The European Commission presented, on Wednesday 7 December, a package of measures to further develop the Capital Markets Union (CMU) in the European Union. The package consists of six legislative proposals, organised in three parts: - clearing; - corporate insolvency; - listing act.
“Today’s initiatives directly tackle some of the remaining barriers to a single European market for capital”, said the Executive Vice-President of the Commission, Valdis Dombrovskis, at a press conference.
The proposal includes a number of revisions to existing legislation, such as the Directive on Undertakings for the Collective Investment in Transferable Securities (UCITS), the Capital Requirements Directive (CRD), the Investment Firms Directive (IFD) and the European Market Infrastructure Regulation (EMIR).
Clearing. The first measure concerns central counterparties (CCPs) – which are infrastructures for the payment and delivery of securities (shares, bonds, options, etc.) between investors.
The proposal aims to make clearing conditions in the EU more attractive, by allowing CCPs to develop their products faster and easier and by strengthening the incentives for market participants to clear their contracts with these CCPs and thus increase their liquidity.
The EU supervisory framework for CCPs will also be strengthened. Following the recent developments in the energy markets caused by Russia’s military aggression against Ukraine, the Commission wants to increase the transparency of margin calls so that market players - including energy companies - are better able to predict them.
The idea is also to 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 (ESMA). This will improve risk management for financial stability in the EU.
According to a European official, the text will reduce Europeans’ dependence on foreign CCPs, especially the UK, in order to ensure the resilience of the EU’s clearing. “The costs involved in this measure can be managed and are worth paying, as it is not beneficial to the EU not to have its own CCPs”, the official said.
Corporate insolvency. This measure aims to harmonise national insolvency regimes within the EU. The fragmentation of national rules is a problem for cross-border investors, who must take this into account when considering an investment opportunity.
“Across our Member States, the procedure can take seven months in some Member States or up to seven years in others”, Mairead McGuinness, the European Commissioner for Financial Services, told the press.
“All of the proposals we’ve made aim at allowing investors recover value, ensuring that value is not lost from the company in the lead up to an insolvency”, she explained.
In agreement with the European Commissioner for Justice, Didier Reynders, the proposed provisions will have the effect of preserving the insolvency estate, i.e. avoiding actions by debtors that would reduce the value that creditors can get. Creditors’ committees will be established to ensure a fair distribution of the recovered value among creditors.
In addition, so-called ‘pre-pack’ proceedings, in which the sale of the business is concluded before insolvency proceedings are initiated, will be implemented. The directors will be obligated to file for insolvency quickly in order to prevent the company from losing value.
Finally, the Commission plans to introduce a simplified regime for micro-enterprises, which will reduce the cost of winding them down and relieve their owners of their debts.
Member States will be required to produce an information factsheet, summarising the essential elements of their national insolvency laws to facilitate decisions by a cross-border investor.
According to the Commission, the benefits of this proposal are expected to exceed €10 billion per year.
Listing Act. This last part aims to simplify the process that companies have to follow in order to be listed on the stock exchange, which is currently very cumbersome and sometimes requires up to 800 pages of documents and prospectuses.
“Public listing is a cumbersome process, it also costs companies a lot, especially for SMEs. This deters them from raising funds on capital markets”, Mr Dombrovskis said. He hopes, thanks to this measure, to convince European companies not to relocate to the United States in order to obtain the financing they need.
This simplification should clarify information, help make companies less invisible to investors and improve access to research. The ambition is to allow SMEs to retain control of the listing process while facilitating access.
The Commission estimates, for example, that EU listed companies will save around €100 million per year through reduced compliance costs and €67 million per year through simplified prospectus rules.
The six legislative proposals will now be submitted to the European Parliament and to the EU Council for adoption.
To consult the texts of the proposal: https://aeur.eu/f/4jd (Original version in French by Anne Damiani)