EU SME Growth Markets alleviations are limited

MiFID II created a new trading venue category, SME Growth Markets (SMEGMs), to facilitate SME financing. Only MTFs where at least 50% of issuers are “SMEs” (i.e. companies with average market cap of max €200Mn) can obtain the SMEGM status.

MAR currently provides only two minor alleviations for SMEGM issuers: (i) allowing to post inside information on the trading venue’s website, instead of the issuer’s website, and (ii) allowing establishing the insider lists first when requested by the NCA (national competent authority). These alleviations have proven to have very limited effect.

The European Parliament and European Council has in October 2019 adopted limited SMEGM alleviation rules related to MAR. These rules will be signed in Strasbourg 25 November 2019 and will then be published in the EU Official Journal. The aim is to reduce the admin for SMEs and improve liquidity. Still, the rules have been carefully calibrated in order for the EU to preserve – and in particular also to allow each respective member state to further safeguard – the core investor protection and market integrity principles.

The new MAR alleviations for SMEGMs related to inside information are principally the following:

– When an issuer delays disclosure of inside information, MAR currently stipulates that the issuer shall inform the NCA of the delay and shall (immediately after public disclosure) provide a written justification for the delay. MAR however also provides an option for a member state that such justification may only be provided upon request. Many member states utilized this alleviation already. The new SMEGM alleviation even imposes, at the EU level, that all member states SMEGM shall be able to rely upon that such justification shall only be produced first upon the NCA’s request. As long as the issuer is able to justify its delay, the issuer must not keep a record of that justification. The obligation to notify any relevant delays to the NCA remains.

– Currently, MAR (art 18c) already provides certain very limited alleviations concerning insider lists (see above), whereby the new SMEGM amendments introduce a slightly simplified set of requirements for the preparation of the list.

– The current “prompt” time frame for issuers to disclose certain information related to transactions notified by PDMRs (persons discharging managerial responsibilities) and PCAs (persons closely associated) is somewhat relaxed. Issuers will be allowed to disclose such transactions within 2 business days of receipt of notification of those transactions by the PDMRs or the PCAs.

– A substantial alleviation allowed by EU is the following: “Issuers whose financial instruments are admitted to trading on an SME growth market shall be entitled to include in their insider lists only those persons who, due to the nature of their function or position within the issuer, have regular access to inside information.”. Such persons are described as “persons who, in the normal exercise of their duties, have regular access to inside information, such as directors, members of management bodies or in-house counsel.”. This category itself is clear. The question is however how it relates to the existing categories; project based insiders, permanent insiders, PCAs and – the most reminiscent category – PDMRs.

Notably, the new revised category differs from the description by the European Parliamentary Research Service in its April 2019 Brief – just before the initial SMEGM vote: “The agreement confirms the amendment introduced by the Commission allowing the possibility for SME growth markets issuers to maintain only a list of permanent insiders, which should include persons and direct family of persons who have regular access to inside information due to their function or position within the issuer.”

Notably, the new revised category also differs from the Commission Implementing Regulation (EU) 2016/347 still applied per early November 2019 as the accepted definition of permanent insiders: “…the permanent insiders section, which is of a different nature to the rest of sections of the insider list, as it is not created upon the existence of a specific piece of inside information. In such a case, the permanent insiders section should only include those persons who, due to the nature of their function or position, have access at all times to all inside information within the issuer…”.

The category now proposed in the EU SMEGM rules is something apparently very close the existing PDMR category. A PDMR is currently basically defined in MAR as a person within an issuer who is:
(i) a member of its administrative, management or supervisory body; or
(ii) a senior executive who is not a member of any such body but who has regular access to inside information and power to take managerial decisions affecting the future developments and business prospects of that issuer.

Reverting to the new SMEGM rules, a SMEGM issuer would hence have the option to only keep a single insider list, which list would hence merely be based on the position of such person with the company, not if such person factually is an insider (project-based or permanent).

ESMA will during 2020 develop draft implementing technical standards for the precise format of these kinds of insider lists.

– Importantly, EU thereby explicitly premises that the member states are allowed to still require that also SMEGM issuers provide more extensive insider lists that include all persons who have inside information. Regardless of whether a members state allows a ”light” SMEGM insider list or if the member state sticks to the normal insider list; any such insider list must be promptly provided to the NCA upon its request

– It is also clear that SMEGM insider list alleviations will not be permitted by EU to apply to the obligations “of persons acting on their behalf or for their account” (such as accountants, lawyers, rating agencies…). The current obligations concerning subsidiary lists consequently remain.

Certain EU MTFs have per early November 2019 obtained SMEGM status, including:

– Euronext Growth (Euronext’s pan-European MTF in France, Ireland, Belgium and Portugal);

– Nasdaq First North Growth Market (constituting the equity segments of Nasdaq First North in Sweden, Finland and Denmark (not Iceland));

– NEX Exchange Growth Market (UK);

– AIM (LSE, UK);

– AIM Italia (LSE, Italy);

– NewConnect (WSE, Poland);

– Progress Market (ZSE, Croatia/Slovenia);

– SME Growth Market BEAM (BSE, Bulgaria).

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