Downlisting and the Attractiveness of EU Public Equity Markets

Voluntary delistings from the regulated markets account for the bulk of going-private transactions in Europe. Of all voluntary delistings, only a small proportion are motivated by downlisting of securities to trading on multilateral trading facilities (MTFs). Yet downward market mobility should in principle allow the issuer to continue to take advantage of still better financing and visibility opportunities than those typically available in private markets, while offering existing investors higher standards and better exit and trading opportunities. Especially in certain circumstances—such as slight growth opportunities, low capitalisation, stock illiquidity, low trading volume, insufficient free float, small firm size, poor operating performance, stock undervaluation, and high costs of remaining listed—departing from the main market to resume trading in an exchange-regulated market under a less prescriptive regime should reasonably be preferable to going dark altogether through delisting.

Against this backdrop, in a new paper, which will be published as a chapter in the forthcoming book ‘Delisting of Stock Corporations in Europe and Beyond (Rüdiger Veil & Vassilios Tountopoulos eds, 2025), the inconsistency of the rules applicable to downlisting across Member States is considered as an explanation for the overall infrequency of downward market mobility in Europe. The correlation between the actual occurrence of downlistings and the relevant regulatory environment, as well as the available empirical evidence on the price and liquidity effects of downlisting as compared to delisting, raises the question as to whether, despite the missed opportunity of the EU Listing Act package (Regulation (EU) 2024/2809; Directive (EU) 2024/2811; Directive (EU) 2024/2810), the regulatory framework for downlisting should be harmonized to increase the attractiveness of weakening EU public equity markets not only by focusing on listing and upward market mobility, but also by considering the flipside of market exit.

The regulatory landscape for downlisting is largely uneven and fragmented across European jurisdictions. While disclosure obligations in the form of public announcements, waiting periods between the announcement and the day the downlisting comes into effect, and a resolution by the shareholders' meeting are quite common requirements, additional measures set in some jurisdictions in which downlisting is treated the same way as delisting can discourage the move. This is the case with Italy and Germany, where dissenting shareholders are granted an exit opportunity in the form of either withdrawal rights or a mandatory cash offer.

Divergent downlisting regimes can have practical consequences. In effect, downlisting is quite frequent in jurisdictions where specific rules provide issuers and investors with an adequate level of assurance as to the applicable rules, and where the transfer is not made prohibitively costly (eg, France, UK); it is infrequent where the regulatory treatment of downlisting and delisting is the same (eg, Germany, Italy). Regulation can therefore act as a roadblock to downward market mobility.

From a public policy perspective, inhibiting downward market mobility at the national level through regulation can have weighty consequences.

First, divergent regulatory regimes for downlisting in EU jurisdictions can direct or redirect listings towards the exchanges where the conditions for downlisting are clearer and less restrictive. Ultimately, this can contribute to enhancing a listing shopping phenomenon within the EU that is not motivated by genuine competition between trading venues and that sharply contrasts with the 2020 CMU Action Plan objective of integrating national capital markets into a genuine single market that protects and facilitates investments.

Second, hindered downward market mobility can discourage listing altogether on venues subject to Member State regulation that fails to adequately address downlisting. Failing to ensure a level playing field among companies across the EU is contrary to the very goals outlined in the Listing Act as part of the 2020 CMU Action Plan.

Finally, if the costs of trading on the regulated market outweigh the benefits, exchange-listed firms may decide to resort to delisting tout-court for lack of downward market mobility opportunities. This, too, betrays the spirit of the EU Listing Act, which aims at delivering on Action 2 of the 2020 CMU Action plan, namely to support companies’ access to public markets.

Policymaking aimed at revitalizing European public equity markets should therefore carefully consider exits alongside new listings.

Empirical research seems to suggest that, differently from delisting, downlisting does not impact shareholders’ wealth in terms of adverse price reactions upon announcement of the move that might force shareholders to sell stocks below their actual value due to supply pressure countered by low demand on the market. Further studies suggest that the transfer does not deeply affect investors’ ability to trade stocks after the switch either. Contrary to current belief, no significant changes in the relative bid-ask spread after the changeover were found. Therefore, stock liquidity does not necessarily decrease after a move from a regulated market to an MTF.

While there does not seem to be any sound empirical basis for requiring that shareholders be mandatorily offered compensation upon downlisting, a cash offer or functionally similar mechanisms appear instead to be needed to protect shareholders from a fall in stock prices in the event of a voluntary delisting from regulated markets.

Because of this backdrop, there would seem to be ground for harmonisation of the regulatory framework for downlisting, at least to some extent. The challenges of harmonisation are, however, considerable.

To begin with, the results of the empirical research carried out thus far should be interpreted with caution. The studies available are limited in number, the findings are not unambiguous, and the sample size is often relatively small. Especially regarding share tradability after downlisting to an MTF, a general conclusion that shareholders are not unduly restricted in trading once the switch has taken effect would require support from evidence relating to venues located in a higher number of jurisdictions than the few, no matter how relevant, considered in the studies available. Different levels of market liquidity may indeed affect the actual tradability of shares or the conditions for trading in one trading venue compared to another. Whether actual differences between MTFs operating in Europe should be a reason not to harmonise downlisting thus remains an open question, which would at least require a comprehensive comparative analysis of the venues concerned.

Yet the EU legislator could consider the possibility of a rule that would exempt downlisting from the obligation to make a mandatory or cash compensation offer to minority shareholders, provided that the target unregulated market is sufficiently liquid. EU law could also provide for a reasonable waiting period to be imposed between the announcement date and the date on which the transfer takes effect, enabling dissenting shareholders to sell their shares on the exchange.

Importantly, however, the harmonization of downlisting regimes would require two preconditions to be met. First, the rules applicable to voluntary delisting from regulated markets should be harmonised as well by requiring some form of compensation obligation to be offered to minority shareholders. Second, voluntary delisting from exchange-regulated markets should also be harmonised. If downlisting were to be exempted from a compensatory offer rule and no form of minority shareholder compensation were to apply to voluntary delisting from the MTF either, the road would be paved for ‘staged’ delisting from the regulated market, circumventing any compensation requirements otherwise triggered by voluntary delisting.

The author’s complete article can be found here.

Gaia Balp is an Associate Professor of Business Law at Bocconi University.