Listing a debt security on an exchange in Europe brings with it a set of continuing obligations for the issuer. The purpose of this article is to provide an overview of those continuing obligations on five exchanges.
Generally, exchanges in Europe and the continuing obligations for their debt securities fall into two categories, based on whether they allow offerings to retail investors in the European Economic Area (EEA). Below is a list of the exchanges we discuss in this article with a note if they include offerings to retail investors.
- London Stock Exchange's Main Market (includes offerings to retail investors)
- London Stock Exchange's International Securities Market
- Luxembourg Stock Exchange (includes offerings to retail investors, also called the Bourse de Luxembourg or BdL)
- Luxembourg Stock Exchange's Euro MTF (multilateral trading facility)
- Euronext Dublin's Global Exchange Market (GEM)
The markets that don’t include offerings to retail investors are intended to have more pragmatic reporting obligations for issuers because they don’t target retail investors.
Before we go into detail on the continuing obligations for debt securities on these exchanges, it is worth noting the potential impact of Brexit on debt securities issued on the London Stock Exchange.
Status of Brexit and the London Stock Exchange as of August 20th, 2020
On January 31st, 2020, the UK officially left the European Union. The UK is in an implementation phase which is expected to last at least until the end of 2020. During that phase, the UK continues to be treated as a member state of the EU in respect of the coordinated regulation of debt securities.
There is no agreement yet between the UK and the EU on passporting debt securities listed on UK exchanges into the EEA, and the EU’s chief negotiator has told UK issuers not to expect an agreement. If the status quo remains, UK issuers will lose the benefit of a “European passport” for their offers on January 1st, 2021. That means issuers on the London Stock Exchange that want their debt securities to benefit from an EU passport will need to list their debt securities on an exchange outside the UK that provides passporting into the EEA. The negotiations are on-going and the situation remains fluid. A similar situation applies to listings on the Luxembourg or Irish exchanges that are held by residents of the UK—there is not yet certainty how they will be treated.
Comparison of the five markets
Generally speaking, the two markets that are open to retail investors are subject to more stringent regulations with government oversight and enjoy the benefit of a “European passport” to other markets. The three exchange-regulated markets discussed in this article are only open to professional investors, but they enjoy a generally less restrictive regulatory environment that is supervised by the relevant exchange.
The image below provides an overview of the continuing obligations for debt securities on the London Stock Exchange's Main Market, the London Stock Exchange's International Securities Market, the Luxembourg Stock Exchange, The Luxembourg Stock Exchange's Euro MTF market, and Euronext Dublin's Global Exchange Market (GEM):
London Stock Exchange (LSE)
The London Stock Exchange lists debt securities on two markets, the main market and the International Securities Market. The International Securities Market was launched in 2017 to compete with Euronext Dublin’s Global Exchange Market and the Luxembourg Stock Exchange’s Euro MTF. The International Securities Market only offers debt securities to Professional Investors (if you would like more information on the definition of Professional Investor, see our article Professional Investors under MIFID). The International Securities Market is offered as a more flexible and pragmatic solution to the LSE's main market, which incorporates EU rules for offerings to retail investors.
London Stock Exchange Main Market
The LSE’s main market is the market for debt securities that may be offered to both Professional Investors and retail investors. Listings are organized to benefit from the EU’s rules on common prospectuses, which allow for retail offerings across the EEA.
The most significant continuing obligations for issuers of debt securities on the London Stock Exchange main market are that they:
- Must comply with Market Abuse Regulation (EU) 596/2014, including provisions for disclosure of inside information.
- Must comply with EU Disclosure Guidance and Transparency Rules (DTRs).
- Must publish audited annual accounts within four months of year end. Interim reports do not need to be audited but must be in compliance with DTR and submitted within three months of the end of the interim period.
- Must comply with disclosures related to rights of holders, amendment to trust deeds, information related to early redemption of securities, and presentation and content of documents of title relating to the securities, found in Chapter 17.3 of the Financial Conduct Authority’s Listing Rules.
Penalties for failing to comply with the rules can include private or public censure, suspension or cancellation of the listing, and/or financial penalties.
London Stock Exchange International Securities Market (ISM)
Debt securities listed on the LSE’s International Securities Market may only be offered to Professional Investors. Instead of requiring approval for new issuances from the UK’s Financial Conduct Authority (FCA), the ISM operates according to the rules of the London Stock Exchange and approves listings on its own. Debt securities listed on the ISM must comply with the Market Abuse Regulation (EU) 596/2014. In a nod to more pragmatic regulation, they do not need to comply with the DTR regulations, although they must comply with the London Stock Exchange’s ISM rules, which are similar. The biggest difference between the ISM and the LSE Main Market is there is no need to provide interim financial reports every six months to the ISM, as is required on the LSE Main Market.
Luxembourg Stock Exchange
The Luxembourg Stock Exchange also offers two markets for debt securities: the Luxembourg Stock Exchange/Bourse de Luxembourg and the Euro MTF.
Bourse de Luxembourg (BdL)
The equivalent of the LSE's main market in Luxembourg is the Luxembourg Stock Exchange, which is also called the Bourse de Luxembourg or BdL. The BdL is compliant with all EU requirements and securities listed there are eligible for the “European Passport.” Ongoing obligations for issuers of securities on the BdL include:
- Compliance with the EU Audit Directive
- Compliance with the EU Disclosure Guidance and Transparency Rules (DTRs)
- Submission of financial statements semi-annually
- Compliance of financial statements with International Financial Reporting Standards (IFRS)
- Compliance with Officially Appointed Mechanism (OAM) for the centralized storage of regulatory information for companies whose home state is Luxembourg.
- Filing required documents with the regulatory authority, Commission de Surveillance du Secteur Financier (CSSF).
- Compliance with Chapter 9 of the Luxembourg Stock Exchange Rules and Regulations, which includes various notification and investor protection requirements.
The Euro MTF is a market of the Luxembourg Stock Exchange that offers a relaxed regulatory environment compared with the BdL. Key differences are:
- No need to comply with the Audit Directive or DTR; instead, issuers must comply with specific requirements of Part 1, Chapter 10 of the Luxembourg Stock Exchange Rules and Regulations
- Annual financial statements instead of semi-annual
- Other recognised standards for financial statements such as GAAP are acceptable.
- No need to comply with OAM and CSSF requirements
- Securities issued on the BdL must comply with Chapter 9 of the Luxembourg Stock Exchange Rules and Regulations.
Euronext Dublin – Global Exchange Market (GEM)
Similar to the London Stock Exchange’s ISM or Luxembourg’s Euro MTF, Euronext Dublin’s GEM is an exchange regulated market, which means that it does not offer the “European Passport” and has relaxed continuing obligations compared with the regulated markets. Only Professional Investors may use the GEM.
GEM’s rules for continuing obligations for debt securities can found in the document “Global Exchange Market Listing and Admission to Trading Rules for Debt Securities,” link below.
- Compliance with EU Market Abuse Regulation (EU) 596/2014
- Disclosure of information that can affect the rights of the holders or the security of the debt, including new loan issues, guarantees, redemption or cancellation of debt securities prior to the due date, change in maturity date of any listed security, any payment default, or changes in transfer agent or name of the issuer.
- Equal treatment of all holders of pari passu ranked securities.
- Making information that securities holders need to exercise their rights publicly available and allowing them to exercise their rights by proxy.
- Having a financial institution that serves as agent through which securities holders may exercise their rights.
- Following specific rules if using electronic means to convey information to securities holders.
- Sending the draft amendment to Euronext Dublin in a timely fashion if an issuer plans to change its instrument of incorporation.
- Following stipulated mechanisms for the disclosure of regulated information.
- Publishing the issuer’s annual report in a manner and timeframe consistent with the issuer’s national law. Annual reports must be audited to the standards applicable in an EEA state or equivalent acceptable to Euronext Dublin.
Issuing a debt security is a complex process with many rules and regulations that must be complied with in the process of putting together a prospectus and getting the security listed. Once a security is listed there are continuing obligations that must be complied with or the company may be liable to substantial penalties.
Even though there is some standardisation throughout the EEA for securities listed on regulated exchanges, including the “European passport,” which allows listing on additional exchanges without duplicative submissions, there are variations based on national law that vary from exchange to exchange.
There is greater variation in the continuing obligations for securities listed on multi-lateral trading facility markets, which are only open to professional investors and operate according to the rules of the exchange where they are listed. This greater flexibility in the regulatory structure allows firms to find a market that is most suitable for its particular needs. After listing on such a market, care must be taken to understand and comply with the continuing obligations for that particular market.
For a discussion of different categories of investors, including professional and retail investors, see our article Professional Investors under MIFID
EU Market Abuse Regulation (EU) 596/2014
EU Disclosure Guidance and Transparency Rules (DTRs)
UK Financial Conduct Authority Listing Rules Chapter 17.3
International Financial Reporting Standards (IFRS)
Luxembourg Officially Appointed Mechanism (OAM) for the centralized storage of regulatory information
Luxembourg Stock Exchange Rules and Regulations
Euronext Dublin Market Listing and Admission to Trading Rules for Debt Securities for the Global Exchange Market
For a discussion of the difference between the LSE’s Main Market and the LSE’s International Securities Market, see the LSE’s explanation here.
Finally, a note on how you can use this article. This article is not to be considered legal advice and is not a substitute for advice from qualified legal counsel. You may not rely on the information in this article. Material aspects of the discussions in this article may change at any time and without further notice. Among other things, negotiations concerning the status of the UK in respect of the European Union ("Brexit") may lead to changes in the LSE's rules, the FCA's regulation, or other relevant rules and regulations.