BETTER FINANCE welcomes the objectives of the Listing Act review put forward by the European commission to make EU Capital Markets more attractive for companies, particularly for SMEs.[1] Investor associations have long emphasised that to revitalise the Capital Markets Union, the EU’s primary and secondary markets need a boost, that is, greater participation from EU households in direct equity investments. The limited effectiveness of current EU policies stems from the reluctance of many SMEs to go public (lack of accessibility and/or funding predictability); the absence of an EU equity investing culture; and a lack of retail investor trust in capital markets due to a lack of transparency.
Whilst SMEs are the most exposed to regulatory hurdles imposing high direct (and even indirect) costs when going public[2], BETTER FINANCE stresses that to reverse this trend, we need to provide the right incentives, not go backwards.
The EU stands to gain, also internationally, from a quality-based primary financial market. The Listing Act review rightly addresses the need for standardising prospectuses across the EU and streamlining the cost reduction of IPOs as well as the secondary issuance of companies. That said, BETTER FINANCE also calls for more clarity in investor information, notably by means of an investor-friendly summary prospectus, including standardised and comparable ESG information for both debt- and equity-based prospectuses. We also challenge shortcomings in terms of investor protection, such as lighter rules envisaged under the Market Abuse Regulation (MAR), and potentially unsuitable initiatives (Multiple-vote share structures, MiFID unbundling rules). Ultimately, we put forward recommendations for a framework that guarantees equality between shareholders, while preventing insider trading through robust, enforceable mechanisms and corporate accountability.
Since boosting investors’ confidence, enhancing market transparency, and improving accessibility are prerequisites to increase investors’ participation in the CMU, long-term engagement of minority shareholders plays a vital role in achieving this objective. Therefore, it is crucial to maintain robust investor protection standards that are also specifically designed to uphold the integrity of corporate conduct and effectively steer companies towards ESG orientation.
Further initiatives will need to accompany the revision of the Listing Act. EU legislators should consider ways of fostering competition in the audit market and between underwriters, which is the only tangible precondition for lowering the entry cost of listing. Significant take-up of SME growth market segments across the EU is long overdue. To support equity-based financing that generates economic growth and wealth for investors, coordinated tax incentives must also be put in place to channel capital flows and increase citizens’ knowledge, notably through the strengthening of employee share ownership schemes (ESOPs) in Europe
[1] The New listing Act proposal package is available at https://finance.ec.europa.eu/publications/capital-markets-union-clearing-insolvency-and-listing-package_en (Published 7 December 2022).
[2] The lower the value raised by IPOs, the higher the proportion of costs (up to 15% for IPOs with a value of less than €6 million). See also: European Commission, ‘A Public-Private Fund to Support the EU IPO Market for SMEs’, October 2020. ; According to FESE in its report ‘2020 IPO Task force’, p.12: "the costs estimates range from 10% to 15% of the amount raised from an initial offering of less than EUR 6 million; 6 to 10% from less than EUR 50 million; 5 to 8% from between EUR 50 million and EUR 100 million; 3 to 7,5% from more than EUR 100 million".