International ECM Listings Rules, Requirements & Obligations in Hungary

The Budapest Stock Exchange (BSE), which is part of the Central Eastern European Stock Exchange Group (CEESEG), is a regulated market that is regulated by the Hungarian National Bank (MNB).

The market is made up of the Premium, Standard and Technical segments. The latter no longer accepts new shares as of 1 January 2019 but already listed shares may stay in this segment; therefore, this note does not consider the Technical segment any further.

In September 2017, the BSE created a new SME platform called Xtend, its first multilateral trading facility which provides companies a facilitated form of listing on the capital market with lower fees, easier conditions and special support instruments. Xtend is designed for SMEs that plan substantial business growth, seek external funding to finance this expansion, and are able to fulfil certain transparency requirements.

On the Premium and the Standard segments of the BSE, in addition to the basic requirements of the law, the company and the series of securities to be listed must comply with certain further requirements (size of the series, free float, completed business years, etc.). If admission is sought to the Premium segment of the BSE, BSE prescribes that a public transaction must be  carried out with respect to the equity series to be listed, either by a public offer of new securities or a public offer of existing issued securities or a combination of the two; however, issuers may request a one-year postponement to fulfil this obligation.

The shares listed on the Premium segment of the BSE are, in general, more liquid and have a broader ownership structure. The categorisation of securities listed on the Premium and Standard segments is reviewed every six months according to specified indicators. The first examined period lasts from 1 March until 30 September and the second examined period lasts from 1 October until 28/29 February. The review takes place within 30 days following the last day of each examined period. If the securities under review do not comply with the requirements of the Premium segment for two consecutive examined period, the BSE automatically reclassify the securities in the Standard segment. If the securities are reclassified to the Standard segment, the issuer cannot apply for the reclassification of such securities in the Premium segment for a period of one year.

The specific indicators to be applied during the review are the followings: (i) average capitalisation which means the weighted average stock market price of a given series of securities over the period under review multiplied by the number of securities listed on the last day of the period, (ii) free float, (iii) free float capitalisation which is the market price of the securities belonging to the free float.

The securities remain in the Premium segment if their average capitalisation reaches at least HUF 5 billion (approx. €13,000,000) and the free float reaches at least 25% on the last stock exchange day of the period under review. If the securities are listed on other stock exchange(s), the securities remain in the Premium segment if they fulfil the above criteria on both the other stock exchange(s) and on the BSE.

Public companies limited by shares (nyilvánosan működő részvénytársaság or nyrt.) incorporated under Hungarian law and any foreign company that has been duly incorporated in its place of incorporation or establishment and which is permitted under its local law to have its securities listed.

The prospectus prepared in accordance with the EU Prospectus Regulation. The prospectus shall contain all relevant information on the economic, market, financial and legal situation of the company (and their likely developments in the future), giving investors the widest possible range of information to ensure proper decision-making. The prospectus shall explicitly contain a statement that the shares are to be listed on the relevant segment (ie. Premium or Standard) of the BSE and shall indicate, as a prime risk factor, if no investment firms participated in its compilation, including its preparation and submission.

The prospectus shall be submitted to MNB for approval which must give a decision within 20 working days. The prospectus may only be published once the approval of MNB is received. Due to the EU-membership of Hungary and based on the so-called “single passport” principle, BSE also accepts prospectuses approved by the supervisory authority of any other EU Member State.

The prospectus, once approved and published, is valid for 12 months, and the securities can be listed within 12 months of the approval of the prospectus.

Minimum equity for all public companies limited by shares is HUF 20 million (equivalent to approx. €51,300). There are further sector-specific requirements, for example, for financial enterprises.

The market value of the series of shares to be listed on each segment of the BSE is:

• Premium Listing segment: HUF 5 billion (€13,340,000);
• Standard segment: HUF 250 million (€670,000);
• Xtend: none.

The minimum public float is:

1. In the case of the Premium Listing segment:
    - at least 25% of the securities in the series to be listed; or
   - at least HUF 2 billion market value securities (€5,336,000); or
   - there are at least 500 separate investors.
2. In the case of the Standard segment:
    - at least 10% of the securities in the series to be listed; or
   - at least HUF 100 million market value securities (€267,000) ; or
   - there are at least 100 separate investors.
3. In the case of Xtend: none

The issuer of the securities (taking any legal predecessor into consideration as well) must have published audited accounts for at least three full financial years for admission to the Premium segment and at least one full financial year for admission to the Standard segment. There is no equivalent requirement in relation to Xtend.

The issuer of the securities (taking any legal predecessor into consideration as well) must have published audited accounts for at least three full financial years for admission to the Premium segment and at least one full financial year for admission to the Standard segment. There is no equivalent requirement in relation to Xtend.

Only tradable shares are eligible for listing which have been issued in accordance with the laws of the jurisdiction where the registered office of the issuer is located or the place of issue is located.

The market value of the shares to be listed may not be less than HUF 5 billion in the case of admission to the Premium segment (€13,340,000) and HUF 250 million in the case of admission to the Standard segment (€670,000).

There is no specific requirement for independence from controlling shareholders in the BSE Listing Rules, but major shareholders and their influence must be disclosed in the prospectus.

There are no lock-in requirements under the BSE Listing Rules.

The involvement of a financial adviser is mandatory if the listing is combined with a capital increase (issue of new shares) or public offering of existing shares (exit).

No market-maker or broker is required.

Advertisements, presentations to potential investors and other means of promoting an IPO or secondary issue are generally permitted, subject to certain restrictions.

Advertisements must be clearly recognisable as such and must indicate that a prospectus has been, or will be, published. Information included in an advertisement must be accurate and must not be misleading or inconsistent with the prospectus.

Any information that is published concerning the public offering or the admission of the securities to trading, even if not for advertising purposes, must be consistent with the prospectus.

All advertisements must be submitted to the MNB for approval at least five working days prior to their publication.

Depending on the size and complexity of the company and the process used, about three to six months (including preparatory work). The CEO of BSE has 30 days to decide upon receipt of the application.

When a company issues new shares for cash, the shareholders, the holders of convertible bonds and bonds with subscription rights have a pre-emption right in relation to the new shares. The order and the method of exercising such pre-emption right is determined by the charter of the company.

If a non-domestic issuer requests, MNB may approve the publication of a prospectus if the prospectus complies with the PD, the Prospectus Regulation and/or with the standards set by international organisations, including the International Organisation of Securities Commissions (IOSCO) and the information in the prospectus is based on the requirements equivalent with those of the CMA.

The approval of MNB is not required for the publication of a prospectus if it has been approved by the competent supervisory authority of another EEA Member State, and if that authority provides proof to MNB that the prospectus or the base prospectus complies with the PD and Prospectus Regulation.

1. English and Hungarian; and
2. the summary must be translated into Hungarian.

www.bse.hu

www.mnb.hu

Regulated market

Under Hungarian law, the most typical decisions which require shareholder approval are the following:

• approval of the annual report and decision on the distribution of the after-tax profit;
• amendment of the charter,
• change of the operating form;
• increase and decrease of the share capital;
• decision on the transformation or termination of the company without legal succession;
• alteration of the rights attached to a series of shares, and the conversion of categories or classes of shares;
• issue of convertible bonds or bonds with subscription rights;
• election of board members, supervisory board members, auditor, audit committee members;
• voting on the remuneration policy of the company;
• acquisition of own shares;
• approval of granting financial assistance to third parties for the acquisition of shares issued by a public company limited by shares; and
• approval of any contract to be concluded between the company and its shareholders within two years from the company’s registration on the transfer of property, where the value of the consideration to be provided by the company reaches one-tenth of its share capital.

Under Hungarian law, a public company limited by shares may be managed by a board of directors, having at least 3 members, or by a unified controlling body comprising the functions of the board of directors and the supervisory board, having at least 5 members.

If the management is performed by a board of directors, the company must have a supervisory board.

In addition, a public company limited by shares must have an audit committee, which assists the supervisory board or the board of directors in the supervision of the financial reporting regime, in the selection of an auditor, and in the work with the auditor.

Corporate Governance Recommendations are issued by BSE to deal with questions beyond the Hungarian legal regulations. Alignment and compliance with the recommendations is not mandatory; however, issuers are required to disclose the level of compliance with the Recommendations (on a comply or explain basis).

Each shareholder of a public company limited by shares shall be treated equally and may not be excluded from the company. Each shareholder has the right to participate in the general meeting, to exercise their rights through representatives, to vote, to request information and to make remarks and proposals. Shareholders holding such shares that belong to the same series shall not be discriminated in any way in connection with the exercise of their shareholder rights.

Shareholders holding at least 1% of the votes have special minority rights and may request the holding of a general meeting, the examination of the financial report or a financial event by an independent auditor, the enforcement of a claim for damages or the addition of further items to the agenda of a general meeting.

All issuers are subject to MAR and must disclose inside information as soon as possible. Issuers can delay disclosure to protect their legitimate interests (e.g. if it would jeopardise ongoing negotiations or the legitimate interest of the issuer), provided that the public is not misled and the information is kept confidential.

Premium segment issuers are obliged to publish their corporate action timetable by the first day of their financial year.

The regular disclosure obligation of financial information includes the disclosure of financial reports, such as:

• annual financial report (audited): to be published within 4 months of the end of the financial year;
• half-yearly report (non-audited): to be published within 3 months of the end of the first six month period; and
• number of voting rights and the actual share capital: to be published in each calendar month.

Issuers not under the force of the CMA may choose to follow the reporting obligations of their “home member state” (as defined in the TD) after having published a statement in which they inform Hungarian investors about the reporting requirements of that state.

All issuers are subject to MAR and if they are Hungarian entities, the provisions of the CMA shall also apply.

Prospectus.

Mandatory and voluntary public takeover offer documents.