Guide to European Equity Markets
Guide to European Equity Markets
Deciding which European market to list on can be a complex process. Market liquidity, investor appetite, precedent set by competitors, tax, language, and familiarity are important. The criteria for admission to a market, and the continuing obligations that apply to the company and its directors while the shares continue to be traded on the market, must also be taken into account.
EU securities markets are either “regulated” or “non-regulated” markets. In most cases, a country’s main equity market is regulated, and its second or alternative markets are non-regulated. High standards of transparency and corporate governance are expected of issuers whose shares are listed on a regulated market. Because of this, their shares tend to be regarded as a safer investment and suitable for a wide range of investors. Some investment funds are permitted to invest only in securities that are listed on a regulated market. From an issuer’s point of view, the main advantage of listing on a regulated market is access to a much deeper pool of capital; the main disadvantages are the higher cost of compliance and greater exposure to public scrutiny.
As the European Commission seeks to create a single, integrated market for financial services across the EU, the eligibility criteria and continuing obligations of regulated markets are increasingly harmonised. The Market Abuse and Prospectus Directives have made significant progress towards harmonising the rules on market abuse and insider dealing, disclosure by board members and senior managers of dealings in their own company’s shares, when issuers must disclose price-sensitive information to the market, when a prospectus is required and what must go into it. By 20 January this year, EU Member States were also required to impose rules governing the publication of financial results, and the disclosure of significant shareholdings, that are at least as stringent as those set out in the Transparency Directive. Despite the increasing harmonisation of rules on regulated markets, significant differences remain between EU markets. In particular, non-regulated markets are generally left to set their own eligibility criteria and continuing obligations, and are not required to comply with the high standards set by EU Directives. This can make them attractive to many smaller companies that may not have an established track record and that have a riskier investment profile. On the downside, though, non-regulated markets tend to be less liquid and access to equity capital is more limited.
Although Zürich is a European market, Switzerland is not, of course, a member of the EU. Not being bound by any of the Commission’s Directives, it is free to set its own rules on matters such as eligibility, continuing obligations, market abuse and disclosure of price-sensitive information, and publication of prospectuses. To meet the expectations of international companies and investors, however, one of Zürich’s markets – the “EU-compatible” segment operated by the SWX Group (Swiss Exchange) – imposes the same standards as an EU regulated market. Issuers whose shares are allocated to the EU-compatible segment are admitted to trading on the EU Regulated Market Segment of virt-x, which is a regulated market based in London, and the SWX rules require compliance with the Market Abuse, Prospectus, Transparency and other Directives described in section 1 below. By complying with these high standards, such issuers make themselves attractive to a wider range of investors, and can take advantage of the passporting mechanism in the Prospectus Directive to offer their shares to the public, or get them admitted to trading on a regulated market, in any Member State using a single prospectus that has been approved in London.
The first section of this Guide looks at progress made to date in harmonising EU rules for issuers of listed equities. In order to highlight where differences remain, the second and third sections summarise the eligibility criteria and continuing obligations applicable to issuers whose shares have, or will have, a primary listing on each of the main markets in Europe, both regulated and non-regulated.
This Guide deals with the listing of equity securities, but does not describe rules that apply only to collective investment schemes.
Different rules applicable to foreign issuers
This Guide focuses primarily on the rules of each country’s markets that apply to issuers which are subject to the company law of that country. References in Sections 2 and 3 to company law requirements are therefore to the company law of the country in which the relevant market is situated: generally such requirements only apply to local issuers.
Where a foreign company applies for its securities to be admitted to a market, different eligibility criteria and continuing obligations may apply which take account of different requirements under the issuer’s local company law and – where the issuer’s securities are already listed on another market – of the issuer’s obligations under the rules of that market. For example, in London a non-UK issuer whose shares are already listed elsewhere can apply for a “secondary” listing on the Official List: broadly this requires the company to meet the minimum standards of eligibility and continuing obligations imposed by CARD (see the first paragraph of Section 1 below) but not the additional “super-equivalent” standards required of UK companies that are described in Sections 2 and 3.
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