kom (2018) 0331 - Ingen titel

Europaudvalget 2018
KOM (2018) 0331
Offentligt

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}

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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

ABLE OF

IGURES

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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LOSSARY

Acronym

AMP

CEE

CMU

CRA

CSDR

EGESC

ELTIFs

ESMA

GAAP

HFT

IAS

IASB

IBO

IFRS

IPO

MAR/MAD

MiFID II

MTF

NCA

OECD

PCA

PDMR

SME

STOR

TFEU

Accepted Market Practice

Central and Eastern Europe

Capital Markets Union

Credit Rating Agency

Central Securities Depositories Regulation

Expert Group of the European Securities Committee

European long-term investment funds Regulation:

European Securities and Markets Authority

European Union

Generally accepted accounting principles

High-Frequency Trading

International Accounting Standards

International Accounting Standards Board

Initial Bond Offering

International Financial Reporting Standards

Initial Public Offering

Market Abuse Regulation/Directive

Markets in Financial Instruments Directive II

Multilateral Trading Facility

National Competent Authority

The Organisation for Economic Co-operation and Development

Person Closely Associated

Person Discharging Managerial Responsibilities

Private Equity

Private Placement

Prospectus Regulation

Regulated markets (also called 'main markets')

Small and medium-sized enterprise

Suspicious Transaction and Order Reports

Treaty on the Functioning of the European Union

Venture Capital

Meaning or definition

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NTRODUCTION

: P

OLITICAL

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 capital

and the

proposals on crowdfunding

. 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'

, 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)

, 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

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

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

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)

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

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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 Directive

, the Shareholders' Rights

Directive

and the Takeover Bid Directive

). 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"

. According to Europe Economics, there were 40 MTFs dedicated to

small and medium-sized enterprises across the European Union in February 2015

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"

. 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

. 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 Regulation

, the European Venture Capital Fund

Regulation

and the Central Securities Depositaries Regulation

(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.

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

Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement

Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids

OECD, Opportunities and Constraints of Market-based financing for SMEs, September 2015

Europe Economics, Data Gathering and Cost analysis on Draft Technical Standards Relating to the Market Abuse

Regulation (2015)

MiFID II Recital 132

On the basis of end-year quotes for the previous three calendar years

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.

Regulation (EU) 2017/1991 of the European Parliament and of the Council of 25 October 2017 amending Regulation (EU)

No 345/2013

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

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Since its entry into application on 1 July 2016, the Market Abuse Regulation

(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 information

(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

MIFID II

MAR

Prospectus Regulation

Transparency Directive

Takeover bid Directive

Shareholders' Rights Directive

Mandatory use of IFRS

Non-financial reporting Directive

Source: Commission services

Only if there is offer of securities to the public

SME Growth Market

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

. 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 companies

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.

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market

abuse regulation)

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

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.

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

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In its Mid-term Review of the Capital Markets Union Action Plan

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 Evidence

, 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 dialogues

and previous

public consultations (such as the CMU public consultation

, the Call for evidence on the EU

regulatory framework for financial services

and the CMU Mid-Term Review public

consultation

), that more needed to be done on the regulatory side to ensure that SMEs could

reap the full benefits of public markets.

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

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

Technical workshops on 'Barriers to Listing for SMEs' held by the Commission on 7 October and 8 December 2016

Green Paper on

Building a Capital Markets Union

http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm

Call evidence on the EU regulatory framework for financial services

http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm

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

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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'

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).

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 companies

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.

AFME,

The shortage of Risk Capital for Europe's High Growth Businesses,

2017

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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

SMEs

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

requirements

28,29

. 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 Italy

, only 222 companies did so from 2012 to 2016

. Similarly, 800

Spanish SMEs are believed to be eligible to issue bonds on the Spanish SME-dedicated debt

market (MARF)

, while there have been only 41 five issuers of debt on the market since

2013

ROBLEM 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)

. 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

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.

"Improving European Corporate Bond Markets", Report from the Commission Expert Group on Corporate Bonds,

November 2017

OECD,

Opportunities and constraints of market-based financing for SMEs,

September 2015

Cerved Group,

Is there a market for mini-bonds in Italy? A snapshot of unlisted companies,

October 2013

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

Data from Gabinete de estudios economicos Axesor, July 2013

Data collected by Commission services from European exchanges

EuropeanIssuers, EVCA and FESE, EU IPO Report, March 2015

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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 IBO

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 market

. 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 public

, 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 technical

, 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 costs

. 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 Exchanges

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

trading

IBO stands for Initial Bond Offering

EuropeanIssuers, EVCA and FESE,

EU IPO Report

OECD, "Opportunities and limitations of public equity markets for SMEs”,

OECD Journal: Financial Market Trends,

Vol. 2015/1, 2016

EuropeanIssuers, EVCA and FESE, EU IPO Report, March 2015

OICV,

SME Financing through capital markets,

July 2015

World Federation of Exchanges,

SME Financing and Equity Markets,

2017

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

kom (2018) 0331 - Ingen titel

The inherent small size of SMEs often makes compliance costs disproportionate

. 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 costs

. 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 capitalization

. 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 year

. 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 AIM

. 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

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 liquidity

than their larger counterparts

. As shown in the table below, the turnover

ratio

of all the SME-dedicated MTFs is typically lower than the turnover of corresponding

regulated markets in the same Member State

. 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

First North (Nordics)

113% 85%

60%

58%

56%

56% 126% 84%

82%

EN.A (EL)

N/A

ESM (IE)

124% 126% 195% 133% 64%

4,6% 4,2% 2,9% 5,6%

AIM (IT)

N/A

2,4%

13%

7,6% 9,3%

17%

20%

NewConnect (PL)

N/A

44%

36%

42%

62%

40%

20%

14%

20%

AeRO (RO)

N/A

MAB (ES)

N/A

18%

10%

15% 123%

AIM (UK)

77%

62%

59%

60%

67%

78%

58%

77%

Source: Commission data on European SME-dedicated MTFs collected directly from exchanges

2015

58%

7,9%

30%

31%

17%

58%

2016

53%

5,7%

11%

23%

57%

2017

60%

13%

47%

24%

72%

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.

Kaousar Nassr, Iota and Gert Wehinger , “Opportunities and limitations of public equity markets for SMEs”,

OECD

Journal: Financial Market Trends,

Vol. 2015/1, 2016

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

An EU-listing small Business Act,

Report by Fabrice Demarigny, March 2010

Note from the Quoted Companies Alliance, 3 June 2016

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

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

According to Keynes (1930),

'a market is liquid if trades can quickly buy or sell large numbers of shares without large

price effects'

World Federation of Exchanges,

SME Financing and Equity Markets,

2017

Turnover ratio is the annual turnover value to the capitalisation of companies listed on the market.

Association for Financial Markets in Europe (AFME),

Equity Primary Market and Trading Report,

Q4 2015

kom (2018) 0331 - Ingen titel

Figure 5

–

Comparison of selected regulated markets: turnover ratio

2006 2007 2008 2009 2010 2011 2012 2013 2014

Nasdaq OMX (Nordics)

132% 134% 135% 109% 88%

89%

69%

64%

ATHEX (EL)

25%

Irish SE (IE)

13%

20%

63%

36%

23%

42%

40%

66%

59%

Borsa Italiana (IT)

154% 204% 185% 158% 163% 179% 138% 128% 153%

Warsaw SE (PL)

24%

22%

44%

58%

45%

42%

41%

42%

36%

Bucharest SE (RO)

15%

17%

12%

15%

13%

22%

15%

17%

BME (ES)

114% 135% 183% 90% 119% 117% 93%

87% 108%

LSEG (UK)

N/A

Source: Commission data on European SME-dedicated MTFs collected directly from exchanges

2015

68%

45%

44%

153%

36.%

11%

134%

N/A

2016

64%

51%

50%

114%

38%

11%

98%

N/A

2017

61%

48%

27%

108%

38%

14%

88%

N/A

Low levels of liquidity act as one of the most important deterrents to investments in

SME financial instruments, and especially in shares

. Investors (institutional and retail)

overall prefer liquid stocks (and markets) for their investments

. 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

. Without liquidity, professional

investors face increased risks ('liquidity risk') and tend to shift their assets away from SMEs

into larger capitalisation companies

. 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

markets

Low liquidity on SME-dedicated markets is an important variable for issuers.

Low

liquidity increases the equity cost of capital

and increases the likelihood that an initial

public offering could be under-priced

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 ecosystem

. 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)

. Liquidity is key in

the business model of brokers

, especially on segments where trading volumes are thin, like

on SME segments. Evidence suggests that revenues from the fees generated by smaller

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).

G. Wuyts,

Stock Market Liquidity: Determinants and Implications,

Tidjschrift voor Economie en Management, 2007

World Federation of Exchanges,

SME Financing and Equity Markets,

2017

OECD,

Opportunities and Constraints of Market-Based Financing for SMEs,

September 2015

OECD, "Opportunities and limitations of public equity markets for SMEs”,

OECD Journal: Financial Market Trends,

Vol. 2015/1, 2016

G. Wuyts,

Stock Market Liquidity: Determinants and Implications,

Tidjschrift voor Economie en Management, 2007

Ellul A. and Pagano M., IPO Underpricing and After-Market Liquidity, Review of Financial Studies, p.348-421 (2006).

For instance, a provider of legal services should not necessarily care about liquidity

World Federation of Exchanges,

SME Financing and Equity Markets,

2017

See annex 9 for more details on the business model of brokers

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trading segments are insufficient to remunerate brokers, who bear high fixed costs and are

often locally-based

. 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

. 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 erosion

or disappearance

of the local and regional

ecosystems in Europe is cited as a major contributor to the low levels of initial public

offerings on SME markets

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'

Some MTF issuers notably consider their obligation resulting from the Market Abuse

Regulation to notify managers' transactions as burdensome

. 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

. 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

MiddleNext and La Financière de l'Echiquier,

The 2016 European Small and Mid Cap Outlook,

2016

World Federation of Exchanges,

SME Financing and Equity Markets,

2017

European Issuers, FESE and EVCA,

EU IPO Report,

23 March 2015

FESE,

A blueprint for European Capital Markets,

2014

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.'

European Commission Staff Working Document, Call for Evidence - EU regulatory framework for financial services,

SWD(2016) 359 final

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"

ESME Report on the Market Abuse Directive, 2007

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this option

. 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 market

. 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 requirement

. This timeframe will still be particularly challenging

when the issuer is seeking legal advice about whether a specific transaction should be

disclosed or not

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

). An

implementing regulation

provides that companies must record and document in writing a

long list of information ('disclosure

record')

. 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 authority

The private placement of SME bonds with institutional investors

is also constrained

by the Market Abuse Regulation market sounding regime

. The Market Abuse

FI, FR, IT, NL

Feedback received from stakeholders during technical workshops organised by the Commission on regulatory barriers to

SME listing and Public consultation on SME listing

For an infringement of Article 19, NCAs have the power to impose a sanction of up to EUR 500,000 (Art. 30 MAR).

Public consultation "Building a proportionate regulatory environment to support SME listing"

BG, DK, EL, NL, AT, FI and UK

Implementing Regulation (EU) 2016/1055 of 29 June 2016

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.

Feedback received from stakeholders during technical workshops organised by Commission services on regulatory

barriers to SME listing

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)

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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 transaction

Furthermore, the Market Abuse Regulation does not go far enough in differentiating

requirements for SME Growth Market issuers compared to companies listed on

regulated markets

. 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 value

, 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

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 market

Figure 6

–

Companies moving from SME-dedicated markets to regulated markets

Dritter

Markt

(AT)

Total of listings from the

SME-dedicated MTF to the

regulated market

Total number of listed

companies since 2006 or the

creation of the SME MTF

% over total number of

companies listed on market

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)

276

426

14%

120

646

10%

258

2251

Source: European Commission calculations based on data collected directly from European securities exchanges

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.

Public consultation, 2017 (AMAFI and ICMA's replies)

Feedback received from stakeholders during technical workshops organised by Commission services on regulatory

barriers to SME listing

N. Moloney,

EU Securities and Financial Markets Regulation,

2014

World Bank Group,

SME Exchanges in Emerging Market Economies,

A Harwood, T Konidaris, 2015

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

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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 MTFs

. Among those 40 SME-dedicated MTFs, only three have been

registered as SME Growth Markets so far

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 threshold

. 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"

. 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 caps

. Some

European regulations already grant regulatory incentives to companies that have a larger

market capitalisation than the MiFID II SME definition

. 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

Europe Economics, Data

Gathering and Cost analysis on Draft Technical Standards Relating to the Market Abuse

Regulation,

2015

AIM (UK), AIM Italy (IT) and NEX (UK)

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)

ESMA Securities and Markets Stakeholder Group, Report on Helping Small and Medium Sized Companies Access

Funding, 12 October 2012

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.

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.

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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 II

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 SME

, 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'

The

typical issuance size ranges between EUR 20 and 80 million on the

Mercado Alternativo de

Renta Fija

in Spain

and EUR 30 million on Extra-MOT Pro

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 million

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 SMEs

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 conditions

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

Art. 77 of the Commission Delegated Regulation (EU) 2017/565

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.”

OECD,

Opportunities and Constraints of Market-Based Financing for SMEs,

September 2015

Pablo Guijarro and Pablo Mañueco, MARF: Perspectives and risks for Spain´s new alternative fixed income market

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.

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.

Such as Euronext Growth in FR, BE and PT and First North in SE, DK, FI, EE, LA, LV.

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).

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listed on this new type of trading venues (See Annex 14). Some market operators and

stakeholders

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 factors

100

While SMEs tend to overlook the importance of liquidity, investors favour mechanisms that

promote trading of SME stocks

101

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 system

102

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 reforms

103

and

new technology developments

104

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 risk

105

. When SME issuers are allowed to

enter into a liquidity contract, be it market making or liquidity provision, they seem to largely

use this possibility

106

. However, in order to be allowed by a competent authority, the liquidity

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.

kom (2018) 0331 - Ingen titel

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 States

107

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 offer

108

. 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 company

109

. 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 MTFs

110

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

108

ESMA has issued a positive opinion on the SP and PT AMPs; FR and IT are working on their notifications.

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)

kom (2018) 0331 - Ingen titel

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 limit

111

. 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 acquisitions

112

. 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 proceeds

114

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

112

European Issuers, EVCA and FESE,

EU IPO Report

by the European IPO Task Force, March 2015

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

111

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more intangible benefits, such as

increased visibility and brand recognition

for potential

suppliers and customers

115

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 financing

116

. A study from the OECD has

notably found a strong positive relationship between a company's public listing and its

issuing of corporate bonds

117

. A number of explanations have been offered to explain why

being listed could help companies access the corporate bond market

118,119

. There is also

evidence to suggest that the same

positive relationship holds for listing, bank credits and

syndicated loans

120

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 opportunities

121

. However, the European SME-

dedicated markets do not currently provide a stable exit mechanism for venture capitalists

and private equity funds

122

. Similarly, public equity markets for SMEs could also stimulate

equity

crowdfunding

investments. However, at present, there is no real secondary market for

crowdfunding exits

123

. 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 growth

124

. Ensuring the development of SME-dedicated

FESE, European Issuers,

Guide to Going Public,

2015

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

116

115

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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

funding

125,126

. 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 phase

127

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

offerings

128

Eventually, underdeveloped SME-dedicated public markets prevent fast-growing firms from

exploiting their

innovation potential

129

. 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 innovate

130

AFME Paper, Raising finance for Europe's small and medium-sized businesses, p.6, p.20

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.

126

125

kom (2018) 0331 - Ingen titel

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

kom (2018) 0331 - Ingen titel

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.

HY SHOULD THE

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 State

132

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%).

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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 level

133

. 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'

kom (2018) 0331 - Ingen titel

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.

BJECTIVES

: W

HAT 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 integrity

134

HAT 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.

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

134

kom (2018) 0331 - Ingen titel

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

financing

135

. 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

kom (2018) 0331 - Ingen titel

5.2

Policy options addressing administrative compliance costs

5.2.1 Options under the Market Abuse Regulation

Management Transactions

Insider

Lists

SME GM

issuers only

need to

provide a list

of insiders

upon NCA

request

SME GM

issuers only

need to

maintain a

list of

'permanent

insiders'

Exempt

SME issuers

from

maintaining

an insider

list

Delay in

disclosing inside

information

Justifications for

delaying the

disclosure of

inside information

only need to be

issued upon NCA

request

Market

soundings

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)

Exempt

all

private

placements of

bonds

from

the

market

sounding

regime

Option 1.

Light-touch

alleviations

strictly

confined to the

procedures

Option 2.

Relief limited

to the scope,

disclosure and

record-

keeping

obligations.

Option 3.

Partial

exemption

from certain

regulatory

requirements

Extend to 5 days

the deadline for

PDMRs to report

transactions to

issuers and NCA

and for issuers to

publicly disclose

these transactions

Adopt a new

deadline for issuers

to publicly disclose

transactions relative

to the notification

by PDMRs and

extend the overall

deadline to 5 days

Replace the fixed

threshold for

transactions requiring

disclosure by a

relative threshold

based on the issuer's

market capitalisation

(e.g. 0.02%)

Raise the threshold

for transactions

required to be

disclosed to EUR

20,000

Justification only

upon NCA

request + no need

to keep a

disclosure record.

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

notifying a delay

to disclose inside

information to the

NCA.

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

kom (2018) 0331 - Ingen titel

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-crossing

136

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

Option 1.

Restricted scope for alleviations under MAR

Option 2.

Extended scope for alleviations under MAR

Type of issuers

SME listed on SME Growth Companies

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

kom (2018) 0331 - Ingen titel

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

Option 1.

Partial

alleviation

Option 2.

Admission

document

Requirements to transfer from an SME Growth Market to a regulated market

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)

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- Definition of SME Proportion of SMEs

only issuers

equity issuers

Increase the thresholds of the 2003 recommendation Left unchanged (at

definition to match the profile of SMEs today

least 50%)

Define an SME debt issuer

Raised to 75% (at

based on the value of the

least)

issuance (50 million over Raising the market

one year)

capitalisation threshold

for equity issuers from

Define an SME debt issuer EUR 200 to EUR 500

Left unchanged (at

based on the value of its million

least 50%)

outstanding bonds (EUR 150

million)

Option 1.

Unique

definition of SMEs

Option

Market

definition

for

debt

issuers, raised threshold

for equity issuer and

raised SME proportion

Option 3. Alternative

market definition for

debt issuer and raised

threshold for equity

issuer

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 definition

138

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

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)

138

kom (2018) 0331 - Ingen titel

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

Option 1.

Exemption

for non-equity issuers

Option 2.

Exemption

for equity and non-

equity issuers

Half yearly reports

Allow SME Growth Market operators to decide whether or not to apply an

obligation for half-yearly reports to 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.

regime + free

float

Option 2.

Full

harmonisation

Liquidity contracts

Create a European regime for liquidity contracts,

while authorising NCAs to submit an AMP and

develop a parallel regime tailored to local conditions.

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.

Free float requirements

Oblige SME GMs to impose a

free float requirement but provide

flexibility on exact criteria

Impose precise free float criteria

for SME GMs

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 29

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.

kom (2018) 0331 - Ingen titel

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.

HAT 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

Justifications for

delaying the

disclosure of

inside information

only need to be

issued upon NCA

request

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

Adopt a new

deadline for issuers

to publicly disclose

transactions relative

to the notification

by PDMRs and

extend the overall

deadline to 5 days

Replace the fixed

threshold for

transactions

requiring disclosure

by a relative

threshold based on

the issuer's market

capitalisation (e.g.

0.02%)

Raise the threshold

for transactions

required to be

disclosed to EUR

20,000

SME GM

issuers only

need to

provide a list

of insiders

upon NCA

request

Option 2.

Relief limited

to the scope,

disclosure and

record-

keeping

obligations.

Option 3.

Partial

exemption

from certain

regulatory

requirements

SME GM

issuers only

need to

maintain a list

of 'permanent

insiders'

Justification only

upon NCA

request + no need

to keep a

disclosure record.

Exempt SME

issuers from

notifying a delay

to disclose inside

information to the

NCA.

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)

Exempt

all

private

placements of

bonds from the

market sounding

regime

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

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

kom (2018) 0331 - Ingen titel

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 threshold

140

. Their task would be made even more complex by a threshold

expressed in a market capitalisation percentage.

Issuer's

capitalisation

Threshold of

notification

EUR 10

million

EUR

2,000

EUR 25

million

EUR

5,000

EUR 50

million

EUR

10,000

EUR 100

million

EUR

20,000

EUR 200

million

EUR

40,000

EUR 500

Million

EUR

100,000

EUR 1

billion

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 burden

141

. 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 days

142

). 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).

kom (2018) 0331 - Ingen titel

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'

kom (2018) 0331 - Ingen titel

to produce

ad hoc

lists of insiders several times a year for each piece of inside information

145

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 tracking

146

. 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 trading

147

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 case

148

. 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 information

149

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 disclosure

150

. 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

kom (2018) 0331 - Ingen titel

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 times

151

. As the flow of insider information generated by SMEs is

significantly lower and concentrated on few managers

152

, 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

kom (2018) 0331 - Ingen titel

Instruments Directive II and fall outside the scope of the Market Abuse Regulation and the

market sounding regime

154

EFFECTIVENESS

Objectives

Objective 1

Reduce

compliance

costs for SMEs

Objective 2

Enhance

liquidity

Objective 3

Maintain

market

integrity

EFFICIENCY

(cost-

effectiveness)

Coherence

CORE

Policy option

Baseline scenario

Option 1.

Light-touch

alleviations

strictly

≈

≈ or

1.5

confined

the

procedures

Option 2.

Relief limited

to the scope, disclosure

≈

≈ or

4.5

and

record-keeping

obligations.

Option 3.

Partial

exemption from certain

≈

regulatory requirements

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

1. Baseline scenario

Option 1.

Light-touch

alleviations

strictly

confined

the

procedures

Option 2.

Relief limited

to the scope, disclosure

and record-keeping

obligations.

Option 3.

Partial

exemption from certain

regulatory requirements

Investors

Intermediaries /

Market Makers

Exchanges

NCAs/

Supervisors

↑

≈ or ↑

≈

↑ or ↑↑

↑↑

≈ or ↑

≈ or↓

≈

≈ 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.

kom (2018) 0331 - Ingen titel

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

Option 1. Restricted scope for

alleviations under MAR

Option 2. Extended scope for

alleviations under MAR

Type of issuers

SME listed on SME Growth Companies

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

kom (2018) 0331 - Ingen titel

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

Objectives

Objective 1

Reduce

compliance

costs

for

SMEs

Objective 2

Enhance

liquidity

Objective 3

Maintain

market

integrity

(cost-

effectiveness)

Coherence

CORE

Policy option

Baseline scenario

Option 1.

Restricted

scope for alleviations

≈

under MAR

Option 2.

Extended

scope for alleviations

≈

under MAR

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

1. Baseline scenario

Option 1.

Restricted

scope for alleviations

under MAR

Option 2.

Extended scope

for alleviations under

MAR

Investors

Intermediaries /

Market Makers

Exchanges

NCAs/

Supervisors

↑

↑↑

↓

↑

≈

↓

↑

≈ or ↓

≈ 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

Create a lighter "transfer prospectus" for issuers having been listed a certain

amount of time on an SME Growth Market (e.g. 3 years)

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.

years),

Option 1.

Partial

alleviation

Option 2.

Admission

document

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

kom (2018) 0331 - Ingen titel

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 years

155

. 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 low

156

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 cases

157

, 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 IFRS

158

. 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

kom (2018) 0331 - Ingen titel

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

Objective 3

Maintain

market

integrity

(cost-

effectiveness)

Coherence

CORE

Objectives

Policy

option

1. Baseline scenario

Option 1.

Partial

alleviation

Objective 1

Reduce

compliance

costs for SMEs

Objective 2

Enhance

liquidity

≈

Option 2.

Admission

≈

document

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

1. Baseline

scenario

Option 1.

Partial

alleviation

Option

Admission

document

Investors

≈

Intermediaries /

Market Makers

≈

Exchanges

NCAs /

Supervisors

↑

↑↑

≈ 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- Definition of SME Proportion of SMEs

only issuers

equity issuers

Increase the thresholds of the 2003 recommendation Left unchanged (at

definition to match the profile of SMEs today

least 50%)

Define an SME debt-only

Raised to 75% (at

issuer based on the value

least)

of the issuance (EUR 50 Raising the market

million over one year)

capitalisation threshold

for equity issuers from

Define an SME debt issuer EUR 200 to EUR 500

Left unchanged (at

based on the value of its million

least 50%)

outstanding bond issued

(EUR 150 million)

Option 1.

Unique

definition of SMEs

Option 2.

Debt issuer

market definition, raised

threshold

for

equity

issuers and raised SME

proportion

Option 3.

Alternative debt

issuer market definition

and raised threshold for

equity issuers

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

kom (2018) 0331 - Ingen titel

employees could be set at 499 by reference to other sectorial legislation

159

, setting an average

turnover

160

and a balance sheet

161

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

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)

159

kom (2018) 0331 - Ingen titel

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 issuances

162

, 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 million

163 .

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 regulation

164

and the Prospectus Regulation

165

) 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 issues

166

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 markets

167

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 definition

168

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.

kom (2018) 0331 - Ingen titel

Figure 10

–

Average market capitalisation of companies listed on a selection of SME-dedicated MTFs

Dritter

Markt

(AT)

2017 Average

market cap

€

44,9

Euronext

(FR, BE,

PT)

65,1

Start

(CZ)

21,9

First North

(DK, EE, FI,

LV, LT, SE)

49,7

Scale

(DE)

146,

EN.A

(EL)

8,4

ESM

(IE)

227,

AIM

(IT)

58,7

New

Connect

(PL)

5,7

AeRO

(RO)

4,4

MAB

(ES)

103

Aktie

Torget

(SE)

0,9

AIM

(UK)

125,

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

169

. 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 involuntarily

170

. 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

ESMA's Technical Advice to the Commission on MiFID II and MiFIR

–

Final Report

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)

169

170

kom (2018) 0331 - Ingen titel

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

Euronext (FR,BE)

First North (Nordics, Baltics)

Scale (DE)

Stuttgart B (DE)

EN.A (EL)

AeRO (RO)

MARF (ES)

Total

2012

14.4

2013

27.1

18.4

73.9

2014

32.9

25.1

73.3

2015

44.6

22.7

75.0

0.9

49.0

43.0

2016

75.4

26.9

90.0

0.9

55.5

57.0

2017

85.9

16.7

64.3

102.0

10.0

0.8

53.5

57.0

72.7

38.6

50.0

40.9

45.5

39.5

EFFECTIVENESS

EFFICIENCY

(cost-

effectiveness)

Coherence

CORE

Objectives

Objective 1

Reduce

compliance

costs for SMEs

Objective 2

Enhance

liquidity

Objective 3

Maintain market

integrity

Policy option

Baseline scenario

Option 1.

Unique

≈

≈ or

1.5

definition of SMEs

Option 2.

Debt issuer

Market

definition,

≈ or

≈ or +

raised threshold for

equity issuer and raised

SME proportion

Option 3.

Alternative

debt issuer

market

definition and raised

≈

≈ or +

2.5

threshold for equity

issuers

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

1.Baseline scenario

Option 1Unique definition of

SMEs

Option 2. Debt issuer Market

definition, raised threshold

for equity issuer and raised

SME proportion

Option 3.

Alternative

debt

issuer

market definition and raised

threshold for equity issuers

↑

Investors

↑

Intermediaries /

Market Makers

≈

Exchanges

≈ or ↑

≈

≈ or ↑

NCAs /

Supervisors

≈ or ↓

↑

≈

≈ 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

kom (2018) 0331 - Ingen titel

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

Option 1. Flexibility as regards

non-equity issuers

Option 2. Flexibility as regards

non-equity and equity issuers

Half yearly reports

Allow SME Growth market operators to decide whether or not to apply

an obligation for half-yearly reports to 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

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

market

172

. 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 burden

174

. 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

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.

171

kom (2018) 0331 - Ingen titel

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 requirement

175

. 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

Coherence

(cost-

effectiveness)

CORE

Objectives

Policy

option

1. Baseline scenario

Option 1.

Flexibility as regards

non-equity issuers

Option 2.

Flexibility as regards

non-equity and

equity issuers

Objective 1

Reduce

compliance

costs for SMEs

Objective 2

Enhance

liquidity

Objective 3

Maintain

market

integrity

≈

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

1. Baseline scenario

Option 1. Flexibility

as regards non-equity

issuers

Option 2. Flexibility

as regards non-equity

and equity issuers

↑

Investors

Intermediaries /

Market Makers

Exchanges

↑

NCAs /

Supervisors

≈ or ↓

↓↓

≈

≈ 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.

kom (2018) 0331 - Ingen titel

6.3

Policy options to address liquidity in SME Growth Markets

Option 1.

regime + free

float

Option 2.

Full

harmonisation

Liquidity contracts

Create a European regime for liquidity contracts,

while authorising NCAs to submit an AMP and

develop a parallel regime tailored to local conditions.

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.

Free float requirements

Oblige SME GMs to impose a

free float requirement but provide

flexibility on exact criteria

Impose precise free float criteria

for SME GMs

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

liquidity

176

and that higher liquidity lowers the cost of capital for issuers

177

. 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 billion

178

. This increased liquidity and lower volatility

would ultimately benefit investors: it would increase the value of a company’s stock

179

reduce transaction costs and enable investors to trade in and out of their positions more

easily

180

. Although the Netherlands abandoned their accepted market practice on liquidity

contracts due to low uptake

181

, 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 contract

182

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

177

Why do ﬁrms pay for liquidity provision in limit order markets?, J. Skjeltorp, B. A. Ødegaard, April 2010

See for instance the literature review presented in

Why do listed ﬁrms pay for market making in their own stock?,

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

kom (2018) 0331 - Ingen titel

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 shortages

183

. 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 liquidity

184

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 offerings

185

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 shareholders

186

. 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 ‘29

regime’) but

would still allow national competent authorities to establish accepted market practices s

187

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 markets

188

. 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

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.

184

kom (2018) 0331 - Ingen titel

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 States

189

. 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 divergences

190

, 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

Objectives

Policy

option

Baseline scenario

Option 1.

regime + free

float

189

Objective 1

Reduce

compliance

costs for SMEs

Objective 2

Enhance

liquidity

Objective 3

Maintain

market

integrity

(cost-

effectiveness)

Coherence

CORE

≈

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.

kom (2018) 0331 - Ingen titel

Option 2.

≈

≈ or

≈

1.5

Full harmonisation

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

Baseline scenario

Option

regime + free float

Option

Full

harmonisation

↑

≈ or ↑

Investors

↑/↑↑

Intermediaries /

Market Makers

↑/↑↑

Exchanges

≈

≈ or ↓

NCAs/

Supervisors

≈

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.

REFERRED 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

–

kom (2018) 0331 - Ingen titel

12.61 million

191

. 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)

kom (2018) 0331 - Ingen titel

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

Administrative

burden placed on

listed SMEs

(Driver

Preferred option

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

kom (2018) 0331 - Ingen titel

Inadequate SME

Growth Market

definition

(Driver

Lack of schemes

(mechanisms)

promote trading and

liquidity on SME

Growth

Markets

(Driver 3)

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

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 growth

192

. 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 IPO

193

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

193

See Kaserer & Rapp et al., 2014

Grant Thornton, the Economic Impact of AIM, 2015, p.5

kom (2018) 0331 - Ingen titel

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

kom (2018) 0331 - Ingen titel

non-UK firms are listed on AIM

194

. 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 States

195

)

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 offerings

196

from

EU firms in their expansion phase on the platforms operated by LSEG

197

. 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 jobs

198

. 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

195

Out of 1107 companies listed on AIM UK in 2012, 213 were not UK companies (19.1%)

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

kom (2018) 0331 - Ingen titel

5% for all private companies in Sweden

199

. 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 placements

200

. 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

NASDAQ,

Capital Markets Union: The Road to sustainable growth in Europe,

2016

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)

200

199

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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)

Amount

Comments

EUR 2.54

–

The cost reduction estimate is based on the fact that issuers on SME GMs

4.99 million

202

will only need to compile one permanent insider list per annum. The

lower estimate represents a scenario whereby no new markets register as

(on

average SME GMs. The upper estimate represents the case where all SME MTFs

EUR 2,222 per that have indicated an ambition to register as SME GMs actually do so.

issuer

per

203

year )

Description

Reduction of

the number

insider

lists

(permanent

lists)

Justification Lower bound: The cost reduction arises from the envisioned approach that would

for the delay

require issuers to only justify delayed disclosures on the request of the

insider EUR 830,000

–

NCA. Issuers will therefore (usually) only need to notify NCAs. Full

information

2.49 million

justifications are assumed to require 40 work hours on average

205

, while a

mere notification would only take 1 hour (estimated).

Upper bound:

Lower and upper bound figures represent cases of an average of 0.25

EUR 1.64

–

delays per issuer per year and 0.75 delays per issuer per year

4.92 million

respectively

206

(EUR 731

–

2,193 per issuer

per year

204

)

Explicit

EUR 1.8

–

2.7 An explicit exemption will remove the legal uncertainty regarding

exemption

million

whether the market sounding regime is applicable to private placements

from

the

of bonds. This will save issuers, investors and involved intermediaries the

market

costs of applying the

Market Abuse Regulation

market sounding

soundings

regime.

regime

for

The estimated cost figures represent estimates based on the overall costs

private

arising from the application of the market sounding regime

207

201

202

Delegated Regulation 2017/65

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.

kom (2018) 0331 - Ingen titel

placement of

bonds

Transfer

Prospectus

EUR 4.8

–

7.2 The application of an alleviated Prospectus for a move from MTFs to

million

RMs would save issuers costs in the range of EUR 200,000

–

300,000

208

The figures presented reflect a scenario of 24 transfers from MTFs to

RMs per year on average

209

OW 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

ii.

iii.

iv.

vi.

vii.

Number of registered SME Growth Market

Number of listings and market capitalisation across SME Growth Market

Number and size of IPOs and IBOs on SME Growth Market

Number and size of European SME IPOs and IBOs in third countries

Ratio of bank based vs. capital market based external financing of SMEs

Number and volume of private placements of bonds

Number of 'transfer prospectuses'

2. Impacts on liquidity on SME GMs

ii.

iii.

iv.

vi.

vii.

207

Number of liquidity contracts entered into by issuers

Transaction volumes (calibrated against the number of listings per venue)

Average free float

Average bid-ask spreads of listings

Average liquidity at touch

Average market book depth

Average time to execution of orders

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).

kom (2018) 0331 - Ingen titel

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.

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)

210

kom (2018) 0331 - Ingen titel

NNEX

1: P

ROCEDURAL 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.

kom (2018) 0331 - Ingen titel

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…)

kom (2018) 0331 - Ingen titel

NNEX

2: S

TAKEHOLDER 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

Norway

211

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.

kom (2018) 0331 - Ingen titel

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.

kom (2018) 0331 - Ingen titel

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.

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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

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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.

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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-

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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

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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

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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

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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.

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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

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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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NNEX

3: W

HO 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.

kom (2018) 0331 - Ingen titel

Description

Extended deadline for

issuers to publicly

disclose

transactions

relative

the

notification by PDMRs

and PCAs

I. Overview of Benefits

–

Preferred Option

Amount

Comments

Direct benefits

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.

EUR 2.54

–

4.99 million

212

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.

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 average

213

, 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 respectively

214

Permanent

insiders

List

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

Explicit

exemption

from

the

market

soundings regime for

private placement of

bonds

212

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

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.

kom (2018) 0331 - Ingen titel

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 regime

215

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

–

300,000

216

. The figures presented reflect

a scenario of 24 transfers from MTFs to

RMs per year on average

217

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).

Define an SME debt

issuer based on the

value of the issuance

Indirect benefits

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

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.

No mandatory half-

yearly reports for non-

equity issuers

European regime for The European regime for liquidity The effect on primary offerings is more

liquidity contracts

contracts will enable all issuers on limited as liquidity risks can only be

SME GMs to engage in such 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)

kom (2018) 0331 - Ingen titel

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).

Requirement for SME

GMs to impose a free

float requirement

N/A

trading. Nevertheless, primary offerings

will benefit from the investors' expectation

of higher liquidity if the issuer enters into a

liquidity contract.

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

One-off

None

Recurrent

None

Businesses

One-off

Recurrent

None

Administrations

One-off

NCAs

will

required

to change

internal

procedure

and

establish a

mechanis

decide

when to

request

full

justificati

ons. This

will give

rise

marginal

one-off

costs

None

Recurrent

None

(recurrent

costs will

lower

than status

quo

NCAs will

need to vet

fewer

justification

Justificat

ion

delayed

disclosur

of Direct costs

insider

informat

ion only

request

of NCA

Indirect costs

None

kom (2018) 0331 - Ingen titel

Lighter

"transfer

prospect

us" for

issuers

moving

from

SME

GMs to Direct costs

RMs

None

(lower costs

than status

quo

issuing a full

prospectus)

The

establish

ment of a

transfer

prospectu

will

impose

minor

one-off

costs on

NCAs

given

required

changes to

internal

procedure

Indirect costs

None

kom (2018) 0331 - Ingen titel

NNEX

4: D

EFINITIONS

Accepted Market

Practice

Blue-chip

company

Commission

Expert Group on

Corporate Bonds

ELTIFs

Regulation

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.

A large and highly liquid company listed on a regulated market

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.

Regulation (EU) No 2015/760 of the European Parliament and of the Council on European

long-term investment funds European long-term investment funds

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.

Financial technology and technological innovation in the financial sector.

The amount of capital in the public's hands and that can be freely traded

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 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.

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.

List drawn up by issuers indicating all persons having access to its inside information

An adviser for companies applying for or admitted to trading on an MTF, as required by

certain stock exchanges across the EU

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.

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.

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.

Directive (EU) 2014/65 on markets in financial instruments and amending Directive

2002/92/EC and Directive (EU) 2011/61.

A multilateral Trading facility is a trading venue where companies may list their financial

instruments, with lower regulatory requirements than on main regulated markets

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

EU Growth

Prospectus

Fintech

Free float

High-Frequency

Trading

Insider dealing

Inside

information

Insider list

Key adviser

Liquidity

contract

Market

Abuse

Regulation

Market sounding

MiFID II

MTF

Person Closely

Associated

(PCA)

kom (2018) 0331 - Ingen titel

a person.

Person

Discharging

Managerial

Responsibilities

(PDMR)

Prospectus

Regulation

Small

and

medium -sized

enterprises

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

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.

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.

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.

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.

Multilateral trading facility dedicated to small and medium enterprises but not registered as

an SME Growth Market

Smallest increment in price that an exchange-traded instrument is permitted to move

Total trading volume on a market divided by total market capitalisation

The act of making a person an “insider” by providing them with inside information

SME debt issuer

SME

Market

Growth

SME-dedicated

MTF

Tick size

Turnover ratio

Wall crossing

kom (2018) 0331 - Ingen titel

NNEX

5: O

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 assess

218

. 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 shares

219

The weak provision of equity research

220

on small and mid-sized companies (but also across

the board) reduces their visibility and attractiveness among professional investors

221

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.

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

218

kom (2018) 0331 - Ingen titel

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 IFRS

223

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 GAAPs

224

. 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 GAAPs

225

. 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

GAAPs

226

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 instruments

227

. This

extension of the ISA tax relief in August 2013 was designed to

'stimulate investment in

Three SME-dedicated markets impose the use of IFRS: AIM in the UK, Malta and Cyprus

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

223

222

kom (2018) 0331 - Ingen titel

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 States

229

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 markets

230

. 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 bonds

231

. 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 environment

232

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 instruments

233

228

229

Workshops organised by the Commission on barriers to SME listing (2016)

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

kom (2018) 0331 - Ingen titel

NNEX

6: D

ISCARDED 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 delisting

234

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.

kom (2018) 0331 - Ingen titel

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 2006

235

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 instruments

236

. In no ways, they have the duty to disclose all information.

Moreover, some studies showed that positive inside information (such as a takeover

announcement

237

or the upgrade of a rating

238

) 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

kom (2018) 0331 - Ingen titel

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.

kom (2018) 0331 - Ingen titel

NNEX

7: A

DDITIONAL

ARKET

ACKGROUND

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 markets

239

. 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

Type of

Market

SME Market

Main Market

Name of the Market

AIM (UK)

New Connect (PL)

First North (SE)

EN.A (EL)

Warsaw Stock Exchange (PL)

NASDAQ OMX (SE)

ATHEX (EL)

Retail

investors

50%

95%

81%

78%

10%

45%

36%

Institutional investors

50%

19%

22%

90%

55%

64%

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 SMEs

240

. 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

Name of the

Market

Type of Market

Domestic Investors

Foreign Investors

43%

16%

11%

56%

52%

70%

43%

64%

SME Market

AIM (UK)

58%

SME Market

New Connect (PL)

93%

SME Market

First North (Nordics)

84%

SME Market

MAB (ES)

89%

SME Market

EN.A (EL)

91%

Main Market

LSEG (UK)

44%

Warsaw Stock

48%

Main market

Exchange (PL)

Main Market

NASDAQ OMX (SE)

30%

Main Market

BME (ES)

57%

Main market

ATHEX (EL)

36%

Source: European Commission data collected from securities exchanges, 2017

239

240

ECSIP Consortium, Improving the market performance of business information services regarding listed SMEs (2013)

European Issuers, FESE and EVCA,

EU IPO Report,

March 2015

kom (2018) 0331 - Ingen titel

Figure 15

–

Free float requirement and minimum capitalisation on EU SME-dedicated MTFs

Free float requirement

Dritter Market (AT)

No minimum free float

Marché Libre (FR)

No minimum free float

Cyprus

Emerging

No minimum free float

Companies Market (CY)

Progress (HR, SI)

Prague Stock Exchange

–

START (CZ)

ATHEX EN.A (EL)

AIM Italia (IT)

Irish Stock Exchange IEX

(Enterprise

Securities

Market) (IE)

NewConnect (PL)

Mercado

Alternativo

Bursatil (ES)

NASDAQ

OMX/First

North (DK, EE, FI, LT,

LV, SE)

AIM (UK)

Aktietorget AB (SE)

Name of the Market

10 per cent

No minimum free float

Free float at 10 per cent (provided at least 50 people).

10 per cent

No minimum free float but minimum capitalisation at EUR 5

million

15 per cent

At least EUR 2 million free float.

10 per cent of shares in public hands, or an assigned Liquidity

Provider.

No minimum requirement

At least 200 shareholders with at least 10 per cent of shares in

public hands.

At least 300 shareholders; at least 10 per cent of shares and 10

Nordic Growth Market

per cent of votes in public hands. Minimum share capital of not

(SE)

less than EUR 730,000.

Euronext

FR, PT)

Scale (DE)

AeRO (RO)

Growth

(BE,

EUR 2.5 million

20 per cent or EUR 1 million

10 per cent

kom (2018) 0331 - Ingen titel

NNEX

8: T

IMPACT OF DEVELOPED

FUNDING ESCALATOR OF COMPANIES

SME G

ROWTH

ARKETS

ON THE WHOLE



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 opportunities

241

. 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 cash

243

. 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 businesses

244

. 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 correlated

246

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 company

247

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

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)

241

kom (2018) 0331 - Ingen titel

to enable investors to come out of investment positions without significantly impacting the

stock price

248

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 back

249

. However, at present, there is no real secondary market for

crowdfunding exits

250

. Only a couple of crowdfunding transactions in the EU have ended up

in IPOs on SME-markets

251

. 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 jurisdictions

252

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

kom (2018) 0331 - Ingen titel

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 another

253

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

kom (2018) 0331 - Ingen titel

NNEX

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-

based

254

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

kom (2018) 0331 - Ingen titel

NNEX

10: I

MPLICATIONS

SME G

ROWTH

ARKETS

OF THE

UROPEAN

ICK

IZE

EGIME

FOR LIQUIDITY ON

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 decades

255

. 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 Article

256

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 Regulation

257

(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 shares

258

. 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 costs

259

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.

kom (2018) 0331 - Ingen titel

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 transactions

260

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)

kom (2018) 0331 - Ingen titel

Figure 18

–

Tick sizes mandated by Commission Delegated Regulation 2017/588 for liquidity bands and price

ranges respectively

kom (2018) 0331 - Ingen titel

NNEX

11: M

ARKET

BUSE DATA RECEIVED FROM

ATIONAL

OMPETENT

UTHORITIES

FMA

(AT)

Number of MTFs / MTF

issuers

your

jurisdiction as of 31

December 2017

MAR Article 16

: number

of STORs received in

2017

concerning

specifically

financial

instruments of issuers on

MTFs

MAR Article 17(4)

number of notifications

to delay the disclosure of

inside

information

received

2017

originating

specifically

from issuers on MTFs

MAR Article 18

: number

of requests to receive

insider lists addressed by

the national competent

authority specifically to

issuers on MTFs in 2017.

MAR Article 19

: total

number of managers'

transactions notifications

received in 2017 (from all

issuers)

MAR Article 19

: number

managers'

transactions notifications

received

2017

originating

specifically

from issuers on MTFs

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

(PT)

FSA

(RO)

NBS

(SK)

SMA

(SI)

Finans

inspekti

onen

(SE)

3 / 724

CNMV

(ES)

FCA

(UK)

54 /

247

1 / 130

10 /

≈950

11 /

1529

301

n/a

153

694

n/a

412

440

–

500

104

n/a

1800

164

appro

≈5

n/a

538

1635

253

104

1337

1840

2757

N/A

203

1276

2645

5656

350

n/a

11186

1117

39655

260

543

369

n/a

3207

193

4084

kom (2018) 0331 - Ingen titel

NNEX

12: D

ETERMINING THE APPROPRIATE DEBT ISSUANCE SIZE TO DEFINE AN

SME

ISSUER ON DEBT

ONLY

SME G

ROWTH

ARKETS

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

5,8

N/A

5,8

2013

36,3

3,2

29,8

N/A

24,4

2014

31,8

14,5

37,5

N/A

20,2

2015

56,6

38,9

N/A

0,9

16,3

12,3

2016

117

4,6

28,7

N/A

16,8

0,8

9,6

14,4

2017

109

2,6

N/A

20,5

0,7

12,4

15,3

Euronext (FR,BE)

First North (Nordics)

DBAG (DE)

EN.A (EL)

AIM (IT)

NewConnect (PL)

AeRO (RO)

MARF (ES)

Total



Average number of issuances per issuer per year:

2012

1,1

N/A

1,1

2013

1,3

N/A

1,0

1,3

2014

1,3

1,2

N/A

2,2

1,4

2015

1,4

1,1

N/A

0,0

2,0

1,4

2016

1,5

1,2

N/A

1,0

N/A

2,4

0,0

2,2

2,0

2017

1,4

7,2

1,4

2,0

N/A

2,8

0,0

2,5

4,0

Euronext (FR,BE)

First North (Nordics)

DBAG (DE)

EN.A (EL)

AIM (IT)

NewConnect (PL)

AeRO (RO)

MARF (ES)

Total



Average value of total issuances per issuer per year (EUR million):

100

kom (2018) 0331 - Ingen titel

2012

Euronext (FR,BE)

First North (Nordics)

DBAG (DE)

EN.A (EL)

AIM (IT)

NewConnect (PL)

AeRO (RO)

MARF (ES)

Total

6,5

N/A

6,5

2013

46,3

4,0

N/A

50,0

30,9

2014

42,9

16,6

N/A

30,5

28,6

2015

76,6

2,1

N/A

0,0

33,4

17,5

2016

171,2

5,7

N/A

4,0

N/A

40,2

0,0

20,9

28,5

2017

157,2

18,9

68,2

12,0

N/A

58,2

0,0

30,5

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 million

261

FeBAF/VOEB Event, "New Financial Instruments: the Experience of Schuldscheindarlehen in Germany and the

Comparison with Mini-Bonds in Italy", June 2017

101

kom (2018) 0331 - Ingen titel

NNEX

13: M

ARKET

ATA COLLECTED FROM

UROPEAN

MTF

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

Dritter Markt

Euronext G

Start

First North

DBAG/Scale

EN.A

ESM

AIM IT

NewConnect

AeRO

BSSE

MAB MARF

AktieTorget

NGM

AIM UK

TOTAL

N/A

n/a

N/A

1,634

1,823

2007

118

N/A

126

N/A

1,694

2,086

2008

127

N/A

132

N/A

1,550

2,123

2009

125

N/A

129

107

N/A

114

1,293

1,909

2010

155

N/A

124

185

N/A

127

1,195

1,954

2011

181

N/A

133

351

N/A

137

1,143

2,114

2012

178

125

178

429

132

1,096

2,316

2013

184

135

189

445

123

1,087

2,355

2014

191

172

168

431

127

1,104

2,414

2015

200

213

158

418

280

136

1,044

2,698

2016

197

258

138

406

277

154

982

2,695

2017

196

323

408

301

163

960

2,729

1.2. Total capitalisation of listed companies (EUR million)

2006

Dritter Markt

Euronext G

Start

First North

DBAG/Scale

EN.A

ESM

AIM IT

NewConnect

AeRO

BSSE

MAB MARF

AktieTorget

NGM

N/A

3,324

N/A

4,654

N/A

2,400

n/a

N/A

2007

5,621

N/A

4,214

N/A

3,000

329

N/A

2008

3,173

N/A

1,557

227

964

345

N/A

2009

4,105

N/A

2,414

229

1,600

474

622

N/A

129

N/A

2010

189

4,938

N/A

2,917

187

2,000

357

1,297

N/A

257

N/A

2011

183

5,428

N/A

2,568

165

2,400

349

1,922

N/A

382

N/A

2012

721

6,040

3,215

140

3,200

475

2,721

N/A

518

N/A

2013

864

8,229

3,994

143

4,700

1,183

2,657

N/A

1,802

2014

1,630

8,409

5,406

35,480

142

5,600

2,052

2,115

N/A

1,365

2015

1,549

13,350

9,658

27,486

118

5,000

2,925

2,042

851

N/A

2,670

2016

163

13,054

13,202

29,413

105

4,400

2,873

2,215

934

N/A

4,898

102

2017

180

12,754

16,040

7,032

101

5,000

5,579

2,306

1,334

N/A

9,081

153

102

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AIM UK

TOTAL

133,280

143,658

140,488

153,682

46,033

52,349

63,428

73,031

92,921

105,062

72,167

85,563

75,950

92,980

89,596

113,256

89,268

151,565

100,846

166,571

96,977

168,347

120,777

180,358

1.3. Number of IPOs

2006

Dritter Markt

Euronext G

Start

First North

DBAG/Scale

EN.A

ESM

AIM IT

NewConnect

AeRO

BSSE

MAB MARF

AktieTorget

NGM

AIM UK

TOTAL

N/A

n/a

N/A

462

540

2007

N/A

284

417

2008

N/A

114

219

2009

N/A

2010

N/A

102

267

2011

N/A

172

N/A

315

2012

N/A

195

2013

N/A

187

2014

N/A

118

247

2015

N/A

211

2016

N/A

191

2017

N/A

263

1.4. Total value of IPOs (EUR million)

2006

Dritter Markt

Euronext G

Start

First North

DBAG/Scale

EN.A

ESM

AIM IT

NewConnect

AeRO

BSSE

MAB MARF

AktieTorget

NGM

AIM UK

TOTAL

N/A

462

N/A

512

N/A

907

n/a

N/A

14,617

16,498

2007

446

N/A

887

N/A

183

N/A

9,477

11,052

2008

N/A

1,352

1,514

2009

N/A

829

910

2010

N/A

1,405

1,665

2011

N/A

167

165

N/A

712

1,213

2012

124

N/A

876

1,122

2013

118

959

165

N/A

1,405

2,709

2014

100

545

283

209

N/A

3,255

4,460

2015

121

909

372

317

N/A

132

1,711

3,620

2016

626

102

208

N/A

104

1,324

2,547

2017

707

270

1,285

N/A

339

139

1,792

4,721

1.5. Number of pure listings

103

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2006

Dritter Markt

Euronext G

Start

First North

DBAG/Scale

EN.A

ESM

AIM IT

NewConnect

AeRO

BSSE

MAB MARF

AktieTorget

NGM

AIM UK

TOTAL

N/A

n/a

N/A

184

212

2007

N/A

102

143

2008

N/A

112

2009

N/A

2010

N/A

2011

N/A

2012

N/A

2013

N/A

2014

N/A

2015

276

N/A

339

2016

N/A

2017

N/A

1.6. Share of domestic and foreign investors

Euronext BE

Domestic investors

Foreign investors

Main

market

Domestic investors

Foreign investors

38%

62%

N/A

First

North

84%

16%

30%

70%

Euronext

46%

54%

N/A

EN.A

91%

36%

64%

NewConn

ect

93%

48%

52%

Euronext

60%

40%

N/A

MAB

89%

11%

57%

43%

AIM UK

57%

43%

44%

56%

MTF

1.7. Number of voluntary and mandatory delistings since 2006

Dritter

Markt

Mandatory

delisting

Voluntary

delisting

127

465

Euro

First

North

DBAG

EN.A

ESM

AIM

NewCon

nect

BSSE

MAB

Aktie

Torget

NGM

AIM

128

1.8. Evolution of voluntary delistings since 2006

2006

Number of voluntary

delisting

2007

2008

2009

2010

2011

2012

2013

2014

140

2015

132

2016

108

1.9. Transfers of listing between market segments since 2013

Dritter

Markt

From RM

to SME

MTF

Euron

ext

First

North

DBAG

EN.A

ESM

AIM IT

NewC

onnect

BSSE

MAB

Aktie

Torget

NGM

AIM

Avg

/year

104

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From

SME MTF

to RM

1.10. Evolution of turnover ratio on EU SME MTFs

2006

Dritter Markt

Euronext G BE

Start

First North

Euronext G FR

DBAG

EN.A

ESM

AIM IT

NewConnect

Euronext G PT

AeRO

MAB MARF

AIM UK

no data

N/A

113%

N/A

124%

n/a

N/A

77%

2007

N/A

85%

N/A

126%

43.6%

N/A

77%

2008

N/A

60%

N/A

195%

35.5%

N/A

62%

2009

N/A

58%

N/A

133%

42%

N/A

18%

59%

2010

N/A

56%

N/A

64%

12%

61.6%

N/A

10%

60%

2011

N/A

56%

N/A

39.9%

N/A

10%

67%

2012

126%

N/A

19.8%

N/A

10%

78%

2013

84%

N/A

17%

14%

N/A

15%

58%

2014

82%

N/A

20%

19.8%

N/A

123%

77%

2015

58%

N/A

31%

31.2%

17%

58%

2016

10%

53%

N/A

11%

23.1%

57%

2017

60%

N/A

13%

47%

24%

72%

1.11. Evolution of turnover ratio on EU main markets

2006

Dritter Markt

Start

Progress Mkt

First North

DBAG

EN.A

ESM

AIM IT

NewConnect

AeRO

MAB MARF

AIM UK

no data

N/A

132%

13%

154%

23.5%

15%

114%

N/A

2007

134%

N/A

134%

20%

204%

22.4%

17%

135%

N/A

2008

289%

N/A

13%

135%

63%

185%

44.2%

12%

183%

N/A

2009

99%

N/A

109%

36%

158%

58.4%

15%

90%

N/A

2010

84%

N/A

88%

23%

163%

45.3%

13%

119%

N/A

2011

100%

N/A

89%

42%

179%

42.2%

22%

117%

N/A

2012

49%

N/A

69%

40%

138%

40.6%

15%

93%

N/A

2013

49%

N/A

64%

66%

128%

41.8%

17%

87%

N/A

2014

66%

N/A

64%

25%

59%

153%

35.7%

17%

108%

N/A

2015

73%

N/A

68%

45%

44%

153%

36.1%

11%

134%

N/A

2016

63%

16%

64%

51%

50%

114%

37.8%

11%

98%

N/A

2017

56%

11%

61%

48%

27%

108%

37.6%

14%

88%

N/A

1.12. Deviation from the minimum tick size regime

Dritte

Markt

MTF

Main market

Euron

ext G

First

North

DBAG

FSE

EN.A

ESM

AIM IT

NewC

onnec

0.01

AeRO

BSSE

N/A

0.01

MAB

Aktie

Torget

N/A

NGM

AIM

1.13. Number of dual listings of companies listed on EU MTFs

105

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Dritter

Markt

Euro

G BE

Start

First

North

Euro

G FR

DBAG

FSE

EN.A

ESM

AIM

NewCon

nect

Euro

G PT

AeRO

N/A

BSSE

MAB

Aktie

Torget

NGM

AIM

N/A

1.14. Free float requirement and actual level

Dritter

Markt

Requirement

on MTF

Free float on

MTF

Free float on

Euro

G BE

EUR

2,5

55%

65%

Progress

Mkt

Start

First

North

Euro

Next G

EUR

2,5

million

50%

67%

DBAG

FSE

20%

or 1

mio.

pcs.

44%

61%

EN.A

ESM

AIM

New

Con

nect

15%

AeRO

BSSE

MAB

AIM

10%

EUR2m

N/A

24%

15%

35%

87%

60%

18%

47%

73.18%

68.28%

33%

45%

25%

49%

N/A

36%

N/A

46%

58%

48%

68%

2. General data on SME bond markets

2.1. Number of new bond issuers per year

2013

Euronext G

First North

DBAG/Scale

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

N/A

2014

N/A

2015

N/A

2016

N/A

2017

N/A

2.2. Outstanding number of issuers per year

2013

Euronext G

First North

DBAG/Scale

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

Stuttgart B

TOTAL

N/A

2014

N/A

2015

N/A

107

2016

N/A

129

255

2017

N/A

122

285

2.3. Number of bond issuances during the year

106

kom (2018) 0331 - Ingen titel

Euronext G

First North

DBAG/Scale

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

2013

N/A

2014

N/A

2015

100

N/A

173

2016

N/A

116

237

476

2017

N/A

162

318

571

2.4. Outstanding number of bond issuances

2013

Euronext G

First North

DBAG/Scale

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

N/A

2014

N/A

105

2015

N/A

138

2016

N/A

309

492

2017

267

298

346

101

1117

2.5. Nominal value of new bond issuances during the year (EUR million)

2013

Euronext G

First North

DBAG/Scale

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

616

746

N/A

nda

N/A

1 467

2014

446

261

338

N/A

nda

N/A

489

1 533

2015

906

198

194

N/A

nda

831

2 130

2016

1 988

437

201

N/A

1 947

2 280

6 860

2017

1 199

194

100

N/A

3 325

3 932

8 758

2.6. Average issuance value per the year (EUR million)

2013

13.5

2014

15.3

2015

2016

4.9

443

2017

59.5

2.7

604

Euronext G BE

First North

Euronext G FR

DBAG/Scale

107

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EN.A

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

N/A

nda

N/A

24.4

N/A

nda

N/A

20.2

N/A

nda

0.9

16.3

12.3

N/A

16.7

0.8

9.6

14.4

N/A

29.1

0.7

12.3

89.3

2.7. Outstanding nominal value of bond issuances (EUR million)

2013

975.7

220.7

0.0

N/A

1,700

2,946.5

2014

1,416.7

502.3

0.0

N/A

500.0

1,100

3,518.9

2015

2,274.3

544.4

0.0

N/A

0.9

1,029

750

4,598.7

2016

4,221.4

806.5

0.0

4.0

N/A

6,500

3.4

1,608

540

13,683.6

2017

5,240.7

617.5

707.0

10.0

N/A

8,970

5.6

2,195

510

18,255.4

Euronext G

First North

DBAG

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

Stuttgart Börse

TOTAL

2.8. Annual volume of transactions on EU SME MTFs (EUR million)

2013

N/A

2014

N/A

2015

4.3

2016

569

7.5

586

2017

808

835

Euronext G

First North

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

2.9. Annual volume of transactions on EU regulated markets (EUR million)

2013

Euronext G

Progress Mkt

First North

DBAG

EN.A

AIM IT

NewConnect

AeRO

MAB MARF

TOTAL

10811654

1396

10813108

2014

7668240

956

7669281

2015

7422150

2843

7425058

2016

5998351

1345

5999744

2017

7101432

1569

7103084

108

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3. Various requirements on SME-dedicated MTFs

Dritter

Markt

Key

advisers

Half-yearly

reports on

equity mkt

Half-yearly

reports on

bond mkt

Yes

Euro

Yes

Progress

Mkt

Yes

yes

First

North

Yes

DBAG

Yes

EN.A

Yes

ESM

Yes

AIM

Yes

YES

New

Connect

Yes

AeRO

Yes

BSSE

N/A

MAB

MARF

Yes

Aktie

Torget

quarterly

reports

N/A

NGM

Yes

AIM

Yes

N/A

yes

Yes

N/A

n/a

Yes

N/A

4. MTFs wishing to register or not as an SME Growth Market

Dritter

Markt

For

SME

equity

market

For

SME

bond

market

Euro

Progress

Mkt

First

North

DBAG

EN.A

Not

decided

yet

Xtend

ESM

AIM IT

New

Con

nect

Yes

AeRO

BSSE

MAB

MARF

Aktie

Torget

NGM

AIM

Already

registered

Yes

Already

registered

Not

decided

yet

(EXTRA-

MOT

PRO)

Yes

N/A

Yes

Not

decided

yet

N/A

Yes

Not

decided

yet

N/A

109

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NNEX

14: T

HE CURRENT REGULATORY ENVIRONMENT OF

'SME G

ROWTH

ARKETS

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

110

kom (2018) 0331 - Ingen titel

securities admitted to trading on a regulated market: (i) SMEs

262

; (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).

111

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NNEX

15: EU A

CTS

ISSUERS

AND ALLEVIATIONS GRANTED TO

SME G

ROWTH

MARKETS

EU Act

Current

alleviations/benefits

foreseen by EU law

Alleviation in terms of

insider lists



Who can benefit from those

alleviations/benefits?

Would a threshold raised to

EUR 500 million extend

those alleviations/benefits?

MAR

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

All SME GM issuers listed for

at least 18 months

No. The EU Growth

Prospectus is already available

for all SME GM issuers with a

market cap up to EUR 500

million

No. All the SME GM

irrespective of their size can

benefit from MAR alleviations

Yes. A raised threshold would

allow EuVECA funds to invest

into SMEs 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.

Prospectus

Alleviated prospectus for



secondary issuances



EuVECA

Investments by EuVECA

funds in SMEs

SME listed on an

Growth Market issuers

SME

ELTIFs

Investments by ELTIFs in



SMEs

MTFs or regulated market

issuers with a market cap up to

EUR 500 million

112

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16: A

SSESSMENT OF

OLICY

PTIONS

- S

YNTHESIS

ABLE

Policy Options

Legal basis

Impact on

issuers

≈

Impact on

investors

≈

Impact on

exchanges

≈

Impact on

intermed.

≈

Impact

on NCAs

≈

Evidence

Political

feasibility

Opinion

–

Create strong and attractive SME Growth Markets

1.1 Definition of debt-only issuers on SME GM

1.2 Liquidity contracts

1.3 Transfer Prospectus

1.4 Free-float criterion

1.5 Definition of SME Growth Markets for equity

1.6 Transfer of listings from regulated market to SME GM

1.7 Delisting rules

1.8 Key advisers for first-time equity issuers

1.9 Tick size regime

1.10 Credit rating

2.1 Half-yearly reports for debt-only issuers

2.2 Exemption from market sounding regime for private

placements of bonds

2.3 List of insiders

2.4 Justification to delay the public disclosure of inside

information

2.5 E te ded deadli e for otifi atio of

a agers’

transactions

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

2.8 Disclosure of inside information by debt-only issuers

Favourable opinion

Not recommended

–

due to limited evidence, political sensitivity, and/or market integrity risks

MiFID II level 2

MAR level 1

PR level 1

MiFID II level 2

MiFID II level 1

& other

MiFID II level 1

& other

MiFID II level 1

CRAR level 1

MiFID II level 2

MAR level 1

***

–

Alleviate the administrative burden for issuers on SME Growth Markets

MAR

level 1

MAR level 1

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17: E

XPLANATORY GRAPH ON

DISCLOSE MANAGERS

’

TRANSACTIONS

THE EXTENSION OF THE TIME

PERIOD TO

Curre t situatio

Date

transaction

MAX 3 DAYS

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

Proposed ha ge u der optio 2

Date

transaction

3 DAYS

PDMR/PCA notifies the issuer

Date of

Issuer discloses

notification

to the public

to the issuer

MAX 2 DAYS

MAX 3 DAYS

114