The “Hearing on the consultation papers on technical advice and technical standards under the Market Abuse Regulation” took place in Brussels two days ago. This would hardly be worth mentioning, were it not for the fact that the Directive endorsed in early July 2014 will usher in a new era for several hundred listed companies.
In fact, the EU’s Market Abuse Regulation - MAR for short - means that companies traded in the Open Market will have to observe a significantly higher number of ongoing obligations. Until now, companies whose shares are traded in the Open Market have been exempt from certain rules under the German securities trading act (WpHG) such as the publication of ad hoc statements, the disclosure of directors’ dealings and the keeping of insider lists. When the new regulations come into force in July 2016, this relief granted to companies traded in the Open Market will largely end, save for their exemption from the duty to prepare their annual accounts to IFRS. In addition, they will also remain exempt from publishing six-monthly reports, unless they are registered in a quality segment (Entry Standard, M:access) of the Open Market.
Another EU initiative, paradoxically called “Transparency Directive”, runs counter to this rule in that it provides for the abolition of quarterly reports. In contrast to the above-mentioned MAR, this initiative by the European regulators will not be binding on the national stock markets. Consequently it will be up to Deutsche Börse whether to retain or abolish the duty to publish quarterly reports in its Prime Standard, the segment requiring the highest level of transparency. According to Deutsche Börse, this issue “is currently being explored in close conjunction with the issuers listed in this segment”. The Directive is to be transposed into national law no later than November 2015.
What implications do these two initiatives have for…
Given that companies listed in the Open Market tend to be smaller, compliance with the new MAR rules will require greater manpower and financial resources (ongoing assessment of need for ad hoc disclosure, keeping of insider lists). On the positive side, the enhanced transparency might make these companies attractive to new investor groups.
For companies listed in the Regulated Market, the new MAR rules merely bring certain modifications of existing rules. The additional resources required will be more or less negligible once these modifications are fully understood and the relevant processes have been adjusted. However, an abolition or trimming of the quarterly reports would mean substantial manpower and cost relief for companies listed in the Prime Standard segment.
The enhanced requirements in the Open Market will raise the barriers for potential IPO candidates. This will increase medium sized companies’ reluctance to go to the capital market. In contrast, an abolition of the quarterly reporting requirement would make an IPO more attractive for those companies which have so far been deterred by the need to produce quarterly reports.
Fabian Kirchmann, managing partner, IR.on AG