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The proposed Listing Act will help alleviate the requirements companies face both at the moment of listing and after they have been listed, and will contribute to preserving transparency, investor protection and market integrity. It will also increase EU/US cross-trading for listed securities due to the exemption from SEC reporting for international issuers on OTCQX.
The European Parliament and the Council have reached a political agreement on the package of measures put forward by the European Commission to amend the Prospectus Regulation, Market Abuse Regulation and the related EU legislation. This package of proposed measures is colloquially referred to as the "Listing Act". The proposal presented by the European Commission for the Listing Act involves amendments to:
the Prospectus Regulation (2017/1129),
the Market Abuse Regulation (596/2014),
MiFiD II (2014/65) and
MiFIR (600/2014).
The proposed legislative package is aimed at improving EU capital markets. The Listing Act applies to companies of all sizes, with a particular focus on small and medium-sized enterprises (SMEs). The EU is seeking to boost its capital markets by making listing on its exchanges cheaper and more attractive for start-ups, helping to raise funds for investment in growth and ease the heavy reliance of companies on bank loans for finance. At the same time, the United Kingdom is also reforming its listing rules in similar ways post-Brexit, as it also faces an increase of issuers opting to list in New York rather than on a local domestic exchange.
We believe this is good news for prospective issuers seeking to list in the EU and to access the US capital markets via cross-trading on OTCQX and OTCQB operated by OTC Markets, New York. The discussion between a listing in the EU or the UK versus a listing in NY is largely unnecessary, as EU and UK issuers can elect to be cross-traded in the US once they are listed in their home jurisdictions. The regulatory improvements enable issuers to remain listed under their home country regulations all the while having their shares traded in the US through OTC Markets and settled in their home market without having to go through the process of a dual-listing or having to IPO in NYC right away. Reducing the administrative burden for the initial local listing, will enable the listed companies to avail themselves of the simplified compliance procedure offered under the OTCQX requirements by reusing their local stock exchange disclosures for the US disclosure requirements, rather than having to comply with a more onerous reporting regime for dual-listings.
Proposed Changes and Amendments
The purpose of the amendments is to facilitate and enhance access to the European capital markets by, inter alia, making listings more attractive by easing the regulatory burden on listed companies and reducing their costs, primarily for the SME segment. The Listing Act specifically aims to simplify and reduce the costs associated with drafting a prospectus, making it easier and more affordable for companies to go public. The proposed amendments include the following highlights:
Increasing the prospectus exemption for public offerings: This limit will be increased from EUR 8 million to EUR 12 million. Under the current rules, the EU exemption threshold from the prospectus requirement for public offerings of securities from the obligation to publish a prospectus is set at EUR 8 million based on the total consideration of the aggregated offers made by the same company in the EU over a 12-month period. The increase of the threshold requires implementation by the individual member states. Denmark has currently set the threshold at EUR 8 million. However, issuers are still permitted to draw up and publish a prospectus on a voluntary basis and member states are permitted to require additional national disclosures for offers of securities to the public below EUR 12 million, provided the national disclosures do not create a disproportionate burden. Moreover, member states will be allowed to opt for a threshold of EUR 5 million instead. Below the threshold of either EUR 12 million or EUR 5 million, offers of securities to the public should be prospectus exempt, provided that those offers do not require passporting.
Shortening the offering period for IPOs: The minimum length of the offering period for IPOs will be shortened from six to three business days in the event of an IPO of a class of shares admitted to trading on a regulated market for the first time.
Increasing the prospectus exemption for secondary issuances: The threshold for secondary issuances without a prospectus requirement will be raised to 30%. Under the current rules, there is no prospectus requirement for the admission to trading on a regulated market of securities that are fungible with securities already admitted to trading on the same regulated market, provided that over a period of 12 months they represent less than 20% of the number of securities already admitted to trading on the same regulated market. A similar exemption is proposed as an exemption to the prospectus requirement for public offerings. A further proposed exemption from the prospectus requirement concerns offers of securities that are fungible with securities that have been admitted to trading on a regulated market or an SME growth market continuously for at least 18 months prior to the offer, provided that a number of conditions are met.
Limiting the prospectus length: Prospectuses relating to shares will be limited to 300 A4 pages (with certain exceptions for e.g. issuers with complex accounting history or similar requirements). It also clarifies what information in the prospectus does not fall under the new page limit, such as the summary (with a separate limit), and information incorporated by reference.
Removing Risk Factor Ranking: Deleting the requirement for issuers to rank the risk factors in the prospectus based on materiality.
Introducing a "Follow-on Prospectus": As a replacement for the simplified prospectus, both for equity and non-equity securities, a new EU "Follow-on Prospectus” is introduced to standardise the process further. Among other items, the new EU Follow-on Prospectus requires inclusion of financial information for one year only and does not require the inclusion of an Operating and Financial Review in relation to the financial information.
In addition to the above highlights, certain other amendments have been proposed to promote further harmonisation on format and structure of prospectuses (language, order, page limitations) and to remove the option for investors to request paper copies of the prospectus.
Next Steps
The next steps for the EU Listing Act is the approval by the EU Parliament and the adoption by the Council of Ministers and the EU Parliament in its final form in due course. At this juncture, it is not known when the amendments will enter into force. However, it is expected that the legislative proposals will be finalised before the end of the current legislative cycle (June 2024). The EU member states will then have two years to implement the new rules. The regulations will largely take effect immediately, i.e. 20 days after publication in the EU Official Journal.
Simplification is a Welcome Step to Increase Market Access
We welcome the steps taken by the EU to simplify the access to become listed, especially for SME issuers. The proposed amendments, if adopted, will improve the opportunity for SME to not only become listed companies within their home jurisdictions in the EU, but also to access the US capital markets by having their shares cross-traded in the United States via OTC Markets in New York.
List Local, Trade Global
Once an issuer has been admitted to trading on a domestic EU stock exchange that has been approved by the OTC Markets Group, an issuer will be able to have the local shares admitted to trading on OTCQX or OTCQB markets operated by OTC Markets in the United States without having to go through a secondary listing in the USA nor having to register with the US SEC. While trading will take place in USD during US office hours, settlement will occur in the home jurisdiction of the original listing in the original currency, e.g. EUR, DKK, NOK, or SEK.
Simplified US Reporting Obligations for EU Issuers
Under Exchange Act Rule 12g3-2(b), international companies are exempt from SEC reporting if they are a Foreign Private Issuer and make whatever information is required by their home market regulator publicly available to U.S. investors in English. For EU issuers under the simplified regime, this means that they can rely on their disclosures in English via their home market without duplication. It is important to note that the exemption available under Rule 12g3-2(b) for international issuers on OTCQX does not apply to the larger U.S. exchanges, NYSE and Nasdaq. For cross-traded issuers there are no additional SEC filing requirements, Sarbanes Oxley Compliance, or US GAAP financial standards needed for admission. Issuers admitted under the the simplified EU standards can leverage their home country reporting requirements for US disclosures in English, provided that their home country stock exchange is deemed equivalent. If a EU issuer already makes its disclosures in English, the OTC Disclosure & News Service available for quoted OTCQX companies will distribute the information to the makets necessary for compliance without unnecessary duplication or added compliance and reporting burden. OTCQX Market data is fed to all major US financial media outlets and portals ensuring that a company's material news and updates reaches its desired US investor audience via its dedicated US ticker symbol issues in connection with the admission to trading in the US.
What is a qualified foreign exchange?
A qualified foreign exchange is a non-U.S. stock exchange approved by OTC Markets Group as a primary stock exchange of a foreign issuer. This is the home country stock exchange where the issuer is being regulated and supervised at all times under its domestic regulatory environment.
More Information
For more information on the options to access the US capital markets via OTC Markets once a company has been listed on a domestic EU stock exchange, please consult our guides set out below for more detail.
Who can I contact to move this forward?
If you want to know more or want to obtain U.S. market entry via an OTCQX quotation, please contact any of Michael Rosenberg or Andreas Tamasauskas at Carsted Rosenberg to discuss how we can move your transaction forward. As an OTCQX Sponsor, we are here to help you.
To learn more about the OTCQX Market, contact VP, International Corporate Services Joe Coveney at jcoveney@otcmarkets.com for Nordics and VP, International Corporate Services Jonathan Dickson at jonathan@otcmarkets.com for DACH. To learn more about how OTC Markets create better informed and more efficient markets, visit www.otcmarkets.com. OTC Link ATS is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS.
This briefing is intended to provide general information for European and other foreign issuers related to joining OTCQX or OTCQB markets. It is not intended to provide definitive legal or tax advice. No legal, tax or business decisions should be based solely on its content. The briefing does not necessarily deal with every important topic and is not designed to provide legal or other advice. It shall not be used as a substitute for legal advice and none may be inferred. It is only intended for general information on matters of interest. While we endeavour to represent the information as accurately and correctly as possible, we cannot accept any responsibility for any errors or omissions.