EU Consultation on SME Growth Markets

The European Securities and Markets Authority has launched a consultation on the functioning of the small and medium-sized Growth Markets regime under the Markets in Financial Instruments Directive II and on draft technical standards for the promotion of the use of SME Growth Markets to be developed under the Market Abuse Regulation. SME Growth Markets were a new sub-category of multilateral trading facility introduced by MiFID II in January 2018 to facilitate access to capital for SMEs. The consultation closes on July 15, 2020.

The consultation assesses the current state of the SME Growth Market regime and seeks views on possible amendments to the regime under MiFID II, including on:

• whether the minimum threshold for qualifying as an SME Growth Market is still appropriate. The minimum threshold is at least 50% of issuers whose financial instruments are admitted to trading on an MTF must be SMEs. In ESMA's view there is no immediate need to increase the threshold, but in the medium term, ESMA would contemplate a threshold of 75-80% of SME issuer listing;
• the potential advantages of conforming the definition of "SME" across EU legislation;
• introducing homogeneous admission requirements and consistent accounting standards for issuers admitted to trading on SME Growth Markets;
• establishing a two-tier SME regime with additional reliefs for micro-SMEs would encourage such issuers to seek funding from capital markets;
• introducing requirements for SME Growth Markets to have mandatory liquidity provision schemes, to reduce costs for SMEs issuers; and
• how research coverage of SMEs could be improved.

The consultation also sets out the draft technical standards that ESMA is required by MAR to develop. The first standards are draft Regulatory Technical Standards setting out a contractual template for entering into liquidity contracts for issuers whose financial instruments are admitted to trading on an SME Growth Market.

MAR provides certain prohibitions against market manipulation. Accepted market practices, which are established by national regulators and notified to ESMA, provide a defense against any allegations of market manipulation. In particular, a dealing on a financial market that was carried out for legitimate reasons and in line with an established AMP, will not be found to constitute market manipulation. Four AMPs are currently in existence, all for liquidity agreements between an issuer and a financial intermediary, where the latter enhances the liquidity of the issuer's financial instruments. Recent revisions to MAR established a safe harbour for liquidity contracts, provided that certain conditions are met. The safe harbour for liquidity contracts will co-exist with the existing and any future AMPs. However, it is only available for shares. The proposed RTS sets out the requirements relevant for the template in the body of the RTS and annexes the proposed template.

The second technical standards are draft Implementing Technical Standards on the format of insider lists for use in EU member states that require SME Growth Market issuers to include all insiders, not only those with regular access to inside information. MAR imposes an obligation on issuers, emission allowance market participants, auction platforms, auctioneers and auction monitors, or any person acting on their behalf, to create and maintain insider lists and related ITS set out the template for those lists. To reduce the burden on SMEs, a derogation was introduced to allow SME Growth Market issuers to have insider lists for only those individuals with regular access to inside information. However, Member States are able to require SME Growth Market issuers to hold lists for anyone with access to inside information when justified by specific national market integrity concerns. ESMA is proposing an insider list template that meets the latter requirement and also reduces the burden on SMEs, including by reducing the number of fields.

View ESMA's consultation paper.

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