The Committee on Economic and Monetary Affairs adopted the report by Alfred SANT (S&D, MT) on the proposal for a directive of the European Parliament and of the Council amending Directive 2014/65/EU to make public capital markets in the Union more attractive for companies and to facilitate access to capital for small and medium-sized enterprises and repealing Directive 2001/34/EC.

The committee responsible recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the proposal as follows:

General principles and information to clients

Members called on the ESMA to develop draft regulatory technical standards to establish a harmonised Union code of conduct for issuer-sponsored research . The code of conduct shall set out minimum standards of independency and objectivity to be complied with by the providers of such research and specify procedures for the identification and prevention of conflicts of interest.

The Union-wide code of conduct for issuer-sponsored research should be made publicly available on ESMA’s website.

Research that is labelled as issuer-sponsored research should indicate on its front page in a clear and prominent way that it has been prepared in accordance with the Union code of conduct. Any other research material paid fully or in part by the issuer but not prepared in compliance with the Union code of conduct should be labelled as marketing communication. Member States should ensure that competent authorities have the necessary supervisory and investigative powers to enforce compliance by investment firms producing or using issuer-sponsored research with the Union code of conduct.

Obligation to execute orders on terms most favourable to the client

Member States should require that investment firms take all sufficient steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature, the provision of investment research, or any other consideration relevant to the execution of the order.

ESMA should develop guidelines on how investment firms providing portfolio management or other investment or ancillary services to clients can comply with their best execution obligations when the investment firm uses joint payments for execution services and research.

SME growth markets

The amended text proposed that Member States should require that a financial instrument of an issuer which is admitted to trading on an SME growth market is able to be traded on another trading venue only if the issuer has been duly informed and has not objected.

PURPOSE: to ease EU small and medium capitalisation companies’ access to capital markets, and to increase the coherence of Union listing rules.

PROPOSED ACT: Directive of the European Parliament and of the Council.

ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

BACKGROUND: Directive 2014/65/EU of the European Parliament and of the Council has been amended by Regulation (EU) 2019/2115 of the European Parliament and of the Council, which introduced proportionate alleviations to enhance the use of SME growth markets and to reduce the excessive regulatory requirements for issuers seeking 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.

Directive 2014/65/EU and Commission Delegated Directive (EU) 2017/593 30 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. To foster more investment research on companies in the Union, in particular small and medium capitalisation companies, and to bring those companies greater visibility and more prospect of attracting potential investors, it is necessary to introduce some amendments to that Directive.

This proposal is part of the Listing Act package, a set of measures to make public capital markets more attractive for EU companies and facilitate access to capital for small and medium-sized companies (SMEs).

CONTENT: the Commission proposal seeks to introduce targeted adjustments to the EU rulebook in order to enhance visibility of listed companies, especially SMEs, and streamline the listing process with a view to enhancing legal clarity.

The proposal:

- introduces a new provision regarding the qualities of investment research. It sets out that research provided by third parties shall be fair, clear and not misleading;

- includes the conditions to label research as ‘issuer-sponsored research’. Such conditions include the requirement for research to comply with a code of conduct, as well as the requirements for the content, publication and review of such code of conduct;

- clarifies that issuers may submit their issuer-sponsored research to the collection body under the proposal for a European single access point. A final clarification is added that any research material paid by the issuer but not produced in compliance with such code of conduct should be labelled as a marketing communication;

- increases the threshold of companies’ market capitalisation from EUR 1 billion to EUR 10 billion to capture a broader scope of small and medium capitalisation companies, and in particular more medium size companies;

- clarifies that a segment of multilateral trading facilities can be registered as an SME growth market and set out the conditions and requirements for its registration or de-registration;

- covers conditions for the admission of shares to trading on a regulated market. Such conditions are the EUR 1 million minimum market capitalisation requirement for companies that seek to list their shares on a regulated market, as well as a 10% minimum free float requirement. Furthermore, the Commission is empowered to adopt delegated acts to change such thresholds when they hamper the liquidity on public markets, taking into account financial developments.