New EU proposals to assist smaller businesses in accessing finance through AIM and other European SME Growth Markets

The European Commission has proposed new rules to give small and medium enterprises (SMEs) better access to financing through public markets and so help EU companies tap market-based funding more easily and cheaply so that they can expand.

The Commission’s stated intention is to cut red-tape for small and medium companies trying to list and issue securities on EU ‘SME Growth Markets’ and to foster the liquidity of publicly-listed SME shares. AIM as a registered SME Growth Market. The new rules are intended to introduce a more proportionate approach to support SME listing while safeguarding investor protection and market integrity.

The EU’s initiative has a stated aim to boost the number of initial public offerings (IPOs) by SMEs and enable companies listed on those markets to attract a broader range of investors. A more liquid market should facilitate the trading of SME shares thanks to a high number of buyers and sellers, making it easier for SMEs to get funding. At the same time investors in SMEs would be able to liquidate their holdings more easily –  in the view of the Commission contributing to the creation of jobs and growth in the EU.

The main proposed changes to the SME Growth Market rules are:

• Adaptation of current obligations to keep registers of persons that have access to price-sensitive information so as to avoid excessive administrative burden, while ensuring that competent authorities can still investigate cases of insider dealing.
• A reduction in the obligations currently imposed on SME Growth Market issuers when they decide to delay the publication of inside information.
• Changes to ensure SME Growth Market issuers have sufficient time to disclose managers’ transactions to the market.
• Allowing issuers with at least three years of listing on an SME Growth Markets to produce a lighter prospectus when transferring to a regulated market – a “transfer prospectus” (this proposal goes even further than the recently overhauled and simplified “Growth” prospectus introduced by the Prospectus Regulation).
• Making it easier for trading venues specialised in bond issuance to register as SME Growth Markets. This will be done by setting a new definition of debt-only issuers. Those would be companies that issue less than EUR 50 million of bonds over a 12-months period.
• Creating a common set of rules on liquidity contracts for SME Growth Markets in all Member States, in parallel to national rules. By so doing, it is intended that financial intermediaries can enhance the liquidity of the shares.

This initiative encompasses a legislative proposal which brings technical amendments to the Market Abuse Regulation and the Prospectus Regulation, and further technical amendments to delegated acts under the Markets in Financial Instruments Directive (MiFID II). The proposed amendments should boost companies’ listing on SME Growth Markets in a way that preserves the core EU rules established to restore confidence in financial markets after the financial crisis.

Ian Binnie, who leads the Michelmores Capital Markets team commented, “These proposals will be well received by AIM companies and investors alike. In addition to reducing the increasingly challenging administrative burden placed on smaller quoted companies the proposals look to address the challenge of increasing liquidity on AIM and other EU growth markets. With SMEs increasingly investigating options to raise debt finance, any support in the establishment of new trading platforms for debt securities is to be welcomed.”