The EU Listing Act (the Listing Act), adopted by the European Parliament on April 24, 2024, introduces several significant changes to the Market Abuse Regulation (MAR) and other related financial regulations to reduce burdens on listed companies and to make public markets more attractive by simplifying regulatory requirements and reducing costs (with a view to small and medium-sized company issuers), as well as enhancing market transparency and integrity. For those U.S. companies operating in Europe, here is a condensed overview of some of the key anticipated changes.
Ad-hoc disclosure requirement for protracted processes
The Listing Act modifies the rules for disclosing inside information during protracted processes to reduce administrative burdens while clarifying legal requirements. Interim steps that constitute inside information will no longer need to be published. Instead, issuers will only need to disclose the final circumstances or event as soon as possible after they have occurred.
However, the undisclosed interim steps will be subject to confidentiality obligations. If the confidentiality of the information in the form of undisclosed interim steps is no longer ensured, such inside information must be published to the public as soon as possible, i.e., before the occurrence of the final circumstances or event. The prohibition of insider dealing continues to apply for as long as the inside information has not been disclosed.
These changes shall ensure timely and fair disclosure while maintaining investor protection and market integrity. The European Commission (Commission) will adopt a further legislative measure in the form of a Delegated Act setting out a non-exhaustive list of final events in protracted processes which would trigger the obligation to disclose and for each such event, the moment in which the event is deemed to have occurred.
Deferral of ad-hoc publication of inside information
The Listing Act will specify the conditions pursuant to which an ad-hoc publication of inside information may be deferred. Deferral will be permissible if (i) immediate disclosure is likely to prejudice the legitimate interests of the issuer, (ii) the information that is intended to be deferred is not in contrast with the latest public announcement or other type of communication by the issuer on the same matter, and (iii) the issuer ensures confidentiality.
The Commission is to adopt a Delegated Act setting out a non-exhaustive list of situations in which the inside information that the issuer intends to delay is in contrast with the latest public announcement or other type of communication by the issuer.
Threshold for managers’ transactions
The threshold for notifications of managers’ transactions (and transactions of persons closely associated with them) is to be increased by €15,000 from €5,000 to €20,000 per calendar year (no netting allowed), reducing the frequency of disclosures required by insiders. Member State competent authorities (NCAs) may adjust this threshold to between €10,000 and €50,000, where justified considering their domestic market conditions. This is to reduce the number of notifications that do not contain any useful information.
Transactions during a “closed period” will also be allowed under certain conditions, such as when the respective manager does not make an active investment decision, trading activities are caused by external factors or by third parties or are transactions or trading activities based on predetermined terms, including the exercise of derivatives. This last exemption shall cover situations such as discretionary asset management mandates, the acceptance of an inheritance or exercise of vested stock options.
Share buyback programs
Administrative simplifications for share buyback programs are intended to streamline the process and include (i) reporting only to the most relevant market authority in terms of liquidity and (ii) publishing aggregated information instead of individual reports. Furthermore, issuers will only have to publish aggregated information to the public (the disclosure should indicate the aggregated volume and the weighted average price per day and per trading venue). However, individual reports will still have to be submitted to NCAs.
Market soundings
The MAR describes a “market sounding” 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. Supplementing the MAR are various ‘Level 2’ measures that determine appropriate arrangements, procedures and record keeping requirements.
In future, the market soundings regime shall expressly become an optional safe harbour. As a result, if the regime is complied with, there will be no unlawful disclosure (i.e., disclosure of inside information during a market sounding is deemed to be made in the normal exercise of a person’s employment, profession or duties and therefore does not constitute unlawful disclosure of inside information).
In terms of record-keeping and disclosure, any disclosing market participant must still consider whether it will disclose inside information, make a written record of it, and disclose it to the NCA upon request, regardless of whether the optional market sounding procedure is followed. These principles shall be maintained to ensure that NCAs may obtain an audit trail of a process that may imply disclosure of inside information.
The notion of market sounding is to be expanded to include scenarios without any public announcement of a transaction, and the obligation to inform recipients that the disclosed information is no longer confidential (cleansing) will be amended so that it is unnecessary to “cleanse” if the information has already been otherwise publicly announced.
Sanctions
Minimum fines for breaches of ad-hoc disclosure requirements will be introduced, based on the issuer’s annual turnover. This aims to strengthen the enforcement of regulations and enhance their deterrent effect.
Effective date
The Listing Act, and thus its amendments to the MAR, will become effective on the 20th day following its publication in the Official Journal, which is not expected to happen before autumn 2024. However, the amended provisions surrounding disclosure of interim steps in a protracted process and deferral of disclosure will become effective 18 months following amended MAR’s effective date.
Comment: The EU Listing Act makes several notable changes to MAR which U.S. companies operating in the EU will need to take note of. Also, with a Delegated Act setting out a list, albeit non-exhaustive, of (i) final events in protracted processes, and (ii) situations in which delayed inside information is in contrast with the issuer’s latest public announcement, it has raised questions whether the EU market abuse regime is evolving from a ‘principle-based’ regime to something of a more ‘rule-based’ approach which U.S. companies are already very familiar with Form 8-K.