Capital Markets Union: new proposals on clearing, corporate insolvency and company listing to make EU capital markets more attractive

This article is brought to you in association with the European Commission.

The European Commission has today put forward measures to further develop the EU’s Capital Markets Union (CMU):  

• to make EU clearing services more attractive and resilient, supporting the EU’s open strategic autonomy and preserving financial stability.
• to harmonise certain corporate insolvency rules across the EU, making them more efficient and helping promotecross-border investment.
• to alleviate – through a new Listing Act – the administrative burden for companies of all sizes, in particular SMEs, so that they can better access public funding by listing on stock exchanges.

Clearing

The EU needs safe, robust and attractive clearing for a well-functioning CMU. If clearing does not function efficiently, financial institutions, companies and investors face more risks and higher costs –as the 2008 financial crisis showed.

Today’s proposed measures will: 

• Make our clearing landscape more attractive by enabling central counterparties (CCPs) – which provide clearing services – to expand their products quicker and easier, and by further incentivising EU market participants to clear and build liquidity at EU CCPs.
• Help build a safe and resilient clearing system, by strengthening the EU supervisory framework for CCPs and drawing lessons from the recent developments in energy markets caused by Russia’s aggression against Ukraine. For example, by increasing the transparency of margin calls, so that market participants (including energy firms) are in a better position to predict them.
• Reduce excessive exposures of EU market participants to CCPs in third countries, particularly for derivatives identified as substantially systemic by the European Securities and Markets Authority. Today’s proposal requires all relevant market participants to hold active accounts at EU CCPs for clearing at least a portion of certain systemic derivative contracts. This will improve the management of financial stability risks in the EU.

Corporate insolvency

Each Member State has a different insolvency regime. This is a challenge for cross-border investors who have to consider 27 different sets of insolvency rules when assessing an investment opportunity.

Today’s proposal will:

• Harmonise specific aspects of insolvency proceedings across the EU. For example, it includes rules on:
  • actions to preserve the insolvency estate (i.e. avoiding actions by debtors that would reduce the value that creditors can get);
  • creditors’ committees to ensure a fair distribution of the recovered value among creditors;
  • so-called “pre-pack” proceedings (i.e. where the sale of the business is agreed before the insolvency starts);
  • and the duty on directors to timely file for insolvency to avoid that the value of the company deteriorates.

• Introduce a simplified regime for microenterprises to lower the costs of winding them down and to enable the companies’ owners to be discharged from debt, granting them a fresh start as entrepreneurs.
• Require Member States to produce an information factsheet, summarising the essential elements of their national insolvency laws to facilitate decisions by a cross-border investor.

These measures will foster cross-border investment across the Single Market, lower the cost of capital for companies, and ultimately contribute to the EU’s CMU. Overall, the benefits of the proposal are expected to exceed €10 billion annually.

Listing Act

Companies today face significant requirements when listing on public markets. For example, the length of prospectus documents can reach up to 800 pages.

Today’s proposed amendments will:

• Simplify the documentation that companies need to list on public markets, and streamline the scrutiny processes by national supervisors, thereby speeding up and reducing the costs of the listing process whenever possible. For example, it is estimated that EU listed companies will save approximately €100 million per year from lower compliance costs, with companies saving €67 million per year from simpler prospectus rules alone.
• Simplify and clarify some market abuse requirements, without compromising market integrity.
• Help companies be more visible to investors, by encouraging more investment research especially for small and medium sized companies.
• Allow company owners to list on SME growth markets using multiple vote share structures, so that they can retain sufficient control of their company after listing, while protecting the rights of all other shareholders.

These measures will further develop the CMU by cutting unnecessary red tape and costs for companies. This will encourage companies to get and remain listed on the EU capital markets. Easier access to public markets will allow companies to better diversify and complement available sources of funding. 

Further details and next steps

The clearing package consists of:

• a Communication;
• a Regulation amending the European Market Infrastructure Regulation (EMIR), the Capital Requirements Regulation (CRR) and the Money Market Funds (MMF) Regulation;
• a Directive amending the Capital Requirements Directive (CRD), Investment Firm Directive (IFD), and the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS).

The listing package consists of:

• an amending Regulation amending the Prospectus Regulation, Market Abuse Regulation and the Markets in Financial Instruments Regulation,
• an amending Directive amending the Markets in Financial Instruments Directive and repealing the Listing Directive, and
• a Directive on multiple-vote shares. 
• The corporate insolvency package consists of:
  • a Directive on corporate insolvency.

The six respective legislative proposals will now be submitted to the European Parliament and the Council for adoption.