From complexity to simplicity – the new rules and regulations of the LuxSE enter into force today

The Luxembourg Stock Exchange’s new rules and regulations (the “R&Rs”) enter into force today, 31 January 2020, and will certainly be warmly welcomed by issuers and their listing agents/legal advisors. The new R&Rs can be consulted here.

The drive for change

Driven by the need to adapt to the current legal and regulatory landscape (following the entry into force of the Prospectus Regulation[1] and related amendments to national legislation) and inspired by feedback received from the market in recent years, the Luxembourg Stock Exchange (the “LuxSE”) has effectively overhauled its R&Rs, in particular Part 2 (Prospectus Approval for Admission of Securities to Trading) thereof.

Changes to Part 2

Part 2 of the new R&Rs is now significantly more “user-friendly” for those drawing up prospectuses, especially for those who are already familiar with the Prospectus Regulation. This is in particular due to the following changes:

Single prospectus regime for the listing of debt securities

There is now a single prospectus regime for the listing of debt securities on the Euro MTF[2] (whereas previously there was a distinction between prospectuses for securities offered to the wholesale market or the retail market – this now unified regime is based on the requirements of the wholesale regime);

New Building Block Appendices

  • Part 2 of the updated R&Rs now contains Appendices I to XIV which are effectively 14 building blocks setting out all relevant disclosure requirements. These will serve as a helpful checklist for persons drawing up prospectuses, similar to the annexes of the Commission Delegated Regulation (EU) 2019/980. Although it should be noted that the LuxSE does not require the submission of checklists with the application for prospectus approval.
  • There is now a single schedule/appendix for each of the following:
    • alleviated prospectuses for issuances covered by Part III, Chapter 2 of the Luxembourg Prospectus Law[3] to be admitted to trading on the LuxSE Regulated Market[4] – Appendix XIV;
    • all types of derivative securities to be admitted to trading on the Euro MTF  – Appendix VII;
    • all types of investment funds (both open and closed-ended) to be listed on the Euro MTF– Appendix XII. As a consequence, the disclosure requirements for closed-ended funds are now lighter compared to before when their prospectuses had to be drawn up in accordance with the equity schedule;
  • Part 2 also contains the very helpful “Guidelines for the Use of the Appendices”.

Short-form prospectus exemptions

  • There is now a broader scope of exemptions allowing for the use of a short-form prospectus. This regime is now available:
    • to issuers who are multilateral institutions which are not public international bodies and of which at least one OECD Member State is a member (previously only supranational issuers could take advantage of this simplified regime);
    • for securities guaranteed by a Member State, an OECD Member State or their representative regional or local authorities as well as for non-equity securities issued in a continuous or repeated manner by credit institutions.

Alleviated requirements

The new R&Rs also allow for some alleviated requirements as follows:-

  • issuers who are listed entities whose shares are admitted to trading on a Regulated Market or equivalent, are now exempted from disclosing certain information from the issuer building block; listed guarantors benefit from a similar exemption;
  • the prospectus for convertible debt and derivative securities giving the right to acquire shares can now be drawn up in accordance with the debt securities issuer disclosure regime (rather than the equity disclosure regime); it is no longer mandatory that the underlying shares are admitted to trading
  • there is now a lighter disclosure regime applicable to secondary issuances for debt securities contained within in Appendix XIII.

Some changes to LuxSE’s AML-CFT KYC Policy

In line with the global anti-money laundering and counter terrorism financing movement, the LuxSE has implemented a new KYC due diligence process which is reflected in Part 1 of the updated R&Rs. The practical implications for new and existing issuers are minimal. Nothing will change as regards the listing process for existing issuers but they can expect to be contacted by the LuxSE in due course, with a request from some additional information, as part of the LuxSE’s ongoing due diligence.  Going forward, new issuers will need to submit as part of their listing application, in addition to the usual application form and letter of undertaking, a completed AML/KYC form which is available here.

To sum up:

Part 0 (containing definitions), Part 1 (containing the rules for admission to trading and the Official List), Part 3 (containing the market rules) and Part 4 (containing rules of public auctions organised by the LuxSE) remain largely unchanged except to incorporate some simple and standard AML-CFT KYC requirements. On the other hand, Part 2 of the R&Rs has been amended almost beyond recognition with the result that the drawing up, review and approval of prospectuses is now more transparent, fast and efficient, much to the advantage of all concerned.

[1] Regulation (EU) 2017/1129 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] The multilateral trading facility as defined by Article 4(1)(22) of Directive 2014/65/EU (“MiFID II”) operated by the LuxSE.

[3] Luxembourg law of 16 July 2019 on prospectuses for securities.

[4] The regulated market (“Regulated Market”) as defined by Article 4(1)(21) of MiFID II, of LuxSE (the “LuxSE Regulated Market”)