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Luxembourg Stock Exchange – new rules and regulations

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28 January 2020

The Luxembourg Stock Exchange has published a new version of its rules and regulations which will be applicable as of 31 January 2020. 

This time, the rules have been significantly overhauled and reflect legal and regulatory changes and recent market practices. Most importantly, the new rules have completely revamped the disclosure requirements for drawing up a prospectus for admission of securities to trading on the Euro MTF market (that is, the alternative market operated by the Luxembourg Stock Exchange). A review of the main changes is contained in our e-Alert below. 

Introduction

The rules and regulations of the Luxembourg Stock Exchange set out rules for the listing and admission to trading of securities on the markets operated by it, as well as the conditions for drawing up a prospectus. The new rules, which will be applicable as of 31 January 2020, have significantly overhauled the previous rules and regulations from October 2018. The major changes relate to the conditions for the drawing up of prospectuses for admission of securities to trading on the Euro MTF market (see Section 1 below). Some additional changes relate to the national regime for prospectuses for admission to trading on the Luxembourg regulated market in situations not covered by the Prospectus Regulation and to general rules for applying for admission to trading (see Section 2 and Section 3 below, respectively). 

1. Changes relating to admission to the Euro MTF Market

A new ‘building blocks’ approach for disclosure

Disclosure requirements for prospectuses for admission of securities on the Euro MTF market are now set out in the appendices attached to the new rules and regulations. The applicable appendices depend on the type of issuer and the type of securities in question. Information to be included in a prospectus must comply with the information requirements laid down in a single appendix or a combination of appendices (similar to the approach adopted under the Prospectus Regulation[1]). The new rules and regulations also include guidelines on the use of the appendices.

The following 14 appendices have been introduced:

  • Appendix I: Debt securities – Issuer building block
  • Appendix II: Debt securities – Securities building block
  • Appendix III: Guarantee building block
  • Appendix IV: Debt securities – States and their regional and local authorities
  • Appendix V: Asset-backed securities – Issuer building block
  • Appendix VI: Asset-backed securities – Underlying building block
  • Appendix VII: Derivative securities (replacing separate schedules for warrants, credit-linked notes, certificates, structured notes under previous rules)
  • Appendix VIII: Debt and derivative securities which are exchangeable for or convertible into shares
  • Appendix IX: Equity – Issuer building block
  • Appendix X: Equity – Securities building block
  • Appendix XI: Depository receipts representing shares
  • Appendix XII: UCIs
  • Appendix XIII: Debt securities – Issuer building block – Secondary issuances
  • Appendix XIV: Short-form prospectus

One single prospectus regime for debt securities

Disclosure requirements for admission of debt securities on the Euro MTF market have now been summarised in Appendix I and Appendix II and thus create one single regime for all debt issuances. These new disclosure requirements have been also simplified and are now comparable to the previously existing disclosure regime for “Eurobonds”[2] which was perceived as a rather light disclosure regime compared to standard debt disclosure.

Guarantees

Appendix III of the new rules now provides for straightforward disclosure requirements in relation to guarantors. In particular, the rules now clarify that where the guarantor is not part of the same group as the issuer, the prospectus shall contain the same level of information on the guarantor as is required for an issuer. However, if the issuer and the guarantor are part of the same group, lighter disclosure requirements apply and only the disclosure of the group’s consolidated financial statements is sufficient.

Furthermore, if the shares of a guarantor are listed on an EU-regulated – or an equivalent – market, it is sufficient to provide the name of the relevant market and the ISIN. The requirement regarding the indication of the percentage of EBITDA and of the total assets that the non-guarantors represent in the consolidated group financial statements has been maintained and the information in this respect still needs to be included in the prospectus. However, the importance of non-guarantors no longer affects the applicable disclosure obligations. 

‘Short-form’ prospectuses

In contrast to the previous regime, issuances that benefit from a partial exemption from the obligation to publish a prospectus for admission to trading on the Euro MTF market can now all use the same ‘short-form’ prospectus, as provided for in Appendix XIV. This short-form prospectus is the lightest available disclosure regime for admissions to trading on the Euro MTF market. For instance, for both equity and debt issuances, disclosure of financial information and certain other information on the issuer[3] is not required under the short-form prospectus regime.

The short-form prospectus is available, among others, in the following scenarios:

  • For debt securities issued by Member States’ regional or local authorities.
  • For multilateral institutions which are not public international bodies (the latter being fully exempt from the obligation to prepare a prospectus) and of which at least one OECD Member State is a member.
  • For securities guaranteed by a Member State, an OECD Member State or their respective regional or local authorities.
  • For money market instruments.
  • For the secondary issuance of equity securities[4].
  • For debt securities of issuers whose shares are admitted to trading on an EU-regulated market or equivalent.
  • For debt securities issued in a continuous or repeated manner by the credit institutions[5].

Lighter disclosure requirements for convertible debt

New disclosure rules (see Appendix VIII) have been introduced for debt and derivative securities that are exchangeable for or convertible into shares. The requirements under the new Appendix VIII have simplified the previous regime as both the issuer and the issuer of underlying shares can now be described by using the debt disclosure rules. In addition, the disclosure rules for convertible debt do not require that the underlying shares be admitted to trading. 

Secondary issuances of debt securities[6]

While secondary issuances of equity can avail themselves of the short-form prospectus regime, frequent issuers of debt securities may now benefit from the specific disclosure regime under Appendix XIII as regards description of such issuers. 

Disclosure of financial information

An issuer of debt securities may benefit from an exemption to include financial information in the prospectus, where it: (i) is a wholly owned subsidiary; and (ii) issues securities that are unconditionally and irrevocably guaranteed by the issuer’s holding company or equivalent arrangements are in place; and (iii) has its accounts included in the consolidated accounts of its holding company; and (iv) provides a statement in the prospectus that non-disclosure of its own accounts would not be likely to mislead investors with regard to facts and circumstances that are essential for assessing the securities. However, information with respect to the guarantor needs to be included in the prospectus in accordance with the provisions set out above on “Guarantees”. 

Final terms

The new rules contain clarifications concerning final terms. The document commonly referred to as the final terms or pricing supplement shall typically contain information that relates to specific types of securities and underlying assets which have been foreseen in the base prospectus. Information about underlying assets that is not available at the time of approval of the base prospectus may be given in the final terms or pricing supplement if the disclosure items have been foreseen in the form of final terms or pricing supplement.

Other enhancements

The overhaul has also permitted to consolidate rules and guidelines scattered across different documents – for example, guidelines concerning review periods for prospectuses are now incorporated in the new rules.

The new changes to the rules, in particular the consolidation of the rules and new ‘building blocks’ approach, seem to offer greater clarity and improved usability.

The new rules have been aligned in several respects with recent regulatory changes. For example, there is no longer a need to include a tax disclosure/warning for debt securities (which is in line with the approach adopted by the European authorities for wholesale issuances under the Prospectus Regulation regime).

As a general comment, it is also worth mentioning that the rules applicable to admission to trading on the Euro MTF market have not been extended to incorporate some of the key novel requirements of the Prospectus Regulation (such as the new rules on risk factors or the new requirements on documents to be incorporated by reference).

2. Changes to the Luxembourg Regime for ‘Alleviated Prospectuses’

The rules of the Luxembourg Stock Exchange also set out conditions for the drawing up of the prospectuses for admission of securities to the regulated market of the Luxembourg Stock Exchange but which are not covered by the Prospectus Regulation (such as money market instruments or issuers guaranteed by EU Member States or their regional/local authorities). For this type of issuance, the new rules only require the approval of a short-form prospectus prepared in accordance with the provisions of Appendix XIV.

3. Changes to application process (new KYC/AML requirements)

New issuers[7] applying for listing and/or an admission of securities to trading on either the regulated market or the Euro MTF market of the Luxembourg Stock Exchange must provide relevant information to identify the issuer, its beneficial owner(s) and, where applicable, any related politically exposed person(s) who are involved. In this respect, a new ALM/KYC form needs to be submitted to the Luxembourg Stock Exchange in addition to the usual Application Form and the Letter of Undertaking.

For existing issuers, the Luxembourg Stock Exchange will require such information in the context of such issuer’s ongoing disclosure obligations.

Some entities, such as public international bodies, are exempt from these new AML/KYC obligations.

More information and respective AML/KYC forms are available from the following section of the Luxembourg Stock Exchange website: https://www.bourse.lu/news-luxse-kyc-forms

If you would like to discuss the issues raised in this paper in more detail, please contact any of the experts tagged to this page or your usual Allen & Overy contact.

 

Footnotes

  1. Regulation 1129/2017 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (the Prospectus Regulation).
  2. Regime available under previous rules for issuances of debt securities subscribed by a limited number of investors who are particularly knowledgeable in investment matters (notably for Eurobonds).
  3. Information on business overview, organisational structure and information on administrative, management or supervisory bodies. In the case of an equity issuer, in addition to the aforementioned requirements, information on shares and major shareholders has been waived.
  4. There is no obligation to publish a prospectus or short-form prospectus for secondary issuances of any securities (debt or equity) fungible with securities already admitted to trading on the Euro MTF market, provided that they represent, over a period of 12 months, less than 20% of the number of securities already admitted to trading on the Euro MTF market.
  5. “Credit institution” means any financial institution as defined in Article 3(1) of the Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, as transposed into the Luxembourgish legal framework by the Law of 23 July 2015, as amended and with the exception of institutions referred to in Article 2(5) thereof. An issuer is deemed to make repeated issues if it carries out more than one issue during a period which covers its financial year.
  6. See footnote 4.
  7. The Luxembourg Stock Exchange considers as ‘new issuers’ those issuers applying for the listing and/or admission of securities to trading on one of the markets operated by it for the first time or those issuers who have not applied for the listing and/or admission to trading to one of the markets operated by it over a period of three years preceding the new application.