On 7 December 2022, the European Commission put forward a series of legislative proposals aimed at strengthening the Capital Markets Union and facilitating investment in the EU. The proposals concern three areas: clearing services, corporate insolvency rules, and listing rules for companies raising funds on stock exchanges. Coming at especially challenging economic times, the proposals should help boost the European economy by making it easier for EU companies to secure financing through capital markets, in addition to what they can borrow from banks.

Clearing

The EU needs to modernise its clearing system so it can react more swiftly to changing market and economic circumstances. It also needs to reinforce its domestic clearing capacity.

The proposed measures aim to help build a safe, robust, and attractive EU clearing ecosystem – one that can withstand shocks, such as the energy crisis. The measures will allow EU central counterparties (CCPs) to expand their products more easily to meet demand. Furthermore, by strengthening supervisory rules, they should make the EU clearing system safer and more resilient.

In addition, the proposed measures should help reduce the risks stemming from an excessive reliance on non-EU CCPs, in particular for derivatives that have been identified by the European Securities and Markets Authority (ESMA) as ‘substantially systemic’. For instance, the proposal requires clearing members and clients to hold, directly or indirectly, active accounts at EU CCPs for clearing at least a portion of certain systemic derivative contracts. 

Corporate insolvency

At the moment, every EU Member State has a different insolvency regime. This is a particular challenge for cross-border investors, who have to deal with up to 27 different sets of insolvency rules when assessing an investment opportunity.

The measures being proposed aim to break down what is one of the major barriers between national markets. Investors will have greater certainty about how long insolvency proceedings might take, and how much value they are likely to recover. The measures will also lower the cost of capital for companies, and ultimately contribute to the achievement of the Capital Markets Union.

More specifically, the proposals

• harmonise certain targeted aspects of corporate insolvency proceedings across the EU
• introduce a simplified regime for microenterprises to lower winding-down costs, enabling them to make a fresh start, without debt
• require Member States to produce an information factsheet, setting out the main elements of their national insolvency laws

The proposed measures should mean that cross-border investors can better and more easily anticipate the returns on their investment, including in the case of insolvency. Overall, the benefits of the proposal are expected to exceed €10 billion annually.

Listing Act

Companies today face a number of requirements when listing on public markets, and initial public offerings (IPOs) can be very costly and complex. For instance, the prospectus – providing details about the investment offering – that companies must draw up can be up to 800 pages long.

The new proposal aims to alleviate the administrative burden for companies of all sizes, but in particular of smaller companies, so that they can more easily access funding by listing on stock exchanges. To give one example, up until now, many scale-ups have either failed to go public or been absorbed by other, larger companies. So, with these proposals, the Commission hopes to ensure that European scale-ups have as many chances to develop in the EU as elsewhere.

The measures being proposed on listing will lower the costs, simplify paperwork, and speed up the listing process, making a real difference for EU companies, in particular SMEs. The measures also aim to simplify and clarify certain market abuse requirements, while ensuring a high level of investor protection and market integrity. In addition, founders of small firms will have the possibility to retain control when listing on SME-dedicated exchanges, and therefore will also be able to continue with their strategic vision after accessing public markets.

Overall, easier access to public markets will allow companies to better diversify and complement available sources of funding and provide wider investment opportunities for EU investors.

Read more about the proposals