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EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/18.III.2.3.3
18.III.2.3.3 Admission to trading and other admission criteria
mr. J.E.C. Gulyás, datum 01-02-2021
- Datum
01-02-2021
- Auteur
mr. J.E.C. Gulyás
- JCDI
JCDI:ADS266411:1
- Vakgebied(en)
Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht
Voetnoten
Voetnoten
Listing Admission Directive (79/279/EEC).
Art. 1(13) and art. 21 ISD. The possibility of national conditions, as a default where the LAD was not applicable, was because certain markets (e.g. the London SEAQ-I) did not fall under the LAD. For a discussion, reference is made to B. Steil, The European Equity Markets: The State of the Union and an Agenda for the Millennium, 1996, p. 116 and 126.
Reference is made to ESME, Report on MiFID and admission of securities to official stock exchange listing, 2007 (ESME//20071205/Official Listing/Final), p. 7-9.
Reference is made to ESME, Report on MiFID and admission of securities to official stock exchange listing, 2007 (ESME//20071205/Official Listing/Final), p. 7-9.
Reference is made to ESME, Report on MiFID and admission of securities to official stock exchange listing, 2007 (ESME//20071205/Official Listing/Final), p. 7-9.
Reference is made to ESME, Report on MiFID and admission of securities to official stock exchange listing, 2007 (ESME//20071205/Official Listing/Final), p. 7.
Art. 1(1) Prospectus Directive 2003(Directive 2003/71/EC), art. 1(2)(a) Market Abuse Directive (MAD) (Directive 2014/57/EU), and art. 1(1) Transparency Directive (Directive 2004/109/EC).
Art. 28-30 and art. 44-45 MiFID I.
ESME, Report on MiFID and admission of securities to official stock exchange listing, 2007 (ESME//20071205/Official Listing/Final), p. 7.
Art. 40(5) MiFID I. In case there was no issuer consent, the issuer was not bound by the requirements of admitting financial instruments to an RM (ibid). Certain MTFs specialise in offering these so-called ‘passive secondary listings’ by admitting financial instruments to trading on the MTF on the MTF operator’s own initiative, without any prior consent of the issuer. The concept of ‘passive secondary listings’ is in particular common for financial instruments with large market capitalisation (e.g. ‘blue-chip’ shares) (M. Geranio and V. Lazzari, ‘Going Public and Listing Fees around the World’, in V. Lazzari (Ed.), Trends in the European Securities Industry, EGEA, 2011). For the sake of completeness, a ‘passive secondary listing’ is not an official EU term. Rather, the term is used as a practical term to explain the concept of financial instruments being admitted to trading without prior consent of the issuer.
The MiFID II distinction is logical, because issuer disclosure requirements, such as annual reports, do not apply where a financial instrument is traded without issuer consent. In other words, the quality label is not met where there is no issuer consent (although the issuer will be required to fulfill issuer requirements in relation to the financial instrument ‘admitted to trading on’ the RM).
For example, most financial reports under the Transparency Directive only apply for financial instruments admitted to trading on an RM with issuer consent. See, among others, recital 5 and art. 14(6) Transparency Directive (Directive 2013/50/EU).
Besides competition in terms of trading services (i.e. (passive) ‘secondary listings’, enabling MTFs to trade financial instruments that are already admitted to trading on an RM (without issuer consent)), MTFs can also compete with RMs by offering admission to trading services (listing services). MTFs can do so based on the lighter issuer requirements that apply where a financial instrument is admitted to trading on an MTF compared to the RM requirements (M. Geranio and V. Lazzari, ‘Going Public and Listing Fees around the World’, in V. Lazzari (Ed.), Trends in the European Securities Industry, EGEA, 2011).
A final aspect that determines the optimal degree of EU equity pre- and post-trade transparency regulation in relation to financial instruments is, in view of the EU, whether or not the instrument (a) is respectively ‘dealt in on’, ‘admitted to trading on’ and/or ‘traded on’ (b) a certain venue (e.g. an RM). Three things are important to understand here, namely what the foregoing concepts refer to, why certain venues were included/excluded in the concepts, and the relation with the EU equity pre- and post-trade transparency. A legal-historical perspective helps to answer these questions:
The ISD required RMs to publish some pre- and post-trade data for financial instruments (including equity) ‘dealt in on the RM in question’.1 Simply put, the term ‘dealt in on’ meant that the financial instrument met (i) the conditions of the Listing Admission Directive (LAD)2 or, where the LAD was not applicable, (ii) the national conditions concerning when a financial instrument could effectively be dealt in on (admitted to/listed) the RM.3 The admission conditions (LAD or national) could be characterised as a quality standard.4 EU transparency requirements – in a broad sense – applied where the financial instrument was ‘dealt in on a/the RM’. ‘In a broad sense’, since not only the ISD pre- and post-trade transparency requirements for RMs applied in this situation, but also other EU transparency requirements, such as issuer requirements with respect to prospectuses, market abuse, and annual reports.5 The aim here was to ensure investor protection and related transparent financial markets.6 The ISD threshold of ‘dealt in on’ was limited to RMs. The reason for the limitation to RMs was that the applicability of similar quality standards were deemed inappropriate for some growing and mid-size issuers intending to raise capital through alternative markets.7 The result was an ISD limitation of the ‘dealt in on’ concept to RMs.
The situation was somewhat similar under MiFID I. MiFID I introduced the concept of ‘admitted to trading on an RM’, which – similar to the ISD – functioned as a quality threshold for the financial instrument. Where a financial instrument was admitted to trading on an RM, MiFID I equity pre- and post-trade transparency rules applied, as well as several other quality standards, such as disclosure in relation to prospectuses, market abuse, and annual reports.8 MiFID I was ‘somewhat similar’ to the ISD, because some differences were in place. MiFID I was different in the sense that not only RMs, but also MTFs, SIs, and other investment firms operating outside RMs and MTFs were subject to MiFID I pre- and post-trade transparency rules in case of shares ‘admitted to trading on an RM’.9 This meant that the MiFID I concept of shares ‘admitted to trading on an RM’ reached further than the ISD concept of ‘dealt in on the RM in question’ (i.e. the ISD only required RMs to publish the pre- and post-trade data).10 Similar to the ISD, MiFID I limited the quality threshold to RMs. The rationale here was the same as under the ISD. MiFID I considered it inappropriate (i.e. too burdensome) to apply quality standards for instruments admitted on venues other than RMs.11
MiFID II has changed the MiFID I framework for ‘admission to trading on an RM’ and its relation to the applicable equity pre- and post-trade transparency rules in two ways. First, the MiFID II concept of ‘admission to trading on an RM’ is narrower compared to MiFID I. Under MiFID I ‘admitted to trading on an RM’ also included the situation where a financial instrument was admitted to trading on one RM and subsequently admitted to trading on other RMs even without the consent of the issuer (a so-called ‘passive secondary listing’).12 By contrast, MiFID II distinguishes between (a) financial instruments admitted to trading on an RM with issuer consent and (b) financial instruments admitted to trading on an RM and subsequently traded on another RM without issuer consent. Where a financial instrument is traded on an RM without issuer consent, MiFID II deems the financial instrument simply to be ‘traded on’, not ‘admitted to trading on’ the RM in question.13 The distinction is not relevant for the MiFID II equity pre- and post-trade transparency-rules, which apply both where a financial instrument is ‘admitted to trading’ or ‘traded on an RM’.14 However, it removes issuer disclosure requirements where the financial instrument is traded without issuer consent (i.e. ‘traded on’, instead of ‘admitted to trading on an RM’).15 This observation is relevant, because it shows that the EU believes that equity pre- and post-trade transparency is a minimum when it comes to transparency of the financial markets. Whilst issuer disclosure requirements only apply where a financial instrument is admitted to trading with issuer consent, the same is not true for equity pre- and post-trade transparency of the financial instrument. The equity pre- and post-trade transparency requirements apply both for instruments admitted to trading on and traded on an RM.
The foregoing results to the second change from MiFID I to MiFID II. Under MiFID I the concept of ‘admitted to trading on’ (including also without issuer consent) was limited to RMs. Under MiFID II the equity pre- and post-trade transparency rules also apply where a financial instrument is ‘traded on a trading venue’, meaning traded on an RM or MTF.16 The reason here is that under MiFID I an increased number of financial instruments were only traded on MTFs, that is – without being admitted to trading on an RM. In other words, MTFs started to compete on a larger scale with RMs in terms of listing services. The MiFID I equity pre- and post-trade transparency rules did not apply in case a financial instrument was only admitted to trading on an MTF.17 To ensure sufficient transparency and a level playing field with RMs, the EU believed it was necessary to change the MiFID I scope. This is apparent in the MiFID II text. The MiFID II equity pre- and post-trade transparency requirements apply in relation to equity instruments ‘traded on a trading venue’ (i.e. RM or MTF).18