The EU Commission presented the Capital Markets Recovery Package (“CMRP”) at the end of July 2020. On 21 October 2020, Member States’ ambassadors to the EU agreed the Council’s position. The EU presidency will start negotiations with the European Parliament as soon as the Parliament has adopted its position, with a view to adopting the package by the end of 2020.
The CMRP consists currently of four proposals amending: i) the Markets in Financial Instruments Directive (“MiFID II”), ii) the Prospectus Regulation and Transparency Directive, and iii) the securitisation framework laid down in the Securitisation Regulation and the Capital Requirements Regulation (“CRR”). The overall aim is to facilitate the use of the capital markets sector to support Europe’s recovery from the COVID-19 crisis.
The CMRP proposes amendments to the MiFID II rules to simplify information requirements and address the needs of the commodity derivatives market.
The new rules would reduce the level of information provided to professional investors, and, in some limited cases, to retail investors. Paper-based information will be discontinued, unless retail clients request it. The proposal exempts ‘plain vanilla’ bonds sold to both retail and professional investors from certain information requirements. ‘Best execution’ reports by trading venues would be discontinued in order to free up resources.
The proposal also includes changes aimed at supporting the growth of euro-denominated derivatives markets.
Prospectus Regulation and Transparency Directive
The proposal includes the introduction of an ‘EU Recovery Prospectus’, a shorter prospectus which experienced issuers could use to disclose information for new issuances. The Council position expands the minimum information to be included as compared to the Commission proposal. The Council also proposes that the Recovery Prospectus should be limited to offers equivalent to no more than 90% of outstanding capital, with a view to limiting diluting issuances.
Again with the idea of freeing companies’ resources, the Council also proposes amendments to the Transparency Directive, to allow member states to postpone for a year the requirement for listed companies, and certain listed issuers of debt securities, to prepare all annual financial reports in a European Single Electronic Reporting Format (ESEF) for financial years beginning on or after 1 January 2020.
Securitisation Regulation and CRR
One CMRP proposal extends the existing EU framework for simple, transparent and standardised (STS) securitisations to synthetic securitisations.
Also, regulatory obstacles to the securitisation of non-performing exposures (NPEs) would be removed to support banks in offloading NPEs from their balance sheets in the context of the COVID-19 crisis.
Another Council proposal suggests a dedicated prudential treatment for synthetic excess spread (“SES”) in the CRR to address the risk of a potential misuse of SES for arbitrage purposes.