers’ transactions, option 2 provides the benefit
of setting the deadline for the public disclosure in relation to the timing of the PDMR
notification. This would ensure that the issuer always has sufficient time for the disclosure
process and provides issuers with additional temporal flexibility (see annex 17 for more
details). Meanwhile, the increase of the disclosure threshold on fixed terms (from EUR 5,000
to EUR 20,000) would equally reduce the cost burden for issuers. In relative terms, smaller
issuers would be alleviated slightly more strongly, as the EUR 20,000 threshold would reflect
a larger percentage of their overall market capitalisation. A higher fixed threshold also
implies that fewer transactions would be disclosed. Ultimately though, as is also the case for
option 1, other supervisory tools would still trigger alerts regardless of whether a transaction
is captured by mandatory disclosure. Changing the maximum delay or threshold should thus
bear little to no impact on market integrity. From an investor perspective, this option would
entail no change, as investors would still be informed of managers' transactions (five days
maximum after the transactions). The situation would be further improved as small managers'
transactions that carry less market signalling information (below EUR 20,000) would not be
disclosed to the market.
Option 2 would also include a change in terms of the obligation to maintain an insider list.
Producing an insider list upon request from an national competent authority (as under the
baseline and option 1) entails no real cost savings as inside information and persons having
access to such information still need to be monitored on an on-going basis for the issuer to be
able to draw up an insider list if requested by the national competent authority. Issuers have
143 Cleary Gottlieb, Market abuse Regulation: A Balanced Approach to the Market Sounding Regime's Applicability in
Capital Markets Transactions, June 2017
144
Some industry organisations already recommend the signature of such an agreement when parties are entering into
negotiations for a private placement of bonds. Both the European Corporate Debt Private Placement Market Guide (2016)
of the International Capital markets Associations and the Euro-PP Charter recommend the signature of a non-disclosure
agreement. In those non-disclosure agreement template, there is a provision on 'inside information' stating that 'The Recipient
agrees and acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that
the use of such information may be regulated or prohibited by applicable legislation relating to insider dealing and the
Recipient undertakes not to use such Confidential Information for any unlawful purpose in contravention of such legislation'
37
to produce ad hoc lists of insiders several times a year for each piece of inside information145
.
Option 2 therefore foresees to require only one list of 'permanent insiders' (i.e. only capturing
managers and staff that have regular access to inside information) in order to avoid the costs
of on-going monitoring and tracking146
. The impact that this would have on the capacity of
national competent authorities to detect insider trading would be minimal, as (i) national
competent authorities rarely rely on insider lists for the identification of insider trading147
,
and (ii) not everyone having access to a particular set of inside information would necessarily
be captured by an on-going insider list in any case148
. However, a list of permanent insiders
can raise another issue, namely that it does not provide real guidance as to whether a
particular person has in fact received a particular piece of information149
.
As concerns the delayed disclosure of inside information, option 2 would also exempt issuers
from maintaining a disclosure record, beyond placing the justification delay on an 'on-request'
basis. This would lower the administrative costs significantly more. In addition, this would
enable to preserve the issuers' legitimate interests, as anecdotal evidence suggests that issuers
are currently incentivised to disclose inside information earlier than necessary to avoid
recoding cumbersome justifications for the delay in disclosure150
. At the same time, national
competent authorities could keep an internal record of delayed disclosures, if deemed
necessary, as notification of delays would still apply. As national competent authorities
would still be able to request a justification for the delay (prepared ex-post by the issuer), the
impact on market integrity would be minimal. As regards private placements of bonds by
SME issuers, option 2 would foresee no changes compared to option 1.
Option 3: Partial exemption from certain regulatory requirements
Option 3 would grant SME issuers a range of exemptions from current requirements. This
would have a greater positive impact on the administrative compliance costs faced by SME
Growth Market issuers.
Under this option, national competent authorities would be responsible for disclosing
managers' transactions to the public, thus discharging issuers from this obligation. This would
merely shift costs from issuers to national competent authorities without any detrimental
impacts on market integrity. National competent authorities would have to bear the
administrative burden (and potential liability risks) associated with disseminating the
information related to managers' transactions to the market. For investors, the situation would
not be changed or would be slightly improved, as all managers' transactions on SME financial
instruments would be accessible through one single national data-entry point. Some European
national competent authorities have already decided to use this method and taken the
initiative to discharge issuers from the obligation to disclose managers’ transactions to the
public. Stakeholders generally admit that such system proves extremely efficient, although
145 Anecdotal evidence shows that issuers on AIM Italy disclosed 33 pieces of inside information (and therefore 33 insider
lists) on average in 2017 (Source: IR Top Consulting, Osservatorio Aim di IR Top: analisi Internal Dealing, January 2018)
146 Evidence from the Polish market shows that 71% of NewConnect issuers keep updated a permanent insider section in
their insider lists. Moreover, this permanent section seems to be easier to establish as it includes 7 people on average.
147 The Commission has obtained data from 17 NCAs on the number of insider lists requested from MTF issuers in 2017. It
appeared that 11 NCAs requested no insider list, 4 NCAs requested 1 insider lists and 2 NCA have requested 5 or 6 insider
lists. See annex 11 for more details
148 For instance, if an issuer is the target of an unsolicited/hostile takeover, the potential buyer (especially if it is a private
company) is not required to produce an insider list.
149
ESME Report, Market Abuse EU legal framework and its implementation by Member States: a first evaluation, June
2007
150 Technical workshop organised with EU securities exchanges on 14 November 2017
38
not all European national competent authorities would have the resources both in terms of IT
and budget.
Under this option, SME Growth Market issuers would also be exempted from maintaining
insider lists and justifying delays in disclosing inside information. This solution would be
justified as the usefulness of insider lists for insider dealing investigations has been
questioned several times151
. As the flow of insider information generated by SMEs is
significantly lower and concentrated on few managers152
, national competent authorities
could easily identify insiders (and potential insider dealings) through other investigation
techniques. While reducing administrative costs more significantly than options 1 or 2, there
are potential market integrity risks that could arise from this amendment. In addition to
facilitating insider dealing investigations, the insider list requirement has also an educational
impact by ensuring that people featured on the list understand the meaning and consequences
of having access to inside information.
Under Option 3, SME issuers would not be required to inform the national competent
authority in the event of delayed disclosure (but would still be required to provide a
justification ex-post when requested by the national competent authority). This solution
would further reduce the administrative burden on SME issuers. While the absence of insider
lists could be compensated for, as under options 1 and 2, by other supervisory tools, not
notifying national competent authorities about delays of disclosure of inside information
would undermine the ability of national competent authorities to monitor the timely and
accurate disclosure. Delayed disclosure of inside information increases the risk of
information leaks and, as a consequence, the risk of insider trading. Knowing that disclosure
has been delayed enables targeted monitoring of relevant issuers and allows national
competent authorities to intensify their surveillance of anomalous price movements before
important announcements. As there would be no direct means to verify whether disclosure
has been delayed, there would be risks that some issuers exploit this exemption, to withhold
negative news.
Similar to Option 2, option 3 would exempt SME Growth Market issuers, those acting on
their behalf, and investors from the market sounding rules foreseen by the Market Abuse
Regulation. In addition, the parties to the negotiated private placement transaction would not
have to put in place a wall-crossing procedure to avoid any disclosure of inside information.
This option would alleviate the burden and would make the private placements of bonds more
attractive for both issuers and investors. The absence of a wall-crossing procedure would also
be justified by the fact that negotiated private placements takes place with institutional
investors who are more familiar with duties as regards inside information. In the past, one
Member State already adopted a market practice on market soundings by excluding private
placement transactions without requiring an alternative wall-crossing procedure (such as the
signature of a non-disclosure agreement)153
. This option would finally put the European
private placement markets using a bond format (such as the Euro-PP in France and the mini-
bonds market in Italy and in Spain) on an equal footing with other private placement markets
using loans that are not considered financial instruments under the Markets in Financial
151 Carmine Di Noia, Pending Issues in the review of the European market abuses rules, ECMI Policy brief, February 2012;
ESME Report, Market Abuse EU legal framework and its implementation by Member States: a first evaluation, June 2007
152 Fabrice Demarigny, An EU Small Business Act, 2009
153 'Norme professionnelle AMAFI relative aux sondages de marché et aux tests investisseur' in France
39
Instruments Directive II and fall outside the scope of the Market Abuse Regulation and the
market sounding regime154
.
EFFECTIVENESS
EFFICIENCY
(cost-
effectiveness)
Coherence SCORE
Objectives
Policy option
Objective 1
Reduce
compliance
costs for SMEs
Objective 2
Enhance
liquidity
Objective 3
Maintain
market
integrity
Baseline scenario 0 0 0 0 0 0
Option 1. Light-touch
alleviations strictly
confined to the
procedures
+ ≈ ≈ ≈ or - + 1.5
Option 2. Relief limited
to the scope, disclosure
and record-keeping
obligations.
++ ≈ ≈ or - + ++ 4.5
Option 3. Partial
exemption from certain
regulatory requirements
++ ≈ - + - 1
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Impact on Stakeholders
Issuers Investors
Intermediaries /
Market Makers
Exchanges
NCAs/
Supervisors
1. Baseline scenario 0 0 0 0 0
Option 1. Light-touch
alleviations strictly
confined to the
procedures
↑ ≈ or ↑ ≈ ≈ ≈
Option 2. Relief limited
to the scope, disclosure
and record-keeping
obligations.
↑ or ↑↑ ≈ or ↑ ≈ ≈ ≈ or ↓
Option 3. Partial
exemption from certain
regulatory requirements
↑↑ ≈ or↓ ≈ ≈ ↓↓
Overall, given the respective impacts of the options considered, the preferred approach
would be option 2 (except for the threshold triggering the disclosure of managers'
transaction). This option would maximise the administrative cost savings for SME Growth
Market issuers while minimising potential detrimental impacts on market integrity. national
competent authorities would essentially have the same ability to monitor insider trading
activities as under the baseline. The increase in the maximum delay for disclosure and the
creation of a permanent list of insiders would equally result in little to no detrimental impacts
on supervisory activities, while decreasing the administrative burden and compliance costs
for issuers. Lastly, the exemption for private placements of bonds would ensure that there is
legal clarity on this matter and would facilitate such transactions, while ensuring that all
154
For instance, the German private placement market (called 'Schuldschein') relies on a loan format. The market
participants in the French Euro-PP market can use both a loan and a bond format.
40
parties are informed of their obligations as regards the misuse of inside information.
However, as there is no convincing evidence that raising the threshold triggering the
publication of managers' transaction would substantially lower the burden on SME issuers,
this aspect of Option 2 should not be considered. Furthermore, the Member States still have
the option under the Market Abuse Regulation to raise this threshold up to EUR 20,000.
Scope of the Options under the Market Abuse Regulation
Type of issuers
Option 1. Restricted scope for
alleviations under MAR
SME listed on SME Growth Companies
Option 2. Extended scope for
alleviations under MAR
All SME Growth Market issuers
Option 1 would restrict the alleviations to SMEs and would not allow larger issuers on an
SME Growth market to benefit from potential alleviations under the Market Abuse
Regulation. A differentiated and proportionate regulatory treatment seems to be justified only
when a company is small and cannot cope with its regulatory requirements, due to its small
size and small financial resources. When a company ceases to be considered an SME under
the Markets in Financial Instruments Directive II, it would be justified that the company
should be obliged to follow the same rules as any other issuers. Limiting the alleviations to
SMEs would also minimise the risk of regulatory arbitrage by larger companies (above EUR
200 million) that could be tempted to list their securities on an SME Growth markets to profit
from targeted alleviations. This solution would also create a level-playing field between non-
SME issuers and companies listed on regulated markets. However, in practice, this solution
could create a series of issues. From an investor perspective, the creation of two sets of rules
applying to issuers listed on the same type of trading venues is likely to cause confusion.
Furthermore, depending on the volatility of the markets, some companies could exceed or
drop below the EUR 200 million market capitalisation threshold, which would affect their
SME status. For those companies, this would imply changing their internal procedures to
meet lighter (or stricter) requirements, which could be costly and burdensome for issuers and
misleading for investors. Finally, it should be noted that MiFID II creates three types of
trading venues with different regulatory requirements (i.e. regulated markets, MTFs and SME
Growth markets). This complex segmentation could be made even more complex and
confusing for investors if a subset of issuers on SME Growth Markets would be subject to a
special treatment.
Under Option 2, all issuers on SME Growth Markets would comply with the same set of rules
under the Market Abuse Regulation, including the potential alleviations. This solution would
be simpler to understand by both issuers and investors (who rely on the fact the companies of
the same trading venues comply with the same set of requirements). The application of
uniform rules would also make SME Growth issuers attractive for larger companies that
would otherwise have no reason to choose this form of trading venues. Uniform requirements
would enable SME Growth Markets to attract a sufficient number of non-SMEs, thus
fostering liquidity and profitability of the platform. The risk of regulatory arbitrage is very
limited as the number of non-SMEs on the current SME-dedicated markets is very low and
likely to remain so. Large companies that are able to cope with the more stringent
requirements imposed on regulated markets would prefer a listing on that type of trading
venues, for liquidity reasons and to attract other types of investors. Applying the same set of
rules to issuers would also ensure that companies are not penalised because they are growing
and their market capitalisation has exceeded EUR 200 million. This solution would also be
consistent with the regime applying to regulated market issuers: on those trading venues, the
41
requirement apply to issuers, irrespective of their size and even if they could fall into the
MiFID II SME definition. This solution would also ensure consistency between rules
applying to SME Growth Market issuers in general: while all the SME Growth Market
issuers would be subject to the same admission rules and periodic information requirements
(under MiFID II), they would also receive the same treatment as regards market abuse rules.
EFFECTIVENESS
EFFICIENCY
(cost-
effectiveness)
Coherence SCORE
Objectives
Policy option
Objective 1
Reduce
compliance
costs for
SMEs
Objective 2
Enhance
liquidity
Objective 3
Maintain
market
integrity
Baseline scenario 0 0 0 0 0 0
Option 1. Restricted
scope for alleviations
under MAR
+ ≈ + + - 2
Option 2. Extended
scope for alleviations
under MAR
+ + ≈ + + 4
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Impact on Stakeholders
Issuers Investors
Intermediaries /
Market Makers
Exchanges
NCAs/
Supervisors
1. Baseline scenario 0 0 0 0
Option 1. Restricted
scope for alleviations
under MAR
↑ ↓ ≈ ↓ ≈ or ↓
Option 2. Extended scope
for alleviations under
MAR
↑↑ ↑ ≈ ↑ ≈ or ↑
For the sake of market consistency, simplicity and comprehensibility for both investors and
issuers and due to the possible volatility of market capitalisation (and its impact on the
issuer's qualification as an SME or not), the preferred option is option 2.
6.1.2 Prospectus/ transfer of listing from an SME Growth market to a
regulated market
Requirements to transfer from an SME Growth Market to a regulated
market
Option 1. Partial
alleviation
Create a lighter "transfer prospectus" for issuers having been listed a certain
amount of time on an SME Growth Market (e.g. 3 years)
Option 2. Admission
document
Require an admission document (not approved by NCAs) instead of a
prospectus for companies that have been listed on an SME Growth Market for a
certain amount of time (e.g. 3 years),
Under Option 1, the issuers seeking to graduate from an SME Growth Market to the regulated
market would have to produce an alleviated prospectus, compared to the normal regime
where they have to prepare a full prospectus and incur all the costs this entails. The 'transfer'
prospectus would be available for use in cases of transfer from an SME Growth Market to a
regulated market and its content would be alleviated compared to the normal prospectus. It
would be based on the existing schedule set up for the simplified prospectus for secondary
42
issuances under the Prospectus Regulation. This would present several advantages compared
to the current situation: (i) it would significantly reduce the amount of time and the costs for
issuers, including external advisers' fees; (ii) it would thereby facilitate the transition from an
SME Growth Market to a regulated market, allowing growing companies to access greater
liquidity and gain enhanced visibility towards investors associated with the EU main markets;
(iii) it would also help to make the 'SME Growth Market' brand more attractive for both
issuers and stock-exchanges. An alleviated 'transfer' prospectus would facilitate the upgrade
to regulated markets by companies that have exceeded the market capitalisation threshold of
EUR 200 million and address the risk for the trading venue to lose its certification as an SME
Growth Market (in case more than 50% of listed companies would exceed the EUR 200
million threshold). Nevertheless, from an investor point of view, it could cause confusion that
some issuers admitted to trading on a regulated market for the first time have to produce a
full prospectus while SMEs can publish an alleviated prospectus. This is why a condition to
access to this 'transfer' prospectus would require issuers to have been admitted to trading on
an SME Growth Market for at least 3 years. Indeed, it has been observed that SMEs generally
move on to the regulated markets after a period of three years155
. The alleviated prospectus
would only apply after a period of three years to leave sufficient time for issuers to provide
the market with information on their past financial performance and meet the reporting
requirements under the rules of an SME Growth Market (MiFID II level 2). The cornerstone
principle under the Prospectus regulation, according to which a prospectus has to be
published when securities are offered to the public or admitted to trading on a regulated
market, would therefore still be respected. Furthermore, this alleviated prospectus schedule
would remain a 'niche' product, as the number of companies that currently graduate from
SME-dedicated MTFs to the regulated market is relatively low156
.
Under Option 2, the issuer will not be obliged to issue a prospectus, but would instead be
required to draw up an admission document in accordance with the regulated market's listing
rules. This document would not constitute a prospectus and would not be approved by a
national competent authority. The regulated market rules would determine its content, as for
existing admission documents. This option would present the same advantages as Option 1
and would further reduce the costs faced when moving to the main market. However, the core
principle of the Prospectus Regulation (according to which the prospectus publication
obligation is triggered when securities are offered to the public or admitted to trading on a
regulated market) would not be respected. More significantly, the lack of approval by a
national competent authority of this document and the lack of harmonisation of its content
could cause investor confusion and damage the trust in the regulated market 'brand', as there
would be no prospectus available for some issuers. Finally, the admission to trading on a
regulated market imposes the obligation on issuers to produce financial statements according
to IFRS. Except in few cases157
, the listing rules of SME-dedicated MTFs do not require the
mandatory publication of financial statements in IFRS, which means that a large number of
potential SME Growth Market issuers do not use IFRS158
. The absence of a prospectus by
155 Except on AIM Italy where the graduation takes place on average after 25 months, such a move to the main market
usually take place after three years (First North: 3 years; NewConnect: 3.17 years; MAB: 5 years, ESM: more than 5 years;
AktieTorget: 8 years).
156
Since 2006, there has been on average per year 19 issuers moving from SME-dedicated MTFs to EU regulated markets.
Since 2016, there have been 226 companies graduating from the SME-dedicated MTFs to EU regulated markets. (Source:
Data received from EU Securities exchanges and Commission data analysis – The MTFs included in this sample are: Dritter
Markt, Euronext Growth, First North, Scale, EN.A, ESM, AIM Italy, AIM UK, NewConnect, AeRO, BSSE MTF, MAB,
AktieTorget).
157 Two SME-dedicated markets impose the use of IFRS: AIM in the UK and the Emerging Companies Market in Cyprus
158 Feedback received during workshops organised by Commission services on barriers to SME listing in 2016
43
issuers for which no financial statement in IFRS was available would likely increase
investors' confusion.
Given the impact on the different stakeholders and the coherence with the Prospectus
Regulation, the preferred option is Option 1.
EFFECTIVENESS
EFFICIENCY
(cost-
effectiveness)
Coherence SCORE
Objectives
Policy
option
Objective 1
Reduce
compliance
costs for SMEs
Objective 2
Enhance
liquidity
Objective 3
Maintain
market
integrity
1. Baseline scenario 0 0 0 0 0 0
Option 1. Partial
alleviation + ≈ ≈ + ++ 4
Option 2.
Admission
document
++ ≈ - + - 1
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Impact on Stakeholders
Issuers Investors Intermediaries /
Market Makers
Exchanges NCAs /
Supervisors
1. Baseline
scenario
0 0 0 0 0
Option 1. Partial
alleviation
↑ ≈ ≈ ≈ or ↑ ≈ or ↑
Option 2.
Admission
document
↑↑ ↓ ≈ or ↓ ≈ or ↑ ↓
6.2 Policy options concerning the SME Growth Market concept
6.2.1 SME Growth Market defining criteria and thresholds
SME Growth Market Definition
Definition of SME debt-
only issuers
Definition of SME
equity issuers
Proportion of SMEs
Option 1. Unique
definition of SMEs
Increase the thresholds of the 2003 recommendation
definition to match the profile of SMEs today
Left unchanged (at
least 50%)
Option 2. Debt issuer
market definition, raised
threshold for equity
issuers and raised SME
proportion
Define an SME debt-only
issuer based on the value
of the issuance (EUR 50
million over one year)
Raising the market
capitalisation threshold
for equity issuers from
EUR 200 to EUR 500
million
Raised to 75% (at
least)
Option 3. Alternative debt
issuer market definition
and raised threshold for
equity issuers
Define an SME debt issuer
based on the value of its
outstanding bond issued
(EUR 150 million)
Left unchanged (at
least 50%)
Option 1 would create a single definition for SME issuers by keeping the criteria from the
2003 Recommendation definition while raising the thresholds it sets. While the number of
44
employees could be set at 499 by reference to other sectorial legislation159
, setting an average
turnover160
and a balance sheet161
set at EUR 200 million would be likely to capture all the
issuers currently listed on the SME-dedicated MTFs. A single definition would make SME
Growth Markets more understandable for investors, as they could rely on the fact that SMEs
(either issuing debt or equity) on those trading venues meet the same set of criteria. In
principle, this modification of the SME definition should facilitate the registration of MTFs
as SME Growth Markets. As the problem of the current definition for debt-only issuers lies in
a too narrow coverage of too small companies, raising the thresholds would logically include
more SMEs and should be more reflective of the actual market situation. For equity issuers,
criteria based on the number of employees, total balance sheet and turnover are less likely to
fluctuate greatly compared to a market capitalisation criterion. This approach was put
forward by a number of respondents to the public consultation. Nevertheless, there are
several downsides to this option. First of all, it would be very difficult to evaluate the right
balance sheet and turnover thresholds and their cumulative effects. This difficulty stands out
very clearly from the responses to the public consultation. Some stakeholders suggested
raising the turnover or balance sheet thresholds to EUR 150 million, while others were in
favour of going as far as EUR 500 million. Furthermore, the three criteria can vary
considerably, depending on the industry in which the issuer operates. For exchanges, keeping
track of those different thresholds would require a deeper analysis compared to a market
capitalisation criterion. Work is currently being led by the Commission to revisit the 2003
Recommendation, and setting new thresholds that would be adapted to SME access to public
markets could conflict with the broader, ongoing work on what an SME is. This is all the
more true as the purpose of a new definition with regard to SME Growth Markets should be
to target specifically the relevant population of SMEs, i.e. those in a position to access public
markets and which should be incentivised. The need to adopt a well-calibrated approach
specifically for market access purposes pleads in favour of a market-based definition. Under
this option, the proportion of SMEs on SME Growth Markets (at least 50%) would remain
similar to the baseline.
Option 2 would modify both the SME equity and debt-only issuer definitions, as those two
types of issuers present very specific features and would require separate consideration. For
SME debt-only issuers, the current definition would be replaced by a definition based on the
value of issuances (EUR 50 million) over a period of 12 months. As for option 1, this would
allow companies to qualify as SME debt-only issuers despite breaching the current thresholds
in terms of total number of employees (250), annual turnover (EUR 50 million) and, most
importantly, size of balance sheet (EUR 43 million). As a result, an increased number of debt
issuers would qualify as SMEs. In turn, this would enable more bond markets to qualify as
SME Growth Markets and issuers on these markets to benefit from the alleviated regulatory
requirements. It would thus help to lower the administrative compliance costs faced by SME
debt issuers. The threshold based on issuance size would be calibrated to ensure that only
smaller issuers would qualify. An appropriate threshold, based on common issuance sizes of
159 For instance, the EU Growth Prospectus is available to unlisted companies issuing less than EUR 20 million and with an
average number of employees of 499. Likewise, the Commission Guidelines on State aid to promote risk finance
investments (SWD(2014)6 and SWD(2014)7) define a midcap as 'an undertaking whose number of employees does not
exceed 499'.
160 The average turnover of companies listed on the EU SME MTF is the following: EN.A (135K€), NewConnect (800K€),
MAB (EUR 9 million), Euronext Growth (EUR 20 million), First North (EUR 25 million), Scale (EUR 39 million) and ESM
(EUR 126 million) (Source: Growth Markets in Europe – An overview of what is on offer)
161
Anecdotal evidence from the Spanish Market shows that the typical SME issuer raises between EUR 20 and 80 million
on MARF. On average, such capital-raising requires a balance sheet of EUR 60-100 million and a turnover of EUR 200
million (Public consultation SME listing)
45
SMEs and stakeholders’ feedback, appears to be around EUR 50 million over a period of 12
months (see annex 12 for more details). Given the costs of issuances162
, larger companies
would generally look to issue considerably larger sized bond packages. Also, they will often
be publicly listed companies for which the debt-only issuer definition does not apply. As
such, there is little scope for regulatory arbitrage.
Under option 2, the market capitalisation threshold for equity issuers would be raised from
EUR 200 million to EUR 500 million163.
This would be combined with a higher SME
percentage requirement (at least 75%) for the trading venue to qualify as an SME Growth
Market. This approach would align the SME Growth Market definition with other EU
regulations (the ELTIFs regulation164
and the Prospectus Regulation165
) that grant benefits to
issuers with a market capitalisation below EUR 500 million. A raised threshold would also
better reflect market realities, as issuers with a market capitalisation below EUR 500 million
also experience liquidity issues166
and can face difficulty in complying with regulatory
requirements. Some respondents also mentioned that an issuer can easily exceed the EUR 200
million threshold, as a result of subsequent fund raising, acquisitions or organic growth.
While valuation of SME issuers can change quickly (due to innovative technologies or
commercial breakthroughs), companies can still find themselves in a growth stage, requiring
more flexible access to capital provided for under the SME Growth Market framework.
Raising the threshold would also enable SME Growth Markets to attract more and larger
companies, with the potential to increase liquidity on those markets (due to larger free floats).
Larger issuers would also increase institutional investors' interest in SME Growth Market
shares. Under this option, the required proportion of SMEs would be raised to 75%. If the
market capitalisation threshold was raised to EUR 500 million, the proportion of SMEs could
also be raised to avoid any regulatory arbitrage by non-SME issuers. For investors, this
higher proportion would also assert their image of SME Growth Market as 'SME growers', by
allowing less non-SMEs to list. Raising the current 50% threshold also means that, as SMEs
get bigger, fewer of them will be able to continue to be traded on SME Growth Market over
time, incentivising some of the largest issuers to move to regulated markets167
.
However, raising the market capitalisation threshold is not fully justified at the current
juncture: First, MTFs that are seeking a registration as an SME Growth Market are not
struggling with the current definition. Indeed, the vast majority of MTFs targeting SMEs
have issuers with an average market capitalisation far below EUR 200 million (see Figure 10
below). This means that raising this threshold to EUR 500 million would not allow more
MTFs to register as SME Growth Markets, as all the MTF markets across the EU can
currently fit into this definition168
.
162 The costs of an initial bond offering of less than EUR 10 million on Euronext Growth are estimated at between 2 and 5%
of the proceeds (Source: Magazine des Directeurs Administratifs et financiers (July-August 2013); In the technical workshop
on 'barriers on listing for SMEs' on 7/10/2016 and 08/12/2016, participants indicated that the costs of an SME bond issuance
represents 2% of the proceeds.
163
A third of the respondents to the public consultation were in favour of raising the threshold from EUR 200 to EUR 500
million.
164 The recent European Long-Term Investment Funds (ELTIFs) shall invest at least 70% of their money in certain type of
assets among which SMEs listed on regulated market or MTFs and with a market capitalisation below EUR 500 million.
165
The alleviated 'EU Growth Prospectus', created by the revised Prospectus Regulation, is available (beyond SMEs) to
companies listed on an SME Growth Market with a market capitalisation up to EUR 500 million.
166 Hardman & Co, "While AIM companies management ignore retail investors at their peril", 2015
167 Public consultation SME listing; Public Consultation, SME Listing, Department of Legal Studies, Bocconi University
168
Even for the Enterprises Securities Market (ESM) where the average capitalisation of issuers is above EUR 200 million,
the current definition is not a problem as out of the 22 companies listed on this trading venue, 12 of them (i.e. more than
50%) have a market capitalisation below EUR 200 million.
46
Figure 10 – Average market capitalisation of companies listed on a selection of SME-dedicated MTFs
Dritter
Markt
(AT)
Euronext
(FR, BE,
PT)
Start
(CZ)
First North
(DK, EE, FI,
LV, LT, SE)
Scale
(DE)
EN.A
(EL)
ESM
(IE)
AIM
(IT)
New
Connect
(PL)
AeRO
(RO)
MAB
(ES)
Aktie
Torget
(SE)
AIM
(UK)
2017 Average
market cap
€
44,9 65,1 21,9 49,7
146,
5
8,4
227,
3
58,7 5,7 4,4 103 0,9
125,
8
Source: Data received from securities exchanges and Commission calculations
Raising the threshold up to EUR 500 million would not allow more SME Growth Market
issuers to benefit from alleviations/benefits associated with the SME Growth Market status.
The current benefits/alleviations provided by the Market Abuse Regulation and by CSDR are
available for all SME Growth Market issuers, irrespective of their size and the EU Growth
Prospectus is already available for SME Growth Market issuers with a market capitalisation
threshold up to EUR 500 million. Therefore, raising the threshold to this amount would not
extend the possibility to use this alleviated prospectus schedule to more companies. The only
impact of a raised threshold would be for EuVECA funds (normally dedicated to start-ups
and unlisted companies) that are only allowed to invest in SMEs listed on SME Growth
Markets (see annex 15). Likewise, raising the proportion of SMEs to 75% could have some
downside effects. Reduced access to SME Growth Markets for larger issuers could be
detrimental to market liquidity and for the profitability of the trading venues. A higher
threshold would also reduce the flexibility granted to companies (when they cease to be
SMEs) to remain listed on an SME Growth Market.
Under Option 3, the market capitalisation threshold for equity issuers would be raised to EUR
500 million, like under option 2, while the proportion of SMEs needed for the market to
qualify as an SME Growth Market would be unchanged (at 50%) compared to the baseline. A
capitalisation threshold of EUR 500 million would better reflect the situation of European
SMEs (especially in the larger Member States) and future growth prospects of companies
listed on those trading venues, while granting larger companies access to SME Growth
Markets (up to 49%) might be beneficial for the liquidity and profitability of the trading
venues. Option 3 would base the definition of debt-only issuers on the total value of
outstanding debt. A non-equity issuer would qualify as SMEs provided that the outstanding
nominal value of its debt securities does not exceed EUR 150 million. This threshold seems
to be appropriate, considering the average nominal value of outstanding bond issuance per
issuer (See figure 11). This solution was not mentioned by respondents to the public
consultation but was considered by ESMA when producing its final report on MiFID II level
2169
. Compared to option 2, this solution would have the merit of strictly limiting the SME
debt-only issuer definition: under this option, an issuer could not be considered an SME if it
returns to the market several times and raises debt capital through secondary issuances. A
criterion based on outstanding debt issued would also draw a parallel with the criterion based
on market capitalisation used for SME equity issuers. However, this option presents a
drawback. SMEs in financial distress may exceed the threshold involuntarily170
. Although
their business should qualify as an SME, they would drop outside of the definition scope
when their debt levels increase. Should this happen to more companies on the market, the
169 ESMA's Technical Advice to the Commission on MiFID II and MiFIR – Final Report
170
Distress of several SME bond issuers at the same time has already been observed on the German SME bond Market.
Source: OECD, Growth companies, Access to Capital Markets and Corporate Governance, 2015; Scope Ratings, Lessons
Learned in the German SME Bond Market (April 2015); Scope Ratings, Scale Replaces Entry Standard, Will this
Rehabilitate SME Bond Financing? (2017)
47
markets could lose their SME Growth Market status, thus limiting regulatory alleviations for
their companies.
Figure 11 – Average value of outstanding issuances per issuer per year
2012 2013 2014 2015 2016 2017
Euronext (FR,BE) 14.4 27.1 32.9 44.6 75.4 85.9
First North (Nordics, Baltics) 18.4 25.1 22.7 26.9 16.7
Scale (DE) 64.3
Stuttgart B (DE) 72.7 73.9 73.3 75.0 90.0 102.0
EN.A (EL) 10.0
AeRO (RO) 0.9 0.9 0.8
MARF (ES) 50.0 45.5 49.0 55.5 53.5
Total 38.6 40.9 39.5 43.0 57.0 57.0
EFFECTIVENESS
EFFICIENCY
(cost-
effectiveness)
Coherence SCORE
Objectives
Policy option
Objective 1
Reduce
compliance
costs for SMEs
Objective 2
Enhance
liquidity
Objective 3
Maintain market
integrity
Baseline scenario 0 0 0 0 0 0
Option 1. . Unique
definition of SMEs
+ ≈ ≈ + ≈ or - 1.5
Option 2. Debt issuer
Market definition,
raised threshold for
equity issuer and raised
SME proportion
+ ≈ or - ≈ or + + + 3
Option 3. Alternative
debt issuer market
definition and raised
threshold for equity
issuers
+ ≈ ≈ + ≈ or + 2.5
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Impact on Stakeholders
Issuers Investors Intermediaries /
Market Makers
Exchanges NCAs /
Supervisors
1.Baseline scenario 0 0 0 0
Option 1Unique definition of
SMEs
↑ ↑ ≈ ≈ or ↑ ≈
Option 2. Debt issuer Market
definition, raised threshold
for equity issuer and raised
SME proportion
↑ ↑ ≈ ≈ or ↓ ≈ or ↑
Option 3.
Alternative debt issuer
market definition and raised
threshold for equity issuers
↑ ↑ ≈ ≈ or ↑ ≈
Evidence shows that the current SME debt-only issuer definition based on the 2003
Recommendation is not adapted to smaller companies issuing bonds. Raising the thresholds
of the criteria set by this Recommendation would lead to a further fragmentation of the SME
definition across EU legislation. A market-oriented definition based on an issuance size
criterion (EUR 50 million over a period of 12 months) would be better adapted to the
48
situation of small bond issuers and is supported by a significant number of stakeholders.
However, as regards equity issuers, raising the threshold up to EUR 500 million would have
little impact in the medium term. It would not allow more MTFs to register as SME Growth
Markets and hence not extend the potential benefits associated with the SME Growth Market
issuer status to more companies. As this change would not bring clear benefits in the short
run, the status quo seems a suitable option. Therefore, the preferred option is option 2 as
regards the debt issuer definition. The other aspects of this option (higher market
capitalisation threshold and higher proportion of SMEs) should be discarded.
6.2.2 Half-yearly report
Half yearly reports
Option 1. Flexibility as regards
non-equity issuers
Allow SME Growth market operators to decide whether or not to apply
an obligation for half-yearly reports to non-equity issuers
Option 2. Flexibility as regards
non-equity and equity issuers
Allow SME Growth market operators to decide whether or not to apply
an obligation for half-yearly reports to equity and non-equity issuers
Under Option 1, non-equity SME Growth Markets issuers could be exempted by their market
operators from the obligation to produce a half-yearly report. Some stakeholders have
mentioned that the costs and constraints associated with the preparation and the publication
of half-yearly reports can deter issuers from joining public markets. In some cases, they also
face fees paid to accountants and auditors to fulfil this regulatory requirement. Furthermore,
SME Growth Market non-equity issuers would be set at a disadvantage compared to non-
equity issuers on a regulated market. Indeed, wholesale debt issuers (i.e. companies issuing
bonds with a denomination per unit above EUR 100,000 that targets professional investors)
on regulated markets are already exempted from publishing half-yearly reports (under the
Transparency Directive)171
. Therefore, it can seem paradoxical to impose more stringent
requirements on SME Growth Market non-equity issuers than on those listed on a regulated
market172
. This requirement can also deter some SME-dedicated MTFs specialised in bond
issuances to seek a registration as an SME Growth Market 173
. Mandatory half-yearly
reporting for non-equity issuers is seen as an obstacle to the take-up of the SME Growth
Market label, as in some cases it might impose additional requirements on issuers instead of
alleviating their regulatory burden174
. As a consequence, more discretion regarding half-
yearly reports for non-equity issuers can allow market operators to better adapt their listing
rules to local conditions. However, less frequent periodic information can also create less
investors' interest in SME bond issuances and generate less liquidity – even if liquidity is a
less important consideration for SME bond issuances, as such bonds are usually bought by
institutional investors following a 'buy-and-hold strategy' until maturity.
Under Option 2, the market operators of SME Growth Markets would have the possibility to
exempt both equity issuers and non-equity from the obligation to publish half-yearly reports.
Equity issuers spend time and money to prepare and publish half-yearly reports. This
reporting in semi-annual intervals is burdensome for issuers and can also create an inclination
171 Under Article 8(1)(b) of the Transparency Directive 2004/109/EC,, issuers of wholesale debt securities (with a
denomination per unit above EUR 100,000) that are admitted to a EU regulated market are exempt from the obligation to
publish annual and half-yearly reports.
172 Recital 112 of the Delegated Regulation 2017/565 provides that 'In any case, an SME Growth market should not have
rules that impose greater burdens on issuers than those applicable to issuers on regulated markets'.
173
This argument was mentioned by two exchanges during the Commission technical workshop held on 14 November 2017
174 For instance, two SME-dedicated markets (EXTRA-MOT PRO in IT and MARF in ES) specialised in bonds and three
SME-dedicated markets (Euronext Growth in BE, FR and PT) specialised both in bonds and shares do not require half-
yearly reports for non-equity issuers.
49
of investors towards short-termism. The requirement for equity issuers to produce half-yearly
reports could also prevent some SME-dedicated MTFs from seeking a registration as SME
Growth Markets, as some of them do not currently impose such a requirement175
. Flexibility
for market operators to impose or not a half-yearly report would also help them to tailor
listing rules to local investors' and issuers' needs. However, many respondents have indicated
that the publication of financial results by equity issuers is the main driver of investors'
decisions. The timely issuance of financial reports would be fundamental to foster investor
confidence and to attract investors (especially institutional investors) and financial analysts'
interest. The publication of half-yearly report can also enhance the liquidity of SME shares.
The absence of frequent financial reporting is also likely to increase the risks of insider
trading.
EFFECTIVENESS
EFFICIENCY
(cost-
effectiveness)
Coherence SCORE
Objectives
Policy
option
Objective 1
Reduce
compliance
costs for SMEs
Objective 2
Enhance
liquidity
Objective 3
Maintain
market
integrity
1. Baseline scenario 0 0 0 0 0 0
Option 1.
Flexibility as regards
non-equity issuers
+ ≈ ≈ + ++ 4
Option 2.
Flexibility as regards
non-equity and
equity issuers
++ - - ++ - 1
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Impact on Stakeholders
Issuers Investors Intermediaries /
Market Makers
Exchanges NCAs /
Supervisors
1. Baseline scenario 0 0 0 0 0
Option 1. Flexibility
as regards non-equity
issuers
↑ ≈ or ↓ ≈ ↑ ≈
Option 2. Flexibility
as regards non-equity
and equity issuers
↑ ↓↓ ≈ or ↓ ↑ ≈
As the obligation to produce a half-yearly report would impose a more stringent requirement
on SME Growth Market non-equity issuers compared to non-equity issuers on regulated
markets, it seems justified to leave the flexibility to market operators whether to require or
not the publication of such reports. However, half-yearly report provides a valuable insight
into the performance of equity issuers and the removal of this requirement may deter
investors from investing in SME Growth Market issuers due to the lack of sufficiently
detailed and fresh financial data. It could also have a downward impact on liquidity. As a
consequence, the obligation of half-yearly reports for equity issuers should not be left to the
discretion of the trading venue. Therefore, the preferred approach is option 1.
175
For example, Dritter Market (AT) and the MTF operated by the Bratislava Stock Exchange do not require the publication
of a half-yearly report by equity issuers.
50
6.3 Policy options to address liquidity in SME Growth Markets
Both option 1 and 2 would seek to increase liquidity on SME Growth Markets, by
introducing a more harmonised EU approach towards on the one hand, liquidity contracts,
and on the other, free float requirements. Authorising liquidity contracts in all Member
States, together with setting a minimum free float (thereby sending to investors the signal that
SME GM shares are not illiquid on admission), can be expected to have a cumulative positive
effect, with the two measures reinforcing each other in stimulating liquidity on SME Growth
Markets.
Both options would create a European regime for SME Growth Markets that would set out
the conditions that these contracts need to fulfil. This would enable SME Growth Market
issuers to enter into liquidity contracts in all Member States, regardless of whether their
national competent authority has established an accepted market practice. As under current
accepted market practice regimes, the European regime would be carefully designed so as to
prevent the liquidity provider from giving any false or misleading signal to the market or
distort the pricing of the respective share. Several respondents to the public consultation also
highlighted that authorising liquidity contracts across the EU would align market conditions
and opportunities in all Member States, thus also contributing to fair competition between
markets. Liquidity contracts provide an attractive alternative given the absence of such
schemes. Research has shown that liquidity contracts have a direct positive impact on
liquidity176
and that higher liquidity lowers the cost of capital for issuers177
. Furthermore, a
study of French liquidity contracts specifically showed that volatility is reduced by more than
25% for companies with free floats of less than EUR 200 million and 10% for free floats
between EUR 200 million and EUR 5 billion178
. This increased liquidity and lower volatility
would ultimately benefit investors: it would increase the value of a company’s stock179
,
reduce transaction costs and enable investors to trade in and out of their positions more
easily180
. Although the Netherlands abandoned their accepted market practice on liquidity
contracts due to low uptake181
, other Member States have seen a significant interest from
issuers (e.g. France where two-thirds of the 175 companies listed on Euronext’s SME MTF in
2015 had signed a liquidity contract182
).
Turning to free float, both options would impose some form of minimum requirement. A
minimum free float would have a positive impact on the level of liquidity, especially at the
176 Why do firms pay for liquidity provision in limit order markets?, J. Skjeltorp, B. A. Ødegaard, April 2010
177 See for instance the literature review presented in Why do listed firms pay for market making in their own stock?, J.
Skjeltorp, B. A. Ødegaard, March 2013
178
AMAFI, Mise en œuvre de MAR, Révision de la pratique de marché admise AMF concernant les contrats de liquidité, 23
August 2017
179 Why do firms pay for liquidity provision in limit order markets?, J. Skjeltorp, B. A. Ødegaard, April 2010
180 ESMA Opinion On Intended Accepted Market Practice on liquidity contracts notified by the Comisión Nacional del
Mercado de Valores, ESMA/2016/1663, December 2016
181 AFM Website: https://www.afm.nl/nl-nl/nieuws/2017/sep/beeindigen-amp
182 Rapport annuel 2015, Observatoire du financement des entreprises par le marché, p.23
Liquidity contracts Free float requirements
Option 1. 29th
regime + free
float
Create a European regime for liquidity contracts,
while authorising NCAs to submit an AMP and
develop a parallel regime tailored to local conditions.
Oblige SME GMs to impose a
free float requirement but provide
flexibility on exact criteria
Option 2.
Full
harmonisation
Create a fully harmonised EU liquidity provision
scheme with all conditions set out at EU level,
without the possibility for NCAs to submit an AMP
tailored to local conditions.
Impose precise free float criteria
for SME GMs
51
admission stage. There are some indications of a positive correlation between the level of free
float and liquidity, as well as that a higher free float percentage can help to mitigate acute
liquidity shortages183
. A minimum level of free float would ensure that a certain amount of
shares will be held by retail investors who play a crucial role in providing daily liquidity184
.
In addition, some investor representatives mentioned in the public consultation that too low
levels of free float prevented most institutional investors from investing in certain asset
classes. It should be noted, however, that a minimum free float requirement may also hold
potential downsides. In particular, it is possible that some SMEs may become more reluctant
to raise capital via public share offerings185
as it implies that the owners will need to sell at
least this minimum percentage to the public. This can raise fears for the initial owners that
they may lose control of the business to new shareholders186
. Nevertheless, the purpose of
public markets should not be to list illiquid issuers on admission. In addition, the large
majority of SME Growth Markets already impose some form of minimum free float
requirements, while those that currently do not impose any free float requirements have on
average relatively high levels of free float, again implying that only few issuers would be
affected by minimum requirements.
Option 1: 29th regime + free float
Concerning liquidity contracts, option 1 would create a European regime (a ‘29th
regime’) but
would still allow national competent authorities to establish accepted market practices s187
.
Likewise, already-approved accepted market practices could be maintained after the new
regime is established. This approach would provide national competent authorities with
enough flexibility to tailor liquidity contracts to local conditions and market specificities (e.g.
extension of the scope to illiquid shares on a regulated market). This reflects the responses of
the majority of participants to the public consultation, who argued greatly in favour of
enabling liquidity contracts while ensuring some flexibility at national level. In addition, it
would limit the costs arising for both issuers and national competent authorities, as already-
adopted accepted market practices and liquidity contracts entered into could be preserved.
Nevertheless, allowing divergences through national accepted market practices would also
mean that some level of market fragmentation in the European Union would remain.
Accepted market practices adopted beyond the European regime under option 1 may distort,
to some extent, the respective attractiveness of listings in different Member States. However,
given that ESMA would still need to approve any accepted market practice submitted by
national competent authorities, measures could be taken at this level to avoid any disruptive
effect.
On free float, option 1 would grant market operators the flexibility to freely decide on the
level and nature of the requirement that they wish to impose. Approximately half of the
stakeholders who expressed an opinion on free float through to the public consultation
favoured this flexible approach. As could be expected, issuer representatives were against any
rule on free float, while investor representatives were all in favour of imposing a minimum to
be defined by local markets188
. As there would be full flexibility as to the level imposed,
nothing would change for the companies listed on the exchanges already requiring a free
183
X. Ding, Y. Ni, L.Zhong, Free float and market liquidity around the world, Journal of Empirical Finance, 2015
184
Hardman & Co, "While AIM companies management ignore retail investors at their peril", 2015
185 This view was conveyed in the public consultation by several issuer representatives
186 OECD, New Approaches to SME and Entrepreneurship financing: Broadening the range of Instruments, p.99
187 For instance, NCAs will have the possibility to adopt an AMP on liquidity contracts for companies that are not listed on
an SME Growth Market.
188 Other types of stakeholders (exchanges, public authorities, industry associations) had split views on the issue.
52
float, or for the market operators. As pointed out in a few responses to the public
consultation, another advantage to leaving flexibility to market operators lies in the fact that
free float can be defined and measured differently in different Member States189
. However, a
fully flexible approach runs the risk that market operators set a very low free float
requirement which may not bring any real positive impacts. To mitigate this issue, national
competent authorities would need to verify that market operators have not imposed
excessively low thresholds.
Option 2: full harmonisation
In difference to option 1, option 2 would adopt a maximum harmonisation approach. A fully
harmonised European liquidity provision framework would be created, without allowing
national competent authorities to establish further accepted market practices. This would
increase the legal certainty for both issuers and financial intermediaries responsible for
providing liquidity compared to option 1, especially in terms of the set limitations to their
contractual relationship. As all requirements would be fully harmonised, liquidity could be
provided across all exchanges without regard for potential national divergences190
, thus
preventing any potential fragmentation across Member States in terms of the allowed
practices.
With regard to the free float requirement, option 2 would set the minimum level in EU law.
As pointed out by some stakeholders through the public consultation, this would send a clear
signal to investors that SME Growth Markets aspire to be liquid markets, and would
contribute to increasing investor confidence more strongly.
However, it should be noted that this maximal approach of setting uniform, more rigid
requirements may not necessarily be suitable for every SME Growth Market. The
characteristics of liquidity provision or minimum free float could not be further calibrated to
best suit local conditions. This may work to the detriment of Member States with less
developed capital markets in particular. Given even more pronounced issues of liquidity in
these Member States, they may notably want to adopt accepted market practices to further
facilitate liquidity contracts. Regarding free float, while investor confidence may be boosted
more clearly than under option 1, there may be certain unforeseen impacts depending on the
respective nature of SME Growth Markets, their ecosystem, and the national definition of
free float. These potentially significant shortcomings were clearly reflected in the public
consultation, as almost none of the respondents favoured setting the characteristics of free
float requirements or liquidity contracts at EU level.
EFFECTIVENESS
EFFICIENCY
(cost-
effectiveness)
Coherence SCORE
Objectives
Policy
option
Objective 1
Reduce
compliance
costs for SMEs
Objective 2
Enhance
liquidity
Objective 3
Maintain
market
integrity
Baseline scenario 0 0 0 0 0 0
Option 1.
29th
regime + free
float
≈ ++ ≈ ≈ ≈ 2
189 For instance, free float can be expressed as a percentage of an issuer’s total capital, a fixed amount of capital, a number of
shareholders or an absolute monetary value.
190 It should be noted though that the same would be possible under option 1, provided that the actors rely on the European
regime.
53
Option 2.
Full harmonisation ≈ ++ ≈ ≈ or - ≈ 1.5
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Impact on Stakeholders
Issuers Investors Intermediaries /
Market Makers
Exchanges NCAs/
Supervisors
Baseline scenario 0 0 0 0 0
Option 1. 29th
regime + free float
↑ ↑/↑↑ ↑/↑↑ ≈ ≈
Option 2. Full
harmonisation
≈ or ↑ ↑/↑↑ ↑/↑↑ ≈ or ↓ ≈
Given that option 1 would couple the benefits of enabling all European SME Growth Market
issuers to enter into liquidity contracts, while minimising cost implications for issuers,
intermediaries and national competent authorities, and guaranteeing greater impact through
more tailored regimes, this option represents the preferred approach. This also reflects the
responses of the majority of participants to the public consultation. Any potential issues of
market fragmentation that may arise under option 1 could furthermore be tackled by
respective guidelines and decisions taken by ESMA.
7 PREFERRED OPTION
7.1 Overall impact of the preferred option
The preferred option (summarised in the table below) will contribute to the overarching
Capital Markets Union goal to facilitate a better access to capital markets for companies and
reduce the reliance on bank financing. In particular, they will support companies listed on
SME Growth Markets by reducing their administrative burdens, re-aligning the definition of
SME debt issuers with current market practices and enabling improved liquidity provision.
It should be noted that, taken together, the regulatory measures included in this initiative may
not have an overwhelming impact on the situation of small issuers or SMEs considering a
listing. However, this proposal will create a more conducive regulatory environment for small
companies, by making the SME Growth Market concept created by MiFID II more attractive,
both for issuers and investors. It will complete the regulatory alleviations already provided
for under the Prospectus Regulation (such as the alleviated EU Growth Prospectus and the
alleviated prospectus schedule for secondary issuances) and the Central Securities
Depositories Regulation (i.e. the extended buy-in periods for SME Growth Market financial
instruments). This initiative should also be considered in a broader context. The Capital
Markets Union Mid-term Review also includes non-legislative measures, such as the
possibility to use EU public funds to catalyse private investments in SME Growth Market
shares. The Commission has also committed to conducting a study analysing the impact of
MiFID II research payment provisions on SME research coverage, which was perceived as a
major regulatory obstacle to SME listing by a significant number of respondents to the public
consultation.
The technical adjustments under the Market Abuse Regulation will reduce the administrative
burden of listing on SME Growth Markets. This will initially benefit companies already listed
on an SME Growth Market. It is estimated that the annual cost savings resulting from the
envisioned adjustments under the Market Abuse Regulation will lie in the range of EUR 5.1 –
54
12.61 million191
. Given the alleviated administrative burden and reduced costs (especially on-
going costs), it will also contribute to making listings more attractive for companies
considering that route. The regulatory adjustment to the market sounding regime for the
private placements of bonds with institutional investors will also make this source of
financing more enticing. The targeted changes to the Market Abuse Regulation framework
for SME Growth Market issuers have been carefully considered in order to ensure a high
level of investor confidence and market integrity. The preferred options hold the significant
advantage of not reducing market integrity nor investor confidence. Investor confidence
largely depends on the amount of information disclosed to the market. The preferred options
have precisely no impact on the quantity (or quality) of information investors would have
access to (except for the fact that debt-only issuers would be exempted from producing half-
yearly reports, in order to level the playing-field with regulated markets where requirements
are paradoxically less stringent). For instance, insider lists are not made public, and nor do
investors know about delays in disclosing inside information. The proposed changes to the
Market Abuse Regulation only concern administrative procedures and the distribution of
burden between issuers and National Competent Authorities, and not the level of information
transmitted to the market or the national competent authority. In addition, the preferred
options do not limit the capacity of competent authorities to investigate or identify risks of
market abuse. In short, none of the adjustments result in deconstructing the market abuse
regime.
The alleviated transfer prospectus will lower the costs of moving from an SME Growth
Market to a regulated market. Regulated markets provide a range of advantages, in particular
increased liquidity and access to deeper capital pockets. However, high compliance costs to
access those trading venues act as a deterrent to move to them. The 'transfer prospectus' will
lower these cost barriers in the transition phase and encourage the graduation of issuers to
regulated markets. Initial listings on SME Growth Markets will also become more attractive
if there is a less costly growth path to the main markets. By allowing successful companies to
graduate easily to the main markets, the transfer prospectus will also assert the image of SME
Growth Markets as “SME-growers” (instead of being perceived as 'end-markets'). Given the
current average number of uplistings per year, the transfer prospectus is estimated to bring
about annual cost savings in the range of EUR 4.8 – 7.2 million.
Furthermore, the change of SME debt-only issuer definition as well as the related deletion of
the requirement to publish half-yearly reports will enable a larger number of MTFs
(specialised in bonds or having both bond and share offerings) to register as SME Growth
Markets. As a result, issuers on these MTFs will benefit from the existing alleviations for
Growth Market issuers as well as the additional ones envisaged under the preferred option.
Lastly, the envisioned measures on liquidity will aid both issuers and investors on SME
Growth Markets. Creating a European regime for liquidity contracts will facilitate issuers to
enter into such contracts. This will ensure a minimum level of liquidity in their shares,
thereby increasing the attractiveness also for investors. In the absence of a minimum level of
liquidity and free float, many investors may not even consider investing in SME shares and
bonds. Minimum liquidity levels thereby not only help to reduce liquidity and volatility risks
for investors but also to attract further liquidity. Issuers will also benefit from greater
liquidity to the extent that it results in a higher pricing of their securities and increases their
191
These figures do not account for additional cost savings related to the extended deadline for issuers to
publicly disclose transactions relative to the notification by PDMRs and PCA (see Annex 3)
55
capacity to raise capital in the future, by reducing the illiquidity premium they would have to
pay otherwise.
However, the positive impacts of this initiative should not be overstated. Other factors such
as the current state of the market (both the market(s) serviced as well as financial markets),
monetary policy, tax treatment of debt and equity and general preferences of financing
channels of companies will generally outweigh the impacts of the regulatory adjustments
envisioned. As such, the preferred options are not expected to strongly impact the financing
decision of businesses in the short run. Companies financing decisions are usually taken
months in advance, meaning that the impacts will only manifest themselves over time and
when combined with other measures to enhance SME access to public market funding. The
wider set of measures will require time before the increased relative attractiveness of capital
based financing is fully perceived by companies and the positive impacts fully unfold. In the
long run, however, the adjustments are expected to produce noticeable benefits, in
conjunction with other regulatory or non-regulatory actions foreseen.
Eventually, the risk that the proposed changes would disrupt the markets through too frequent
regulatory changes should be limited. First of all, the preferred options improve the overall
situation of market participants essentially through alleviations, which should be less
disruptive than a situation where additional requirements are introduced. In addition, this
initiative is the only regulatory one in the SME listing package. As such, no further
legislative changes to the SME Growth Market will be proposed or implemented in the short
- to medium-term. Without pre-empting the results of the MAR Review (scheduled for next
year), the latter will be of a much broader scope and should not further amend the SME
Growth Market framework. With regard to MiFID II and the Prospectus Regulation, their
respective mandatory reviews are scheduled at a later stage (mid-2020 for MiFID II and July
2022 for the Prospectus Regulation). Only the study analysing the impact of the MiFID II
level 2 on SME equity and bond research coverage could theoretically result in further
regulatory changes to the SME Growth Market framework. However, even if legislative
amendments were to be envisaged, such changes would not be proposed under the current
Commission, as the call for tender will be launched in Q2 2018, for a deliverable expected in
Q2 2019 at the earliest.
The preferred options are as follows:
Figure 12 – Summary of the preferred options
Problem drivers Preferred option
Administrative
burden placed on
listed SMEs
(Driver 1)
Option 2 as regards MAR (with one limitation): (i) Adoption of a
new deadline to publicly disclose managers' transactions (2 days as of
the manager’s notification to the issuer); (ii) list of 'permanent
insiders'; (iii) justification of delayed inside information only on
request (plus no need to keep a disclosure record); (iv) Exemption of
private placements of bonds from the market sounding regime if an
alternative wall-crossing procedure is in place.
Option 2 as regards the scope of alleviations under MAR –
Alleviations under MAR are granted to all SME Growth Market
issuers
Option 1 as regards the Prospectus Regulation/transfer of listing
from an SME Growth Market to a regulated market - Creation of
a lighter 'transfer prospectus' for SME Growth Markets issuers listed
for at least three years
56
Inadequate SME
Growth Market
definition
(Driver 2)
Option as regards the SME Growth Market definition: Define an
SME debt-only issuer based on the value of the issuance (50 million
over one year)
Option as regards half-yearly report – Allow SME Growth Market
operators to decide whether or not to apply an obligation for half-
yearly reports to debt-only issuers
Lack of schemes
(mechanisms) to
promote trading and
liquidity on SME
Growth Markets
(Driver 3)
Option 1: (i) Creation of a European regime for liquidity contracts,
while authorising NCAs to submit an AMP and develop a parallel
regime tailored to local conditions; (ii) Oblige SME Growth Markets to
impose a free float requirement but provide flexibility on exact criteria
7.2 Macro-economic impacts
The initiative forms part of the wider Capital Markets Union programme aimed at facilitating
a better access to capital markets for companies and reduce the reliance on bank financing.
Various economic studies have shown that there is a positive association between access to
capital markets and economic growth. More so, it has been demonstrated that this
relationship is causal and that access to capital markets directly impacts the ability of an
economy to generate economic growth192
. Improved access not only increases the capacity of
companies to raise finance resources but also increases the efficiency of capital markets. This
improves the overall allocation of capital, which will foster economic growth by utilising the
available capital resources more efficiently. For instance, companies that listed their shares
on AIM in the UK (one of the few successful European junior markets for SMEs) show on
average a turnover growth of 43% in the year after their IPO193
.
More diversified funding sources also increase economic resilience. Greater access to capital
markets will help to mitigate potential problems in the banking sector. The financial crisis
demonstrated that an overly strong reliance on bank-based financing can severely undermine
the potential for a quick recovery. The much more rapid economic recovery in the US
compared the EU following the crisis is attributable, in part, to a greater proportion of capital
market-based financing. As banks were hit by both an internal need to deleverage as well as
increased regulatory constraints, their willingness to lend was strongly hampered. This made
it very difficult for companies to raised financial resources, especially SMEs as they
generally exhibit a higher exposure to risk for potential lenders.
SMEs form the backbone of the EU economy. Not only do they represent 99% of all EU
businesses, but they also provide two-thirds of total private sector employment. As such, it is
crucial for the overall health of the economy to enable these companies to access financial
resources. While the latest two ECB Surveys on the Access to Finance of Enterprises (SAFE)
indicate a higher willingness of banks to provide credit to SME's, they remain overly
dependent on bank financing, especially from smaller domestic banks. This makes them
considerably more vulnerable to economic shocks.
The measures put forward in the preferred option, in conjunction with other CMU measures,
will aid SMEs to diversify their sources of funding and thereby increase the EU's economic
resilience. In particular, it will help young innovative firms who play a critical role for
192
See Kaserer & Rapp et al., 2014
193 Grant Thornton, the Economic Impact of AIM, 2015, p.5
57
economic development. These companies are generally more dependent on equity financing
as they often lack access to bank lending, given higher and less foreseeable risk factors.
Overall, the initiative will help to facilitate stronger and more resilient economic growth, job
creation as well as innovation.
7.3 Small and medium-sized enterprises
The amendments considered in the preferred option have the objective of facilitating capital-
raising by SMEs on public markets through shares or bonds issuances. The envisaged
regulatory adjustments will reduce the administrative cost burden placed on SMEs when
listing on SME Growth Markets. In addition, SMEs will benefit from improved liquidity
levels in their shares. This will make investments in their shares more attractive, thus
enabling them to raise more capital via secondary offerings. The amendments will initially
benefit already listed SMEs. However, by lowering the cost barriers to access public markets,
they will also benefit SMEs that seek to potentially list shares or issue bonds in the future. As
the relative attractiveness of capital markets will be increased, the measures (in conjunction
with other measures to support SME listing) may also have a small positive impact on bank
based financing for SMEs, given competition between the two financing channels.
7.4 UK leaving the EU
The prospective withdrawal of the UK from the European Union is likely to have an impact
on the composition of EU capital markets, including SME focused MTFs. In terms of market
capitalisation, the London Stock Exchange (LSE)'s Alternative Investment Market (AIM)
represents more than 65% of the overall European market capitalisation of SME-focused
MTFs. 74% of all proceeds on SME equity markets have been raised on AIM since 2006. In
addition, two out of three MTFs registered as SME Growth Markets under the Markets in
Financial Instruments Directive II are established in the UK (AIM and NEX).
The impact of the UK's withdrawal on SME markets should not be overstated. The SME
market landscape is rather fragmented with almost one SME MTF per Member State. The
majority of SME issuers are local in nature and are ill-equipped for a listing on a trading
venue located outside their Member States of origin. Few companies are dual-listed due to
the costs that such a decision may imply. In addition, few SMEs are producing their financial
statements in IFRS, making them less attractive for both foreign investors and financial
analysts (see Annex 5 on out-of-scope drivers).
AIM's higher level of liquidity (compared to the other EU SME markets except First North in
the Nordics) could however attract some high-growth companies or some SMEs operating in
specific sectors (such as biotech companies) that are better prepared for a listing outside their
Member States and that are ready to produce their financial statements in IFRS (which is
required by the AIM UK's listing rules). As issuers listed on MTFs (including SME Growth
Markets) currently face the same regulatory environment (apart from some very minor
exceptions) in all Member States, the attractiveness of AIM is notably due to tax incentives
(i.e. AIM shares are eligible in the individual saving account -ISA) and non-regulatory
drivers. Being based in London, AIM enjoys a much more developed market ecosystem and
benefits from wider clustering effects which attract deeper pockets of capital. For instance,
AIM issuers attract more institutional and foreign investors than any other SME-dedicated
MTF in the EU (see Annex 7 on additional market background) and a significant number of
58
non-UK firms are listed on AIM194
. In addition, the London Stock Exchange Group has set
up the ELITE Programme, a two-year programme which prepares promising firms for
external access to fund raising opportunities. Since its launch in 2012, this programme has
enrolled more than 700 countries across 28 countries (including 19 EU Member States195
)
that are connected with more than 200 investors (large institutional investors and family
offices). The ELITE Programme is presented as "capital neutral" as regards the different
sources of financing it promotes (IPO, private equity, venture capital, debt products…).
However, this programme could be a way to attract more IPOs and bond offerings196
from
EU firms in their expansion phase on the platforms operated by LSEG197
. This would
potentially have a downward impact on EU SME markets and their local ecosystems.
Eventually, some European firms in their expansion phase currently benefit from a healthy
competition among trading venues (in terms of liquidity and cost of capital) that comply with
the same European rulebook. After its withdrawal from the EU, the UK would enjoy
increased regulatory flexibility to deviate from the European single rulebook to make listings
on UK platforms more enticing in relative terms. It is therefore crucial to strengthen the
European SME Growth Market concept in order to facilitate capital-raising by smaller
businesses post-Brexit.
7.5 EU and Member State budgets
The initiative is not expected to have any noteworthy impact on the European budget.
National competent authorities will face a marginal increase in costs, mainly due to the
envisioned changes under the Prospectus Regulation. The changes will require them to
implement new procedures thus giving rise to small one-off costs. However, as the new
transfer prospectus will represent a simplified version of the full prospectus, on-going costs
are expected to decrease. National competent authorities will also require additional time to
vet notifications of delays for disclosing insider information and to decide whether to request
a full justification. Again, there may be small one-off costs that arise from the initial change
of procedure while on-going costs are reduced given a lower number of justifications overall.
7.6 Social impacts
The initiative is not expected to have any direct social impacts. SMEs however form the
backbone of the EU economy and provide two-thirds of total private sector employment. The
significance of SMEs in terms of employment has increased even further since the financial
crisis, with SMEs being responsible for creating around 85% of new jobs over the last 5
years. Provided that the initiative achieves its objectives to contribute to a more conducive
environment for SME listing and improving the access to finance for SMEs, these companies
will be able to grow at a faster pace, with positive implications for employment. The few
well-functioning SME markets in the EU already make a huge contribution to local job
markets. For instance, in 2013, the UK companies listed on AIM directly supported more
than 430,000 jobs198
. Between 2006 and 2012, companies listed on First North Stockholm
increased their workforce by 17% annually after the IPO, compared to an annual growth of
194 Out of 1107 companies listed on AIM UK in 2012, 213 were not UK companies (19.1%)
195 EU Member States: IT, UK, ES, RO, EL, FR, LU PL, NL, IE, SI, PT, HR, FI, SK, CZ, IE,
196 28 ELITE companies issued bonds, raising a total of EUR 860 million.
197
To date, 13 ELITE companies have raised capital through an IPO for EUR 240 million raised.
198 Grant Thornton, The Economic Impact of AIM, 2015
59
5% for all private companies in Sweden199
. By strengthening the SME-dedicated markets
across the EU, the initiative could therefore enhance job growth. As such, it is expected that
the measures, as part of a wider package to facilitate SME access to capital market finance,
will positively impact the EU labour market and increase economic cohesion.
7.7 Impact on third countries
The initiative is not expected to have any significant direct impacts on third countries. If the
initiative (in conjunction with other CMU measures) is successful in increasing the overall
attractiveness of SME Growth Markets, it may lead to fewer companies opting for listings in
other countries, in particular the US.
7.8 Environmental impacts
The initiative is not expected to have any direct environmental impacts. A significant number
of companies listed on SME Growth Markets, however, engage in the development and
innovation process of new environmental-friendly technologies. A better access to finance
will allow these companies to grow at a more rapid pace and allocate more financial
resources to respective R&D programmes. The initiative will notably create a more
conducive environment for the private placement of bonds with institutional investors,
including 'green' private placements200
. As such, it is foreseeable that there will be a small
positive indirect impact on the environment. There is, however, no reliable data available to
quantify this impact with any reasonable accuracy.
7.9 Impact on competitiveness
Improved access to capital markets for SMEs will enable them to better balance their sources
of finance. This will benefit these companies, especially in times of restricted access to bank
loans. It may also have a small positive impact on their overall ability to raise capital. These
factors will aid SMEs to compete both amongst themselves as well as with larger
competitors.
7.10 Coherence
The preferred options are coherent with the existing legal framework. Recitals 6 and 55 of the
Market Abuse Regulation explicitly call for administrative costs alleviations for SMEs and
financial instruments admitted to trading on SME Growth Markets. It is furthermore noted
that any alleviations should however avoid potential detrimental impacts on market integrity.
The technical adjustments envisaged meet both of these requests. Similarly, recital 132 of the
Markets in Financial Instruments Directive II notes that administrative burdens on SMEs
should be reduced and that incentives should be provided for SMEs to access capital markets
through SME Growth markets. The recitals of MiFID II level 2 also indicate that 'SME
growth markets should not have rules that impose greater burdens on issuers than those
199 NASDAQ, Capital Markets Union: The Road to sustainable growth in Europe, 2016
200
Green PPs have been issued in the Euro-PP market. These issuances must adhere to sustainability standards that have to
be certified by a third party. Moreover, the issuer needs to regularly demonstrate that the proceeds from the promissory note
are used for sustainable projects. Green PPs increase access to private placements as they open the investor base to ESG
investors. So far, all green issuances have experienced strong demand and exceeded expectations. It is important to add,
however, that SSDs and Euro-PPs in general have experienced strong demand in the past and Green PPs tend to be perceived
as niche products. (BCG and Linklaters, Study on Identifying the market and regulatory Obstacles to the Development of
Private Placements of Debt instruments in the EU, 2017)
60
applicable to regulated markets'201
.The adjustments are also in line with the objectives of the
Prospectus Regulation which aims to reduce the costs of listing for SMEs.
7.11 REFIT (simplification and improved efficiency)
The initiative aims, in part, to reduce regulatory costs for issuers on SME Growth Markets.
This is particularly the case for the amendments envisioned with regard to the Market Abuse
Regulation. The below table summarises the regulatory cost reductions of the preferred
options and quantifies these reductions to the extent possible.
REFIT Cost Savings – Preferred Option(s)
Description Amount Comments
Reduction of
the number
of insider
lists
(permanent
lists)
EUR 2.54 –
4.99 million202
(on average
EUR 2,222 per
issuer per
year203
)
The cost reduction estimate is based on the fact that issuers on SME GMs
will only need to compile one permanent insider list per annum. The
lower estimate represents a scenario whereby no new markets register as
SME GMs. The upper estimate represents the case where all SME MTFs
that have indicated an ambition to register as SME GMs actually do so.
Justification
for the delay
of insider
information
Lower bound:
EUR 830,000 –
2.49 million
Upper bound:
EUR 1.64 –
4.92 million
(EUR 731 –
2,193 per issuer
per year204
)
The cost reduction arises from the envisioned approach that would
require issuers to only justify delayed disclosures on the request of the
NCA. Issuers will therefore (usually) only need to notify NCAs. Full
justifications are assumed to require 40 work hours on average205
, while a
mere notification would only take 1 hour (estimated).
Lower and upper bound figures represent cases of an average of 0.25
delays per issuer per year and 0.75 delays per issuer per year
respectively206
.
Explicit
exemption
from the
market
soundings
regime for
private
EUR 1.8 – 2.7
million
An explicit exemption will remove the legal uncertainty regarding
whether the market sounding regime is applicable to private placements
of bonds. This will save issuers, investors and involved intermediaries the
costs of applying the Market Abuse Regulation market sounding
regime.
The estimated cost figures represent estimates based on the overall costs
arising from the application of the market sounding regime207
.
201 Delegated Regulation 2017/65
202
The estimates are based on the average number of insider lists per issuer (available for AIM IT and New Connect),
number of listings per venue (direct input from exchanges), the total amount of work-hours spent per list (based on figures in
EMI, Effects of possible changes to the Market Abuse Directive, 2011) and assuming an average hourly rate of EUR 75.
203
This figure represents approximately 4.9 – 7.4% of the overall cost impact on SME GM issuers arising from MAR
(estimated total costs lie in the range of EUR 30,000 – 45,000)
204 This figure represents approximately 4.8 – 7.3% of the overall cost impact on SME GM issuers arising from MAR
(estimated total costs lie in the range of EUR 30,000 – 45,000)
205 EMI, Effects of possible changes to the Market Abuse Directive, 2011
206
Respective estimates on occurrence of delays based on (i) EMI - 'Effects of possible changes to the Market Abuse
Directive' (2011) and (ii) input from Polish FSA.
61
placement of
bonds
Transfer
Prospectus
EUR 4.8 – 7.2
million
The application of an alleviated Prospectus for a move from MTFs to
RMs would save issuers costs in the range of EUR 200,000 – 300,000208
.
The figures presented reflect a scenario of 24 transfers from MTFs to
RMs per year on average209
8 HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?
Providing for a robust monitoring and evaluation mechanism is crucial to ensure that the
regulatory actions undertaken are effective in achieving their respective objectives and that
market participants comply with them. The Commission should therefore establish a detailed
programme for monitoring the outputs, results and impacts of this initiative. The monitoring
programme shall set out the means by which and the intervals at which the data and other
necessary evidence will be collected. It shall also specify the action to be taken by the
Commission, by the Member States and by the ESAs in collecting and analysing the data and
other evidence.
As part of a wider effort to monitor SME access to capital market financing, the Commission
services would monitor the effects of the preferred policy options on the basis of the
following non-exhaustive list of indicators:
1. Impacts on SME Growth Market issuers and market operators
i. Number of registered SME Growth Market
ii. Number of listings and market capitalisation across SME Growth Market
iii. Number and size of IPOs and IBOs on SME Growth Market
iv. Number and size of European SME IPOs and IBOs in third countries
v. Ratio of bank based vs. capital market based external financing of SMEs
vi. Number and volume of private placements of bonds
vii. Number of 'transfer prospectuses'
2. Impacts on liquidity on SME GMs
i. Number of liquidity contracts entered into by issuers
ii. Transaction volumes (calibrated against the number of listings per venue)
iii. Average free float
iv. Average bid-ask spreads of listings
v. Average liquidity at touch
vi. Average market book depth
vii. Average time to execution of orders
207 Based on cost calculation in Europe Economics "Data Gathering and Cost Analysis on Draft Technical Standards
Relating to the Market Abuse Regulation" (2015) – The estimates provided assume that 70% of total costs set out in the
study relate to the private placement of debt (see "qualitative evidence.. suggests that much of the costs could accrue to the
debt side")
208 Estimate based on the Prospectus Regulation Impact Assessment and stakeholder input; Costs would reduce by around 25
– 28.5% compared to the costs for a full Prospectus
209
Figures based on statistics provided by MTF operators during the stakeholder consultation and direct data requests. The
average provided reflects the years 2013-2017 (insufficient data for prior years).
62
viii. Average daily volatility
The regulatory aspects addressed by this initiative are only one factor that will affect the
above indicators. As explained in sections 2.2 and Annex 5, there are a range of out of scope
drivers that are likely to have a greater impact on the listing behaviour and liquidity on SME
Growth Markets than the envisaged technical amendments. As such, it does not appear
appropriate to set out concrete objectives in quantitative terms. The success of the initiative
should rather be gauged by the direction in which the respective indicators move. The initiate
aims, for example, to increase indicators 1 (i), (ii), (iii), (vi) and (vii) while indicators 1 (iv)
and (v) should ideally decrease. The same logic applies to indicators in section 2. The
initiative intends to enhance liquidity meaning that indicators 2(i), (ii), (iii), (v), (vi) should
increase while (iv) and (vii) should decrease.
Moreover, the above list of indicators is designed to not only monitor the specific impacts of
the regulatory adjustments put forward in this initiative but also to observe the developments
on SME Growth Markets more widely. This will help to also evaluate the impact of the
regulatory and non-regulatory measures that form the overall 'SME listing package'210
.
While the Commission will be in charge of monitoring the take up of the legislation
according to EU law, many of the indicators set out would require the help of Member States,
national competent authorities, the European Securities and Markets Authority and market
operators. This is particularly the case for the indicators in point 2. The data requirements for
these indicators can only be fully met via respective input from national competent
authorities and market operators. While the Commission may be able to collect parts of the
data via public sources and licenced databases, these are unlikely to satisfy the requirements
and will not provide a full coverage of all EU SME Growth Markets. In addition, the data
required for the calculation of indicator 1(v) will be partly based on input from the ECB
which regularly assesses the access to finance of EU SMEs.
210
Communication from the Commission on the mid-term review of the capital markets union action plan ({SWD(2017)
224 final} and {SWD(2017) 225 final} – 8 June 2017)
63
ANNEX 1: PROCEDURAL INFORMATION
1. Lead DG, Decide Planning/CWP references
This Impact Assessment was prepared by Directorate C "Financial markets" of the
Directorate-General for Financial Stability, Financial Services and Capital Markets Union"
(DG FISMA).
The Decide Planning reference of the file entitled "Building a proportionate regulatory
environment to support SME listing" is PLAN/2017/1686
The amendments to existing legislation supported by this impact assessment have been
announced in the Commission Communication on the Mid-Term Review of the Capital
Markets Union Action Plan (08.06.2017).
2. Organisation and timing
Several services of the Commission with an interest in the assessment of this initiative have
been associated in the development of this analysis.
Four Inter-Service Steering Group (ISSG) meetings, consisting of representatives from
various Directorates-General of the Commission, were held in 2017 and 2018.
The first meeting took place on 9 November 2017 and gathered representatives from DG
COMP, ECFIN, GROW, LS and the Secretariat General (SG).
The second meeting was held on 8 December 2017, with representatives from DG COMP, LS
and the Secretariat General (SG).
The third meeting was held on 2 March 2018. Representatives from DG COMP, GROW,
JUST, LS and the Secretariat General (SG) participated.
The fourth meeting was held on 13 March 2018. Representatives from DG COMP, JUST, LS
and the Secretariat General (SG) participated. This was the last meeting of the ISSG before
the submission to the Regulatory Scrutiny Board on 16 March 2018.
3. Consultation of the RSB
A draft of the impact assessment was submitted to the Regulatory Scrutiny Board (RSB) on
19 March 2018 and presented during a dedicated meeting on 20 April 2018. The Regulatory
Scrutiny Board delivered a positive opinion with reservations on the draft on 22 April 2018.
The comments formulated by the Board were addressed and integrated in the final version of
the impact assessment.
4. Evidence, sources and quality
For the purpose of the impact assessment, Commission services collected a significant
amount of data directly from securities exchanges and National Competent Authorities. The
data collected include statistics on the activity and characteristics of the different SME-
dedicated MTFs in the EU, and on the monitoring activity of national regulators on market
abuse. Summaries of these data can be found in annex 11 and 13.
64
DG FISMA also organised two series of technical workshops with industry stakeholders,
specifically discussing barriers to listing for SMEs. These workshops were held on 7 October
2016, 8 December 2016, 14 November 2017 and 28 November 2017.
The impact assessment was conducted based on extensive qualitative and quantitative
evidence from the following consultations:
 Public consultation on Building a Capital Markets Union (18.02.2015-13.05.2015)
 Public consultation on the Capital Markets Union Mid-Term Review 2017
(20.01.2017-17.03.2017)
 Call for Evidence: EU regulatory framework for financial services (30.09.2015-
31.01.2016)
 Public consultation on Building a proportionate regulatory environment to support
SME listing (18.12.2017-26.02.2018)
Other sources used included extensive academic literature and research, notably from the
OECD, the World Bank, and various industry associations (AFME, FESE, World Federation
of Exchanges…)
65
ANNEX 2: STAKEHOLDER CONSULTATION
Over the Commission's current mandate, SME access to public markets has been
continuously monitored, being part of four public consultations. Issues related to regulatory
burden on SMEs when accessing public markets were raised in the context of the Call for
Evidence, the CMU Action Plan and the CMU Mid-Term Review. In addition, a consultation
solely dedicated to building a proportionate regulatory environment to SME listing was
launched at the end of 2017. As it built upon extensive consultation already conducted on the
subject with stakeholders, this targeted consultation remained open for a period of 10 weeks
only. Commission services also organised two series of technical workshops with industry
stakeholders in 2016 and 2017. Eventually, the initiative was discussed with Member State
representatives during a meeting of the Expert Group of the European Securities Committee
(EGESC) in November 2017.
1. 2017 public consultation on Building a proportionate regulatory environment to
support SME listing
On 18 December 2017, Commission services launched a public consultation on SME listing.
It focused on three main areas: (1.) how to complement the SME Growth Market concept
created by MiFID II; (2.) how to alleviate the burden on companies listed on SME Growth
Markets; and (3.) how to foster the ecosystems surrounding local stock exchanges, in
particular with a view to improving liquidity of shares listed on those trading venues. The
Commission received 71 responses, sent by stakeholders from 18 Member States and
Norway211
.
Questions on challenges faced by public markets for SMEs
When describing why few SMEs seek a listing on EU public markets, many stakeholders
mentioned the administrative burden placed on SMEs by market abuse, transparency and
disclosure rules. The Market Abuse Regulation was described as difficult to interpret, thus
hindering SMEs' compliance to EU legislation. Costs associated with becoming and
remaining listed, loss of privacy, independence, as well as lack of general SME awareness
and education were also highlighted. Only very few respondents considered that no
alleviation to the current regulatory framework on SME listing should be granted. It was
highlighted that medium companies tend to prefer private equity investments, strategic
partnerships and M&A while small firms often choose business angels or venture capital,
possibly also because of the low number of investment banks willing to support SMEs IPOs.
Eventually, the Markets in Financial Instruments Directive II rules on research unbundling
were mentioned as one of the causes for the low number of SMEs listing across European
junior markets.
Concerning factors inhibiting institutional and retail investment in SME securities,
respondents highlighted (i) the lack of reliable periodical financial information and
independent investment research, which reduce the visibility of SMEs towards investors as
well as their liquidity; (ii) the low market capitalisation on SME markets, described as
211
6 public authorities (2 ministries of finance, 4 NCAs); 18 exchanges; 35 industry associations (6 for brokers, 14 for
investment managers/investment banks, 4 for insurers, 3 for accounting/audit, 2 for CRAs, 4 for issuers, 1 for pension
provision), 2 NGOs, 2 consultancy/law firms, 2 promotional banks, 1 academic institution; ESMA Securities Market
Stakeholders Group and the Financial Services User Group. Those stakeholders come from 18 Member States: AT, BE, CZ,
DE, DK, EE, EL, ES, FI, FR, HR, IE, IT, LV, NL, PL SE, UK.
66
unattractive to investors; (iii) the absence of an equity culture in Europe; and (iv) the lack of
appropriate tax incentive schemes.
To explain the decline of ecosystems surrounding local exchanges, respondents emphasised
the small market-size for SME related services, the lower liquidity of smaller companies
coupled with regulatory changes (such as MiFID II), as well as the cost needed to train staff
in order to meet regulatory requirements.
Questions on specific regulatory barriers
Overall, a majority of respondents were in favour of changing the criteria used to define an
SME Growth Market, be it for equity issuers (through the market cap or the proportion of
SME criterion) or for debt-only issuers. Most stakeholders also identified the managers'
transactions regime as very burdensome and costly, arguing in favour of extending the delay
to notify transactions, increasing the threshold after which transactions need to be notified,
and putting the responsibility to disclose managers' transactions to the public on their
National Competent Authority. On the approach towards insider lists, the vast majority of the
respondents agreed that the requirement was onerous and burdensome – albeit necessary. On
average, they were in favour of requiring issuers either to submit insider lists only upon
request by the NCA, or to only maintain a list of 'permanent insiders'. Only a small minority
argued in favour of fully exempting SME Growth Market issuers from keeping insider lists.
Out of the few stakeholders who expressed an opinion on the justification of the delay to
communicate inside information, a majority were in favour of requiring issuers to submit the
justification only upon request by the NCA, and to exempt them from the obligation of
keeping a disclosure record. Again only considering those having expressed an opinion, a
clear majority of stakeholders were in favour of exempting private placement of bonds on
SME Growth Markets from market sounding rules when investors are involved in the
negotiations of the issuance. Eventually, a vast majority of respondents were in favour of
keeping half-yearly report obligations mandatory for SME Growth Market equity issuers.
Concerning debt issuers, the views were more evenly split between stakeholders in favour of
keeping the half-yearly report requirement mandatory and those in favour of letting the
trading venues decide whether they wished to require such reports. Only a few stakeholders
were in favour of removing the obligation altogether.
On the other hand, stakeholders were split with regard to imposing key advisers to SME
Growth Market issuers, or minimum requirements at EU level for the delisting from SME
Growth Markets. While most stakeholders believed that SME Growth Market issuers only
issuing plain vanilla bonds should disclose only information that is likely to impair their
ability to repay their debt, NCAs were essentially against the creation of a lighter disclosure
regime for SME Growth Market issuers only issuer plain vanilla bonds.
Among those who expressed an opinion, a large majority of respondents believed that
alleviations should be granted to all companies listed on SME Growth Markets. It was argued
that the “one market, one uniform set of rules” principle was necessary to ensure clarity and
take-up for investors, issuers and financial intermediaries alike. Nevertheless, a few trading
venues and issuer representatives argued that regulatory alleviations should be granted to all
SMEs, regardless of whether they are listed on a multilateral trading facility or a regulated
market.
67
A majority of stakeholders were against setting rules on a mandatory transfer of issuers from
an SME Growth Market to a regulated market, arguing instead that the transfer to a regulated
market should always be left to the discretion of the issuer. Nevertheless, a few believed that
transfers of listing should be facilitated through appropriate regulatory incentives, aimed at
reducing the administrative burden and cost of listing on a regulated market. Various
stakeholders mentioned that such an incentive could take the form of a prospectus exemption
or an alleviated prospectus when an issuer moves from an SME Growth Market to a regulated
market.
Questions on fostering the local ecosystem for SME Growth Markets and enhancing liquidity
Market participants widely acknowledged the benefits and usefulness of liquidity contracts.
Among the stakeholders who expressed an opinion, a larger number agreed that there would
be merits in creating an EU framework, although many insisted on the need to maintain
flexibility to allow such contracts to be tailored to local conditions. A few National
Competent Authorities feared that such practices could give rise to manipulative pricing
behaviours. Other NCAs however saw no ground for concerns, as long as the framework
would be calibrated to prevent manipulative behaviours as under currently existing accepted
market practices. A majority of respondents also hinted at prudential requirements hindering
institutional investment into SME shares and bonds.
Few stakeholders expressed views on ways to facilitate SME bond issuances, and proved
rather cautious with regard to unsolicited credit ratings. On setting minimum free float
requirements, stakeholders were mostly split between (i) introducing a minimum free float
requirement at EU level while leaving the thresholds to the discretion of market operators,
and (ii) not imposing any rule in the EU legislation. Only two respondents were in favour of
setting a minimum free float and its threshold at EU level.
Regarding the issue of low institutional investment in SMEs, several stakeholders referred to
prudential requirements as being a hindrance. Others stressed that national regulations can
limit institutional investors’ ability to invest in companies that are not listed on regulated
markets. Low levels of liquidity were also repeatedly mentioned.
Few stakeholders expressed interest in changing the tick size regime applicable to SME
Growth Markets. Many pointed out that it was too early to draw conclusions, considering the
recent enforcement of the Markets in Financial Instruments Directive II and the short period
of application of the new regime. Respondents, mostly those representing stock exchanges,
provided preliminary and diverging analyses of the new regime's impact. While some
contended that the impact would be neutral, others assessed that it could lead to a decrease in
shares' liquidity and spreads. On the contrary, a third category argued that liquidity and/or
spreads could increase as a result of the new regime.
Other barriers identified by stakeholders
The consultation gave stakeholders the possibility to mention other areas of action that would
not have already been covered by the current initiative.
Many stakeholders conveyed the idea that the current initiative could be more ambitious in
terms of scope. This could be achieved by changing the defining criteria of SME Growth
Markets, or by considering also SMEs on regulated markets.
68
Among the most cited topics, a significant number of respondents stressed their serious
concern over the impact of the Markets in Financial Instruments Directive II on SME
research coverage. Prospectus was also repeatedly mentioned by stakeholders, questioning
the effects of the new regime and insisting on the need to have lighter requirements for
SMEs. As regards the Market Abuse Regulation, some of the respondents mentioned that
sanctions were not adjusted to the issuer size. Other stakeholders also mentioned that issuer
that the notion of inside information creates legal uncertainty and that small issuers were
facing difficulty in identifying what actually constitutes a piece of inside information.
Respondents also referred to a number of other legislations that would need consideration to
further alleviate burden on SMEs. A couple of respondents mentioned the application of
CSDR as potentially problematic. When considering more specifically SMEs listed on
regulated markets, the shareholders rights’ directive, take-over bid directive and transparency
directive (notably on major shareholding) were put forward as good candidates to ease
burden on smaller issuers. Concerning bond issuances, the impact of PRIIPS has been
considered as a potential show-stopper.
The issue of taxation was raised by several stakeholders, covering various topics such as
Member State tax incentives and state aid, tax barriers to cross-border investment, barriers
related to taxation of listed company versus non-listed enterprise, and the need to conduct an
impact assessment on the cost of capital arising from the current tax bias against equity
investments.
2. Other public consultations
2.1. Building a Capital Markets Union
On 18 February 2015, Commission services launched a public consultation on the basis of the
Green Paper "Building a Capital Markets Union"(CMU).
When discussing measures to support a deeper market in SME and start-up finance, and a
wider investor base, respondents underlined the importance of avoiding any disproportionate
burden and cost on SMEs, for example by imposing new disclosure requirements and/or
additional ad hoc financial standards to all SMEs. It was also deemed crucial to ensure that
SMEs are not overburdened by the level of data they have to provide and to limit the
disclosure requirements to the most crucial information to increase their possibilities of
getting funding on European capital markets. A differentiated approach should be adopted
based on the size of a company; disclosure requirements should be minimal in early stages.
In addition, several respondents strongly encouraged the Commission to ensure that Level 2
provisions of MiFID II would not negatively impact financial research coverage of SMEs.
The consultation also asked a question on the need to develop a common EU-level
accounting standard for small and medium-sized companies listed on MTF or SME
Growth Markets. Some respondents considered that the current situation is appropriate and
should not be changed. Currently, SMEs listed on most MTFs prepare their financial reports
according to national accounting standards, although there are already MTFs that require
SMEs to apply the International Financial Reporting Standards (IFRS). Most respondents
considered, however, that some kind of initiative or incentive, legislative or other, is needed
to render EU SMEs listed on MTFs more attractive to European and international investors
through enhanced transparency and comparability of relevant financial information. Rather
than a full application of the IFRS or use of the IFRS for SMEs, many respondents suggested
69
that a pragmatic IFRS-based solution be found in order to deliver for SMEs listed on MTFs
the advantages of a high-quality, comparable, international set of accounting rules, whilst
avoiding excessive administrative burden and costs, particularly in relation to disclosure.
2.2. CMU Mid-term Review
On 20 January 2017, Commission services launched a public consultation on the Capital
Markets Union Mid-term Review.
The public consultation notably raised a question on potential new actions to make it easier
for companies to enter and raise capital on public markets. Many respondents called for a
proportionate review of the different obligations placed on non-financial issuers,
especially SMEs. Those obligations were considered potentially too burdensome and could
deter these issuers from seeking a listing. One stakeholder also underlined that delisting from
a public market should be made easier in order to avoid dissuading new issuers that often
consider public markets as a 'one-way-ticket'.
As regards the legal framework applying to quoted companies, respondents criticised
different aspects of the Market Abuse Regulation (MAR). For instance, rules concerning
managers' transactions as well as insider lists were criticised for being too burdensome for
companies listed on MTFs. The definition of inside information was considered too complex
and would lead to the risk of an anticipated and premature disclosure of information by listed
issuers. One respondent indicated that with respect to the disclosure of price-sensitive
information under the Market Abuse Regulation, equity markets should be distinguished from
bond markets: in equity markets prices of financial instruments are more exposed to the
influence of company-specific information, while in bond markets prices are less subject to
volatility and a function of the financial variables existing within the instruments themselves.
Some respondents considered that the scope of 'market soundings' rules under the Market
Abuse Regulation was too wide and that many market participants would be reluctant to be
tested in the context of a market sounding due to the legal risk they could bear. Other
respondents considered that the extension of the Market Abuse Regulation to companies
listed on multilateral trading facilities (MTFs) made access to public markets more
expensive, because of the direct costs of monitoring and disseminating inside information.
Taking the view that brokers cannot make enough money to maintain equity research
coverage, some respondents recommended that the 'after-market incentives' for brokers be
improved, such as a pilot programme for tick sizes designed to take into account the needs of
smaller companies. Some respondents therefore raised concerns about the impact of MiFID II
level 2 rules on the provision of SME research, as they would make it very difficult to
spread the cost of research across large companies and mid-caps/small companies. Those
respondents called for an assessment and a potential review of those rules. Other respondents
considered that the Commission should create incentives for financial analysts to cover
smaller IPOs. Other respondents mentioned that including equity research within the scope of
fiscal incentives applying to industrial research would encourage SME admission on public
markets. Finally, some respondents considered that research on fixed-income products should
not be in the scope of MiFID II.
Several stakeholders recommended the introduction of a "growth company" concept that
would be linked both to the size and period of listing. Those "growth companies" would
benefit from a simplified and transitional regime applicable for a definite period of time.
70
Eventually, respondents emphasised the importance of decreasing the regulatory burden for
local investment firms offering their services to SMEs (referring to MiFID II, the Market
Abuse Regulation, the fourth Anti-Money Laundering Directive, the Capital Requirements
Directive IV, etc.).
2.3. Call for Evidence: EU regulatory framework for financial services
On 30 September 2015, Commission services launched a Call for Evidence aimed at
improving the quality of the current regulatory framework in financial services, including
those that would be directly impacted by CMU actions. It was thus meant to verify that
financial reforms do not unduly burden access to finance and that they are consistent across
financial sectors and coherent in a way that major regulatory gaps are addressed. To address
barriers to finance and unintended consequences, the call for evidence supported CMU
actions with additional input to make appropriate adjustments to the regulatory framework.
In the Call for Evidence, respondents broadly supported the reforms to capital market
regulation. They however expressed concerns about how the market abuse, prospectus and
securities market legislation affects market financing of SMEs.
Concerning Market abuse regime and SME Growth Markets, some respondents argued
that the market abuse regime placed a high burden on issuers in SME growth markets, which
might ultimately result in less activity and thus reduced financing for SMEs. Particular
concerns related to the widening of scope of issuers' duties under the Market Abuse Directive
and Market Abuse Regulation (MAD/R) regime to companies listed on Multilateral Trading
Facilities (MTFs), such as providing insider lists and notifying managers' transactions.
With regard to Prospectus Directive, stakeholders argued that the prospectus requirements
for issuers were too burdensome and raised the cost of access to capital markets, in particular
for smaller companies.
Some respondents also argued that the new MiFID II inducement rules would impede the
provision of research, especially in the area of SMEs. Furthermore, it was claimed that the
price of SME research would increase, as it would have to be budgeted independently.
3. Technical workshops with stakeholders
3.1. 2017 Technical workshops with securities exchanges on barriers to listing for SMEs
On 14 November 2017, Commission services organised a technical workshop with
approximately 25 securities exchange representatives, from 27 Member States. The aim of
the workshop was to discuss technical provisions and potential alleviations to the regulatory
framework on SME access to public markets, in preparation of the 2017 public consultation
on "Building a proportionate regulatory environment to support SME listing".
The first main topic of discussion concerned ways to make a success of the SME Growth
Market brand. Many stakeholders implied that the market capitalisation was not always a
good criterion to determine what an SME is, as it can vary a lot depending on the evolutions
of stock markets. Other criteria were put forward, such as the number of employees. A
quarter of the participants, considered the EUR 200 million market capitalisation threshold to
proportionate, while a few argued that raising the threshold could be an option, as some EU
regulations (ELTIFs, EU Growth Prospectus) already refer to companies with a market
capitalisation higher than EUR 200 million. Several representatives of central and Eastern-
71
European exchanges stated that the market capitalisation threshold was already high with
regard to both their companies listed on regulated market and on their MTFs. On the
definition of non-equity issuers, many respondents agreed that the reference to the 2003 EU
Recommendation was too narrow: the definition of SME bond issuers should rather take into
account the size of the issuance (and not the size of the issuer). By these means, debt issuers
would be allowed to get access to SME Growth Markets dedicated to bonds.
Many stakeholders agreed that provisions requiring key advisers on SME-dedicated market
should not be imposed, notably as it would imply an additional cost for SMEs. Nevertheless,
some respondents did recognize that such key advisors could also add value to listed
companies. A majority of stakeholders also agreed that no mandatory rule should be set on
the transfer of listing from an SME Growth Market to a regulated market, while some of
them further complained that more should be done to incentivise companies to graduate to the
main market. Few participants stated that minimum rules on delistings should be added to the
current legal framework to protect investors. Finally, certain stakeholders pointed out that the
number of investors is decreasing and the ecosystems surrounding the exchange venues are as
well declining.
The second session discussed potential alleviations to the administrative burden on SME
Growth Market issuers. A majority of participants contended that MAR had created costly
obligations for SME issuers and imposed stringent requirements - despite, as some of them
mentioned, the important role it plays towards investor confidence. Respondents cited the
nature of inside information and the level of detail required to disclose such information as
reasons to this burden. The difficulty to clearly identify what to consider inside information
was mentioned as problematic by some participants. Few other stakeholders criticised that
sanctions applicable under the Market Abuse Regulation were not proportionate to the
companies listed on MTFs, which often have a market capitalization of less than EUR 10
million. On insider lists, a couple of participants highlighted that the exemption introduced
for SME Growth Markets was not meaningful, as issuers would still be required to provide
insider lists ex-posts and have processes in place to do so. Many stakeholders complained
about the strict deadlines given to managers to notify their transactions, arguing that the
three-day timeframe should be extended to five days or that two extra days should be granted
to the issuers to disclose such information. Some of them also explained that managers'
transactions should only be notified when significant, i.e. with a value higher than EUR
50.000 or 100.000. Three trading venues also agreed that MAR rules should not apply
equally to equity issuers and to the ones issuing only debt instruments. Finally, a participant
explained that, as most SME bonds are privately placed, the exemption from rules on market
soundings for private placements would represent a real alleviation.
The third and final topic of the workshop explored ways to foster the local ecosystems
surrounding SME Growth Markets and enhance liquidity. It was mentioned that market
participants would welcome more clarity on liquidity provision contracts, considering their
importance for both brokers and companies. A few stakeholders explained that Accepted
Market Practices on liquidity provision should not be removed, advocating for legal certainty
on the issue. Several exchanges also agreed that should be a minimum amount of free float, in
the interest of investors. Free float should be defined, according to them, either in terms of
percentage of the issuers’ market capitalisation or in terms of a fixed amount. However, they
concluded that the free float requirement should be determined locally by the market itself. A
stakeholder asked about the economic viability of unsolicited credit rating by market players
different from CRAs. In response, another participant explained that shadow rating were a
very useful practice in Nordic countries before the practice was banned by ESMA. Finally, a
72
participant criticized the “one-size-fits-all” requirements prescribed on capital requirements
imposed on institutional investors, especially with regard to their investments policies in
SME, as well as the lack of tax incentives applicable to investments in small- and mid-caps.
3.2. 2017 Technical workshops with other market participants on barriers to listing for SMEs
On 28 November 2017, Commission services organised a technical workshop gathering
approximately 30 representatives of issuers, investors, brokers and other financial
intermediaries. As for the previous workshop with exchanges, the aim of the day was to
discuss technical provisions and potential alleviations to the regulatory framework on SME
access to public markets, in preparation of the 2017 public consultation on "Building a
proportionate regulatory environment to support SME listing".
The first discussion of the day explored ways to make a success of the SME Growth
Market brand. On the definition of an SME, many participants agreed on the necessity to do
away with the 2003 Recommendation definition. In particular, it was argued that the current
threshold of EUR 200 million was too low and would need to be increased to least to EUR
500 million. On the definition of SME bonds issuers, some stakeholders stressed that the
rules applying to corporate bonds cannot be the same as the ones applying to equity
instruments. Many participants also argued that the SME Growth Market status should also
be open to regulated markets. A few participants also expressed concern on ESMA's
regulation concerning SME Growth Markets and the admission document required to access
them, stressing the price difference in drawing up a full prospectus and an admission
document.
The second session discussed potential alleviations to the administrative burden on SME
Growth Market issuers. The great majority of stakeholders agreed that the expenses derived
from the application of MAR are remarkable for SMEs. Some of them suggested that MAR
should be abandoned altogether on SME-dedicated markets, or that legislation should go
back to the previous MAR regime, as the new regime often leads to companies trying to
delist their shares from the market. Stakeholders remarked that the exemption provided by
MAR from keeping and updating an insider list was not compelling, as a company could be
still asked by the NCA to provide an overwhelming quantity of information hardly
manageable for smaller issuers. Some participants did point out that insider trading was a
great risk potentially detrimental to investor confidence. Therefore maintaining at least the
permanent section of the insider list could appear as a balanced approach. With regard to
managers' transactions, it was stated by many that extending the three day timeframe to notify
the market would not endanger investor protection. Few stakeholders stated that EUR 20.000
would represent a more proportionate threshold for the disclosure of managers' transactions,
although it could be increased even further without compromising market integrity. Others
argued that requiring the NCA to make managers' transaction public would reduce the burden
placed on issuers. Few stakeholders expressed concerns with regard to the level of sanctions,
which in some countries are particularly disproportionate compared to the market
capitalization of the issuers. Some participants argued that transfers of listing from an SME
Growth Market to a regulated market should be incentivised through a less burdensome
prospectus. Eventually, while many stakeholders highlighted the important role played
authorised advisers, a significant number of participants also underlined that a statutory
requirement on such advisers should be left to the discretion of the exchanges themselves.
The third and final topic of the workshop explored ways to foster the local ecosystems
surrounding SME Growth Markets and enhance liquidity. Many participants expressed
73
concerns about the impact of MIFID II rules on research (especially for the coverage of small
and midcaps). Another problem arises from Solvency II, which restricts insurance companies'
investment in equity, especially for shares listed on an MTF. Other issues raised included the
scarcity of tax incentives and the illiquidity of SME-dedicated MTFs.
3.3. 2016 Commission workshops on barriers to listing for SMEs
The 2016 Commission workshops on "barriers to listing for SMEs" were held on 7/10/2016
and 08/12/2016. They brought together around 80 securities exchanges, issuers, investors,
brokers, accounting firms, credit rating agencies, authorised advisers, associations and public
institutions to assess the functioning of public markets for SMEs. The aim was to have a
constructive forward-looking discussion and to generate practical insights on how the
situation of EU SME-dedicated markets can be improved. Discussion was held under
Chatham House rules.
Some workshop participants reckoned that the "SME Growth Market" brand – created by
MiFID II - was an opportunity to raise awareness on the value of long-term equity capital in
Europe. SME markets are a crucial point of the financial ladder for SMEs. However, to make
the "SME Growth Market" concept successful, the discussions showed that three main
challenges needed to be overcome:
The first identified challenge was the lack of well-prepared companies for IPOs. This
situation stems from various factors. SMEs often exhibit a low interest in equity capital.
Furthermore, as stock exchanges do not work in isolation, alternative sources of funding
(such as venture capital and private equity markets) are needed to finance small companies
prior to the IPO stage. To tackle this resistance to equity capital as well as the shortage of
financing at the pre-IPO stage, several European stock exchanges have created incubators
that bring together innovative companies, providers of alternative sources of financing and
market professionals specialised in SMEs.
Workshop participants considered that it was important to limit the costs and administrative
burden borne by SMEs to avoid deterring them from joining public markets. Several
workshop participants suggested that public schemes should help to reduce the costs incurred
by SMEs when preparing for IPOs. The lighter "EU Growth Prospectus" (as envisaged by the
prospectus regulation) was also described by some workshop participants as a tool to
encourage market financing. To limit costs, different workshop participants also indicated
that SME issuers should always have the choice to use either IFRS or national GAAPs in the
preparation of financial statements. When companies wish to attract a pool of foreign
investors and opt for the use of IFRS, some workshop participants indicated that a users'
guide or a toolbox on IFRS (that could be developed by the Commission in close cooperation
with IASB) would facilitate the shift to IFRS.
In addition, it was underlined that investors need to have confidence in the corporate
governance of the SMEs that join the market. One usual measure to mitigate the risk of low
corporate governance is the requirement for companies to appoint an authorised advisor that
help companies to comply with their obligations before the IPO and after the listing of shares.
Other exchanges are also taking additional measures such as the publication of a corporate
governance code.
The second challenge to be identified was the disappearance of the ecosystem
surrounding local stock exchanges (i.e. a network of brokers, equity analysts, credit
rating agencies, lawyers, accountants focusing on local SMEs) able to support
74
companies at the IPO stage. One consequence of this decline in local ecosystems is the rise
in the costs of SME IPOs. Costs are amplified as SMEs are compelled to rely on large banks'
services when going public. The decline of ecosystems is particularly acute for equity brokers
specialising in SMEs. Due to regulatory and technological changes, equity trading is focusing
on large caps, thus leading to a decline in the liquidity of SME shares. This low liquidity can
deter institutional investors from investing in SME shares. As liquidity is weak, brokers
specialised in SMEs also experience a decline in their brokerage fees. As a consequence,
those brokers are not incentivised anymore to provide equity research on SMEs, which in
turn has a downward impact on liquidity. Despite the different initiatives taken by some stock
exchanges to improve liquidity or to ensure a minimum research coverage on the SME shares
listed on their trading venues, some workshop participants considered that some regulatory
changes were necessary (such as the modifications of the MiFID II rules on the unbundling of
research and trading fees; the "tick size" regime under MiFID II). Several workshop
participants indicated that, more generally, there was a need for a proportionate regime for
issuers (notably under the Market Abuse Regulation), investors and investment service
providers on the SME dedicated markets.
The third identified challenge was the low investment flows into SME shares, as there is
currently a mismatch between capital demand and capital supply for listed SMEs. Many
workshop participants notably recognised the need for more institutional investors investing
in SME shares and underlined that pension funds could be natural investors in SME stocks.
Some workshop participants reckoned that there was a need for anchor (public) investors,
who could attract other institutional investors, and suggested the creation of a public fund that
could invest in SME shares. Other workshop participants also expressed the view that state
aids as well as promotional banks could also play a greater role to support investments in
listed SMEs.
Some workshop participants also underscored the fact that investment in SME shares by
insurance companies was currently impeded by the capital charges under Solvency II. They
also indicated that the success of European Long-Term Investment Funds (ELTIFs) would be
limited if ELTIFs do not receive a more favourable tax treatment available to other funds.
Other workshop participants also mentioned that they were working on the development of
listed funds that would invest both in quoted and unquoted SMEs. Those listed funds could
be used as a bridge between quoted SMEs and retail investors.
Some workshop participants also stressed the need for retail investors. They notably
considered that retail investors could be important to create liquidity on SME markets (while
institutional investors' investments are usually illiquid). Some workshop participants
considered that retail participation could be incentivised notably through tax incentives.
Nevertheless, many workshop participants considered that retail investors suffered from a
low level of financial literacy. Another workshop participant stressed that SME stocks
remained a high risk asset class not always suitable for retail investors.
4. Minutes of the EGESC meeting of 10 November 2017 on Regulatory barriers
to SME listing
The Expert Group of the European Securities Committee is a consultative entity set up by the
Commission Services in order to provide advice and expertise, in the area of the securities
law, to the Commission and its services. Member States were provided with a document
summarising the main elements of the open public consultation on SME listing that was
launched in December 2017.
75
FR: FR is very supportive of the initiative. Europe has a weak IPO landscape. FR agrees
with the scope, i.e. SME Growth Markets. FR is in favour of raising the threshold defining an
SME under MIFID II (i.e. Market cap under EUR 200 million). FR is also in favour of: (i)
excluding private placement of debt instruments from the market sounding rules under MAR;
(ii) key advisor requirement on SME GM and (iii) creating a EU framework for liquidity
contract and (iv) transfer of listing from regulated markets (RM) to SME GM. FR has already
put in place a framework for such transfer from RM to MTF since 2009. For the ecosystems,
MiFID II research payment provisions are an issue for research on SMEs.
IT: IT appreciates very much this initiative. As regards the scope of this exercise, IT would
be very open and would also include SMEs listed on RM. IT already tries to accommodate
the situation of SMEs on RM, by using different thresholds under different texts
(shareholdings notifications, public offers, related-party transactions…). The lack of liquidity
and the limited information on SMEs are the main concerns. IT is sceptical whether
unsolicited ratings are sufficient to compensate this lack of available information. IT
concludes that tax incentives also matters.
DE: DE welcomes this initiative. It's a valuable approach, i.e. striking the right balance
between alleviating the administrative burden while maintaining investor protection. DE
agrees with the scope (i.e. SME GM) strongly supports the view that requirements for SMEs
on RM should apply in the same way. As regards the voluntary transfer of listings from RM
to SME GM, DE underlines that this question does not involve only the SME issuers but also
other market participants, such as investors. In term of alleviations under MAR, a cautious
approach is needed. DE appreciates that the extension of MAR to MTFs will not be modified.
As regards the alleviations proposed, a cautious 'cost-benefits approach' should be carried
out. DE underlined that Deutsche Börse has set up a new segment for SMEs (Scale). SMEs
on Scale shall have a Capital Market Partner. The exchange also finances research on issuers.
LV: The IPO pipeline is broken in LV, while the bond market is developing. LV has started
some work with the Commission's Structural Reform Support Service. As regards the
threshold defining an SME (EUR 200 million), this is already very high for LV market. This
point was already raised by several other Member States in the past.
CZ: CZ considered this workstream as very important for us. On our RM, a lot of companies
could be considered as SMEs under MiFID II and our RM could even be considered as an
SME GM. Some of the measures proposed in the discussion paper presented by COM are too
intrusive (such as the transfer from RM to SME GM). SMEs are small and the liquidity is
low. Costs of SME IPOs or bond issuances are high (e.g. ratings for bonds are not required
but expected by investors). CZ is looking at how to use structural funds in order to finance
IPO costs (several MS – such as PL – are following this path). The Prague Stock Exchange
has created a SME-dedicated MTF, START. One important feature is that companies on this
trading venue do not need to use IFRS. As regards alleviations under MAR, the concept of
SME GM was already known when the proposal was discussed. There are already some
exemptions for SME GM issuers under MAR. CZ is sceptical about how further exemptions
could be granted for those issuers. Investors have some expectations in terms of market
integrity. Investor confidence should not be undermined. For the liquidity provision contract,
it's an accepted market practice in five MS. It could be recognised as an AMP at EU level.
ES: ES strongly support this initiative. SMEs play a central role in ES economy. ES agrees
with the scope of this initiative (SME GM vs. RM). The mandatory transfer from SME GM
76
to RM is a requirement that is too stringent. As regards the costs, ES recalled that the biggest
cost stems from the preparation of the admission document.
NL: NL supports this exercise. NL understands the focus on SME GM but underlines that
many SMEs are listed on RM. The proposal envisages modifying some points of MIFID II –
this is a little bit too premature, as MiFID II enters into application in January 2018. NL
underscores that the prudential requirements of MTFs are a big issue and COM should also
look at this problem.
PT: PT agrees with the scope and considers that issuers on RM should not be covered. COM
should be cautious and should not undermine investor protection and market stability. The
flow of information towards supervisors should not be impaired by the proposal. The current
definition of SMEs under MiFID II (market cap. under EUR 200 million) is quite high.
However, a new threshold could be the one used in the Prospectus Regulation (EUR 500
million). As managers' transactions and insider lists, the obligations placed on SME GM
issuers should not be reduced. For bond issuers, all inside information should be disclosed.
PT welcomes some proposals: the definition of a liquidity provision contract at the EU level
would be useful. The harmonisation of delisting regime is also an interesting point.
LU: LU welcomes this initiative. The transfer from a SME GM to a RM can raise some
issues. LU underlines that this proposal should not undermine investor protection.
DK: DK is very supportive of this initiative. The scope is right: this work should be limited
to SME GM. DK is more cautious on the alleviations. Investor protection and trust of
investors in those SME GMs should be preserved. The changes to the EU rulebook should be
carefully done.
BG: BG is very supportive of this initiative. In BU, the market capitalisation and
turnover/liquidity on shares are very low. On the BU RM, there are only 4 big companies.
Pension funds' investment is inexistent. COM should be more ambitious and includes SMEs
listed on RM in its initiative. BG supports several potential proposals such as the alleviations
for SME GM as regards insider lists and management' transactions and the transfer from RM
to SME GM. As regards SME bond information, BG disagrees with a potential proposal that
would allow ratings provided by entities not registered as CRA.
CY: The current trend is not to be traded on SME GM but on RM. Another trend is the initial
coins offering (ICOs). As regards alleviations under MAR, CY is very cautious. Market
abuses are committed even by SMEs.
UK: UK supports this initiative very strongly. UK underlines that there is a lack of
knowledge about the different sources of financing for SMEs. UK recommends a cautious
approach on the use of structural funds to finance the IPO costs. The approach of the COM
on this file is sensible.
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ANNEX 3: WHO IS AFFECTED AND HOW?
1. Practical implications of the initiative
The envisioned regulatory adjustments will benefit existing SME Growth Market issuers by
applying a more proportionate approach as regards their obligations under MAR and the
Prospectus Regulation. This will reduce their on-going administrative costs. Issuer will also
profit from the ability to enter into liquidity contracts in order to ensure a minimum level of
liquidity in the trading of their shares. This will make respective investments more attractive
thus enhancing the companies’ ability to raise equity capital in secondary offerings.
SME debt issuers will furthermore benefit from the re-calibration of corresponding definition
as well as the disapplication of mandatory half-yearly reports under MiFID II. These
amendments will facilitate MTFs specialising in bonds or in bonds and shares to register as
SME Growth Markets. SME debt issuer will thereby benefit from the regulatory alleviations
for this market category envisioned by this initiative as well as those already implemented. In
addition, the legal clarification concerning the non-application of the market sounding regime
to the private placement of bonds will lower the administrative and legal costs of these debt
issuances.
Investors will also benefit from the mechanisms envisaged by this initiative and aimed at
enhancing liquidity, such as the free float requirement (when a company is seeking a listing),
as well as the European regime of liquidity provision contract. Both modifications should
contribute to ensuring a minimum level of liquidity on SME shares.
Both sets of regulatory adjustments will enhance the relative attractiveness of listings on
public capital markets and public debt issuances in comparison to bank based funding sources
respectively. This will facilitate SMEs to diversify their sources of funding and thereby make
them more resilient to economic shocks. This effect will be further enhanced by the already
implemented amendments as regards SME Growth Markets under the Prospectus Regulation
and CSDR.
In addition, market operators will benefit in the long run by increased levels of public
issuances of equity and debt compared to the baseline scenario. The envisioned adjustments
may also improve the profitability of liquidity providers in SME shares.
On the cost side, the initiative implies only a marginal burden on NCA budgets. Supervisors
will need to stem minor one-off costs in order to adjust to the new regulatory framework. On-
going costs should not increase given an approximate balance between additions and
reductions of costs. Market operators could also face minimal costs in order to adapt their
exchange rules.
2. Summary of costs and benefits
The below table provides a summary of the expected benefits arising from the preferred
option. It should be noted that the quantification of benefits is based on annual costs savings
and takes in account only the current number of issuers on SME GMs (or SME focused
MTFs; see comments). Future costs savings are expected to be higher given the assumption
that the number of listings and bond issuances on SME GMs will increase.
78
I. Overview of Benefits – Preferred Option
Description Amount Comments
Direct benefits
Extended deadline for
issuers to publicly
disclose transactions
relative to the
notification by PDMRs
and PCAs
N/A There is insufficient data to estimate the
benefit of the technical adjustment with
reasonable accuracy. The overall costs of
disclosure will ultimately remain the same,
although small costs savings are
foreseeable given increased temporal
flexibility. Benefits arise mainly due to the
avoidance of legal liability in the case of
late disclosure from PDMRs.
Permanent List of
insiders
EUR 2.54 – 4.99 million212
The costs reduction is based on the fact that
issuers on SME GMs will only need to
compile one permanent insider list per
annum. The lower estimate represents a
scenario whereby no new markets register
as SME GMs. The upper estimate
represents the case wherein all SME MTFs
that have indicated an ambition to register
as SME GMs actually do so.
Justification of delayed
disclosure of insider
information only on
request of NCA
Lower bound:
EUR 830,000 – 2.49 million
Upper bound:
EUR 1.64 – 4.92 million
The cost reduction arises from the
envisioned approach that would require
issuers to only justify delayed disclosures
on the request of the NCA. Issuers will
therefore (usually) only need to notify
NCAs. Full justifications are assumed to
require 40 workhours on average213
, while
a mere notification would only take 1 hour
(estimated).
Lower and upper bound figures represent
cases of an average of 0.25 delays per
issuer per year and 0.75 delays per issuer
per year respectively214
.
Explicit exemption
from the market
soundings regime for
private placement of
bonds
EUR 1.8 – 2.7 million An explicit exemption will remove the
legal uncertainty regarding whether the
market sounding regime is applicable to
private placements of bonds. This will save
issuers, investors and involved
212 The estimates are based on the average number of insider lists per issuer (available for AIM IT and New Connect),
number of listings per venue (direct input from exchanges), the total amount of work-hours spent per list (based on figures in
EMI, Effects of possible changes to the Market Abuse Directive, 2011) and assuming an average hourly rate of EUR 75.
213 EMI, Effects of possible changes to the Market Abuse Directive, 2011
214 Estimate based on EMI, Effects of possible changes to the Market Abuse Directive (2011) and input from Polish FSA.
79
intermediaries the costs of applying the
Market Abuse Regulation market sounding
regime.
The estimated cost figures represent
estimates based on the overall costs arising
from the application of the market
sounding regime215
.
Lighter "transfer
prospectus" for issuers
moving from SME
GMs to RMs
EUR 4.8 – 7.2 million The application of an alleviated Prospectus
for a move from MTFs to RMs would save
issuers costs in the range of EUR 200,000
– 300,000216
. The figures presented reflect
a scenario of 24 transfers from MTFs to
RMs per year on average217
It is also expected that NCAs will face
lower costs as the transfer prospectus will
require less workhours to validate (cost
saving not quantified given lack of data).
Indirect benefits
Define an SME debt
issuer based on the
value of the issuance
N/A Re-calibrating the definition of SME debt
issuer will increase the number of MTFs
that can apply for the SME GM status. This
will benefit the issuers on these markets
given the existing alleviations as well as
those envisaged by this initiative
No mandatory half-
yearly reports for non-
equity issuers
N/A There are currently no bond MTFs that
have registered as an SME GM. This is
partially due to the current obligation for
issuers to publish half-yearly report. As
such, there are no direct benefits. The
envisaged amendment should be viewed in
conjunction with the re-calibration of the
definition of SME debt issuer (see above).
Once bond MTFs register as SME GMS,
issuers will save the costs of publishing
half-yearly reports.
European regime for
liquidity contracts
The European regime for liquidity
contracts will enable all issuers on
SME GMs to engage in such
The effect on primary offerings is more
limited as liquidity risks can only be
gauged once respective shares are actually
215
Based on cost calculation in Europe Economics "Data Gathering and Cost Analysis on Draft Technical Standards
Relating to the Market Abuse Regulation" (2015) – The estimates provided assume that 70% of total costs set out in the
study relate to the private placement of debt (see "qualitative evidence.. suggests that much of the costs could accrue to the
debt side")
216
Estimate based on the Prospectus Regulation Impact Assessment and stakeholder input.
217 Figures based on statistics provided by MTF operators during the stakeholder consultation and direct data requests. The
average provided reflects the years 2013-2017 (insufficient data for prior years)
80
contracts. It is unclear, however,
how many issuers will take up this
possibility. More so, there are no
direct benefits of such contracts.
However, the increased liquidity
resulting from such contract will
reduce liquidity and volatility risks
for investors. In turn, valuations of
issuers will increase. This will
increase the capital that businesses
can raise both via secondary
offerings (and to a more limited
extend primary offerings).
trading. Nevertheless, primary offerings
will benefit from the investors' expectation
of higher liquidity if the issuer enters into a
liquidity contract.
Requirement for SME
GMs to impose a free
float requirement
N/A Minimum free float requirements aim at
increasing liquidity, especially in the early
stages following primary offerings. The
same reasoning applies as for liquidity
contract in that it will lower risks to
investors and thus ultimately enable
companies to raise more capital.
II. Overview of costs – Preferred option
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Justificat
ion of
delayed
disclosur
e of
insider
informat
ion only
on
request
of NCA
Direct costs
None None None None NCAs
will be
required
to change
internal
procedure
s and
establish a
mechanis
m to
decide
when to
request
full
justificati
ons. This
will give
rise to
marginal
one-off
costs
None
(recurrent
costs will
be lower
than status
quo as
NCAs will
need to vet
fewer
justification
s)
Indirect costs None None None None None None
81
Lighter
"transfer
prospect
us" for
issuers
moving
from
SME
GMs to
RMs
Direct costs
None None None None
(lower costs
than status
quo of
issuing a full
prospectus)
The
establish
ment of a
transfer
prospectu
s will
impose
minor
one-off
costs on
NCAs
given
required
changes to
internal
procedure
s.
Indirect costs None None None None
82
ANNEX 4: DEFINITIONS
Accepted Market
Practice
For the purposes of the market abuse regime, a practice that is reasonably expected in one or
financial markets and is accepted by the relevant national competent authority of a member
state. Such practices provide a defence against the market abuse behaviour of manipulating
transactions where there is also a legitimate reason for the trading.
Blue-chip
company
A large and highly liquid company listed on a regulated market
Commission
Expert Group on
Corporate Bonds
The Expert Group on European Corporate Bond Markets, which was established by the
European Commission to provide a cross-market analysis of corporate bond markets and
recommendations on how to improve their functioning.
ELTIFs
Regulation
Regulation (EU) No 2015/760 of the European Parliament and of the Council on European
long-term investment funds European long-term investment funds
EU Growth
Prospectus
A proportionate prospectus regime for SMEs required by Regulation no. (EU) 2017/1129 in
case of an offer of securities to the public provided that they have no securities admitted to
trading on a regulated market of (i) an SME as defined in the Prospectus Regulation; (ii) a
non-SME with an average market capitalization of less than EUR 500 million based on the 3
previous calendar years and whose securities are to be traded on an SME growth market; and
(iii) any issuer not listed on an MTF, having a maximum average of 499 employees and
wishing to make an offer to the public for a total consideration of less than EUR 20 million
calculated on a 12 month period.
Fintech Financial technology and technological innovation in the financial sector.
Free float The amount of capital in the public's hands and that can be freely traded
High-Frequency
Trading
A type of electronic trading often characterised by holding positions very briefly in order to
profit from short term opportunities. High frequency traders use algorithmic trading to
conduct their business.
Insider dealing Insider dealing arises when a person in possession of inside information uses it to deal, to
attempt to deal, or to recommend or induce another to do so. Dealing includes acquiring or
disposing of financial instruments to which the inside information relates, as well as to
cancelling or amending an order concerning such a financial instrument.
Inside
information
Information of a precise nature, which has not been made public, relating directly or
indirectly to one or more issuers or to one or more financial instruments; and which, if it
were made public, would be likely to have a significant effect on the prices of those financial
instruments or on the price of related derivative financial instruments.
Insider list List drawn up by issuers indicating all persons having access to its inside information
Key adviser
An adviser for companies applying for or admitted to trading on an MTF, as required by
certain stock exchanges across the EU
Liquidity
contract
A contract stipulated between an issuer and a financial intermediary, a credit institution or an
investment company in force of which an issuer places a certain amount of own shares or a
certain sum at the disposal of the financial intermediary in order for the latter to carry out
purchase and sale operations on the issuer’s behalf.
Market Abuse
Regulation
Regulation (EU) No 596/2014 on market abuse 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.
Market sounding
According to Article 11 of MAR, market soundings are defined as a communication of
information, prior to the announcement of a transaction, in order to gauge the interest of
potential investors in a possible transaction and the conditions relating to it, such as its
potential size or pricing, to one or more potential investors.
MiFID II
Directive (EU) 2014/65 on markets in financial instruments and amending Directive
2002/92/EC and Directive (EU) 2011/61.
MTF
A multilateral Trading facility is a trading venue where companies may list their financial
instruments, with lower regulatory requirements than on main regulated markets
Person Closely
Associated
(PCA)
Persons closely associated with managers include: a) a spouse, or a partner considered to be equivalent
to a spouse in accordance with national law; b) a dependent child, in accordance with national law; c) a
relative who has shared the same household for at least one year on the date of the transaction
concerned; d) a legal person, trust or partnership, the managerial responsibilities of which are
discharged by a person discharging managerial responsibilities or by a person referred to in point a), b)
or c) above or which is directly or indirectly controlled by such a person or which is set up for the
benefit of such a person or the economic interests of which are substantially equivalent to those of such
83
a person.
Person
Discharging
Managerial
Responsibilities
(PDMR)
A person discharging managerial responsibilities refers to a person within an issuer who is a) a member
of the administrative, management or supervisory body of that entity; b) a senior executive who is not a
member of the bodies referred to in point a), but who has regular access to inside information relating
directly or indirectly to that entity and who has power to take managerial decisions affecting the future
developments and business prospects of that entity
Prospectus
Regulation
Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to
the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC.
Small and
medium -sized
enterprises
Under MiFID II, any company having an average market capitalisation of less than EUR
200.000.000 on the basis of end-year quotes for the previous three calendar years.
SME debt issuer
Under Commission Delegated Regulation (EU) 2017/565, issuers of debt instruments only
which, according to their last annual or consolidated accounts, meet at least two of the
following three criteria: (i) an average number of employees during the financial year of less
than 250; (ii) a total balance sheet not exceeding EUR 43 million; and (iii) an annual net
turnover not exceeding EUR 50 million.
SME Growth
Market
An MTF where at least 50% of the issuers whose financial instruments are traded on it are
SMEs (defined as companies with a market capitalisation below EUR 200 million) and that
has registered as an SME Growth Market.
SME-dedicated
MTF
Multilateral trading facility dedicated to small and medium enterprises but not registered as
an SME Growth Market
Tick size Smallest increment in price that an exchange-traded instrument is permitted to move
Turnover ratio Total trading volume on a market divided by total market capitalisation
Wall crossing The act of making a person an “insider” by providing them with inside information
84
ANNEX 5: OUT-OF-SCOPE DRIVERS
Beyond the drivers identified in the problem definition, the demand for SME financial
instruments is also constrained by additional factors, such as the lack of visibility of SMEs
towards institutional and foreign investors, or the tax treatment of investments in the various
Member States. The supply of SME financial instruments is also constrained for instance by
SMEs' lack of business education. These and other out-of-scope drivers are not addressed in
the current initiative focusing on targeted technical amendments, but are considered
progressively in the wider plan to facilitate SME access to public markets (see section on
policy context, i.e. CMU).
1. DEMAND SIDE
1.1. Lack of visibility of SMEs towards institutional and foreign investors
The visibility of SMEs is constrained by both the lack of financial research coverage on
SMEs, and the use of local financial reporting standards.
1.1.1 SME research
Research plays a key role in equity markets, assisting investors in making informed
investment choices, providing absolute and relevant evaluation of the attractiveness of an
individual stock or a whole industry or market, and of the expected performance of the
underlying company. Equity research is of particular importance in the case of small high-
growth companies where information is scarce and harder to assess218
. A large part of
professional investors would not engage in a trade on either primary or secondary markets
without relevant research being available. There is also a causal link between the liquidity of
SME shares and equity research coverage. For instance, a Peel Hunt and Extel Survey
published in 2015 found that 78% of quoted companies responding see a correlation between
the number of analysts writing on their company and the liquidity of their shares219
.
The weak provision of equity research220
on small and mid-sized companies (but also across
the board) reduces their visibility and attractiveness among professional investors221
. In
addition, stakeholders have repeatedly flagged – notably through various public consultations
and workshops – that the recent MiFID II level 2 rules requiring the unbundling of research
from trading commissions could have further detrimental effects on the financial research
coverage of SMEs. The Commission has already committed to assessing the impact of the
new rules on SME research through a dedicated study, to be launched in the second half of
2018.
218 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
219 A Peel Hunt and Extel Survey published in 2015 found that 78% of quoted companies responding see a correlation
between the number of analysts writing on their company and the liquidity of their shares
220 For instance, 50% of companies listed on Euronext Amsterdam, Brussels, Paris and Lisbon in 2015 (with a market
capitalisation below EUR 1 billion) did not benefit from any financial research and 16% only had one analyst220. On First
North Sweden, only 10% of listed companies were covered by financial analysis in 2013220. On AIM UK, 65% of the
companies have zero or only one analyst's live opinion220. (Sources: Public consultation on CMU (Q2-AFG); Improving the
Market Performance of business information services regarding SMEs, ECSIP Consortium, 2013; HM Treasury –
Consultation on Financing Growth in innovative firms, August 2017)
221 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
85
1.1.2. The use of national accounting standards vs IFRS
Except in few cases 222
, the listing rules of SME-dedicated MTFs do not impose the
publication of financial statements in International Financial Reporting Standards (IFRS).
The vast majority of SME-dedicated markets offer a choice: companies can either use
national GAAPs or IFRS for their financial statements. If SMEs want to stay local, they can
use national GAAPs. On the contrary, companies that seek foreign capital often opt for IFRS.
Currently, only the minority of SME issuers have adopted the IFRS223
.
However, the publication of financial statements in IFRS can be a powerful tool to attract
foreign investors. The willingness of investors to conduct research on small issuers may be
low, especially concerning smaller Member States, if such work requires comparison of
multiple national GAAPs224
. The use of national GAAPs by listed SMEs for financial
reporting also complicates financial analysis, since financial analysts need to familiarise
themselves with all the details of national GAAPs225
. A wider use of IFRS by smaller issuers
might enable investors and financial analysts to compare cross-border information more
easily. On the other hand, making the use of IFRS compulsory would place an enormous
burden on issuers listed on SME-dedicated markets (especially in the smallest Member
States). Without prior experience of capital markets, IFRS can be a hurdle too difficult to
overcome for small companies, as the costs of auditing IFRS-prepared financial statements
would be twice as high as the costs for auditing financial statements under national
GAAPs226
.
In the context of the CMU mid-term review, the Commission has committed to continuing
working with the International Accounting Standard Board (IASB) and all interested
stakeholders to improve International Financial Reporting Standards (IFRS) acceptance by
developing an application toolbox and by clarifying disclosures for SMEs through the IASB's
Disclosure Initiative.
1.2. Tax treatment
Tax considerations play an important role in retail investors’ portfolio allocation and
can foster retail participation in listed SME financial instruments. Several Member
States (such as Sweden, France, UK and Italy) have implemented tax incentives to encourage
savings in equity, by providing tax reliefs on capital gains. Tax incentives in the UK, through
the eligibility of AIM shares for inclusion in the ISA (Investor Saving Account), had a direct
effect in freeing up more than GBP 4.5 billion into those financial instruments227
. This
extension of the ISA tax relief in August 2013 was designed to 'stimulate investment in
222 Three SME-dedicated markets impose the use of IFRS: AIM in the UK, Malta and Cyprus
223 In 2016, one issuer out of the seven companies listed on First North Baltics had voluntarily opted for IFRS. In 2016, on
Deutsche Börse's Entry Standard, 35% of issuers used IFRS while 65% of them used national GAAPs. On the German SME
bond market, half of the issuers reported under IFRS (Source: Minutes of the European Commission workshops on 'Barriers
to Listing for SMEs' (7 October and 8 December 2016)
224 European Issuers, EVCA and FESE, EU IPO Report, 23 March 2015
225
FESE, A blueprint for European Capital Markets, 2014
226 Minutes of the European Commission workshops on 'Barriers to Listing for SMEs' (7 October and 8 December 2016).
The conversion of financial statements from national GAAPs to IFRS requires comfort letters from auditors that can cost
from EUR 80,000 to EUR 200,000. Source: Panu Pikkanen, An Analysis of Aggregate Listing Costs on NASDAQ OMX
Helsinki (2014)
227 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
86
smaller companies' and provide a bigger pool of funding for the growing businesses that are
expected to drive economic recovery. Since 2017, Italy has implemented an individual saving
account (piani individuali di risparmio), where 21% of the total assets should be invested in
instruments issued by companies not included in the main Italian or EU indices. In France,
the tax incentive to invest in quoted SMEs (the so-called "PEA-PME") would not a complete
success, despite the 500,000 accounts currently opened as of 2016. The PEA-PME would
suffer from a lack of clarity as regards the definition of issuers that can fall under the scope of
the PEA-PME, making the work of the asset manager difficult 228
. Many stakeholders
confirmed that such schemes are scarce in other Member States229
.
2. SUPPLY SIDE: LACK OF SME AWARENESS AND BUSINESS EDUCATION ON
PUBLIC MARKETS
SMEs are faced with a prominent educational gap when it comes to issuing bonds,
privately placing debt or tapping the equity markets230
. This lack of education constrains
the supply of companies seeking a listing in several ways. First, too few companies that have
the potential to access capital markets appear to be aware of the short and long term benefits
(and costs) of a listing of their shares or bonds231
. It is not only a matter of limited awareness
and understanding about individual instruments (listed shares and bonds) but also a lack of
knowledge on how those different funding options can serve different financing needs at
specific stages of the business cycle. Lack of education around the process of listing and life
after an IPO or an IBO are important reasons for SMEs' reluctance to join capital markets.
Second, many SMEs and their managers are not equipped with the skills required to face the
process of issuance on public markets. When going public or issuing bonds, SMEs need a
skillset that will allow them to assess the appropriateness of equity vs. debt finance for their
business model, evaluate their options and respond to market and regulatory requirements.
The necessary skillset consists of accounting, financial reporting, business planning,
forecasting, budgeting, investor relation capabilities, tax planning, and knowledge of the
regulatory environment232
.
Third, in addition to education and awareness limitations, the reluctance of some SMEs to
raise public financing can be linked to the fear of losing control of the business to
shareholders, the fear of being exposed to share price volatility, or to the aversion to sharing
sensitive information. Limited understanding, incomplete preparation as well as lack of
confidence to go through the offering process results in SMEs not envisaging or being
prepared to issue shares or bonds, driving down the supply of such instruments233
.
228
Workshops organised by the Commission on barriers to SME listing (2016)
229
Feedback received from stakeholders through the public consultation as well as during technical workshops organised by
the Commission on regulatory barriers to SME listing
230 OECD, Opportunities and Constraints of Market-based financing for SMEs, September 2015
231 OECD, New Approaches to SME and Entrepreneurship financing: Broadening the range of Instruments, 2015
232 OECD, Opportunities and Constraints of Market-based financing for SMEs, September 2015
233 OECD, New Approaches to SME and Entrepreneurship financing: Broadening the range of Instruments, 2015
87
ANNEX 6: DISCARDED OPTIONS
Several potential adjustments, initially included in the public consultation "Building a
proportionate regulatory environment to support SME listing", have been discarded after
preliminary analyses, due to either lack of evidence, lack of overall support, market integrity
risks or potential additional costs to issuers. These options include requiring key advisers,
harmonising delisting rules on SME Growth Markets, simplifying transfers of listing from a
regulated to an SME Growth Market, reducing disclosure requirements of inside information
by SME Growth Market bond issuers, and amending the tick-size regime applicable to
securities listed on SME Growth Markets.
1. Requiring a key adviser for equity issuers on SME Growth Markets
Key advisers play a prominent role by assessing the company's suitability for the market,
bridging the information gap between quoted SMEs and investors and upholding the
reputation of the market. One option could have been to require a key advisor, notably for
equity issuers for a limited period of time. Half of the respondents to the public consultation
considered that such a key advisor should be imposed while the others were opposed to such
an obligation. The majority of respondents also considered that the missions and obligations
of key advisors should be determined by local listing rules rather than EU law. Finally, even
if the vast majority of SME markets already require such a key adviser for equity issuers, this
measure could be seen as adding a (significant) cost on SME Growth Market issuers and
therefore, clearly contradicting one of the objectives of the proposal, i.e. to alleviate the
burden on SMEs.
2. Delisting rules on SME Growth Markets
Investors can be deterred from investing in the first place (especially in a cross-border
context) because they might face difficulty to gain full control of a listed SME and delist its
shares. Likewise, some companies can be deterred from going public because they consider
that a listing of their shares is a 'one way ticket' and cannot come back to their previous
(unlisted) situation. The rules on delisting are not harmonised at EU level and the situation of
minority shareholders can be weakened in case of voluntary delisting234
.
One option could have been to propose minimum harmonised rules on voluntary delistings.
However, the public consultation has not shown any market failure as regards delisting rules
that would require EU action. The respondents were split over this question, some of them
underlining that there was no clear benefit for a harmonised framework; (ii) the replies to the
public consultation do not provide with a lot of insights on how a harmonised framework
should be built.
3. Transfer of listings from regulated markets to SME Growth Markets
One option could have been to create a framework facilitating the transfers from regulated
markets to SME Growth Markets. Such a harmonised EU framework could in principle (i)
reduce the administrative burden on SMEs listed on regulated markets by making it easier for
them to move to a trading venue with lighter requirements; (ii) safeguard investors’ interests;
234 For instance, some institutional investors may be prohibited from holding unquoted shares. A delisting also changes the
way a company is run as going private implies a lower level of regulatory requirements. When the delisting decision is
announced, shareholders may try to sell their shares as soon as possible, which can result in a decline in share price.
88
and (iii) enhance the competition between exchanges (as in general, the existing rules on
transfer of listing facilitate the transfer of listing between trading venues operated by the
same market operator). However, respondents to the public consultation were split over the
opportunity to create rules on transfers, some of them arguing that such rules should be left to
the discretion of Member States and local exchanges. No regulatory or market failure was
identified in terms of downward transfers, as there have been 177 transfers of listings from
the regulated markets to SME Growth Markets since 2006235
and none of the stakeholders
have raised any concerns as regards such transfers.
4. Disclosure of inside information by SME Growth Market bond issuers
In the past, some stakeholders argued that the disclosure of all inside information (either
positive or negative) by debt issuers would only be burdensome while not justified, as plain
vanilla bonds are less exposed to risks of market abuse due to the nature of the instrument.
While the prices of equity financial instruments can be influenced by the publication of
(negative or positive) inside information about the firm, the key variables that would impact
the price of plain vanilla bonds would be market risk, liquidity risk and credit risk.
Bondholders would not be able to act on those variables while the only factor that could be
influenced by the issuer is the likelihood of default. The public consultation raised a question
on whether or not the disclosure of information by debt-only issuers should be limited to
information likely to impair their ability to repay their debt (rather than all inside
information). A majority of respondents that replied to this question were in favour of this
solution. However, given the definition of inside information provided by MAR, debt issuers
can already limit their disclosure of information to those likely to have an impact on the price
of its financial instruments236
. In no ways, they have the duty to disclose all information.
Moreover, some studies showed that positive inside information (such as a takeover
announcement237
or the upgrade of a rating238
) can have an effect on bond price. As a
consequence, it does not seem advisable to limit the disclosure to information likely to impair
the ability of a non-equity issuer to repay its debt.
5. Tick size regime for SME Growth Markets
While lower tick sizes would contribute to the reduction in trading costs, tick sizes also have
an impact on the spread between sellers and buyers of securities and consequently may
influence the incentives of intermediaries (brokers) to trade those instruments and earn
income from their activity. The public consultation raised a question about the impact of the
EU minimum regime on tick sizes on the liquidity and spreads of SME Growth Market
shares. A significant number of respondents refrained from expressing an opinion. A thin
majority of those who expressed an opinion considered that the EU minimum tick size regime
leads to a decline in liquidity and spreads but cautioned against a revision of the tick size
regime until further evidence is available. A thin majority of those who expressed an opinion
235 Since 2006, there have been 177 transfers of listings from the regulated markets to SME Growth Markets (Source: Data
from Securities Exchanges – Commission analysis).
236 Article 7 of MAR defines an inside information as ''information of precise nature, which has not been made public,
relating, directly or indirectly, to one or more financial instruments, and which if it were made public, would be likely to
have a significant effect on the prices to those financial instruments or on the prices of those financial instruments or on the
price of related derivative financial instruments'.
237 S. Kedia and X. Zhou, Insider Trading and Conflicts of Interest: Evidence from Corporate Bonds, 2009. The authors
have found that 'target bonds rated below the acquirer’s earn significant positive returns while those rated no lower than the
acquirer’s experience significant negative returns'. Finally,
238 Commission Technical workshop on 'regulatory barriers to SME listing', 28 November 2017
89
indicated that more flexibility should be given as regards the tick size regime applying to
SME Growth Market issuers.
At the current juncture, the modification of the tick size regime for SME Growth Markets
(either by raising the tick size for SME shares or by exempting them from the MiFID II
harmonised regime) cannot be envisaged as a policy option: (i) few months after the entry
into application of MiFID II, there is a lack of evidence on the potential consequences of the
tick size regime on shares’ liquidity. Some stock-exchanges said that it led to a decrease in
liquidity while others expressed the opinion that the framework led to a slight increase; (ii)
the current MiFID II regime only imposes a minimum tick size regime, meaning that SME
Growth Market operators still have the possibility to raise tick sizes if they consider the
current levels too low and impairing liquidity provision.
For more details on tick size, please refer to annex 9.
90
ANNEX 7: ADDITIONAL MARKET BACKGROUND
Although the distribution varies among the different SME equity markets across the EU, it is
widely viewed that retail investors account for a much higher share of the investor base in
companies listed on SME-dedicated MTFs than in those on regulated markets239
. The table
below provides a comparison between a selection of SME equity markets and main markets
in the EU:
Figure 13 – Distribution of retail and institutional investors in selected EU MTFs vs. regulated markets
Source: ECSIP Consortium, Improving the market performance of business information services regarding listed SMEs
(2013); OICV, SME Financing through capital markets (2015)
There is also a lack of cross-border investments in SME-dedicated markets. Domestic
investors are usually the ones who invest in SMEs240
. SME-dedicated markets present a
strong home-bias, compared to main markets, as highlighted by the table below:
Figure 14 – Distribution of domestic and foreign investors in selected EU MTFs vs. regulated markets
Source: European Commission data collected from securities exchanges, 2017
239
ECSIP Consortium, Improving the market performance of business information services regarding listed SMEs (2013)
240 European Issuers, FESE and EVCA, EU IPO Report, March 2015
Type of
Market
Name of the Market Retail
investors
Institutional investors
SME Market AIM (UK) 50% 50%
SME Market New Connect (PL) 95% 5%
SME Market First North (SE) 81% 19%
SME Market EN.A (EL) 78% 22%
Main Market Warsaw Stock Exchange (PL) 10% 90%
Main Market NASDAQ OMX (SE) 45% 55%
Main Market ATHEX (EL) 36% 64%
Name of the
Market
Type of Market Domestic Investors Foreign Investors
AIM (UK) SME Market 58% 43%
New Connect (PL) SME Market 93% 7%
First North (Nordics) SME Market 84% 16%
MAB (ES) SME Market 89% 11%
EN.A (EL) SME Market 91% 9%
LSEG (UK) Main Market 44% 56%
Warsaw Stock
Exchange (PL)
Main market 48% 52%
NASDAQ OMX (SE) Main Market 30% 70%
BME (ES) Main Market 57% 43%
ATHEX (EL) Main market 36% 64%
91
Figure 15 – Free float requirement and minimum capitalisation on EU SME-dedicated MTFs
Name of the Market Free float requirement
Dritter Market (AT) No minimum free float
Marché Libre (FR) No minimum free float
Cyprus Emerging
Companies Market (CY)
No minimum free float
Progress (HR, SI) 10 per cent
Prague Stock Exchange –
START (CZ)
No minimum free float
ATHEX EN.A (EL) Free float at 10 per cent (provided at least 50 people).
AIM Italia (IT) 10 per cent
Irish Stock Exchange IEX
(Enterprise Securities
Market) (IE)
No minimum free float but minimum capitalisation at EUR 5
million
NewConnect (PL) 15 per cent
Mercado Alternativo
Bursatil (ES)
At least EUR 2 million free float.
NASDAQ OMX/First
North (DK, EE, FI, LT,
LV, SE)
10 per cent of shares in public hands, or an assigned Liquidity
Provider.
AIM (UK) No minimum requirement.
Aktietorget AB (SE)
At least 200 shareholders with at least 10 per cent of shares in
public hands.
Nordic Growth Market
(SE)
At least 300 shareholders; at least 10 per cent of shares and 10
per cent of votes in public hands. Minimum share capital of not
less than EUR 730,000.
Euronext Growth (BE,
FR, PT)
EUR 2.5 million
Scale (DE) 20 per cent or EUR 1 million
AeRO (RO) 10 per cent
92
ANNEX 8: THE IMPACT OF DEVELOPED SME GROWTH MARKETS ON THE WHOLE
FUNDING ESCALATOR OF COMPANIES
 Vibrant SME Growth Markets as a condition to developed Private Equity, Venture
Capital and Crowdfunding financing
Dynamic public equity markets can foster the development of private equity and venture
capital financing. Healthy public equity markets can stimulate private equity and
venture capital activity by providing smooth exit opportunities241
. Venture capital and
private equity funds have a fixed term mandate for the assets they manage and typically do
not pay dividends during the investment lifecycle 242
. The capital they offer to growth
companies must ultimately be turned into cash or into a currency such as publicly traded
equity that can ultimately sold for cash243
. Without this possibility to exit, VC and PE funds
are less willing to lock-in their money and time during the critical growth period of the
enterprise. The money they receive through the exit may be used to invest in other high
growth businesses244
. Some studies have shown that private equity financing cannot thrive in
the absence of a 'well-developed stock market that permits venture capitalists to exit through
an initial public offering'245
and that a venture capital industry and stock market development
are positively correlated246
.
However, currently, the EU SME-dedicated markets do not provide a stable exit
mechanism for venture capitalists and private equity funds. In 2016, venture capital and
private equity funds in the EU disinvested from 1,295 early stage companies representing
EUR 2.4 billion of divestment. The most common exit route was a trade sale (i.e. the sales of
a company's shares to industrial investors - 27% of transactions) while 17% of transactions
were written-off (i.e. the value of the investment is eliminated and the return to investors is
zero or negative). Only 7.5% of the exits were through the public markets. In 2016, buy-out
funds disinvested from 790 more mature and less risky companies representing EUR 28.1
billion. Those companies were sold to another private equity fund (31%) and or divestments
went through trade sales (28%). Only 11% of those companies were brought to the public
markets. Even in the cases where a trade sale is favoured over an IPO, the value of a
company would be enhanced if the venture capital and private equity funds would be
provided with an alternative credible solution to sell their stakes in a VC-backed company247
.
In most cases, the possibility of listing shares on an SME-dedicated market may not be
sufficient: venture capitalists also need active trading of SMEs shares, as liquidity is critical
241 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
242 Felice B. Friedman and Claire Grose, Promoting Access to Primary Equity Markets A Legal and Regulatory Approach,
World Bank Policy Research Working Paper 3892, 2006
243 European Private Equity and Venture Capital Association, Fulfilling the Promise of Venture-Backed High Potential
Companies, p.3
244 OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
245 Black, B.S., and R.J.Gilson, Venture capital and the structure of capital markets: Banks versus stock markets (1997)
246 Felice B. Friedman and Claire Grose, Promoting Access to Primary Equity Markets A Legal and Regulatory Approach,
World Bank Policy Research Working Paper 3892 (2006), p. 29
247 (InvestEurope, 2016 European Private Equity Activity)
93
to enable investors to come out of investment positions without significantly impacting the
stock price248
.
Public equity markets for SMEs could also stimulate equity crowdfunding investments. Like
venture capitalists, equity crowdfunding investors also seek an exit for their investment and
therefore require well-functioning and liquid equity markets to be used as exit routes for the
growth companies they back249
. However, at present, there is no real secondary market for
crowdfunding exits250
. Only a couple of crowdfunding transactions in the EU have ended up
in IPOs on SME-markets251
. As a consequence, a limited SME access to public markets has
repercussions not only on capital-raising through IPOs, but throughout the funding escalator
of companies.
 Ripple effect on regulated markets
A weak pipeline of SME IPOs also raises issues in terms of market structure of the
European Markets. The chart below represents changes observed in the number of listed
companies (either on a regulated market or on a SME-MTF) by market capitalisation segment
from 2006 to 2016, based on the following segmentation in several EU jurisdictions252
:
Figure 16 – Evolution of market capitalisation segments
Source: The 2017 Small & Mid-Cap Outlook, Middlenext & Financière de l'Echiquier
This chart shows that the number of listed European companies peaked in 2007 and the
lowest point was recorded in 2013. Although this may come as no surprise in the crisis
context, this development has been accompanied by structural changes. Since 2007, the three
smallest segments (Nano caps: -15%; Micro: -29%; Small: -16%) have contracted whereas
the three largest have increased (Midcaps: +8%; Large: +32% and blue chips: +11%). While
the mid and large caps segments continue to receive a boost from the strong growth in the
248 European Private Equity and Venture Capital Association, Fulfilling the Promise of Venture-Backed High Potential
Companies, 2005
249
OECD, "Opportunities and limitations of public equity markets for SMEs”, OECD Journal: Financial Market Trends,
Vol. 2015/1, 2016
250 AFME, The Shortage of Risk Capital for Europe’s High Growth Businesses, 2017
251 Two examples of successful exit is the IPO of Free Agents Holdings on the London Stock Exchange's AIM in November
2016 and the IPO of Heeros Oyj on First North Helsinki (November 2016).
252 UK, Germay, Italy, Spain, Belgium, Netherlands, Belgium, Luxembourg, Switzerland, Austria, Spain, Portugal
94
micro/small caps segments in the 2000s, the micro-caps segment which depends exclusively
on IPOs is continuing to contract due to a larger number of delistings whether linked to
mergers and acquisitions activity or the companies' growth resulting in the transfer to the
small cap segment. Therefore, European listed companies have continued to age since 2007, a
phenomenon that is reflected by the growth of the mid and large capitalisation segments that
have reached a peak, fuelled by the transfer from one segment to another253
. Thus, the
narrowing base of the pyramid (micro/small cap) that has been witnessed since 2007
could have an impact on the top of the pyramid (mid/large) in the longer run. The
reduction in the pipeline of potential growth success stories (i.e. nano/micro capitalisation
segments) could lead to the stagnation, followed by a contraction of the large and blue-chips
segments. In the long run, any durable contraction in these segments could be problematic for
market intermediaries, whose business models are highly dependent on trading volumes of
the large and blue-chips segments and have a major impact on the financial industry.
253 MiddleNext and La Financière de l'Echiquier, The 2016 European Small and Mid Cap Outlook, 2016
95
ANNEX 9: BUSINESS MODELS OF SME BROKERS AND LIQUIDITY ISSUE
Brokers have a business model based on traded volumes. Each time an investment
management company places an order, the broker charges an average percentage commission
of 0.1-0.15% for the provision of this service. As SMEs trade in very thin volumes, smaller
capitalisation segments pose an economic issue for the brokers. The tables below demonstrate
that over the period 2006-2016, a nano-cap (an issuer whose market capitalisation is below
EUR 50 million) and a micro-cap (an issuer whose market capitalisation ranges between
EUR 50 and 150 million) generated on average EUR 1,000 and EUR 6,600 in brokerage fees
over one year for all the brokers (buy and sell trades), compared to EUR 4.25 million for a
blue-chip. The fees generated by the smaller trading segments are therefore insufficient to
remunerate brokers specialised in SMEs that bear fixed high costs and are often locally-
based254
.
Figure 17 – Average brokerage fees by market capitalisation
254 MiddleNext and La Financière de l'Echiquier, The 2016 European Small and Mid Cap Outlook, 2016
96
ANNEX 10: IMPLICATIONS OF THE EUROPEAN TICK SIZE REGIME FOR LIQUIDITY ON
SME GROWTH MARKETS
Tick size refers to the smallest increment in price that an exchange-traded instrument is
permitted to move. As the determinant of the granularity of price changes, it directly affects
the price discovery process and holds wider implications for both market quality and market
structure. In particular, tick sizes have been demonstrated to impact liquidity, volatility and
trading costs. As such, they are an important factor impacting the attractiveness of SME
growth shares, which generally suffer from lower liquidity levels, and higher trading costs
and volatility compared to large caps.
While attracting little attention before the advent of electronic trading, tick sizes have become
a hotly debated topic since the early 2000's, especially in the context of liquidity provision
via high frequency trading (HFT) strategies. Prior to the application of MiFID II, European
exchanges were allowed to freely calibrate their tick size. As smaller tick sizes were seen to
lead to a decline in quoted spreads and attract HFT trading flow there has been a continuous
trend of ever-declining tick sizes over the last two decades255
. In order to put a halt to this
'race to the bottom' the European Parliament's ECON Committee report on MiFID II
introduced an additional Article256
to establish mandatory tick-sizes across all European
exchanges. This Article was maintained in the co-legislative procedure and required the
Commission to specify a minimum tick size regime via a Delegated Regulation257
(see figure
18 for current calibration). This regime is intended to create a level-playing field between the
different trading venues and ensure the orderly functioning of the market.
Given that the tick size regime was not part of the MiFID II / MiFIR Commission proposal,
no prior assessment was carried out to analyse the impact and effectiveness of this measure.
In particular, it remains unclear to date whether the mandatory tick sizes have been
adequately calibrated to best suit the liquidity levels of traded shares258
. This is especially
true for less liquid shares, such as the vast majority of SME shares.
For liquid instruments, a smaller tick size generally enhances the prices discovery process.
The increased price granularity allows market makers to set their bid-ask spreads more
precisely according to perceived risks. This process is mainly driven by HFTs that are able to
update their quotes at an extremely high pace and leads to a decline in quoted spreads and
thus transaction costs259
.
For illiquid financial instruments, such as most SME shares, this principle does not hold.
Liquidity provision in these shares is mainly driven by genuine investor interest and
specialised or dedicated market makers rather than HFTs. Since there is little trading activity
255 While the Federation of European Securities Exchanges (FESE) sets out a self-regulatory tick size regime, this regime
was not binding and not all FESE members followed it fully across the different markets they operated.
256 See Article 49 MiFID II
257
See Commission Delegated Regulation 2017/588 of 14 July 2016 supplementing Directive 2014/65/EU of the European
Parliament and of the Council
258 While ESMA consulted on RTS 11 and carried out extensive calculations to calibrate the tick sizes across the different
liquidity bands, it is extremely difficult to accurately predict what effect they will have based on theoretic models.
259
It should be noted that a law of diminishing return applies to this concept. Ever decreasing tick sizes will lead to smaller
and smaller improvements in quoted spreads. At the same time, the order messaging rate will tend to increase exponentially
with potential detrimental impacts on the stability of data connections and matching engines of market operators.
97
overall and volatility tends to be higher, market makers generally require larger margins in
order to make their quoting activity economical. This leads to higher spreads and increased
trading costs. While a smaller tick size should equally enhance the price discovery process,
the additional price points made available will do little to impact spreads as they are
significantly larger than the tick size. In addition, a smaller tick size may reduce the
profitability of market makers if they are unable to provide competitive quotes at more
granular price points. In effect, liquidity may actually decrease.
The stakeholder consultation to this initiative also asked respondents to comment on the
effect of the European tick size regime. In particular, respondents were asked whether
increased or more flexible tick sizes on SME GMs could enhance liquidity. The replies to
these questions did not result in any conclusive result. While some respondents noted that
they expect the European tick size regime to have a negative impact on liquidity, others
commented that smaller tick sizes lead to narrower spreads and decreased trading costs. One
stakeholder expressed the observation that smaller tick sizes in fact increase liquidity at the
touch but that this was only due to the reduced number of possible price points which
concentrate volumes at the best bid and offer. Overall however, market book depth decreased.
The majority of respondents stated that the effects are currently unclear given the recent
introduction of the regime.
Since there is no conclusive evidence on the effects at this stage, it appears prudent to build
any assessment on a longer observation period. The tick size regime is ultimately a
calibration issue and it will require time before the effects of its implementation become fully
visible. Too small tick sizes will make the costs of overbidding best bid/offers insignificant
and will thus create excessive noise in the order book. Likewise, too large tick sizes will
increase the viscosity of the order book which can discourage the placing of passive orders
and increase the costs of aggressive ones. A balanced and well-calibrated approach is
therefore needed.
Increasing the tick size for SME GMs at the current stage also appears inappropriate given
the wider regulatory framework. As systematic internalisers (SIs) are currently not covered
by the MiFID II tick size regime, operators are able to price improve within the tick in order
to attract trading flows. This effect would be even more pronounced if larger tick sizes were
implemented on other markets and SIs would be able to attract even more transactions260
.
This would undermine a primary objective of MiFID II given that the bilateral trades on SIs
are less transparent than lit multilateral public markets. Any regulatory measures in relation
to the tick size regime should therefore also establish a level playing field across all types of
execution venues.
Given the current lack of evidence on the impact of the tick size regime and the
considerations of the wider regulatory framework, it was decided that it would be premature
to propose any changes to the regime at the current point in time. Commission services will
however continue to monitor the impacts in order to propose regulatory amendments if and
where necessary in the future.
260
Trading flows have already increased by more than 100% in the first two months of 2018, compared to the average in Q4
2017 (Source: Fidessa)
98
Figure 18 – Tick sizes mandated by Commission Delegated Regulation 2017/588 for liquidity bands and price
ranges respectively
99
ANNEX 11: MARKET ABUSE DATA RECEIVED FROM NATIONAL COMPETENT AUTHORITIES
FMA
(AT)
FSMA
(BE)
HANFA
(HR)
CySec
(CY)
CNB
(CZ)
Finans
tilsynet
(DK)
FIN-
FSA
(FI)
Bafin
(DE)
HCMC
(EL)
MNB
(HU)
Consob
(IT)
Finanst
ilsynet
(NO)
CMV
M
(PT)
FSA
(RO)
NBS
(SK)
SMA
(SI)
Finans
inspekti
onen
(SE)
CNMV
(ES)
FCA
(UK)
Number of MTFs / MTF
issuers in your
jurisdiction as of 31
December 2017
1 / 130
7 /
24
1 /
22
1 /
65
1 /
1
1 /
14
1 /
27
10 /
≈950
1 /
12
1 /
21
11 /
1529
1 /
17
2 /
34
1 /
301
1 /
53
n/a 3 / 724
4 /
153
54 /
247
MAR Article 16 : number
of STORs received in
2017 concerning
specifically financial
instruments of issuers on
MTFs
24 3 0 0 0 3 5 694 1 0 52 7 1 4 0 n/a 412 18
440 –
500
MAR Article 17(4) :
number of notifications
to delay the disclosure of
inside information
received in 2017
originating specifically
from issuers on MTFs
1 1 0 0 0 0 24 104 0 0 46 15 0 0 0 n/a 1800 0 164
MAR Article 18 : number
of requests to receive
insider lists addressed by
the national competent
authority specifically to
issuers on MTFs in 2017.
1 1 0 0 0 0 0
appro
≈5
0 0 1 1 0 6 0 n/a 0 0 n/a
MAR Article 19 : total
number of managers'
transactions notifications
received in 2017 (from all
issuers)
538 1635 253 3 104 1337 1840 2757 N/A 203 1276 2645 5656 350 1 n/a 11186 1117 39655
MAR Article 19 : number
of managers'
transactions notifications
received in 2017
originating specifically
from issuers on MTFs
40 16 0 0 0 6 260 543 71 0 369 38 0 90 0 n/a 3207 193 4084
100
ANNEX 12: DETERMINING THE APPROPRIATE DEBT ISSUANCE SIZE TO DEFINE AN SME
ISSUER ON DEBT-ONLY SME GROWTH MARKETS
The purpose of adjusting the SME debt issuer definition is to enable exchanges to register
their junior debt markets as SME Growth Markets. As the current criteria are too restrictive to
be representative of the companies actually using these markets, many exchanges mentioned
through the public consultation (and during dedicated workshops organised by DG FISMA)
that they did not wish to register their junior bond segments as SME Growth Markets under
the current definition. As a result, debt-only issuers cannot benefit from the alleviations we
are trying to put in place. In this respect, looking at the current average on SME debt markets
makes sense from a market access perspective.
In order to better assess the situation of MTFs dedicated to small and mid-caps in the EU,
Commission services collected data directly from European securities exchanges on their
SME-dedicated segments. Based on the number of issuances and total nominal value of debt
issuances, the average issuance size could be calculated for several SME-dedicated bond
MTFs as follows:
 Average new single issuance value per year (EUR million):
2012 2013 2014 2015 2016 2017
Euronext (FR,BE) 5,8 36,3 31,8 56,6 117 109
First North (Nordics) N/A 3,2 14,5 2, 4,6 2,6
DBAG (DE) N/A 29,8 37,5 38,9 28,7 50
EN.A (EL) N/A N/A N/A N/A 4 6
AIM (IT) N/A N/A N/A N/A N/A N/A
NewConnect (PL) N/A N/A N/A N/A 16,8 20,5
AeRO (RO) N/A N/A N/A 0,9 0,8 0,7
MARF (ES) N/A 50 14 16,3 9,6 12,4
Total 5,8 24,4 20,2 12,3 14,4 15,3
 Average number of issuances per issuer per year:
2012 2013 2014 2015 2016 2017
Euronext (FR,BE) 1,1 1,3 1,3 1,4 1,5 1,4
First North (Nordics) N/A 1,3 1,2 1,1 1,2 7,2
DBAG (DE) N/A N/A N/A N/A N/A 1,4
EN.A (EL) N/A N/A N/A N/A 1,0 2,0
AIM (IT) N/A N/A N/A N/A N/A N/A
NewConnect (PL) N/A N/A N/A N/A 2,4 2,8
AeRO (RO) N/A N/A N/A 0,0 0,0 0,0
MARF (ES) 1,1 1,0 2,2 2,0 2,2 2,5
Total 1,1 1,3 1,4 1,4 2,0 4,0
 Average value of total issuances per issuer per year (EUR million):
101
2012 2013 2014 2015 2016 2017
Euronext (FR,BE) 6,5 46,3 42,9 76,6 171,2 157,2
First North (Nordics) N/A 4,0 16,6 2,1 5,7 18,9
DBAG (DE) N/A N/A N/A N/A N/A 68,2
EN.A (EL) N/A N/A N/A N/A 4,0 12,0
AIM (IT) N/A N/A N/A N/A N/A N/A
NewConnect (PL) N/A N/A N/A N/A 40,2 58,2
AeRO (RO) N/A N/A N/A 0,0 0,0 0,0
MARF (ES) N/A 50,0 30,5 33,4 20,9 30,5
Total 6,5 30,9 28,6 17,5 28,5 61,2
For 2017, the average total issuance value per issuer per year on a sample of European SME-
dedicated exchanges was above EUR 61 million. The average per market varied significantly,
ranging from EUR 12 million on the Greek SME-dedicated bond market to EUR 157 million
on the French and Belgian SME-dedicated bond market.
It should be noted that data were unfortunately not provided for the Italian mini-bond market
ExtraMOT-Pro. However, data from the Italian banking Insurance and Finance Federation
highlighted that since 2012, 83% of all issuances on ExtraMOT Pro had a value below EUR
50 million261
.
261
FeBAF/VOEB Event, "New Financial Instruments: the Experience of Schuldscheindarlehen in Germany and the
Comparison with Mini-Bonds in Italy", June 2017
102
ANNEX 13: MARKET DATA COLLECTED FROM EUROPEAN MTFS
For the purpose of the Impact Assessment, Commission services sent requests for data
directly to most securities exchanges. The data collected and compiled cover the level of
activity and characteristics of the different SME-dedicated MTFs in the EU, when relevant in
comparison to activity on European main regulated markets.
1. General data on SME equity markets
1.1. Total number of listed companies
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt N/A 1 1 1 4 3 4 4 4 5 3 4
Euronext G 73 118 127 125 155 181 178 184 191 200 197 196
Start N/A N/A N/A N/A N/A N/A 0 0 0 0 1 1
First North 81 126 132 129 124 133 125 135 172 213 258 323
DBAG/Scale 0 0 0 0 0 0 178 189 168 158 138 48
EN.A N/A N/A 9 12 14 14 14 14 14 14 14 12
ESM 23 30 27 25 23 25 23 25 26 27 25 22
AIM IT 0 0 0 5 11 14 18 36 57 74 77 95
NewConnect n/a 24 84 107 185 351 429 445 431 418 406 408
AeRO N/A N/A N/A N/A N/A N/A 1 3 5 280 277 301
BSSE N/A N/A 79 75 86 77 79 71 71 65 62 53
MAB MARF 0 0 0 2 12 17 22 25 29 45 67 88
AktieTorget N/A 65 88 114 127 137 132 123 127 136 154 163
NGM 12 28 26 21 18 19 17 14 15 19 34 55
AIM UK 1,634 1,694 1,550 1,293 1,195 1,143 1,096 1,087 1,104 1,044 982 960
TOTAL 1,823 2,086 2,123 1,909 1,954 2,114 2,316 2,355 2,414 2,698 2,695 2,729
1.2. Total capitalisation of listed companies (EUR million)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt N/A 31 51 32 189 183 721 864 1,630 1,549 163 180
Euronext G 3,324 5,621 3,173 4,105 4,938 5,428 6,040 8,229 8,409 13,350 13,054 12,754
Start N/A N/A N/A N/A N/A N/A 0 0 0 0 11 22
First North 4,654 4,214 1,557 2,414 2,917 2,568 3,215 3,994 5,406 9,658 13,202 16,040
DBAG/Scale 0 0 0 0 0 0 0 0 35,480 27,486 29,413 7,032
EN.A N/A N/A 227 229 187 165 140 143 142 118 105 101
ESM 2,400 3,000 964 1,600 2,000 2,400 3,200 4,700 5,600 5,000 4,400 5,000
AIM IT 0 0 0 474 357 349 475 1,183 2,052 2,925 2,873 5,579
NewConnect n/a 329 345 622 1,297 1,922 2,721 2,657 2,115 2,042 2,215 2,306
AeRO N/A N/A N/A N/A N/A N/A 0 41 41 851 934 1,334
BSSE N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
MAB MARF 0 0 0 129 257 382 518 1,802 1,365 2,670 4,898 9,081
AktieTorget N/A N/A N/A N/A N/A N/A N/A 48 58 75 102 153
NGM 0 0 0 0 0 0 0 0 0 0 0 0
103
AIM UK 133,280 140,488 46,033 63,428 92,921 72,167 75,950 89,596 89,268 100,846 96,977 120,777
TOTAL 143,658 153,682 52,349 73,031 105,062 85,563 92,980 113,256 151,565 166,571 168,347 180,358
1.3. Number of IPOs
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt N/A 0 0 0 0 0 0 0 0 0 0 0
Euronext G 54 46 12 4 37 33 12 11 19 20 12 11
Start N/A N/A N/A N/A N/A N/A 0 0 0 0 0 0
First North 20 39 9 - 3 2 3 6 32 51 42 65
DBAG/Scale 0 0 0 0 0 0 0 0 1 0 2 4
EN.A N/A N/A - - - - - - - - - -
ESM 4 4 0 0 0 1 1 3 2 2 1 1
AIM IT 0 0 0 4 6 4 3 14 21 19 11 24
NewConnect n/a 24 61 26 86 172 89 42 22 19 16 19
AeRO N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
BSSE N/A N/A 0 0 0 0 0 0 0 0 0 0
MAB MARF 0 0 0 2 10 4 5 1 5 10 7 12
AktieTorget N/A 16 17 15 23 6 8 10 26 28 24 27
NGM 0 4 6 0 0 3 1 1 1 1 12 20
AIM UK 462 284 114 36 102 90 73 99 118 61 64 80
TOTAL 540 417 219 87 267 315 195 187 247 211 191 263
1.4. Total value of IPOs (EUR million)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt N/A 0 0 0 0 0 0 0 0 0 0 0
Euronext G 462 446 47 10 94 91 37 118 100 121 91 55
Start N/A N/A N/A N/A N/A N/A 0 0 0 0 0 0
First North 512 887 57 - 10 3 3 27 545 909 626 707
DBAG/Scale 0 0 0 0 0 0 0 0 2 0 26 67
EN.A N/A N/A - - - - - - - - - -
ESM 907 183 0 0 0 167 124 959 283 372 102 270
AIM IT 0 0 0 32 35 59 10 165 209 317 208 1,285
NewConnect n/a 43 46 13 60 165 55 25 11 18 11 37
AeRO N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
BSSE N/A N/A 0 0 0 0 0 0 0 0 0 0
MAB MARF 0 0 0 17 47 13 8 2 20 132 35 339
AktieTorget N/A 16 12 9 14 3 9 8 34 39 104 139
NGM 0 0 0 0 0 0 0 1 1 1 20 30
AIM UK 14,617 9,477 1,352 829 1,405 712 876 1,405 3,255 1,711 1,324 1,792
TOTAL 16,498 11,052 1,514 910 1,665 1,213 1,122 2,709 4,460 3,620 2,547 4,721
1.5. Number of pure listings
104
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt N/A 0 0 0 1 0 0 0 0 0 0 1
Euronext G 0 1 2 0 2 0 0 0 0 0 0 0
Start N/A N/A N/A N/A N/A N/A 0 0 0 0 1 0
First North 25 16 8 5 6 16 6 12 17 10 19 14
DBAG/Scale 0 0 0 0 0 0 0 1 4 4 4 1
EN.A N/A N/A - - - - - - - - - -
ESM 3 5 1 2 0 1 0 0 0 0 1 0
AIM IT 0 0 0 1 0 0 2 5 1 2 2 1
NewConnect n/a 5 6 4 11 8 8 3 7 8 6 4
AeRO N/A N/A N/A N/A N/A N/A 1 2 2 276 3 30
BSSE N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
MAB MARF 0 0 0 0 0 1 0 2 1 7 16 10
AktieTorget N/A 10 13 4 2 8 7 8 6 0 0 0
NGM 0 4 6 0 0 3 1 1 1 4 11 3
AIM UK 184 102 76 23 55 45 30 35 38 28 22 30
TOTAL 212 143 112 39 77 82 55 69 77 339 85 94
1.6. Share of domestic and foreign investors
Euronext BE
First
North
Euronext
FR
EN.A
NewConn
ect
Euronext
PT
MAB AIM UK
MTF
Domestic investors 38% 84% 46% 91% 93% 60% 89% 57%
Foreign investors 62% 16% 54% 9% 7% 40% 11% 43%
Main
market
Domestic investors N/A 30% N/A 36% 48% N/A 57% 44%
Foreign investors N/A 70% N/A 64% 52% N/A 43% 56%
1.7. Number of voluntary and mandatory delistings since 2006
Dritter
Markt
Euro
next
First
North DBAG EN.A ESM
AIM
IT
NewCon
nect BSSE MAB
Aktie
Torget NGM
AIM
UK
Mandatory
delisting
2
30
8 0 1 0 20 81 76 3 25 8 128
Voluntary
delisting
1 93 90 1 25 11 88 0 1 127 9 465
1.8. Evolution of voluntary delistings since 2006
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of voluntary
delisting
3 10 17 20 60 77 85 85 140 132 108
1.9. Transfers of listing between market segments since 2013
Dritter
Markt
Euron
ext
First
North DBAG EN.A ESM AIM IT
NewC
onnect BSSE MAB
Aktie
Torget NGM
AIM
UK
Avg
/year
From RM
to SME
MTF
0 43 13 21 0 1 0 0 0 0 4 5 90 15
105
From
SME MTF
to RM
4 34 7 3 3 44 1 5 1 19 24
1.10. Evolution of turnover ratio on EU SME MTFs
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt no data 5% 2% 1% 5% 7% 1% 1% 1% 1% 10% 5%
Euronext G BE 0 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Start N/A N/A N/A N/A N/A N/A 0% 0% 0% 0% 1% 1%
First North 113% 85% 60% 58% 56% 56% 126% 84% 82% 58% 53% 60%
Euronext G FR 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
DBAG N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
EN.A N/A N/A 1% 2% 2% 1% 1% 1% 0% 0% 2% 2%
ESM 124% 126% 195% 133% 64% 5% 4% 3% 6% 8% 6% 13%
AIM IT 0% 0% 0% 2% 12% 8% 9% 17% 20% 31% 11% 47%
NewConnect n/a 43.6% 35.5% 42% 61.6% 39.9% 19.8% 14% 19.8% 31.2% 23.1% 24%
Euronext G PT 0 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
AeRO N/A N/A N/A N/A N/A N/A N/A N/A N/A 2% 5% 3%
MAB MARF 0 0% 0% 18% 10% 10% 10% 15% 123% 17% 5% 4%
AIM UK 77% 77% 62% 59% 60% 67% 78% 58% 77% 58% 57% 72%
1.11. Evolution of turnover ratio on EU main markets
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dritter Markt no data 134% 289% 99% 84% 100% 49% 49% 66% 73% 63% 56%
Start N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 16% 11%
Progress Mkt 9% 6% 13% 5% 4% 4% 2% 3% 2% 2% 2% 2%
First North 132% 134% 135% 109% 88% 89% 69% 64% 64% 68% 64% 61%
DBAG 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
EN.A 0% 0% 0% 0% 0% 0% 0% 0% 25% 45% 51% 48%
ESM 13% 20% 63% 36% 23% 42% 40% 66% 59% 44% 50% 27%
AIM IT 154% 204% 185% 158% 163% 179% 138% 128% 153% 153% 114% 108%
NewConnect 23.5% 22.4% 44.2% 58.4% 45.3% 42.2% 40.6% 41.8% 35.7% 36.1% 37.8% 37.6%
AeRO 15% 17% 12% 15% 13% 22% 15% 17% 17% 11% 11% 14%
MAB MARF 114% 135% 183% 90% 119% 117% 93% 87% 108% 134% 98% 88%
AIM UK N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
1.12. Deviation from the minimum tick size regime
Dritte
r
Markt
Euron
ext G
First
North
DBAG
FSE
EN.A ESM AIM IT
NewC
onnec
t
AeRO BSSE MAB
Aktie
Torget
NGM
AIM
UK
MTF No No No No No No no 0.01 No N/A NO No No No
Main market No No No No No No no 0.01 No 0.01 NO N/A No No
1.13. Number of dual listings of companies listed on EU MTFs
106
Dritter
Markt
Euro
next
G BE
Start
First
North
Euro
next
G FR
DBAG
FSE
EN.A ESM
AIM
IT
NewCon
nect
Euro
next
G PT
AeRO BSSE MAB
Aktie
Torget
NGM
AIM
UK
1 1 1 3 1 1 0 20 0 0 0 N/A 0 0 1 1 N/A
1.14. Free float requirement and actual level
Dritter
Markt
Euro
next
G BE
Progress
Mkt
Start
First
North
Euro
Next G
FR
DBAG
FSE
EN.A ESM
AIM
IT
New
Con
nect
AeRO BSSE MAB
AIM
UK
Requirement
on MTF
No
EUR
2,5
m
10% No 10%
EUR
2,5
million
20%
or 1
mio.
pcs.
10% No 10% 15% 10% No EUR2m No
Free float on
MTF
N/A 55% N/A 15% 87% 50% 44% 18% 73.18% 33% 25% N/A N/A 46% 48%
Free float on
RM
N/A 65% 24% 35% 60% 67% 61% 47% 68.28% 45% 49% 36% N/A 58% 68%
2. General data on SME bond markets
2.1. Number of new bond issuers per year
2013 2014 2015 2016 2017
Euronext G 10 9 10 11 9
First North 14 10 15 25 17
DBAG/Scale 25 9 5 6 2
EN.A 0 0 0 1 1
AIM IT N/A N/A N/A N/A N/A
NewConnect N/A N/A N/A 17 18
AeRO N/A N/A 1 3 3
MAB MARF 1 10 10 8 12
TOTAL 50 38 41 71 62
2.2. Outstanding number of issuers per year
2013 2014 2015 2016 2017
Euronext G 36 43 51 56 61
First North 12 20 24 30 37
DBAG/Scale 0 0 0 0 11
EN.A 0 0 0 1 1
AIM IT N/A N/A N/A N/A N/A
NewConnect N/A N/A N/A 129 122
AeRO N/A N/A 1 4 7
MAB MARF 1 11 21 29 41
Stuttgart B 23 15 10 6 5
TOTAL 72 89 107 255 285
2.3. Number of bond issuances during the year
107
2013 2014 2015 2016 2017
Euronext G 17 14 16 17 11
First North 17 18 100 95 74
DBAG/Scale 25 9 5 7 2
EN.A 0 0 0 1 1
AIM IT N/A N/A N/A N/A N/A
NewConnect N/A N/A N/A 116 162
AeRO N/A N/A 1 3 3
MAB MARF 1 35 51 237 318
TOTAL 60 76 173 476 571
2.4. Outstanding number of bond issuances
2013 2014 2015 2016 2017
Euronext G 46 58 69 82 88
First North 15 23 26 37 267
DBAG/Scale 0 0 0 0 15
EN.A 0 0 0 1 2
AIM IT N/A N/A N/A N/A 298
NewConnect N/A N/A N/A 309 346
AeRO N/A 0 0 0 0
MAB MARF 1 24 43 63 101
TOTAL 62 105 138 492 1117
2.5. Nominal value of new bond issuances during the year (EUR million)
2013 2014 2015 2016 2017
Euronext G 616 446 906 1 988 1 199
First North 54 261 198 437 194
DBAG/Scale 746 338 194 201 100
EN.A 0 0 0 4 6
AIM IT N/A N/A N/A N/A N/A
NewConnect nda nda nda 1 947 3 325
AeRO N/A N/A 1 3 2
MAB MARF 50 489 831 2 280 3 932
TOTAL 1 467 1 533 2 130 6 860 8 758
2.6. Average issuance value per the year (EUR million)
2013 2014 2015 2016 2017
Euronext G BE 60 29 55 73 59.5
First North 13.5 15.3 2 4.9 2.7
Euronext G FR 23 37 62 443 604
DBAG/Scale 0 0 0 0 0
108
EN.A 0 0 0 4 6
AIM IT N/A N/A N/A N/A N/A
NewConnect nda nda nda 16.7 29.1
AeRO N/A N/A 0.9 0.8 0.7
MAB MARF 50 14 16.3 9.6 12.3
TOTAL 24.4 20.2 12.3 14.4 89.3
2.7. Outstanding nominal value of bond issuances (EUR million)
2013 2014 2015 2016 2017
Euronext G 975.7 1,416.7 2,274.3 4,221.4 5,240.7
First North 220.7 502.3 544.4 806.5 617.5
DBAG 0.0 0.0 0.0 0.0 707.0
EN.A 0.0 0.0 0.0 4.0 10.0
AIM IT N/A N/A N/A N/A N/A
NewConnect N/A N/A N/A 6,500 8,970
AeRO N/A N/A 0.9 3.4 5.6
MAB MARF 50 500.0 1,029 1,608 2,195
Stuttgart Börse 1,700 1,100 750 540 510
TOTAL 2,946.5 3,518.9 4,598.7 13,683.6 18,255.4
2.8. Annual volume of transactions on EU SME MTFs (EUR million)
2013 2014 2015 2016 2017
Euronext G 16 25 19 14 26
First North 3 1 50 569 808
AIM IT 0 0 0 0 0
NewConnect 2 3 2 2 2
AeRO N/A N/A 4.3 7.5 7
MAB MARF 0 0 0 0 0
TOTAL 21 29 72 586 835
2.9. Annual volume of transactions on EU regulated markets (EUR million)
2013 2014 2015 2016 2017
Euronext G 53 81 60 43 77
Progress Mkt 0 0 0 0 0
First North 10811654 7668240 7422150 5998351 7101432
DBAG 0 0 0 0 0
EN.A 0 0 0 0 0
AIM IT 0 0 0 0 0
NewConnect 4 4 4 5 6
AeRO 1396 956 2843 1345 1569
MAB MARF 1 1 1 0 0
TOTAL 10813108 7669281 7425058 5999744 7103084
109
3. Various requirements on SME-dedicated MTFs
Dritter
Markt
Euro
next
Progress
Mkt
First
North
DBAG EN.A ESM
AIM
IT
New
Connect
AeRO BSSE
MAB
MARF
Aktie
Torget
NGM
AIM
UK
Key
advisers
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes N/A Yes No Yes Yes
Half-yearly
reports on
equity mkt
no Yes yes Yes Yes Yes Yes YES Yes Yes No Yes
quarterly
reports
Yes Yes
Half-yearly
reports on
bond mkt
N/A No yes Yes Yes Yes N/A n/a Yes Yes N/A No N/A N/A N/A
4. MTFs wishing to register or not as an SME Growth Market
Dritter
Markt
Euro
next
Progress
Mkt
First
North
DBAG EN.A Xtend ESM AIM IT
New
Con
nect
AeRO BSSE
MAB
MARF
Aktie
Torget
NGM
AIM
UK
For
SME
equity
market
No Yes Yes Yes Yes
Not
decided
yet
Yes No
Already
registered
Yes No No Yes No No
Already
registered
For
SME
bond
market
N/A No Yes No Yes
Not
decided
yet
N/A N/A
Not
decided
yet
(EXTRA-
MOT
PRO)
Yes No No
Not
decided
yet
N/A No N/A
110
ANNEX 14: THE CURRENT REGULATORY ENVIRONMENT OF 'SME GROWTH MARKETS'
MiFID II provides for a new category of MTFs, the SME Growth Markets. Registration as an
SME Growth Markets will be voluntary and will be available as of January 2018. The recitals
of MiFID II indicate that attention should be focused on how future regulation should further
foster and promote the use of that market so as to make it attractive for investors, and provide
a lessening of administrative burdens and further incentives for SMEs to access capital
markets through SME growth markets. Therefore, beyond MiFID II, several EU Acts refer to
this new type of trading venues.
1. MiFID II
According to MiFID II, a SME Growth Markets is a MTF, where at least 50% of the issuers
whose financial instruments are traded on are SMEs. SMEs are defined as companies that
have an average market capitalisation of less than EUR 200 million. An Issuer that only
issues non-equity instruments can also be considered as SMEs if, according to its last annual
or consolidated accounts, they meet at least two of the following three criteria: an average
number of employees during the financial year of less than 250, a total balance sheet not
exceeding EUR 43 million and an annual net turnover not exceeding EUR 50 million.
The level 2 of MiFID grants SME Growth Markets flexibility in evaluating the
appropriateness of issuers for admissions on their venue. For instance, an SME Growth
Markets only needs to determine in their rulebook a regime of objective admission criteria
(including a statement on the sufficiency of working capital) for issuers seeking the listing of
their shares. When a prospectus is not needed, the admission document is drawn up under the
responsibility of the issuer and clearly states whether or not it has been approved and
reviewed and by whom.
The SME Growth Markets shall also impose on issuers admitted on their venue ongoing
financial disclosure obligations. They shall require the issuers to publish annual financial
reports within 6 months after the end of each financial year and half yearly financial reports
within 4 months after the end of the first 6 months of each financial year.
2. Market Abuse Regulation
The Market Abuse Regulation (MAR) is applicable to MTFs, including the SME Growth
Markets. However, this regulation includes two specific alleviations for SMEs whose shares
are admitted to trading on SME Growth Markets. First, it exempts issuers from producing
insider lists on an ongoing basis. MAR also intends to limit the burden for SME growth
market issuers by allowing the posting of inside information on the SME growth market
trading venue instead of the issuers’ own websites.
3. Prospectus Regulation
The prospectus Regulation has created an alleviated 'EU Growth Prospectus'. This 'EU
Growth prospectus' will be available for the following entities provided they have no
111
securities admitted to trading on a regulated market: (i) SMEs262
; (ii) non-SMEs traded on an
SME growth market with a market capitalisation of less than EUR 500,000,000; and (iii)
issuers of securities with a public offer of less than EUR 20,000,000 whose securities are not
traded on an MTF and with up to 499 employees.
In addition, issuers that have had securities already admitted to trading on an SME growth
market (or a regulated market) continuously for at least the last 18 months will be able to
benefit from a short form disclosure regime for secondary issuances.
4. Central Securities Depositories Regulation
The Central Securities Depositary Regulation ('CSDR') was adopted in July 2014. CSDR
imposes a mandatory buy-in process on any financial instrument which has not been
delivered within a set period from the intended settlement date (i.e. two days after trading, so
called 'T+2' rule). This buy-in process is triggered after a period whose length is dependent
on the asset type and liquidity of the relevant financial instruments i.e. up to four days for
liquid securities, seven days for illiquid securities and up to 15 days for transactions on SME
growth markets. The transitional provisions provide that multilateral trading facilities that
fulfil the requirements for being qualified as SME Growth markets can benefit from this
specific rule (i) until – upon their application – they are registered as such in accordance with
conditions of MiFID II or (ii) until 13 June 2018, if they decide not to apply for such
registration.
5. The Review of the European Venture Capital Fund (EuVECA) Regulation
The revised EuVECA regulation (approved by the European Parliament on 14 September
2017 and by the Council on 9 October 2017) will allow investment in SMEs listed on a SME
growth market as defined by MiFID II, to allow growth stage entities that have already access
to other sources of financing to also receive capital from EuVECA funds. This means that
SMEs, listed on SME Growth Markets, with an average market capitalisation of less than
EUR 200 million on the basis of end-year quotes for the previous three calendar years will be
eligible for investments by EuVECA funds. The revised Regulation also permits follow-on
investments in a given undertaking which after the first investment does not meet the
definition of the qualifying portfolio undertaking any more.
6. Other texts that apply to MTFs including to SME Growth Markets
The recently created European Long-Term Investment Funds (ELTIFs) shall invest at least
70% of their money in certain types of assets, such as companies listed on regulated market
or MTFs and with a market capitalisation below EUR 500 million. The amendments to the
Solvency II Delegated Act that came into force in March 2016 grants ELTIF shares and
equities traded on MTFs (including the future SME Growth Markets) the same capital charge
as equities traded on regulated markets.
262
Under the Prospectus Regulation, SMEs are (i) either defined as entities meeting at least two of the following three
criteria: an average number of employees during the financial year of less than 250, a total balance sheet not exceeding EUR
43 million and an annual net turnover not exceeding EUR 50 million, or (ii) defined in accordance with MiFID (ie average
market capitalisation of less than EUR 200 million).
112
ANNEX 15: EU ACTS AND ALLEVIATIONS GRANTED TO SME GROWTH MARKETS
ISSUERS
EU Act Current
alleviations/benefits
foreseen by EU law
Who can benefit from those
alleviations/benefits?
Would a threshold raised to
EUR 500 million extend
those alleviations/benefits?
MAR Alleviation in terms of
insider lists
 All SME GM issuers
No. All the SME GM
irrespective of their size can
benefit from MAR alleviations
Prospectus Alleviated EU Growth
Prospectus
 SMEs as defined by MiFID II
(i.e. market cap
 Non-SME issuers listed on an
SME GM with a market cap
up to EUR 500 million
No. The EU Growth
Prospectus is already available
for all SME GM issuers with a
market cap up to EUR 500
million
Prospectus Alleviated prospectus for
secondary issuances
 All SME GM issuers listed for
at least 18 months No. All the SME GM
irrespective of their size can
benefit from MAR alleviations
EuVECA Investments by EuVECA
funds in SMEs
 SME listed on an SME
Growth Market issuers Yes. A raised threshold would
allow EuVECA funds to invest
into SMEs with a market cap
up to EUR 500 million.
ELTIFs Investments by ELTIFs in
SMEs
 MTFs or regulated market
issuers with a market cap up to
EUR 500 million
No. SME GM issuers are by
definition MTF issuers. A
change in the threshold would
not change their situation.
113
ANNEX 16: ASSESSMENT OF POLICY OPTIONS - SYNTHESIS TABLE
Policy Options Legal basis
Impact on
issuers
Impact on
investors
Impact on
exchanges
Impact on
intermed.
Impact
on NCAs
Evidence
Political
feasibility
Opinion
1 – Create strong and attractive SME Growth Markets
1.1 Definition of debt-only issuers on SME GM MiFID II level 2 ++ ≈ ++ ≈ ≈ *** ++
1.2 Liquidity contracts MAR level 1 ++ ++ + + - *** +
1.3 Transfer Prospectus PR level 1 ++ ≈ or - ≈ ≈ ≈ *** +
1.4 Free-float criterion MiFID II level 2 ≈ or - + ≈ + ≈ ** +
1.5 Definition of SME Growth Markets for equity MiFID II level 1 + + ≈ ≈ ≈ ** - -
1.6 Transfer of listings from regulated market to SME GM
MiFID II level 1
& other
+ + - ≈ ≈ ** - -
1.7 Delisting rules
MiFID II level 1
& other
+ + - ≈ ≈ ** - -
1.8 Key advisers for first-time equity issuers MiFID II level 1 ≈ or - ++ - ≈ ≈ ** - -
1.9 Tick size regime MiFID II level 1 ? ? ? ? ? * - -
1.10 Credit rating CRAR level 1 ≈ or + ≈ or + ≈ - - - * - -
2 – Alleviate the administrative burden for issuers on SME Growth Markets
2.1 Half-yearly reports for debt-only issuers MiFID II level 2 + ≈ or - + ≈ ≈ ** ++
2.2 Exemption from market sounding regime for private
placements of bonds
MAR level 1 + + ≈ + ≈ *** +
2.3 List of insiders MAR level 1 ++ ≈ ≈ ≈ - *** +
2.4 Justification to delay the public disclosure of inside
information
MAR level 1 ++ ≈ ≈ ≈ - *** +
2.5 E te ded deadli e for otifi atio of a agers’
transactions MAR
level 1
+ ≈ ≈ ≈ ≈ ** +
2.6 Public dis losure of a agers’ tra sa tio s the NCA ++ ≈ ≈ ≈ - - ** -
2.7 Threshold for otifi atio of a agers’ tra sa tio s + ≈ or + ≈ ≈ ≈ or - * -
2.8 Disclosure of inside information by debt-only issuers MAR level 1 + - ≈ ≈ - - * - -
Not recommended – due to limited evidence, political sensitivity, and/or market integrity risks
Favourable opinion
114
ANNEX 17: EXPLANATORY GRAPH ON THE EXTENSION OF THE TIME-PERIOD TO
DISCLOSE MANAGERS’ TRANSACTIONS
MAX 3 DAYS
Date of
transaction
PDMR/PCA notifies the issuer Issuer discloses
to the public
If the PDMR/PCA takes
too long to notify the
issuer, the latter can
have difficulty disclosing
to the public within the
3-day limit
Curre t situatio
Date of
transaction
PDMR/PCA notifies the issuer
3 DAYS
Date of
notification
to the issuer
Issuer discloses
to the public
MAX 3 DAYS MAX 2 DAYS
Proposed ha ge u der optio 2