Regulating the EU Capital Markets Union—Taking Stock of the EU Listing Act

European capital markets law is at the brink of significant changes. Building on the results of a Targeted Consultation on the so-called ‘Listing Act’ launched in November last year, it seems that the European Commission is intent on coming out with a legislative proposal before Christmas 2022. This proposal will likely include significant changes for some of the key legal acts in European capital markets law, in particular the Prospectus Regulation (PR) and the Market Abuse Regulation (MAR).

Contrary to the increased regulatory attention, the ideas explored by the Commission in the Targeted Consultation (in which we participated) and in informal discussions with stakeholders have received surprisingly little scholarly attention and thorough analysis. Our recent article ‘Disclosure and Enforcement under the EU Listing Act’ fills a good part of this gap by providing a framework for evaluating the upcoming reform proposal. In the following we sketch out some of its key takeaways:

• A reform of mandatory disclosure in the PR should be approached with caution. In particular, disclosure obligations helping investors to assess the fundamental value of issuers’ securities should only be scaled back if a thorough cost-benefit analysis suggests that they are superfluous.
• Expanding the prospectus exemptions provided in the PR requires further inquiries into how well investors are capable of working together to extract an optimal amount of reliable information from issuers.
• The EU legislature should adopt the idea of an EU IPO on ramp, providing temporary regulatory relief for issuers from some duties to reduce disincentives to go public. This proposal is based on the idea that capital markets law is a multi-layered area of law that is primarily based on the idea of investor protection, but in a broader sense is also used to regulate externalities caused by the economic activity of issuers (e.g., environmental disclosure). Given the typically smaller economic footprint of SMEs and emerging growth companies, it may therefore be warranted to exempt these issuers from certain rules that are not core to investor protection. This may involve, for example, suspending for a transitional period some regulation relating to board composition and remuneration under the Shareholder Directive II.
• Analysing the regulation of ad hoc disclosure and insider trading in MAR suggests that there is considerable room for improvement. The regulation of insider trading and ad hoc disclosure would benefit from a definition of the reasonable investor in Art 7 (4) MAR as a rational investor interested in information that would help him or her to assess the fundamental value of the issuer.
• Furthermore, the current approach of MAR, using the same definition of inside information for the purposes of ad hoc disclosure and insider trading regulation (so called one-step system), does not seem to meet expectations. Relevant reform ideas to be explored include implementing a two-step system, which implies the unbundling of the regulation of insider trading and ad hoc disclosure. Such a two-step system could either be modelled on the rule-based US 8-K reporting regime or adhere to the European principle-based approach, but with a considerable limitation on disclosure. We will dig deeper into these issues in a separate blog article.

Our comments in the article focus primarily on the design of mandatory disclosure for the primary and secondary market. Finding the right level of mandatory disclosure is a truly Herculean task, as over- and under-regulation are eventually detrimental to investors. Therefore, we argue for a more cautious and evidence-based regulatory approach. In addition, our article sheds light on an issue that we fear the Commission will be reluctant to address: the need for an efficiently designed and more harmonised enforcement of European capital markets law. It provides input for a much-needed holistic discussion on properly enforcing EU capital markets law, referring to both prospectus liability law and the highly controversial issue of civil liability for violations of secondary market disclosure obligations.

Driven by increased regulatory competition due the recent overhaul of UK capital markets law and thus far unfulfilled macro-economic goals relating to the CMU project, European capital markets law seems set for another round of significant reform. European academia is well advised to provide input on this development. Our article might serve as a starting point in that matter.

Rüdiger Veil is a Professor at LMU Munich and the Executive Director of the Munich Center for Capital Markets Law.

Marc Wiesner is a PhD Candidate at Prof Veil’s chair.

Moritz Reichert is a PhD Candidate at Prof Veil’s chair.