Brexit and Debt Capital Markets transactions: some practical perspectives
Following the end of the Brexit transition period, debt capital markets participants may now need to consider both EU rules and the parallel UK rules for EU and UK transactions, particularly those that are cross-border. Although UK rules currently largely follow the EU rules (as these were onshored wholesale), there are certain differences and practical issues to consider in documentation. There is also a risk that the EU rules and the UK rules may diverge over time.
Read our separate article here, which looks at some practical perspectives to consider when documenting debt capital markets transactions in the EU and UK.
UK Listing Review report
HM Treasury has published the report of the UK Listing Review. The UK Listing Review, led by Lord Hill, was launched by Chancellor Rishi Sunak in November 2020 to further enhance the UK's position as an international destination for equity listings.
The Review examined how companies raise equity capital on UK public markets, and it makes a series of recommendations to improve the process, whilst maintaining the high standards of corporate governance, shareholder rights and transparency. The Review's recommendations include:
- modernising listing rules to allow dual class share structures in the London Stock Exchange's (LSE) premium listing segment, giving directors (in particular, founders) enhanced voting rights on certain decisions, with safeguards to maintain high corporate governance standards;
- reducing free float requirements – the amount of a company's shares that are in public hands - from 25% to 15% and allow companies to use other measures to demonstrate liquidity;
- an annual report on the state of the City, and its competitive position, delivered to Parliament by the Chancellor;
- rebranding and repositioning the LSE's standard listing segment to increase its appeal to companies of all sizes and types;
- a fundamental review of the prospectus regime so that in future, admission to a regulated market and offers to the public are treated separately. This will ensure it reflects the breadth and maturity of UK capital markets and the evolution in the types of business coming to market;
- liberalising the rules regarding special purpose acquisition companies (SPACs), with appropriate safeguards for investors;
- making it easier for companies to provide forward-looking guidance when raising capital;
- considering how technology can help retail investors participate in stewardship;
- updating the Financial Conduct Authority's (FCA) statutory objectives to include a duty to take into account the UK's attractiveness as a place to do business;
- tailoring information to meet investors' needs better;
- improving the efficiency of the listing process; and
- addressing issues in the wider financial ecosystem.
The government will now examine the Review's recommendations closely and set out next steps. Many of the recommendations, including changes to the listings regime, will require consultations by the FCA. Commenting on the publication of the report, the Chancellor said that he is keen to move quickly to consult on the recommendations. The FCA has welcomed the report and said that, where appropriate, it will act quickly with the aim of publishing a consultation by the summer and making relevant rules by late 2021.
UK MiFIR double volume cap: FCA revised Statement of Policy
The FCA has published an update on its power to suspend the use of pre-trade transparency waivers for a trading venue under the double volume cap (DVC) mechanism, under the retained EU law version of the Markets in Financial Instruments Regulation (UK MiFIR). It has also publish an updated Statement of Policy.
The FCA explains that dark trading in equities takes place when the terms on which participants are willing to trade in equity instruments are not made publicly available before the trade is executed. The DVC limits the level of dark trading to a certain proportion of total trading in an equity. A temporary power under UK MiFIR allows the FCA to choose to apply the DVC if the FCA considers it necessary to advance its integrity objective, for example if dark trading is harming the ability of market participants to make well-informed decisions.
The FCA states that, in December 2020, it announced that it would not automatically apply the DVC to UK equities. The FCA is now extending this to all equities.
In the revised Statement of Policy, the FCA sets out that it is willing to use its temporary powers flexibly and amend its approach to the DVC if another jurisdiction makes an equivalence decision in respect of the UK.
COVID-19: MiFID "quick fix"
On 26 February 2021, the Directive amending the Markets in Financial Instruments Directive (MiFID) to help the EU's economic recovery from the COVID-19 pandemic was published in the Official Journal of the EU (OJ).
The areas addressed by the Directive form part of the European Commission's capital markets recovery package. They include amendments to the rules on client information and product governance requirements, and the energy derivatives markets. In addition, the Directive extends the transposition deadline for the fifth Capital Requirements Directive (CRD V), as it applies to investment firms, to 26 June 2021.
The Directive will enter into force on 27 February 2021.
MiFID: ESMA's 2021/22 annual transparency calculations for equity and equity-like instruments
The European Securities and Markets Authority (ESMA) has published the results of its annual transparency calculations for equity and equity-like instruments, which will apply from 1 April 2021. ESMA's annual transparency calculations are based on the data provided to the ESMA financial instruments transparency system (FITRS) by trading venues and approved publication arrangements relating to the 2020 calendar year.
Currently, there are 1,432 liquid shares and 982 liquid equity-like instruments other than shares subject to MiFID/MiFIR transparency requirements. Market participants are invited to monitor the release of the transparency calculations for equity and equity-like instruments daily to obtain the estimated calculations for newly traded instruments and the four-weeks calculations applicable to newly traded instruments after the first six-weeks of trading.
The full list of assessed equity and equity-like instruments is available through FITRS in the XML files with publication date from 1 March 2021 and through the register web interface.
The calculations apply from 1 April 2021 until 31 March 2022. From 1 April 2022, the next annual transparency calculations for equity and equity-like instruments, to be published by 1 March 2022, will become applicable.
Transparency Directive: ESMA proposes improvements after the Wirecard case
ESMA has written to the European Commission with proposals to improve the Transparency Directive (TD) following the Wirecard case. The proposed modifications to the TD are based on ESMA's experience gained while coordinating the enforcement of financial information in Europe, notably, when preparing reports, discussing supervisory cases or preparing statements and opinions.
ESMA recommends that the Commission consider modifying the TD to meet four aims (detailed further in the letter):
- enhance cooperation between authorities across the EU;
- enhance the coordination and governance on a national level;
- strengthen the independence of national competent authorities (NCAs); and
- strengthen the harmonised supervision of information across the EU.
In addition, the letter addresses some of the deficiencies encountered when conducting the ESMA Peer Reviews on the application of Guidelines on Enforcement of financial information in 2017 and in the context of the Wirecard case.
EU Crowdfunding Regulation: ESMA consults on draft technical standards
ESMA has published a consultation paper on draft technical standards under the Regulation on European crowdfunding service providers for business (the Crowdfunding Regulation or the ECSP Regulation). The Crowdfunding Regulation requires ESMA to develop eight draft regulatory technical standards (RTS), including two in close cooperation with the European Banking Authority (EBA) and four draft implementing technical standards (ITS). ESMA is consulting on seven RTS and two ITS that are due to be submitted by it to the European Commission by 10 November 2021. The remaining two RTS and two ITS must be delivered to the Commission by 10 May 2022. (In addition, the EBA is mandated to develop two RTS in cooperation with ESMA.)
The consultation ends on 28 May 2021.
EU Securitisation Regulation: ESMA updates documents
ESMA has announced the publication of:
- revised version of its Q&As on the EU Securitisation Regulation, including four new questions and eleven modifications to existing answers. The new Q&As include instructions on how to report split and merged underlying exposures. The updated Q&As include revised instructions on how to report income fields for buy-to-let residential real estate mortgages; and
- updated versions of its reporting instructions and XML schema and validation rules for disclosure templates to help market participants comply with the disclosure RTS and ITS made under the EU Securitisation Regulation.
SRB Banking Union resolution dossier for FMIs
The Single Resolution Board (SRB) has published a Banking Union Resolution "Dossier" for financial market infrastructures (FMIs). The document provides a brief overview of the resolution tools available in the Banking Union and their impact on the ability of a bank in resolution to maintain continuity of access to financial market infrastructure (FMI) services.
The document covers:
- the resolution framework (institutional set-up, objectives and decision processes);
- why it is important to preserve access to FMI services for a bank in resolution;
- how the legal framework supports continued access to FMIs for a bank in resolution;
- how the legal framework protects the operations of FMIs in the event of the resolution of a bank; and
- the potential impact of the four resolution tools (bail-in, sale of business, bridge institution and asset separation) on FMIs.
IOSCO 2021-2022 work programme
The International Organization of Securities Commissions (IOSCO) has published its work programme for 2021-2022. The work programme identifies IOSCO's eight priority areas, the first two of which are new:
- financial stability and systemic risks of non-bank financial intermediation activities;
- risks exacerbated by the COVID-19 pandemic;
- sustainable finance;
- passive investing and index providers;
- market fragmentation in securities and derivatives markets;
- cryptoassets (including stablecoins);
- artificial intelligence and machine learning;
- retail distribution and digitalisation.
IOSCO will review and refresh the two-year work programme at the end of 2021.
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Authored by Yvonne Clapham