The duty to publicly disclose inside information under the EU Listing Act

In December 2022, the European Commission finalised the proposal for an EU Listing Act. Last February, a final compromise was reached between the European Council and the European Parliament (this blog post is based on the text of this final compromise). The EU Listing Act aims to simplify and harmonize listings in the EU in order to make listings (and raising capital through the stock market) more attractive. The Act will make amendments to, among others, the Prospectus Regulation, the Market Abuse Regulation and the Markets in Financial Instruments Regulation (MiFIR). In this blog post, I briefly discuss the amendments to the Market Abuse Regulation (MAR) regarding the duty applying to EU listed companies to publicly disclose inside information.

A significant amendment that is made by the EU Listing Act, is the curtailment of the disclosure duty of Article 17(1) MAR. This new Article 17(1) reads as follows:

‘An issuer shall inform the public as soon as possible of inside information which directly concerns that issuer. That requirement shall not apply to inside information related to intermediate steps in a protracted process as referred to in Article 7(2) and (3) [MAR] where those steps are connected with bringing about particular circumstances or an event. In a protracted process, only the final circumstances or event shall be disclosed as soon as possible after they have occurred.’

According to this provision, the disclosure obligation thus no longer applies to intermediate steps in a protracted process. It is only the final outcome of the protracted process that must be publicly disclosed. This implies a far-reaching amendment of the disclosure obligation, because, in practical terms, inside information almost always involves protracted processes.

The new Article 17(1) MAR raises several questions

The curtailment of the disclosure obligation in the EU Listing Act raises several questions. I will address two of them.

My first question relates to the concept of a ‘protracted process’ as referred to in the new Article 17(1) MAR. Under the new EU regime, whether or not there is a ‘protracted process’ is of crucial importance for the moment at which the disclosure obligation arises. This immediately raises the question as to which (kinds of) processes are ‘protracted’. This is a tricky question, and when one dives into it a little deeper, a grey area is entered full of processes that could be considered either as ‘protracted’ or as ‘non-protracted’. The preamble to the EU Listing Act sheds some light on how to answer the question. Recital 58 of this preamble reads as follows:

‘In the case of non-protracted processes related to a one-off event or set of circumstances, notably when the occurrence of that event or set of circumstances does not depend on the issuer, the disclosure should take place as soon as the issuer becomes aware of that event or set of circumstances.’

Thus, so-called ‘one-off events’ that are beyond the control of the issuer apparently do not comprise ‘protracted processes’. One could, for instance, think of external events that cause (part of) the production capacity of the company to suddenly stop, or one could think of a major customer of the company that suddenly cancels its contract. Although the preamble thus gives some guidance on the concept of ‘protracted process’, the interpretation of this concept will inevitably sooner or later lead to preliminary questions being referred to the Court of Justice of the EU. In the meantime, we must hope for the European Securities and Markets Authority (ESMA) to give some further guidance.

My second question relates to the exception of Article 17(4) MAR to lawfully delay the disclosure of inside information. Under this exception, the issuer is—if certain strict conditions are met—allowed to delay the public disclosure of inside information. With the new proposal for the disclosure obligation of Article 17(1) MAR, the question arises what exactly, in practical terms, is the remaining relevance of the exception of Article 17(4) MAR. After all, under the current EU regime, the exception to lawfully delay the disclosure of inside information is mainly used in cases of ‘protracted processes’. If under the new EU regime the disclosure obligation will no longer apply to ‘intermediate steps in a protracted process’, for these intermediate steps issuers will no longer need the exception of Article 17(4) MAR. Under the new regime, only for the final stage of internal decision-making within the issuer (i.e. the approval of a management board resolution by the supervisory board), thus only for a very short period of time, issuers may still need the exception of Article 17(4) MAR.

The new Article 17(12) MAR

In addition to the limitation of the disclosure obligation in Article 17(1) MAR, a new paragraph 12 will be added to Article 17 MAR. Subsection (a) of this new Article 17(12) reads as follows:

‘The [European] Commission shall be empowered to adopt a delegated act to set out and review, where necessary, a non-exhaustive list (…) of final events in protracted processes and, for each event, the moment when it is deemed to have occurred and shall be disclosed pursuant to [Article 17(1) MAR]’.

The delegated act that will be issued pursuant to Article 17(12) MAR will be of huge significance for practice. This delegated act will thus contain a non-exhaustive list of inside-information events, and for each event the act will stipulate when the issuer must publicly disclose the information concerned. For now, it remains to be seen how exactly the delegated act would look like, but I interpret this development as an evolution from a more ‘principle-based’ approach of the disclosure obligation under the current EU regime to a more ‘rule-based’ approach under the new EU regime.

Comparison with US federal securities law

An interesting observation relating to this more ‘rule-based’ approach to the public disclosure of inside information is that the EU regime is becoming more similar to the US federal regime. After all, one of the most important and striking differences between the current EU regime and the US regime is that under the US regime listed companies do not have an independent duty to publicly disclose inside information. Under the Securities Exchange Act 1934, US listed companies are however required to publicly disclose certain material events through Form 8-K. The relevant rules exactly specify which events are to be disclosed and when those events are to be disclosed. In that respect, it is important to note that in the US, we have seen the trend of an expanding list of events (so-called ‘items’) to be published through Form 8-K.

This, finally, leads me to the observation that, as a result of the aforementioned developments, the EU and US regime are gradually converging. With the EU Listing Act, Europe is moving towards a curtailed disclosure obligation for inside information. This disclosure obligation 2.0 would be accompanied by a delegated act that would contain a non-exhaustive list of inside-information events, indicating for each event the moment that the issuer must publicly disclose the information concerned. In the US, there has been this trend of an expanding list of events to be disclosed through Form 8-K. In my view, this is a striking example of transatlantic convergence in capital markets law.

Arnoud Pijls is an Associate Professor of Corporate and Capital Markets Law at Erasmus School of Law and Advisor at Clifford Chance LLP.