Considerations on COM(2022)760 - Amendment of Directive 2014/65/EU to make public capital markets in the Union more attractive for companies and to facilitate access to capital for SME's

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dossier COM(2022)760 - Amendment of Directive 2014/65/EU to make public capital markets in the Union more attractive for companies and to ...
document COM(2022)760 EN
date October 23, 2024
 
table>(1)Directive 2014/65/EU of the European Parliament and of the Council (3) has been amended by Regulation (EU) 2019/2115 of the European Parliament and of the Council (4), which introduced proportionate alleviations to enhance the use of SME growth markets and to reduce excessive regulatory requirements for issuers seeking the admission of securities on SME growth markets, while preserving an appropriate level of investor protection and market integrity. However, to streamline the listing process and to render the regulatory treatment of companies more flexible and proportionate to their size, further amendments to Directive 2014/65/EU are necessary.
(2)Directive 2014/65/EU and Commission Delegated Directive (EU) 2017/593 (5) set out the conditions under which the provision of investment research by third parties to investment firms providing portfolio management or other investment or ancillary services is not to be regarded as an inducement. In order to foster more investment research on companies in the Union, in particular small- and middle-capitalisation companies, and to bring those companies greater visibility and more prospects of attracting potential investors, it is necessary to introduce amendments to Directive 2014/65/EU.

(3)The provisions concerning research laid down in Directive 2014/65/EU require investment firms to separate payments which they receive as brokerage commissions from the compensation they receive for providing investment research (‘research unbundling rules’), or to pay for investment research from their own resources and assess the quality of the research they purchase based on robust quality criteria and on the ability of such research to contribute to better investment decisions. In 2021, those rules were amended by Directive (EU) 2021/338 of the European Parliament and of the Council (6) to allow for bundled payments for execution services and research for issuers whose market capitalisation for the period of 36 months preceding the provision of the research did not exceed EUR 1 billion. The decline of investment research has, however, not slowed.

(4)In order to revitalise the market for investment research and to ensure sufficient research coverage of companies, in particular for small- and middle-capitalisation companies, the research unbundling rules need to be further adjusted to offer investment firms more flexibility in the way that they choose to organise payments for execution services and research, thus limiting the situations where separate payments might be too cumbersome. Accordingly, the market capitalisation threshold for companies for which the re-bundling of payments for execution services and research is possible should be removed to allow investment firms to proceed in the way they find most appropriate in terms of payments for execution services and research. Doing so would, however, require transparency vis-à-vis clients as to the choice of payment method. Investment firms should therefore inform their clients whether they apply a separate or joint payment method for the provision of execution services and third-party research. The choice of an investment firm as to whether to apply separate or joint payments for execution services and research should be made in compliance with the investment firm’s policy. That policy should be provided to clients and should indicate, depending on the method of payment selected by the firm, the type of information on costs attributable to third-party research. In the case of joint payments for execution services and research, clients should be entitled to receive, upon request and on an annual basis, information on the total costs attributable to third-party research provided to the investment firm, if known to the firm. The investment firm’s policy on separate or joint payments should also include information on the measures in place to prevent or manage the conflicts of interest arising from the use or delivery of third-party research to clients while providing investment services to those clients. Regardless of the selected payment method, the investment firm should also perform an assessment of the quality, usability and value of the research it uses to ensure that such research contributes to enhancing the investment decision process of the firm’s clients, where that research is distributed directly to them or where used by the portfolio management services of the firm. Sales and trading commentary comprises analyses of market conditions, trading and trade execution ideas, trade execution management tools and other bespoke analyses related to executing a trade in financial instruments. Such sales and trading commentary is incidental to the execution of transactions in financial instruments as it allows investment firms offering execution services to demonstrate the quality of the execution they achieve for their clients. Therefore, sales and trading commentary cannot be separated from execution services and should not be considered investment research.

(5)The adjustment of unbundling rules alone will not suffice to revitalise the market for investment research and address the longstanding shortage of research coverage of small-and middle-capitalisation companies. Further measures should be introduced to improve the research coverage of small- and middle-capitalisation companies.

Putting in place organisational arrangements ensuring that issuer-sponsored research is produced in compliance with an EU code of conduct for issuer-sponsored research should enhance the trust in, and use of, such research. That EU code of conduct should be established on the basis of regulatory technical standards to be developed by the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (7).

Another measure to improve the research coverage of small- and middle-capitalisation companies should be to allow issuers paying for issuer-sponsored research to make such research more visible to the public by giving issuers the possibility of submitting such research to the relevant collection body as defined in Article 2, point (2) of Regulation (EU) 2023/2859 of the European Parliament and of the Council (8), subject to it being accompanied by the necessary metadata. Such measures should not prevent Member States or ESMA from considering and assessing additional measures based on public or private initiatives, such as the establishment of dedicated research marketplaces, drawing inspiration from successful initiatives launched in recent years across several financial centres, to revitalise research coverage of small- and middle-capitalisation companies and increase their visibility.

(6)In order to reinforce the recognition of issuer-sponsored research prepared in compliance with the EU code of conduct for issuer-sponsored research and to avoid such research being confused with other forms of recommendation that do not comply with that EU code of conduct, only issuer-sponsored research prepared in compliance with the EU code of conduct for issuer-sponsored research should be authorised to be labelled as such. Recommendations of the type covered by Article 3(1), point (35), of Regulation (EU) No 596/2014 (9) that do not meet the conditions required for issuer-sponsored research should be treated as marketing communications for the purposes of Directive 2014/65/EU and identified as such.

(7)In order to ensure that issuer-sponsored research, labelled as such, is produced in compliance with the EU code of conduct for issuer-sponsored research, competent authorities should be given supervisory powers to verify that investment firms that produce or distribute such research have in place organisational arrangements to ensure such compliance. Where those firms do not comply with that EU code of conduct, the competent authorities should be empowered to suspend the distribution of such research and to warn the public that despite its label, the issuer-sponsored research was not produced in compliance with the EU code of conduct for issuer-sponsored research. Those supervisory powers should be without prejudice to the general supervisory powers and to the power to adopt sanctions.

(8)Directive 2014/65/EU introduced the SME growth market category to increase the visibility and profile of markets specialised in the trading of SME securities and to foster the development of common regulatory standards in the Union of markets specialised in SMEs. SME growth markets play a key function in facilitating access to capital for smaller issuers by catering for their needs. To foster the development of such specialised markets and to limit the organisational burden on investment firms or market operators operating multilateral trading facilities (MTFs), it is necessary to allow the segment of an MTF to apply to become an SME growth market provided that such segment is clearly separated from the rest of the MTF.

(9)To reduce the risk of fragmentation of the liquidity of SME shares, and given the lower liquidity of those instruments, Article 33(7) of Directive 2014/65/EU requires that a financial instrument that is admitted to trading on one SME growth market may also be traded on another SME growth market only where the issuer of the financial instrument has been informed and has not objected. However, that Article currently does not provide the corresponding requirement for non-objection by the issuer where the second trading venue is a type of trading venue other than an SME growth market. Accordingly, the requirement to obtain the issuer’s non-objection regarding the admission to trading on one SME growth market of its instruments already admitted to trading on another SME growth market should be extended to any other type of trading venue, in order to further reduce the risk of fragmentation of the liquidity of those instruments. If a financial instrument admitted to trading on an SME growth market is also traded on another type of trading venue, the issuer should comply with any obligation relating to corporate governance, or initial, ongoing or ad hoc disclosure, with regard to that other trading venue.

(10)Directive 2001/34/EC of the European Parliament and of the Council (10) lays down rules concerning listing on Union markets. That Directive aims to coordinate the rules on the admission of securities to official stock exchange listing and on the information to be published on those securities to provide equivalent protection for investors at Union level. That Directive also lays down the rules of the regulatory and supervisory framework for Union primary markets. Directive 2001/34/EC has been amended significantly several times. Directives 2003/71/EC (11) and 2004/109/EC (12) of the European Parliament and of the Council have replaced most of the provisions harmonising the conditions for the provision of information regarding requests for the admission of securities to official stock exchange listing and the information on securities admitted to trading, and have made large parts of Directive 2001/34/EC redundant. In light of those changes, and the fact that Directive 2001/34/EC as a minimum harmonisation directive gives Member States a rather broad discretion to deviate from the rules laid down therein, Directive 2001/34/EC should be repealed to achieve a single rulebook at Union level.

(11)Directive 2014/65/EU, like Directive 2001/34/EC, provides for the regulation of markets in financial instruments and strengthens investor protection in the Union. Directive 2014/65/EU also sets out rules on the admission of financial instruments to trading. Extending the scope of Directive 2014/65/EU to cover specific provisions of Directive 2001/34/EC will ensure that all relevant provisions from Directive 2001/34/EC are maintained. A number of provisions of Directive 2001/34/EC, including the requirements on free float and market capitalisation which still apply, are enforced by competent authorities and are considered important rules for seeking the admission to trading of shares on regulated markets in the Union by market participants. It is therefore necessary to transfer those rules to Directive 2014/65/EU in order to set out, in a new provision of that Directive, specific minimum conditions for the admission to trading of shares on regulated markets. The application of that new provision should complement the general provisions on the admission of financial instrument to trading laid down in Directive 2014/65/EU.

(12)The level of minimum free float of 25 % required by Directive 2001/34/EC is considered excessive and no longer appropriate. To allow for more flexibility for issuers and to make Union capital markets more competitive, the minimum free float requirement should be decreased to 10 %, which is a threshold that ensures a sufficient level of liquidity in the market. However, to better take into account the characteristics and sizes of issuances of shares, Member States should be able to allow for alternative ways to measure whether a sufficient number of shares have been distributed to the public. Compliance with the 10 % threshold, or with the alternative requirements provided at national level for ensuring a minimum free float, should be assessed at the time of admission to trading. The free float requirement laid down in Directive 2001/34/EC that a sufficient number of shares are to be distributed to the public in one or more Member States should not be maintained as Directive 2014/65/EU does not provide for such geographical restriction for financial instruments admitted to trading.

Certain requirements set out in Directive 2001/34/EC are either already covered by provisions laid down in other Union legislative acts in force, or else have become obsolete. Accordingly, those requirements should not be transferred to Directive 2014/65/EU. For instance, the requirement for a company to publish or file its annual accounts for a specific period is already included in Regulation (EU) 2017/1129 of the European Parliament and of the Council (13). Similarly, Directive 2014/65/EU already lays down provisions to designate competent authorities. Furthermore, the requirement for the minimum amount of the loan for debt securities no longer reflects market practice. Therefore, those provisions should not be transferred to Directive 2014/65/EU.

(13)The concept of admission of securities to official listing on stock exchanges provided for in Directive 2001/34/EC is no longer the prevailing one, given market developments, as Directive 2014/65/EU already provides for the concept of ‘admission of financial instruments to trading on a regulated market’. While the concepts ‘admission to official listing’ and ‘admission to trading on a regulated market’ are used interchangeably in some Member States, in other Member States the concept of ‘admission to official listing’ continues to play an important role alongside the concept of ‘admission to trading on a regulated market’, in particular by providing an alternative to issuers of securities, notably debt securities, who seek increased visibility but for whom admission to trading is not a relevant or viable option. The repeal of Directive 2001/34/EC should be without prejudice to the validity and continuation of the regimes of admission to official listing on stock exchanges in those Member States who would like to continue to apply that regime. In any case, Member States should retain the ability to provide for and regulate such regimes under national legislation (14).

(14)In order to enhance the visibility of listed companies, in particular small- and middle-capitalisation companies, and to adapt the listing conditions to improve requirements for issuers, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of amending Directive 2014/65/EU. The adoption of the listing rules in the Union should also reflect market practice for it to be effective and promote competition. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (15). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(15)Since the objectives of this Directive, namely to ease Union small- and middle-capitalisation companies’ access to capital markets and increase the coherence of Union listing rules, cannot be sufficiently achieved by the Member States but can rather, by reason of the improvements and effects sought, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.

(16)Directive 2014/65/EU should therefore be amended accordingly,