Listing Act
On 7 December 2022, the European Commission published a series of proposed measures to further develop the EU's Capital Markets Union. These measures included proposed amendments to the Prospectus Regulation, the Market Abuse Regulation and MiFIR as part of a legislative package known as the "Listing Act". On 14 February 2024, following negotiation and political agreement with the European Parliament, the Council of the EU released the provisionally agreed text of the Listing Act. The Listing Act was approved by a plenary session of the European Parliament on 24 April 2024.
The overall objective of the Listing Act is to introduce technical adjustments to the EU rulebook that reduce regulatory and compliance costs for companies seeking to access the capital markets, with a view to streamlining the listing process and enhancing legal clarity, while ensuring an appropriate level of investor protection and market integrity. At the time of writing, we are awaiting publication of the final legislation in the Official Journal of the EU in due course. The Listing Act is currently expected to come into force in the second half of this year (although in some cases the obligations will be introduced on a staggered timeline and will not come into effect until 14 to 18 months later).
The changes made by the Listing Act to the Prospectus Regulation are essentially adjustments to the current regulatory framework, rather than a fundamental change in approach. From a debt capital markets perspective, the key changes that will apply from when the Listing Act enters into force include the following:
- the ability for issuers to incorporate future financials by reference in to a base prospectus without a supplement;
- the expansion to the prospectus exemptions. There will be a broader exemption for secondary issuances of securities fungible with securities already admitted to trading and the higher exemption threshold of €150 million for non-equity securities offers by credit institutions will be made permanent; and
- amendments to the risk factor requirements. The ranking requirement that requires the most material risk factors (in the issuer's assessment) to be mentioned first will be relaxed slightly. Furthermore, it will be made clear that a prospectus should not contain risk factors that are generic, only serve as disclaimers, or do not give a sufficiently clear picture to investors of the specific risk factors that they should be aware of.
From a debt capital markets perspective, the most significant changes that will be introduced on a staggered timeline are as follows:
- amendments to the standardised prospectus format, including a fixed order and presentation of disclosure;
- ESG disclosures for all green and sustainable bonds; and
- there will be a harmonised threshold for exempting small offers of securities from the prospectus requirement. As a streamlining measure, the current discretionary €8 million offer to the public exemption will be replaced. Instead there will be a uniform €12 million exemption (aggregated over 12 months) except where offered cross-border. Member States will have discretion to set a lower threshold of €5 million and to require certain filings.
The Listing Act will also make amendments to the market soundings regime in the Market Abuse Regulation when it enters into force. These amendments will make clear that the main market sounding procedures set out in the Market Abuse Regulation are optional (rather than mandatory). Disclosing market participants complying with those procedures will still benefit from a safe harbour from the prohibition against the unlawful disclosure of inside information but non-compliance will not create a presumption of unlawful disclosure.
The policy rationale of reducing regulatory and compliance costs for companies accessing capital markets is a sensible one. Market participants will likely welcome these reforms on the basis that they are designed to facilitate and enhance issuers' ability to access the capital markets. The removal of the requirement to publish a supplement for updating annual or interim financial information incorporated by reference in a base prospectus will likely be particularly useful from a practical perspective and in the context of the debt capital markets. However, it remains to be seen whether these incremental adjustments to the current regulatory framework will make EU capital markets more attractive to issuers going forward.
We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress.
Matheson Insights : Listing Act – Impact for Debt Capital Markets
Capital Markets Union – A Significant Development
Banking and Lending – Recent Developments
ESG : Sustainable Lending
Sustainable finance remains an important focus for borrowers and lenders. In recent years, a number of sustainable lending products have emerged in the market and gained increasing traction. Various industry bodies are continuing to both drive and respond to these developments on behalf of their members.
On 5 March 2024 the Loan Market Association ("LMA"), the Loan Syndications and Trading Association, the Asia Pacific Loan Market Association and the Fund Finance Association, published 'A Guide to the Application of the Sustainability Linked Loan Principles in Fund Finance' (the "Guide"). The Guide offers practical advice on applying the LMA's Sustainability-Linked Loan Principles (the "SLLP") in fund finance transactions. It outlines potential challenges and considerations that may arise and discusses how the SLLP can be effectively used in the fund finance market while aligning with the overarching goals of the SLLP. The Guide is available on the LMA website.
Separately, on 24 April 2024 the LMA announced the publication of its 'Sustainability Coordinator Letter' (the "Letter"). The Letter is intended to provide a starting point for negotiation where a sustainability coordinator is to be appointed on a sustainable lending transaction. Given that the sustainability coordinator role is continuing to develop, the Letter will be kept under review by the LMA and updated periodically as required. The Letter is also available on the LMA website.
Matheson Insights : Recent Developments in the ESG Loan Market in Ireland
LMA publish model provisions for Sustainability Linked Loans
Important Development in Green Bond Market
Benchmark Reform
There are no current plans to discontinue the publication of EURIBOR and the bulk of euro lending continues to reference EURIBOR. However, the adoption of EURIBOR fallback provisions in loan contracts has been a key focus for Matheson's clients in the first half of this year and we expect that to continue to be the case throughout the remainder of 2024. This is unsurprising given that in its final statement in November 2023 the Working Group on Euro Risk-Free Rates stressed the importance of including robust EURIBOR fallbacks in contracts. The final statement is clear that additional effort should be made by market participants to increase the adoption of EURIBOR fallback provisions in all contracts, especially for loans referencing EURIBOR.
In order to assist lenders and borrowers who wish to incorporate term €STR as a fallback reference rate to EURIBOR, on 1 February 2024 the LMA published an updated version of its term €STR fallback exposure draft and related commentary following market feedback. As the feedback received was generally supportive of the exposure draft, there were no major changes to the previous version. However, given the lack of market practice in the use of term €STR fallbacks, the LMA has not yet moved this document to recommended form. The LMA has therefore encouraged its members to provide the LMA with ongoing feedback from the provisions being used on transactions.
Matheson LinkedIn Post: 'Financing Outlook for 2024' webinar – 27 February 2024
If you would like to view a recording of this webinar, please reach out to your usual Matheson contact.
EMIR 3.0
On 7 December 2022, the European Commission published a series of proposed measures to further develop the EU's Capital Markets Union. These measures included proposed amendments to EMIR as part of a review known colloquially as "EMIR 3.0". On 14 February 2024, following negotiation and political agreement with the European Parliament, the Council of the EU released the provisionally agreed text of EMIR 3.0. At the time of writing, we are awaiting formal approval by the European Parliament and the publication of the final legislation in the Official Journal of the EU in due course. EMIR 3.0 is currently expected to come into force in the fourth quarter of this year (although in many cases the obligations will not apply until details as to how counterparties should comply have been published by the European Securities and Markets Authority ("ESMA") and finalised). Derivatives users should therefore now be reviewing their compliance arrangements, and considering whether and how EMIR 3.0 will require these arrangements to be amended and enhanced.
There is an existing and continuing requirement in EMIR on transaction parties to report the details of all OTC and exchange-traded derivative contracts that they conclude, modify or terminate to a trade repository by the end of the next working day. EMIR 3.0 contains new requirements in relation to data quality and penalties for transaction reporting. Derivatives users will be required to put in place appropriate procedures and arrangements to ensure the quality of data reported. ESMA will be mandated to draft guidelines to specify these procedures and arrangements. In addition to existing penalties requirements under EMIR, national competent authorities (such as the Central Bank of Ireland (the "CBI")) will be obliged to impose administrative or periodic penalty payments on entities whose reports repeatedly contain manifest errors. The periodic penalties will be set at an amount up to 1% of average daily turnover for the proceeding business year per day of breach. While many national competent authorities (including the CBI) have reserved the right to issue fines for EMIR transaction reporting breaches, this is the first time a quantifiable financial penalty for breach of transaction reporting requirements will be enshrined in the primary legislation. ESMA will be mandated to draft Regulatory Technical Standards specifying what constitutes specific manifest errors for this purpose.
One of the central objectives of EMIR 3.0 is to encourage clearing in the EU and improve the attractiveness of EU authorised CCPs. Furthermore, EMIR 3.0 aims to strengthen EU strategic autonomy and safeguard financial stability by requiring clearing members and clients to hold directly or indirectly an active account at EU authorised CCPs. Financial counterparties ("FCs") subject to the clearing obligation ("FC+s") and non-financial counterparties ("NFCs") subject to the clearing obligation ("NFC+s") who exceed a threshold of €3 billion when all OTC interest rate derivatives denominated in euro and / or Polish zloty and short term interest rate derivatives denominated in euro ("SSI Derivatives") are aggregated at group level will be obliged to hold at least one active account for SSI Derivatives in an EU authorised CCP. These entities must also clear a 'representative' number of trades in such active accounts if they exceed a threshold of a notional clearing volume outstanding of €6 billion when all their SSI Derivatives are aggregated. Further details of these requirements are to be developed by ESMA. It is important to note that these obligations will not directly impact most buy-side derivatives users as they are not FC+s or NFC+s.
EMIR 3.0 also contains a number of other amendments to the EMIR framework. We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress.
Matheson Insights : EMIR 3.0 - Rule Changes for Derivatives Users
A New Direction: First Central Bank Enforcement against a Fund under EMIR
Significant Changes in Reporting Rules for Derivatives Users
For further information on the above, please contact a partner in the Finance and Capital Markets Department or your usual Matheson contact.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.