Regulatory changes and implications of the MAB changing to BME Growth

After obtaining the European SME Growth Market seal, we analyze the main changes that will occur in the market and their implications for the various agents operating in it.

As stated in a previous post, on September 3, Bolsas y Mercados Españoles (BME) reported that the Spanish Securities and Exchange Commission (CNMV) granted the Mercado Alternativo Bursátil (Alternative Stock Market, MAB), a multilateral trading system for SMEs, the European SME Growth Market seal, after checking that it meets all the regulatory requirements. This  (i) gives the market a larger international profile, (ii) matches its competitive position with the other uniform European markets (they will have the same quality, transparency and liquidity standards), and (iii) simplifies the regulatory burden for issuers, to facilitate companies’ access to the capital markets.

BME Growth is part of the “BME MTF Equity” multilateral trading system, which will also include the BME IIC (made up of SICAVs and collective investment undertakings) and BME ECR (for venture capital companies) segments.

Therefore, the “SOCIMI” (real estate investment trust) and “Growth Companies” disappear, as all the companies whose shares were traded in these markets are now part of BME Growth. In accordance with Circular 1/2020 on the requirements and procedures applicable to inclusion and exclusion in BME Growth, the regulatory requirements for both types of companies are unified. In short:

• Companies requesting to be included in BME Growth must market products or services or have developed relevant actions to be able to do so.

• Directors and main shareholders and executives cannot sell their shares for one year (lock-up) if the company is less than two years old.

• The system for communicating significant holdings sets the threshold at 5% of the share capital and successive multiples.

• Directors and executives will have to communicate the transactions they execute under section 19 of the Market Abuse Regulation. Therefore, the special rule requiring them to also notify transactions representing 1% of the capital disappears.

• The issuer (which must not be the majority shareholder) may enter into a liquidity agreement based on the CNMV’s template.

• Companies will not have to maintain and constantly update the list of insiders if they hold inside information. However, they must be able to generate it if the CNMV requests it.

Upon joining the market, companies may now opt to (i) continue using the Initial Market Inclusion Document (DIIM) or (ii) register the EU Growth Prospectus, whose content is shorter than the DIIM and saves costs and time. A company admitted to BME Growth for two years may also register an EU Growth Prospectus to join the Continuous Market. Another notable development is that the DIIM must include proforma financial information if a significant gross change occurs in the company’s perimeter (for example, due to a relevant acquisition).

With regard to secondary issuances, it is possible to register an EU Growth Prospectus or a simplified Prospectus, at the issuer’s choice, for increases subsequent to incorporation and frequent issuances. Furthermore, the new Circular 2/2020 on requirements and procedures applicable to capital increases whose shares are admitted to trading in BME Growth includes the requirement to submit a DIIM instead of a Reduced Increase Document in cases of capital increases through non-monetary contributions, consisting of shares of a company larger than that already included in the market.

In the future, companies admitted to BME Growth are expected to benefit from initiatives announced by the EU to facilitate the recapitalization of companies affected by the COVID-19 crisis; for example, the possibility of registering a “Recovery Prospectus” (with a maximum length of 30 pages and an approval process of 5 business days) for secondary issuances by companies that have been part of the market for at least 18 months.

With regard to reporting obligations and in accordance with Circular 3/2020 on information to be provided by companies admitted to trading in BME Growth, it is mandatory to disclose the reasons if the auditor’s limited review report contains a qualified opinion, unfavorable opinion or disclaimer of opinion. In the case of annual publication of the real estate assets valuation result by SOCIMIs, there is no longer a requirement that it must be on the closing date of the financial information.

All these regulatory changes will come into effect on October 1, 2020.