Category: Comparative Guides

Contributed by Kinstellar.

1. Market Overview

The Hungarian Stock Exchange, the predecessor of today’s Budapest Stock Exchange (BSE), was established in 1864 and operated as one of Europe’s leading exchanges until it was disbanded in 1948. After the fall of communism in 1990, it was re-established with great impetus, and a total of 60 initial public offerings took place between 1990 and 1998. Despite significant economic growth, the annual number of listings has not increased since then, meaning Hungary still lags far behind in terms of the number of listings compared to Western European counterparts.

Although Hungary has a well-established stock exchange and the BSE is the second largest stock exchange in Central and Eastern Europe based on capitalisation and liquidity, IPOs are not that common, given that only a couple of companies choose to go public each year. Companies that opt to go public mainly belong to the financial, energy, pharmaceutical and telecommunication sectors, as it is mainly companies belonging to these sectors which tend to grow large enough for an IPO in Hungary to become an option in the first place. However, there is an increasing effort on the part of the central bank and the stock exchange to encourage more companies to go public.

In any event, large capital markets transactions that draw the intention of international investors have been somewhat rare on the BSE, however, substantial transactions definitely come by. Waberer’s International Nyrt.’s IPO in 2017 serves as a perfect example of that, as it was the biggest capital market transaction of the last two decades in the life of the BSE. Apart from that, notable transactions in the last couple of years include the IPO of AutoWallis Plc. and the IPO of MKB Bank Nyrt. in 2019.

Before 2019, the local debt capital market had been relatively under-developed and did not provide financing to complement bank lending. However, in order to diversify and improve the debt capital market, the National Bank of Hungary (NBH) launched a corporate bond purchasing programme called Bond Funding for Growth Scheme (BGS) in 2019 with an initial total amount of HUF 300 billion, which was later extended by an add-on scheme. Under the BGS, the NBH purchases bonds having at least B+ ratings issued by non-financial corporations. The objective of BGS is to promote the diversification of funding to the domestic corporate sector and also to enhance financial stability. Listing of the BGS bonds is required on BSE’ s newly established XBond platform. To this date, there are numerous companies (mostly SMEs) that participated in the BGS and registered their bonds on the XBond platform.

2. Overview of the local stock exchange and listing segments (markets)

The BSE is the dedicated stock exchange in Hungary. In addition, it is the only “regulated market” in Hungary within the meaning of the EU Directive on Markets in Financial Instruments (No. 2014/65/EC) (MiFID II), where equity and debt securities may be listed.

2.1. Regulated markets

The BSE has the following market segments that qualify as a regulated market within the meaning of MiFID II:

2.1.1. BSE Prime

To be listed on the Prime Market, the issuer must meet several criteria regarding market capitalisation, ownership structure (free-float) and corporate history. Carrying out a public transaction (IPO) is mandatory at listing, however, such obligation may be postponed in certain circumstances. The share series on BSE Prime Market are more liquid in general and have a broader ownership structure than the BSE Standard.

2.1.2. BSE Standard

For small and medium-sized enterprises who instead of using BSE Xtend as the access point to access the regulated market consider executing a public transaction at their initial listing, BSE provides an opportunity to enter the market with less stringent listing requirements than those required by the Prime Market. Carrying out a public transaction (IPO) is not mandatory at listing (i.e., technical listing is possible).

2.2. Non-regulated market

The BSE has the following platforms that qualify as a multilateral trading facility (MTF) within the meaning of MiFID II:

2.2.1. BSE Xtend

The Budapest Stock Exchange opened its first multilateral trading facility called BSE Xtend in September 2017 as a replacement of the BSE T Category listing. BSE Xtend provides opportunities for small and medium-sized enterprises which are planning significant business growth, looking for external financing and are able to fulfil the requirements of the multilateral trading market to enter the capital market and obtain funds.

The companies entering the domestic multilateral trading facility market are subject to lower fees and less complicated terms, however, the lighter conditions enable them to get used to transparency in the stock market so that they are better positioned and prepared to later access the regulated markets of the BSE such as the Prime Market.

2.2.2. BSE XBond

BSE has established XBond as a new multilateral trading facility on 1 July 2019. This market is a trading venue for corporate bonds, including those issued within the BGS program of the NBH.

Trading rules of the BSE XBond are similar to those applied in the debt securities section of BSE’s regulated market. The main difference between the two segments is the conditions of listing, since the MTF provides easier access and less administrative burden for bond issuers.

2.2.3. BETa Market

On the BETa Market multilateral trading facility platform of the Budapest Stock Exchange investors can trade with foreign equities. Trading is conducted in Hungarian forints, thus the BETa Market offers access to the equities of several European companies issued in foreign currency without the need to face currency conversion costs.

3. Key Listing Requirements

3.1. General requirements for listing on regulated markets

Only an entire series of securities may be admitted to trading on the BSE and the securities must be freely tradeable. In addition, for the purposes of admission to trading, the issuer must accept the rules and regulations of both the BSE and the Hungarian Central Depository and Clearing House (the “KELER”). KELER serves as the national and central securities depository in Hungary and provides securities settlement as part of the clearing services for the BSE. In order to list securities on the BSE, the issuer must accept the custodial certificates of KELER in relation to the proof of legal title of the securities to be listed on the BSE.

In general, unless a specific exemption is applicable under EU Regulation No. 2017/1129 (the “Prospectus Regulation”), listing of securities on a regulated market of the BSE requires the approval of the publication of a prospectus prepared in accordance with the Prospectus Regulation by the NBH, or the relevant authority of another EU member state in accordance with the Prospectus Regulation.

3.2. ECM

The listing requirements relating to equity securities vary based on the segments of the market. A Hungarian company to be listed on the regulated market has to be a public company limited by shares (in Hungarian: Nyilvanosan Mukodo Reszvenytarsasag or Nyrt.). Please see below the summarized key listing requirements with respect to the regulated market equity segments of the BSE Standard and BSE Prime as well as the multilateral trading facility platform of BSE Xtend.

3.2.1. BSE Prime – regulated market

The BSE Prime category has the highest admission standard, requiring, in general (i) at least HUF 5 billion as a minimum market value of the shares to be admitted; (ii) at least 25% of free-float; or HUF 2 billion worth of shares in free float; or a minimum of 500 shareholders; (iii) at least 3 audited financial years (discretion is possible); and (iv) a public transaction (IPO) as the method of listing, however, issuers may request a one-year postponement of the IPO in case they comply with all additional listing criteria on this segment.

A prospectus and corporate governance report shall be submitted to the NBH. Only common shares can be listed. The IFRS accounting standards are applicable in this category.

3.2.2. BSE Standard – regulated market

In order to be listed in BSE Standard category, a company is required to have (i) at least HUF 250 million as a minimum market value of the shares to be admitted; (ii) at least 10% of free-float; or HUF 100 million worth of market cap; or a minimum of 100 shareholders; and (iii) at least 1 audited business year (discretion is possible).

A prospectus shall also be submitted to the NBH. However, no public transaction is necessary upon listing (i.e., technical listing is possible) and there is no corporate governance reporting obligation on listing. The IFRS accounting standards are applicable in this category.

3.2.3. BSE Xtend –MTF

The listing requirements for this multilateral trading facility are less burdensome. There are no applicable equity class requirements, no public transaction is necessary (i.e., technical listing is possible), there is no corporate governance reporting obligation, and there are no requirements for free float or minimum audited business years.

Only an information memorandum must be submitted to the BSE (i.e., no prospectus is required under the Prospectus Regulation), provided that the total issue value does not exceed EUR 5 million. The filing authority in respect of such information memorandum is the BSE itself. Only the Local GAAP accounting standards are applicable in this category.

3.3. DCM

With respect to listing of debt securities on a regulated market of the BSE, the general requirements are applicable, with some differences in respect of certain debt securities (such as the requirement of a market making agreement in respect of structured products).

Registering debt securities on BSE XBond may be possible based on an Information Memorandum approved by the BSE if certain pre-conditions are fulfilled and provided that the prospectus preparation obligation is not triggered under the Prospectus Regulation.

4. Prospectus Disclosure

The Hungarian capital markets are regulated at EU level mainly by the Prospectus Regulation and by other harmonized EU regimes. Act No. 120 of 2001 (CMA) is the national regulatory framework for capital markets, along with the decrees of the president of the NBH, while the BSE also adopts applicable rules and implementing instructions. The NBH acts as the Hungarian financial supervisory authority tasked with the supervision of the Hungarian capital markets and the BSE. The NBH cooperates closely with the European Securities and Markets Authority (ESMA).

For the purposes of listing securities in the regulated market of the BSE, the issuer must prepare a prospectus under the Prospectus Regulation.

The disclosure obligation under the prospectus is laid out in details in the Prospectus Regulation and the relating implementing and delegated acts such as (i) the Commission Delegated Regulation (EU) 2019/979 with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus; and (ii) Commission Delegated Regulation (EU) 2019/980 as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market.

Under the Prospectus Regulation, a prospectus must contain the necessary information which is material to an investor for making an informed assessment of: (a) the assets and liabilities, profits and losses, financial position, and business prospects of an issuer and of any guarantor; (b) the rights attaching to the securities; and (c) the purpose of the issuance and its impact on the issuer. Information included in the prospectus must be sufficient and objective and should be written and presented in an easily analysable, concise and comprehensible form. The information which is included in a prospectus must be adapted to the type of prospectus, the nature and circumstances of the issuer, the type of securities, and whether the targeted investors are solely qualified investors. A prospectus should not contain information which is not material or specific to the issuer and the securities concerned.

The prospectus may be drawn up as a single document or as separate documents. A prospectus composed of separate documents shall divide the required information into a registration document (including information relating to the issuer), a securities note (including information concerning the securities offered) and a summary. In Hungary, issuers predominantly elect to prepare the prospectus as a single document.

Unless a specific exemption is available, the prospectus must include a summary that provides the key information that investors need in order to understand the nature and the risks of the issuer, the guarantor and the relevant securities to aid investors when considering whether to invest in such securities. The summary of the prospectus must be short, simple and easy for investors to understand. It must be written in plain, non-technical language, presenting the information in an easily accessible way.

One of the most important part of the prospectus for investors is the section containing risk factors. The primary purpose of the risk factors is to ensure that investors make an informed assessment of the applicable risks and thus take investment decisions in full knowledge of the relevant circumstances. Risk factors must be limited to those risks which are material and specific to the issuer and its securities and which are verified by the content of the prospectus. A prospectus should not contain risk factors which are generic and only serve as disclaimers, as those could obscure more specific risk factors that investors should be aware of.

In addition, the prospectus must include, among others, the following information and statements:

(i) business overview with description of, and key factors relating to, among others, the nature of the issuer’s operations and its principal activities; principal markets, strategy and objectives;

(ii) description of the issuer’s material investments for each financial year for the period covered by the historical financial information;

(iii) organisational structure with description of the issuer’s corporate group; key subsidiaries;

(iv) audited historical financial information covering the latest three financial years and the audit report in respect of each year;

(v) details of related party transactions, that the issuer has entered into during the period covered by the historical financial information;

(vi) details of any significant changes in the financial or trading position of the company since the date of the latest published audited or interim financial information included in the prospectus, or an appropriate negative statement;

(vii) a working capital statement by the issuer that, in its opinion, the working capital is sufficient for the issuer’s present requirement;

(viii) an operating and financial review describing the company’s financial condition, changes in financial condition and results of operations;

(ix) summary of each material contract, other than contracts entered into in the ordinary course of business, to which the issuer or any member of the group is a party, for the past two years;

(x) prescribed information on the issuer’s administrative, management and supervisory bodies and senior management, including remuneration and benefits, shareholdings and stock options in the issuer; and also, with respect to the company’s corporate governance; and

(xi) a declaration by those responsible for the prospectus (including company, proposed directors, etc.) that to the best of their knowledge, the information contained in the prospectus is in accordance with the facts and that the registration document makes no omission likely to affect its import.

NBH may authorise the omission from the prospectus of certain information to be included therein, where it considers that any of the following conditions is met: (a) disclosure of such information would be contrary to the public interest; (b) disclosure of such information would be seriously detrimental to the issuer or to the guarantor, if any, provided that the omission of such information would not be likely to mislead the public; (c) such information is of minor importance in and would not influence the assessment of the financial position and prospects of the issuer or guarantor.

Once the prospectus is published, any significant new factor, material mistake or material inaccuracy which could influence the assessment of the investment, arising after the publication of the prospectus but before the closing of the offer or the start of trading on a regulated market requires a supplement to the prospectus without undue delay.

5. Prospectus Approval Process

5.1. Competent Regulator

NBH is the supervisory authority designated as competent authority within the meaning of the Prospectus Regulation and, as such, the NBH is the authority which approves the publication of a prospectus under the Prospectus Regulation in Hungary.

Otherwise, for the purposes of listing and admission to trading on BSE, the issuer must follow the general business terms of the BSE, including, in particular, ‘The General Terms of Service of the Budapest Stock Exchange Ltd.’ and, in particular, Book one thereof on ‘Regulations on Listing and Continued Trading’, which prescribes, among others, those documents that must be submitted by the issuer along with the approved prospectus for the purposes of admission to trading on the BSE.

5.2. Timeline, draft submissions, review and approval process

Once the prospectus has been drafted, it must be submitted to the NBH for approval. However, before the filing of the formal approval with the NBH, issuers usually file work-in progress / near to final drafts of the prospectus with the NBH on an informal basis to obtain and address initial comments of the NBH before the actual filing.

Otherwise, once the draft prospectus is in final form, the application for approval must be submitted to the NBH online, through the dedicated electronic submission system maintained by the NBH called ERA. It is worth noting that only pre-registered users may use the ERA system and only entities which have certified electronic signature capabilities can register themselves in the ERA system and, therefore, first-time issuers need to register themselves into such communication system before the actual filing.

Under the Prospectus Regulation, the NBH has a 10-working day deadline to decide on approval or rejection of the prospectus. However, this 10-day time limit is extended to 20 working days where the offer to the public involves securities issued by an issuer that does not have any securities admitted to trading on a regulated market and that has not previously offered securities to the public. However, failure of NBH to take a decision on the prospectus within the above time limits shall not be deemed to constitute approval of the application.

In addition, if the NBH finds that the draft prospectus does not meet the standards of completeness, comprehensibility and consistency necessary for its approval and/or that changes or supplementary information are needed, it must inform the applicant within 10 working days by clearly specifying the requested changes or additional information. In such cases, the time limits set above shall apply only from the date when a revised draft prospectus or the supplementary information is submitted to the NBH.

The publication of the prospectus is subject to the approval of the NBH.

6. Listing Process

6.1. Timeline, process with the stock exchange

After the approval of the prospectus by the NBH, an application is submitted to the BSE for the listing and admission to trading. In practice, prior to formal submission of the application the issuers usually liaise with the officers of the stock exchange in order to informally agree with them on the documents to be submitted, as well as the contents thereof. Following the formal submission of the application, the stock exchange must examine the application from a formal perspective and also in terms of content, and must decide within 30 days whether the securities may be listed. If necessary, the stock exchange may request additional information from the issuer, which must be submitted within 10 working days. In this case, the 30-day deadline is extended by the number of days needed to submit the additional information.

Two days prior to listing, the issuer must publish the required documents which may be relevant to market players when making a decision on their investment. The application is approved only if all the necessary documents have been submitted and their content is in line with the legal requirements, otherwise the application is rejected. If the application is accepted, the company may begin trading.

7. Corporate Governance

7.1. Corporate governance code / rules

The rules regarding the operation of Hungarian companies are laid out in Act No. 5 of 2013 on the Civil Code (the “Civil Code”) as well as in Act No. 57 of 1996 on the Prohibition of Unfair and Restrictive Market Practices.

Under the Civil Code, Hungarian public companies limited by shares (in Hungarian: Nyilvanosan Mukodo Reszvenytarsasag or Nyrt.) can be organised under the one-tier or the two-tier board system. The two-tier board system, which is the more common, includes the board of directors (in Hungarian: igazgatosag) and the supervisory board (in Hungarian: felugyelo bizottsag) with both consisting at least 3 members. However, the supervisory board does not generally have a decision power (but can have approval rights). All decision making is retained by the board of directors and general shareholders’ meeting. In a one-tier board system, the duties of the board of directors and the supervisory board are carried out by a single board, the management board (in Hungarian: igazgatotanacs) which consists at least 5 members. The powers to appoint or dismiss the members of the board of directors, the supervisory board and the management board or to define their remuneration are assigned to the meeting of the shareholders. Legal entities cannot serve as board members.

Except for the establishment of an audit committee, which is a regulatory requirement for public companies limited by shares, the board of directors in companies limited by shares is not required to have a committee system. However, the board of directors may establish a remuneration committee that establishes the remuneration policy of a company based on Corporate Governance Recommendations.

In addition, the BSE has issued recommendations with respect to Corporate Governance Rules, i.e., the Corporate Governance Recommendations (in Hungarian: Felelos Tarsasagiranyitasi Ajanlas) for public companies. An equity issuer seeking admission to trading on the Prime Market must publish a Corporate Governance Report before the admission to trading on the basis of Corporate Governance Recommendations of the BSE. Otherwise, equity issuers have to publish such Corporate Governance Reports along with their annual reports.

The Corporate Governance Recommendations of the BSE contain both recommendations that are binding for all issuers and non-binding proposals. Issuers may derogate both from binding recommendations and non-binding proposals. In the event of derogation from the recommendations, issuers are required to publish and justify the derogation in their corporate governance reports (‘comply or explain’).

Corporate Governance Recommendations of the BSE include, among others, recommendations on the holding of shareholder meetings; remuneration; transparency and publication; governance (including management selection principles and independence of directors), control, risk management; and external advisors/auditors.

7.2. Any other ESG considerations

Environmental, social and governance (ESG) stands for a set of standards with regards to a company’s operations that is used by a new generation of investors to monitor how socially and environmentally conscious the company is, where they invested their money. It takes into consideration the company’s environmental impact, how the company manages relationships with employees, suppliers, customers, and the communities where it operates and a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

These sustainable investment types are present on the Hungarian capital markets, however, ESG considerations are not yet part of the formal corporate governance and other similar requirements in Hungary with respect to public companies.

8. Ongoing Reporting Obligations (Life as a Public Company)

8.1. Annual and interim financials and other periodic reports

Issuers of securities admitted to trading on a regulated market (such as the BSE Prime or BSE Standard) must comply with reporting obligations as laid out in the CMA and the No. 24/2008 (VIII. 15.) Decree of Ministry of Finance.

In general, such issuers must disclose to the public on a regular basis substantial details of their financial position and the general course of their business. Issuers shall, at the same time, must notify such information to the NBH as well and must ensure that such disclosed information remains publicly available for at least ten years.

To this end, issuers must publish in accordance with the requirements laid out in the No. 24/2008 (VIII. 15.) Decree of Ministry of Finance:

• a detailed annual financial report (in accordance with the IFRS, where applicable) four months after the end of each financial year at the latest; and
• semi-annual financial reports as soon as possible following the end of each half-year period in question, but by no later than three months following such period.

Beyond the financial reports, listed companies are obligated to publish, among others, corporate governance reports on an annual basis with regards to the Corporate Governance Recommendations.

Issuers with security series in BSE Prime Market shall also disclose a corporate action timetable by the first day of their financial year (including proposed dates for publication of annual, semi-annual and quarterly reports, dates for press conferences to discuss the annual report, date of annual general meeting, etc.).

Issuers under the force of the CMA must also comply with additional reporting obligations set by the CMA by disclosing the number of voting rights and the actual share capital on a regular basis. Issuers not under the scope of the CMA may choose to follow the reporting obligations of their “home member state” (as defined by the Transparency Directive – Directive 2004/109/EC of the European Parliament and of the Council) after having published a statement in which they inform Hungarian investors about the reporting requirements of that state.

All regulated information must be published on the website of the issuer, on the website of the BSE as well as on the dedicated online platform of the NBH.

In general, issuers with securities registered on a multilateral trading facility (such as Xtend or XBond) are bound by the reporting obligations prescribed by the operator of such multilateral trading facility.

8.2. Extraordinary/Ad hoc disclosures

Listed companies are also obliged to disclose to the public without delay but in any event within one business day any information that concerns, directly or indirectly, the value or return on the securities of the company, and any information that may have an impact on the reputation of the company.

No. 24/2008 (VIII. 15.) Decree of Ministry of Finance contains guidelines and examples to be followed by issuers (under the force of the CMA) regarding their extraordinary disclosures). Issuers with home member states other than Hungary follow the rules of their jurisdictions.

The NBH, when deemed necessary as the financial supervisory authority may also impose extraordinary data disclosure obligations or carry out on the spot inspections on a global scale or with regards to an individual company as part of its supervisory measures.

8.3. MAR obligations

Regulation (EU) No 596/2014 on market abuse (MAR) applies to financial instruments admitted to trading on EU regulated markets, multilateral trading facilities, organised trading facilities and other financial instruments such as credit default swaps or contracts for difference. This means that companies listed on the BSE are subject to MAR. In addition, both BSE Xtend and BSE XBond fall within the definition of a multilateral trading facility and therefore, are subject to the disclosure requirements of MAR.

The requirements of MAR include, among others, the obligation to announce inside information as soon as possible (except under certain limited circumstances) and companies have to keep and maintain insider lists of people working for them and of advisors who have access to inside information.

Breach of MAR by an individual or legal person may result in, among others, criminal penalties (e.g., cases of insider trading and market manipulation) as set out in Act No. 100 of 2012 on the Criminal Code.

Contributed by Walles.

1. Market Overview

1.1. Biggest ECM and DCM transactions over the past 2-3 years

1.1.1. ECM

Initial public offering (IPO) of Lithuanian tour operator AB Novaturas, IPO value – EUR 22.1 million (2018).

Secondary public offering of food producer AB Auga, offering value EUR 36 million (2018).

1.1.2. DCM

USD 300 million bonds of Avia Solutions Group – a Lithuanian aviation services group (2019).

Debut EUR 300 million green bond issue by UAB Lietuvos energija (now IGNITIS GROUP) under its newly established EMTN programme (2017).

EUR 300 million green bond issue by UAB Lietuvos energija (now IGNITIS GROUP) under its EMTN programme (2018).

Debut EUR 300 million bond issue by UAB MAXIMA GRUPA under its newly established EUR 1 billion EMTN programme (2018).

2. Overview of the local stock exchange and listing segments (markets)

2.1. Regulated market

Currently there is only one stock exchange operator in Lithuania – AB NASDAQ Vilnius. It administers a regulated market and non-regulated market.

The regulated market consists of (i) Main List and Secondary list for equity securities, (ii) Bond List for debt securities, and (iii) Fund List for securities issued by collective investment undertakings.

2.2. Non-regulated market

The non-regulated market consists of the alternative market First North, which qualifies as a multilateral trading facility.

3. Key Listing Requirements

3.1. ECM

In order to be listed on the NASDAQ Vilnius stock exchange, a company must meet certain general requirements: i) the company must be of proper legal form and its economic status must not prejudice interests of the investors; ii) the shares to be listed must be free of any encumbrances, entitling their holders to equal rights and be fully paid up. Further requirements depend on the list and market that companies seek for listing. These requirements are listed below.

Issuer’s history of operations – 3 years for the Main List, 2 years for the Secondary List, not applicable for the First North market.

Minimum capitalization – EUR 4 million for the Main List, EUR 1 million for the Secondary List, not applicable for the First North market.

Free float – at least 25 percent for the Main List (or the value of free float must amount to EUR 10 million), not applicable for the Secondary List, not applicable for the First North market.

Prospectus – required for listing on the Main and Secondary lists, not applicable for the First North market.

Reporting – An annual report and semi-annual or quarterly financial reports for listing on the Main and Secondary lists, annual and semi-annual financial reports for the First North market. Listing on First North also requires the relevant issuer to enter into the agreement with a certified advisor of First North which shall advise and ensure that the issuer complies with reporting and other listing requirements.

Accounting – Financial reports to be prepared according to the International Financial Reporting Standards for listing on the Main and Secondary lists, financial accounting standards of choice for the First North market.

Language – Information disclosure in Lithuanian and English language for listing on the Main and Secondary lists, information disclosure in Lithuanian or English language for the First North market.

3.2. DCM

Issuer’s history of operations – 2 years for the Bonds List, not applicable for the First North market.

Minimum denomination of bond issue – EUR 200 000 for the Bonds List, not applicable for the First North market.

Prospectus – required for listing on the Bonds List, not applicable for the First North market.

Reporting – Annual report and semi-annual or quarterly financial reports for listing on the Bonds List, Annual and semi-annual financial reports for the First North market.

Accounting – Financial reports to be prepared according to International Financial Reporting Standards for listing on the Bonds List, financial accounting standards of choice for the First North market.

Language – Information disclosure in Lithuanian and English for listing on the Bonds List, information disclosure in Lithuanian or English for the First North market.

GENERAL NOTE: Stock exchange may wave certain of the requirements, e.g., that of having certain operating history. The decision to wave requirements is based on considerations of the issuer’s financial status, its position in the market, field of activity, reputation, prospects, and other factors.

4. Prospectus Disclosure

4.1. Regulatory regimes (Prospectus Regulation or similar) – equity and debt

Disclosure related to the issue of equity and debt securities as well as related to listing of equity and debt is based on 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 (the “Prospectus Regulation”).

4.2. Local market practice

In accordance with limits permitted by the Prospectus Regulation, Lithuania does not require prospectus to be prepared for the public offering of securities if the total consideration in the EU is less than EUR 8,000,000, calculated over a period of 12 months.

The public offering of securities in Lithuania when the total consideration calculated over a period of 12 months is between EUR 1 000 000 and EUR 8 000 000 is subject to preparation and publication of the informational document. This document shall describe the issuer and securities to be offered. Requirements for the content of such informational document are established by the securities market regulator, i.e. the Bank of Lithuania. Notably, there is no requirement to have this document approved by any authority.

A listing prospectus is required for listing on a Lithuanian regulated market. However, should listing be sought on the First North market (i.e., the non-regulated market) informational document prepared in accordance with the rules of the First North would suffice. These rules to the large extent are similar to the requirements established by the Bank of Lithuania for the offering of securities when the total consideration calculated over a period of 12 months is between EUR 1,000,000 and EUR 8,000,000. In practice, issuers of such securities prepare only one informational document containing information as required by the regulator and by the First North and uses it both for the offering and for the subsequent listing on First North market.

4.3. Language of the prospectus for local and international offerings

Where an offer of securities to the public is made or admission to trading on the regulated market is sought only in Lithuania, the prospectus shall be drawn up in the Lithuanian language. However, it is also permitted to request the regulator to accept the prospectus prepared in the English language.

As far as international offerings are concerned, the prospectus may be prepared in Lithuanian or English at the choice of the issuer.

5. Prospectus Approval Process

5.1. Competent Regulator

As discussed above, the competent authority for the review and approval of prospectuses prepared in accordance with the Prospectus Regulation is the Bank of Lithuania.

5.2. Timeline, number of draft submissions, review and approval process

The process and timeline for the approval of the prospectus by the Bank of Lithuania is based on the Prospectus Regulation. These requirements do not specify the maximum number of drafts allowed to be submitted. As such, the regulator may request to provide amended drafts as long as it finds that the previous drafts do not meet the standards of completeness, comprehensibility and consistency necessary for its approval and/or that changes or supplementary information are needed.

6. Listing Process

6.1. Timeline, process with the stock exchange

The process with the stock exchange is fairly simple. Apart from the relevant corporate resolutions it requires a formal application of the issuer to AB NASDAQ Vilnius. Usually assessment by the stock exchange takes 2-4 weeks (although the official term is 3 months), upon which the listing agreement is signed and listing commences.

When listing is being sought by a company that is undergoing an IPO, the process with the stock exchange usually is conducted as part of the preparations for an IPO in order to ensure that listing occurs immediately after the completion of the IPO. In such cases the stock exchange makes its assessment prior to the completion of the transactions and facilitates the listing to commence as required by the issuer and IPO team.

7. Corporate Governance

7.1. Corporate governance code / rules (INED, board and supervisory composition, committees)

Companies listed on the regulated market of AB NASDAQ Vilnius are subject the Corporate Governance Code (the “Code”) of the NASDAQ Vilnius stock exchange. This Code lays down the principles and standards of corporate governance. It is not strictly mandatory, but the companies that do not comply with the provisions of the Code must describe and explain such non-compliance within the Corporate Governance Report that is part of the annual reporting.

The Code is drafted in a basis of analogous codes, standards, and principles of other states and international organisations, the key ideas and directions of which are reflected in the Principles of Corporate Governance of the Organisation for Economic Cooperation and Development.

The model of corporate governance required by the Code is in accordance with Lithuanian legal requirements for the corporate governance structure. Accordingly, companies must have a manager (CEO) of the company and either a one-tier management board or a two-tier board (management and supervisory boards). Certain matters are decided by the general meeting of shareholders. Where a supervisory board is not formed, the management board should also perform the supervisory functions.

Until recently one of the principles of the Code was a requirement that companies have an independent member on the supervisory or management board. Recently a similar requirement was introduced into the Lithuanian Law on Companies. According to the law, 1/3 of the members of the supervisory board (or 1/3 of the management board that performs supervisory functions) of listed companies must be independent. The criteria for independence are also provide in the law.

As far as committees are concerned, under the Code, companies listed on the regulated market should form at least nomination, remuneration and audit committees. 

Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. Committees should normally be composed of at least three members, although subject to the requirements of the legal acts, committees may be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the management board should not serve as the chair of committees.

7.2 Any other ESG considerations

There are no formal requirements related to ESG except for the requirement that large listed companies with an average number of employees exceeding 500 to prepare a Social Responsibility Report as part of the annual reporting. This report shall cover matters related to protection of environment, social and staff issues, protection of human rights, prevention of corruption and bribery.

8. Documentation and Other Process Matters

8.1 Over-allotment (greenshoe or brownshoe structure)

An over-allotment option is a common element of public offerings by Lithuanian entities. Over-allotment is also closely related to stabilisation activities. The legal framework for over-allotment and stabilisation is entirely based on the requirements established by Regulation (EU) No 596/2014 on market abuse and by Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures.

8.2. Stock lending agreement – whether it is used and whether there are any issues (tax, takeover directive)

Stock lending arrangements are common for IPOs involving issues of new shares. Due to Lithuania’s procedure for the registration of new shares, such new shares sold during IPOs cannot be listed immediately after the settlement of the IPO (it might take from 1 to 2 weeks for such shares to be registered and listed). In order to avoid this time gap it is customary for the underwriters to borrow existing shares from the current shareholders. Such borrowed shares are distributed to the subscribers during IPO. Borrowed shares are repaid by the underwriters upon registration of the new shares.

Although such stock lending is common there are no clear taxation rules related to this activity and thus tax impact for each participant shall be assessed beforehand on a case by case basis.

8.3. Stabilisation – whether allowed and on what terms (MAR, local regimes)

Please see information under item 8.1 above.

9. Ongoing Reporting Obligations (Life as a Public Company)

9.1. Annual and interim financials

As disscussed above, issuers listed on the regulated market must prepare and publish annual and semi-annual (or quarterly financial) reports prepared according to the International Financial Reporting Standards (this requirement does not apply to certain issuers, e.g., issuers of debt securities with denominations of not less than EUR 100,000).

9.2. Ad hoc disclosures

In addition to the above, issuers are obliged to make public disclosures in accordance with requirements of Regulation (EU) No 596/2014 on market abuse which, amongst other items, regulates public disclosure of inside information and disclosure of manager’s transactions.

Besides that, the issuers must disclose information about any person who has acquired 5, 10, 15, 20, 25, 30, 50, 75 and 95 per cent of the voting rights in that issuer. This obligation also applies where the specified limits are exceeded in the descending or the ascending order. A similar obligation also applies with respect to persons holding other types of financial instruments (e.g., options, swaps, etc.) that under the terms of those instruments give rise to acquisition of voting rights.

The issuers also must disclose acquisitions and transfers of own shares (votes), changes to the rights attached to the financial instruments issued by the issuer and changes to its constitutive documents (e.g., Articles of Association). Special rules and disclosure regimes also apply in relation to takeover, sell-out, and squeeze-out events. These requirements are generally in line with rules established by Directive 2004/25/EC on takeover bids.

Contributed by ACI Partners.

1. Market Overview

Moldova’s capital market started its existence in 1994, following a mass privatization process. Since then this sector has been subject to several reforms, which continue until today.  Notwithstanding the continuing reform, Moldova’s capital market is still characterized by insufficiently developed capital market infrastructure, a limited number of financial instruments, a limited range of financial intermediation services, and a limited number of private investors interested in investing in financial instruments. 

The main regulatory act is the Law on Capital Market No. 171 of 11 July 2012 (the “Capital Market Law”), which transposed 11 EU directives, including MiFID, the Directive on Takeover Bids, the Investor Compensation Scheme Directive, the Market Abuse Directive, the Capital Adequacy Directive, and the UCITS Directive.  The Capital Market Law was designed to open up the capital market to foreign investors, strengthen the powers and independency of the national regulator, and set higher capital requirements on capital market participants. 

The Capital Market Law establishes the entities and systems that are part of the capital market infrastructure, including the regulated markets, financial intermediaries, multilateral trading facilities (MTF), central security depository, securities settlement systems, and independent registrars. The Law also regulates the activity of investment firms, public offering, and takeover bids, determines mandatory disclosure reaquirements, and conditions for financial investments. 

The National Commission for Financial Markets (NCFC) is the independent regulatory agency that supervises the securities market, insurance sector, and non-banking financing in Moldova. 

The capital market in Moldova is still under development and is limited to an equity securities market transacted on primary and secondary markets. A corporate bonds market in Moldova does not exist yet. The market of debt financial instruments is represented mainly by governmental securities, which are placed only on the interbank market. The NCFM currently is working on a new reform allowing govermental securities to be transacted on the regulated market as well. 

Transactions related to the issuance of new securities takes place on the primary market, while the secondary market deals with the trading of securities already issued and admitted to trading. 

The transactioning of securities on the secondary market may be performed on the regulated market, thourgh the multilateral trading facility or outside the regulated market, directly between the buyer and purchaser. Transactions on the regulated markets and MTF are not very popular, therefore a significant part of transactions are still acomplished over the counter.

The Moldovan Stock Exchange (MSE) is the only stock exchange duly licenced and operating in the Republic of Moldova. The MSE was initially created in 1994 and performed its first transactions in 1995. After capital market legislation was reformed in 2013, the MSE obtained a licence as market operator, and authorizations for the regulated market and for the multilateral trading facility. 

The statistics of transactions registered both on the MSE regulated market and MTF are quite modest. 

Thus, in the last two years the MSE released the following statistics:

2018

•   Total number of transactions on the regulated market (units): 287
•   The volume of transactions on the regulated market: MDL 1,930,299,737.11 (about EUR 96 milion)
•   The number of transactions on the MTF (units): 92
•   The volume of transactions on the MTF: MDL 3,273,952,028.83 (about EUR 163 milion)

2019

•   Total number of transactions on the regulated market (units): 202
•   The volume of transactions on the regulated market: MDL 47,223,790.54 (about EUR 2 milion)
•   The number of transactions on the MTF (units): 46
•   The volume of transactions on the MTF: MDL 5,756,258.10 (about EUR 287 thousand)

The most transacted securities on the MSE regulatory market are securities issued by Moldovan commercial banks.  Among the most significant transactions registered on the MSE regulated market in the past 2 years are the acquisition of 96,69% of shares issued by BC Mobiasbanca – OTP Group S.A. for approximately EUR 75 million (in 2019); and the acquisition of 39.2% of shares in BC Victoriabank S.A. by Banca Transilvania and EBRD for about EUR 37 million (2018).

2. Overview of the local stock exchange and listing segments (markets)

Under the Capital Market Law, a regulated market represents a multilateral system, which is managed and used by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling orders in financial instruments that are admitted for trade in a way that results in contracts.  The regulated market operates under its own rules and shall be authorized by the NCFM. 

Currently, MSE is the only operator authorized to manage and operate a regulated market in Moldova. Transactions on MSE regulated market are performed according to the MSE Rules. As of 7 April 2020, the securities of 16 issuers are admitted for trade on the MSE regulated market, represented by 8 commercial banks, 2 insurance companies, and 6 issuers from other non-financial industries intending to perform public bids of securities. 

The Capital Market Law also regulates the possibliity to trade securities though the MTF, representing a system operated by an investment firm or market operator which brings together multiple third-party buying and selling orders in financial instruments. In Moldova, MTFs can be operated by investment firms or market operators based on their own discretionary rules and are subject to broadly the same overarching regulatory and transparency requirements as the regulated markets. 

Currenty, the only market operator authorized to operate through the MTF system in Moldova is the MSE.  As of 23 March 2020, the securities of 50 issuers are admitted for trade on the MTF managed by the MSE. 

3. Key Listing Requirements

The key listing requirements for the admission of securities on the MSE regulated market are:

1) publication of the public prospectus;

2) securities proposed for listing shall be fully paid, ecxept for the primary issuence of securities;

3) minimum market capitalization of EUR 1 milion;

4) minimum free float of 10%, except for primary issuance of shares;

5) issuer’s net assets are not lower than the issuer’s share capital;

6) documentary evidences, including:

  (i) charter and excerpt from the trade register

  (ii) registration certificates for each issuence of securities

  (iii) public offer prospectus as approved by the NCFM

  (iv) audited financial statements for the last 3 years, and for the previous quarter together with the auditor’s reports

  (v) resolution of issuer’s governing bodies approving the listing of securities on the regulated market, etc. 

4. Prospectus Disclosure

When an issuer seeks admission on the MSE regulated market the key disclosure document is a prospectus. The prospectus regime in Moldova is mainly governed by the Capital Market Law, the NCFM Regulation No. 33/1 of 16.06.2015 on Public Bids, the NFMC Rules No. 13/10 of 13.03.2018 on Steps, Terms, Method and Procedure of Securities Registration, and the MSE Rules. 

A prospectus is to be written in an easily analysable, concise, and comprehensible form and shall contain the necessary information to allow an investor to make an informed assessment of the issuer, the rights attaching to the securities being offered, and the reasons for the issue and impact on the issuer. It may be published in a single document or in three separate documents comprising a registration document (containing information relating to the issuer), a securities note (containing information concerning the securities being offered), and a prospectus summary.

Key information to be included in a prospectus includes:

1) risk factors informing potential investors of the material risks to the issuer, its industry, and the securities being offered. These should be specific to the issuer or shares being offered, be grouped into a limited number of categories with the most material factor listed first and, where possible, there should be a quantitative assessment of each risk;

2) audited financial information for the previous three years;

3) details of any significant changes in the financial or trading position of the company since the date of the latest published audit or interim financial information;

4) an operating and financial review describing the company’s financial condition, changes in financial condition, and results of operations for the periods covered by the historical financial information included in the prospectus;

5) summaries of material contracts entered into outside of the ordinary course of business by the company’s group in the past two years (or longer if material obligations or entitlements remain outstanding);

6) details of any significant shareholders of the issuer;

7) details of any related party transactions that the company has entered into during the period covered by the historical financial information and up to the date of the prospectus;

8) details of any legal proceedings that the company has been a party to in the last year;

9) prescribed information on the company’s directors and senior management, including remuneration, benefits, and interests in the shares of the company and also with respect to the company’s corporate governance; and

10) responsibility statements from the company, the directors, and any proposed directors, confirming that they accept responsibility for the information contained in the prospectus and that, to the best of their knowledge (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and contains no omission likely to affect its import.

A supplementary prospectus will need to be published if any major new factor, material mistake or inaccuracy relating to the information included in the original prospectus arises during the period after publication of the original prospectus but before the securities are admitted for trading and the closing of the offer to the public. The issuance of a supplementary prospectus triggers withdrawal rights for any investor who had previously agreed to purchase shares in the offering. Such rights are exercisable before the end of the second working day after the day on which the supplementary prospectus was published.

The prospectus shall be in the Romanian language. 

5. Prospectus Approval Process

5.1. Competent Regulator

The NCFM is the competent authority in Moldova for reviewing and approving the prospectus of public bids of securities to be issued by Moldovan issuers.

5.2.. Timelime, number of draft submissions, review and approval process

NCFM approves or refuses the approval of the prospectus within 10 business days from the date of prospectus submission together with all supporting documents. The term for examination may be extended by an additional 20 days in case of primary issuence of shares. 

The approval of the prospectus can follow once the NCFM clears the prospectus of comments.

There is no limited number of prospectus draft submissions. Any additional information or documents submitted to the NCFM for the prospectus approval restarts the term for the prospectus examination by the NCFM. 

6. Listing Process

6.1. Timeline, process with the stock exchange

The application for admission of securities for trade on the MSE regulated market and supporting documents are to be examined by the MSE Department of Marketing, Listing and Ratings. The MSE needs to issue its decision to accept or reject the listing application within 10 business days of submission for domestic companies and 20 business days for foreign companies.

If the application is accepted, the applicant will be invited to sign the listing contract within 10 business days as of the application acceptance date. The applicant will also be issued a certificate confirming the listing of the securities on the MSE regulated market. 

7. Corporate Governance

7.1. Corporate governance code / rules (INED, board and supervisory composition, committees)

An issuer whose securities are admitted to be traded on the regulated market is considered a public interest entity and is obliged to comply with the Corporate Governance Code approved by the NCFM in 2015 (the “Code”). The Code is also compulsory for other public interest entities, even if their securities are not admitted to be traded on the regulated market, if the entity is a financial institution, insurance company, leasing company, or voluntary pension fund. All other companies that are not public interest entities may follow the Code on voluntarily basis. 

Public interest entities are also required to report their compliance with the Code in relation to (i) international coporate governance standards, (ii) protection of the legitimate rights and interests of shareholders, (iii) clarification of the roles of its governing bodies, (iv) functionability of the entity in a non-corupt environment, and (v) promotion of the interests of managers, employees, and shareholders, as well as by other measures.

The Code prescribes specific independence requirements for the directors of public interest entities. Under the Code at least 1/3 of the board must be composed of independent directors. The number of board members is to be sufficient to ensure the organization of the board’s activity, including the ability to create board committees and allowing shareholders to elect the candidate for which the shareholder has voted. The Code also requires the board to create committees for the preliminary examination of the most important issues related to the entity’s activity, such as a remuneration committee, a risk management committee, etc. 

7.2. Any other ESG considerations

No special ESG consideration are expressly regulated by Moldovan legislation. However, in practice public entities integrate the ESG considerations in their Corporate Governance Codes, namely:

1) social responsibility and relation with interested parties;

2) relations with employees and organisations that represent their interests;

3) relations with clients;

4) relations with investors;

5) relations with the regulating and supervisory authorties;

6) community responsibility; and

7) protection of the environment.

8. Documentation and Other Process Matters

8.1. Over-allotment (greenshoe or brownshoe structure)

Over-allotment is not specifically regulated by Moldovan Capital Market Law. However, if an over-allotment is offered it has to be specified in the prospectus. In particular, the prospecutus shall disclose:

1) the eventual existence and volume of any over-allotment decision;

2) the over-allotment valability period; and

3) the conditions for application of the over-allotment decision. 

The Moldovan Capital Market Law allows investment firms to provide underwrting or placement of financial instruments: (a) based on a firm commitment, or (ii) without a firm commitment. 

In case of underwriting/placement of financial instruments based on a firm commitment, the investment firm aquires the financial instruments issued by the issuer and register them onto the firm’s account opened with the National Depository, with the purpose to re-sell the respective financial instruments to other investors at a later date. The underwriting/placement on a firm commitment puts the investment firm at a high risk that the financial instrument will not be sold to other investors.

In case of underwriting/placement of financial instruments without a firm commitment, the investment firm does its best to sell the financial instruments offered by the issuer, but not to purchase the securities for its own account. Any financial instruments that have not been sold by the investment firm will be returned to the issuer.

No public data is available in order to determine if over-allotment has been ever used on the Moldovan capital market. 

8.2. Stock lending agreement – whether it is used and whether there are any issues (tax, takeover directive)

The Moldovan Capital Market Law allows investment firms to grant credits or loans to an investor so that the investor is able to carry out a transaction in one or more financial instruments, provided the firm granting the credit or loan is involved in the transaction. 

No public data is available in order to determine if stock lending agreements have been ever used by the investment firms on the Moldovan capital market. 

8.3. Stabilisation – whether allowed and on what terms (MAR, local regimes)

Stabilization is not specifically regulated. However, if stabilization is offered by the issuer or the shareholder who indends to sell its shares, the prospectus must contain adequate disclosure on the following items:

1) the fact that stabilisation may be undertaken, or that there is no assurance that it will be undertaken, or that it may be stopped at any time;

2) the period of time during which stabilisation may occur;

3) the identity of the stabilisation manager for each relevant case unless this is unknown at the time of publication; and

4) the fact that stabilisation transactions may result in a market price that is higher than would otherwise be.

No public data is available in order to determine if stabilization has been ever used on the Moldovan capital market. 

9. Ongoing Reporting Obligations (Life as a Public Company)

Public interest entities, including issuers whose securities are traded on the regulated market, are subject to special disclosure obligations. The information that is to be discoled by a public interest entity is expressly regulated by the Capital Market Law, and includes:

1) annual report of the entity;

2) quarterly report of the entity;

3) interim statement of the entity’s management;

4) information about events impacting the economic and financial activity of the entity; and

5) the entity’s articles of incorporation. 

The purpose of the disclosure obligations imposed on public interest entities is to ensure that all investors have equal, equitable, and simultaneous access to information for making an informed assessment of issuers and their securities.

In addition, participants on the capital market have the obligation to immediately inform the NCFM on any material breach of laws relating to operations, manipulation activities, market abuses, or other breaches that may affect the market’s stability.

Failure to comply with disclosure obligations may result in sanctions in the form of a warning, public warning, suspension or withdrawal of qualification certificates, suspension or withdrawal of managment, suspension or interdiction to perform certain activities on the capital market, suspension of license, withdrawal of license or authorization, or a fine of up to MDL 1 million (about EUR 50 thousand).

9.1. Annual and interim financials

(i) Annual reports: Public interest entities, including entities whose securities are traded on a regulated market, must publish an annual report before 30 April of the year following the reporting year, and shall take necessary measures to ensure that the reports are made available to the  public for a period of minimum five years from the date of their publishing. 

The annual report shall include:

1) annual financial statements, including auditor reports

2) the company’s annual operating report;

3) a statement issued by the entity’s responsible person for the preparation of the annual report, stating that, to the best of his knowledge, the annual financial report is prepared in line with the law, and reflects accurate and objective information about the assets, liabilities, financial position and performance, profit and loss, cash flows of the entity; description of the entity’s expected future development, policy changes, as well as the major risks and threats faced by the entity. 

(ii) Quaterly reports: A public interest entity, including an issuer whose securities are traded on the regulated market, must publish quarterly reports, not later than two months after the reporting quarter. The quaterly reports shall also be made available to the public for a minimum of 5 years from the date of its publishing, and shall contain:

1) financial statements for the respective quarter;

2) the company’s operating report for the respective quarter;

3) a statement issued by the entity’s responsible person for the preparation of the quarterly report, stating that, to the best of his knowledge, the quarterly financial report is prepared in line with the law, and reflects accurate and objective information about the assets, liabilities, financial position, performance, evolution and results of the company. 

(iii) Interim management statements: Public interest entities are required to disclose interim statements of management for the first and second quarters.  The interim statements are to be published during a period starting with the 10th week from the beginning of the quarter and ending 6 weeks before the close of the quarter. 

The interim statements shall include:

1) a general description of major events and transactions performed during the reported period and their impact of the entity’s and entity group’s activity

2) a general description of the financial situation and results of the entity and of the entity’s group

9.2. Ad hoc disclosures

The Moldovan Capital Market Law regulates specific ad-hoc discosure obligations for shareholders and issuers as follows:

(i) Notification of corporate developments that have an impact on the issuer’s activity: A public interest entity is to disclose within 7 business days the occurence of any event that impacts the company’s activity, such as:

•   amendments to voting rights related to different categories of securities
•   new issuances of securities
•   payment of dividends
•   conversions, fractioning, or consolidation of securities from previous issuances
•   events that may influence the activity of the issuer or the price of the securities admitted to trade.

(ii) Notification of significant proportion of voting rights: An individual or a legal entity who directly or indirectly reaches, exceeds, or falls under 5%, 10%, 15%, 20%, 25%, 33%, 50%, 66%, 75% or 90% of the voting rights in a public interest entity or in a company whose shares are traded on the MTF, is to respectively notify  the issuer and NCFM witin 4 business days. 

The public interest entity that is the issuer of voting shares, upon receipt of the notification specified above, shall disclose the information contained in the notification to the public promptly and no later than within 3 business days days from the date of receipt.

(iii) Notification of acquisition of company’s own shares: A public interest entity that  acquires or sells its own voting shares, and after the transaction reaches, exeeds, or falls under 5% or 10%, is to disclose the information to the public promtly and no later than 5 business days. 

Contributed by Karanovic & Partners.

1. Market Overview

1.1. Biggest ECM and DCM transactions over the past 2-3 years

Total turnover on Montenegro Stock Exchange (the „MSE”) in 2018 amounts to EUR 147.355.442, which is 210% more than in 2017. About 95% of the turnover in 2018 was generated in the Free Market. In addition to this, total turnover on the MSE in 2019 amounted to EUR 318.175.436, which is an increase of 116% compared to the achieved turnover in 2018. Similar to 2018, about 88% of turnover in 2019 was generated in the Free Market.

The largest ECM transactions were carried out within the Elektroprivreda Crne Gore AD Niksic, Montenegrin power company, which issued 54,785,075 shares worth EUR 230.572.186,0300, in overall six transactions. These transactions relate to block trades, free market. First two transactions were made at 2018, and the rest of them at 2019. The single largest transaction was made in May 16, 2018 and amounts EUR 68.939.595,3600.

Second biggest transaction was made by the issuer Podgoricka banka AD Podgorica – Member of OTP group, and it amounts EUR 35.629.692,3700, in single transaction. This transaction relates to block trades conducted in multilateral trading platform, and it was made in 2019.

When it comes to DCM transactions, in Montenegro it usually refers to government-issued bonds. Exceptionally, companies issue them as well, but that is not such a common occurrence.

The State of Montenegro made in overall 52 transactions in period of last two years. This was done through five separate issuances, and total scope of these transactions is EUR 14.577.926,3200. With that being said, the biggest issuance was made with four transactions with amount of EUR 7.628.278,0000, three of them performed in 2019, and one in 2020.

Like stated above, corporative bonds are not so common in Montenegrin capital market, or put differently, they don’t appertain to the active market. In stated period and mentioned field, 54 transactions were made by two entities. Total scope was EUR 6.377.036,3500. The issuers were banks, Universal Capital Bank AD Podgorica and Hipotekarna Banka AD Podgorica.

2. Overview of the local stock exchange and listing segments (markets)

MSE was founded back in June 1993, in accordance with the Law on Money Market and Capital Market. The first shareholders were the then Republic of Montenegro and four Montenegrin banks.

Subsequently, in 1995, the Law on Stock Exchanges, Stock Exchange Operations and Brokers was adopted, and MSE adjusted its operations in accordance with its provisions. In the meantime, the redefinition of the state union occurred, which enables the transposition and takeover of certain powers of the federal institutions by the institutions established in the Republic of Montenegro.

After taking over the responsibilities of the Federal Securities and Financial Markets Commission, and after determining the fulfilment of all necessary preconditions, the Securities Commission of Republic of Montenegro approved in December 2000 the operating license.

The transfer of the regulatory authorities of the securities market to the republics led to the adoption of the Montenegrin Securities Law, which did not regulate the issue of trading with short-term securities. With the adoption of this law, long-term and equity securities began to be traded on MSE.

On 20 September 2001, the New Securities Exchange of Montenegro AD Podgorica (NEX Montenegro) was established by six Montenegrin financial institutions and the Brokers Business Association. During that period, activities at the MSE were minimized (due to non-fulfilment of legal requirements for trading in securities).

The final harmonization with the Montenegrin Securities Law was made in 2004, and thus, until the end of 2010, two stock exchanges operated in Montenegro. The beginning of operation of the NEX Montenegro is significant since, for the first time in Montenegro, the electronic trading system to close transactions was used.

At the beginning of 2011, two Montenegrin stock exchanges were integrated with the merger of NEX Montenegro with MSE.

The first working day at the unique MSE was 10 January 2011.

In December 2013, the Istanbul Stock Exchange became a strategic partner of the MSE by purchasing 24,38% of its shares.

Listing segments (markets)

When it comes to the listing segments, the MSE organizes and manages:

•   Regulated market, consisting of the two segments:
  •   Stock Exchange Market (the “SE Market”) and
  •   Free Market
•   Multilateral Trading Platform (the “MTP ME Market”)
•   Multilateral Trading Platform for Developing Companies (the “MTP GROW Market”)

In addition, SE Market, as one of the segments of the regulated market, is consisted of the following sub-segments:

•   Prime Market and
•   Standard Market.

MSE Rules (the “Rules”) strictly define the financial instruments that can be traded on the regulated market, such as:

•   shares or other securities of the same significance that represent a share in capital or membership rights in a company, as well as certificates of deposited shares,
•   bonds and other types of securitized debt, including certificates of deposited securities,
•   structured financial products,
•   money market instruments: treasury, bills and commercial bills, deposit certificates, as well as other financial instruments commonly traded on the money market, and
•   units of joint venture entities, pursuant to the Capital Market Law (the “Law”) provisions.

As regards the specific requirements for the admission of financial instruments in trading on regulated market it mostly depend on the type of financial instrument to be traded with, as well as on each segment of regulated market, as explained below.

On the other hand, the MTP ME Market is an alternative market managed by the MSE. The main characteristic of MTP ME Market is lower transparency requirements for issuers and financial instruments in relation to the regulated market, and therefore the greater risk of investing in financial instruments traded on the MTP ME Market. The MSE seeks to ensure sufficient level of publicly available data on financial instruments traded on the MTP ME Market for the purpose of orderly trading and pricing. The provisions of the Law and other regulations, as well as the bylaws adopted pursuant to these regulations, relating to the prevention and detection of market abuse, shall apply to trading on the MTP ME Market.

When it comes to the types of financial instruments to be traded with, the MTP ME Market can be traded with the following financial instruments:

•   shares or other securities of the same significance that represent a share in capital or membership rights in a company, as well as certificates of deposited shares,
•   bonds and other types of securitized debt, including certificates of deposited securities, and
•   units of joint venture entities in accordance with the provisions of the Law.

With respect to MTP GROW Market, it represents the development market of the MSE for newly established joint stock companies that do not meet two or more conditions for admission on the Free Market.

On the process of joining the MTP GROW market and the obligations of the issuer after entering the MTP GROW market, the provisions for Free Market will be applied.

The issuer whose shares are admitted on the MTP GROW market is obliged to submit the required information to the MSE in the English language at its request.

3. Key Listing Requirements

The listing requirements for the admission of equity and debt securities varies quite considerably dependant on the market. The following information outlines some of the key listing requirements for listing various financial instruments on the various markets. Since the Rules provide for certain terms that should be fulfilled in each case, while also prescribing some other requirements typical for the particular type of market or financial instrument, the following overview is set out in order to follow the structure of the Rules.

First of all, the MSE decides on the admission of financial instruments on regulated markets. The request for admission shall be submitted to the MSE in writing on a form determined by the MSE, and officially published on its website. The request for admission may be submitted by the issuer or the person having the issuer’s authorization, except in cases specifically prescribed by the Law and applicable legislation, when the financial instruments may be admitted to the regulated market without the consent of the issuer.

Alongside the request for admission, the applicant is obliged to enclose the following documents:

•   certified copy of the decision on the entry of the issuer into the corresponding register,
•   Articles of Association,
•   the annual financial report with the opinion of the auditor in order to prove the fulfilment of the financial conditions for admission to the respective segment of the regulated market, if the given data is not contained in the prospectus of the issuer,
•   prospectus or the statement on using one of the rights to an exemption from the obligation to its composure and publishing,
•   copies of all decisions made by the Capital Market Commission (“Commission”) in relation to a financial instrument whose admission is required,
•   statement that the issuer has acted in full compliance with the provisions of the Law and other regulations and that he has all the prescribed approvals and consents of the competent authorities,
•   statement that it has been informed by the MSE of the obligations arising from the admission of its financial instrument on the regulated market, at the first admission of a financial instrument on the regulated market,
•   statement certifying that there is an appropriate internal organization, systems and procedures that ensure the timely availability of information to the market,
•   evidence of paid fee for admission in accordance with the MSE’s price list, and
•   other documentation that the MSE considers to be relevant for deciding on admission and for protecting investors.

Since these documents are required in any case, regardless the fact whether the financial instruments are ECM-based or DCM-based, there are certain documents that need to be provided additionally, depending on the financial instrument at hand.

In that line, if the request for admission refers to the shares, the applicant shall, in addition to the aforementioned documentation, also deliver:

•   the minutes from the session of the managing authority at which a decision to include the issuer’s shares on a regulated market was enacted, at the first admission of shares in trading on a regulated market, and
•   the decision on the registration of the share capital increase in the appropriate registry, in case of extension of the admission on the newly issued shares.

Apart from that, if the request for admission refers to bonds, the applicant shall, in addition to the documents regularly required alongside the request for admission, also deliver:

•   decision of the issuer’s competent body on the issuance of a bond, or
•   the decision of the Government of Montenegro, if the issuer is a local self-government or a state.

In addition, if the request for admission refers to structured financial products, the applicant shall, alongside the documents regularly required alongside the request for admission, also deliver:

•   the contract on the performance of market maintenance activities for structured financial products, concluded between the issuer and the market maker, and
•   the statement of the assigned credit rating, where applicable.

Furthermore, if the request for admission refers to the investment units of an open-ended investment fund, the applicant shall, alongside the documents regularly required alongside the request for admission, also deliver:

•   the license for the management company,
•   the license for the operation of an open-ended investment fund whose investment units are the subject of a request for admission on a regulated market,
•   the prospectus and approval of the prospectus of the fund,
•   the rules and approval of fund rules,
•   the key information for fund investors, and
•   the latest annual audit reports.

Apart from that, there is a slightly different documentation that needs to be submitted when the request for admission refers to the money market instruments. If this is the case at hand, the applicant shall enclose with the request for admission the following:

•   statement that the issuer has acted in full compliance with the provisions of the Law and other regulations and that he has all the prescribed approvals and consents of the competent authorities,
•   statement that it has been informed by the MSE of the obligations arising from the admission of its financial instrument on the regulated market, at the first admission of a financial instrument on the regulated market, and
•   information list containing at least:
  •    key information about the issuer (name, head office and legal form of the issuer, significant investments, business overview, significant judicial and other procedures),
  •    an annual financial statement with an opinion on the audit for the financial year preceding the filing of the request for admission or, if the issuer has published half-yearly or quarterly financial statements from the date of the last audited financial statements, they must be included in the information list, indicating whether revised or not,
  •    the characteristics, quantity and description of the rights arising from the market money instrument,
  •    other information that may be relevant for the assessment of market value and an estimate of investment in money market instruments,
  •    information about the persons responsible for the accuracy and completeness of the information contained in the information list.

3.1. Regulated market

In order for the admission of financial instruments on the regulated market to happen, the financial instruments, as well as their issuers, have to meet certain general requirements prescribed by the Law, the respective by-laws and the MSE acts.

Financial instruments that can be traded fairly, neatly and efficiently can be admitted on a regulated market and the issuer must be duly registered or otherwise properly established. The applicant for admission must fulfil the obligation to publish prospectus and other information, if such obligation is prescribed by the respective Law provisions as follows:

•   in the event that the obligation to publish prospectus and other information is required pursuant to the Law provisions, the applicant for admission is obliged to submit to the MSE that prospectus, as well as to state the information when and which authority approved the prospectus, and how the issuer fulfilled the obligation to make the prospectus public, or
•   in the case where an exemption from the obligation to publish a prospectus in accordance with the Law provisions, the applicant for the admission shall be obliged to submit to the MSE the signed statement on the use of the exemption from the obligation to publish the prospectus and evidence that it has informed the competent authority, in accordance with the Law.

Financial instruments must be freely transferable and for those financial instruments for which the request for admission to the regulated market has been submitted, a transaction settlement system must be provided, whereby it is assumed that this condition is met if a financial instrument is issued in a dematerialized form and entered into a register of financial instruments and admitted to the clearing system and balances.

The opened bankruptcy or liquidation procedure over the issuer of a financial instrument would have as the consequence the rejection of request for the admission of financial instruments on the regulated market.

3.1.1. SE Market

Apart from the aforementioned general requirements that need to be fulfilled in order for the financial instrument to be admitted on the regulated market, there are additional requirements that needs to be fulfilled in order to achieve the admission of the financial instruments on the SE Market (as well as for Prime Market and Standard Market, as its sub-segments) and on the Free Market as well.

Therefore, in addition to the aforementioned general requirements, the issuer must fulfil the following additional requirements for including financial instruments on the SE market:

•   that it has been registered as a legal entity for at least three years before the year in which the request for admission is submitted,
•   that the book value of the share capital amounts to at least EUR 5,000,000.00,
•   that the issuer does not delay in payment of dividends to shareholders or in pay-out of the principal and interest on issued other financial instruments,
•   that there are no restrictions on the circulation of financial instruments or the rights of the owners of financial instruments, on any basis,
•   that the issuer has accepted to apply the Corporate Governance Code in Montenegro (the “Code”),
•   that once a year the use of the Code is evaluated by the ScoreCard Exchange method and that it is publicly available on the issuer’s and MSE’s website.

Since, as explained, the Prime Market and the Standard Market represent the sub-segments of the SE Market, there are certain specific requirements that need to be fulfilled in order to achieve the admission on these particular markets.

In that line, the issuer, in addition to the above mentioned general and additional requirements, must fulfil the following conditions for admission of shares in the Prime Market:

•   that, according to the certified auditor, the financial statements in the last three years show a real and objective situation,
•   that the issuer owns websites in Montenegrin and English language,
•   that the minimum amount of capital in free trade is 20% of the total nominal value of the issuer’s capital or the minimum amount of market capitalization in free trade is EUR 2,000,000.00,
•   that at least 50% of all trading days at the MSE in the past year have been traded with the relevant financial instrument,
•   that the issuer is owned by at least 1,000 shareholders, and
•   that in at least two years from the last three years, it achieved the profit.

On the other hand, when it comes to the Standard Market, the requirements are not less strict that the ones above stated for the Prime Market. In that line, the issuer, in addition to the above mentioned general and additional requirements, must fulfil the following conditions for admission of shares in the Standard Market:

•   that, according to the certified auditor, the financial statements in the last three years show a real and objective state or opinion with the reserve,
•   that the issuer owns websites in Montenegrin and English language,
•   that the minimum amount of capital in free trade is 10% of the total nominal value of the issuer’s capital or at least the amount of market capitalization in free trade is EUR 1,000,000.00, and
•   that the issuer is owned by at least 500 shareholders.

Having in mind the specific nature of the bonds, there are additional specific conditions in relation to those, since the issuer must fulfil the following additional criteria in order to achieve their admission to the Standard Market:

•   that the accounts of the issuer have not been blocked in the past one hundred and eighty days, and
•   that the issuer does not have tax debt.

3.1.2. Free Market

As previously noted, apart from the general requirements that need to be fulfilled in order for the financial instrument to be admitted on the regulated market, there are additional requirements that needs to be fulfilled in order to achieve the admission of the financial instruments on the Free Market.

In that line, apart from these general requirements, the issuer must fulfil the following additional requirements for admission of shares in the Free Market:

•   to provide the MSE with a financial statement with the opinion of the auditor for the last year,
•   the book value of the share capital is at least EUR 200,000.00,
•   that it has a web page in Montenegrin language, and
•   that the minimum amount of capital in free trade is 5% of the total nominal value of the issuer’s capital or the minimum amount of market capitalization in free trade is EUR 100,000.00.

However, it is possible that Board of Directors of MSE approves the admission of financial instruments to the issuer that does not fulfil one of these conditions, all this in order to encourage the development of the market.

Having in mind the specific nature of the bonds, there are additional specific conditions in relation to those, since the issuer must fulfil the following additional criteria in order to achieve their admission to the Standard Market:

•   that the accounts of the issuer have not been blocked in the past sixty days, and
•   that the issuer does not have tax debt.

3.2. MTP ME Market

The financial instruments that could be traded on the MTP ME Market which do not meet the conditions for admission to any of the regulated market segments shall be admitted on the MTP ME market.

Approval for the admission of financial instruments on the MTP ME Market is subject to the MSE’s executive director decision, based on the written request.

In order to achieve the admission of the financial instruments on the MTP ME Market, the respective financial instruments must meet the following conditions:

•   must be issued in accordance with the legislation,
•   must be freely transferable,
•   establishment and legal status of the issuer of these financial instruments must be in accordance with the legal regulations of the country of the issuer’s headquarters,
•   must be in a dematerialized form, and
•   the system of balancing the transactions of these financial instruments must be provided.

4. Prospectus Disclosure

4.1. Regulatory regimes (Prospectus Regulation or similar) – equity and debt and local market practice

The issuer is obliged to prepare and publish a prospectus, which is approved by the Commission prior to the public offering or admission of securities in the regulated market. The publication of a prospectus without the approval of the Commission is prohibited.

The prospectus must contain all the information that, in accordance with the characteristics and activities of the issuer and securities publicly offered or involved in trading on the regulated market, is necessary for investors to evaluate the assets and liabilities, financial position, financial success, possible results of the issuer’s business and the guarantor, as well as the rights that these securities provide.

However, there are certain rules that set out the exemption of the mandatory publication of prospectus, and those exemptions differ depending on the classifying criteria.

Specifically, the exemptions are classified by the type of issues to be performed and the type of securities to be traded with.

In that line, the publication of a prospectus is not mandatory for the issues of securities:

•   addressed solely to qualified investors,
•   addressed to fewer than 150 natural or legal persons in Montenegro, other than qualified investors,
•   addressed to investors who acquire securities for a total consideration of at least EUR 100,000.00 per investor, for each separate offer,
•   whose denomination per unit amounts to at least EUR 100,000.00, and
•   with a total consideration of less than EUR 100 000, which shall be calculated over a period of 12 months.

In addition, when it comes to the exemptions related to the type of securities to be traded with, there is no obligation to publish the prospectus for the public bids related to:

•   shares issued in exchange for shares of the same class, if the issue of shares does not entail an increase in capital,
•   securities offered as a method of payment in the takeover bid, provided that such securities have a document containing information that the Commission considers to be equivalent to the prospectus data, in accordance with the law governing the takeover of joint stock companies,
•   securities offered, allocated or to be allocated in connection with the restructuring of the issuers, provided that a document is available containing the information deemed by the Commission to be equivalent to the prospectus data in accordance with the law governing companies,
•   dividends paid to existing shareholders in the form of shares of the same type as those to which dividend payments relate, provided that a document is available containing information on the number and characteristics of the shares, as well as on the terms and manner of payment of the dividend, and
•   securities offered, awarded or to be allocated by the employer or affiliate to executives or employees, provided that a document is available containing information on the number and characteristics of the securities, as well as the terms and conditions of the offer.

Apart from these exemptions, the Law also prescribes the specific exemptions from the obligation to publish the prospectus for the admission of certain types of securities for trading on a regulated market, such as:

•   shares which, in the previous 12 months, account for less than 10% of shares of the same class already involved in trading on that regulated market,
•   shares issued in exchange for shares of the same class involved in trading in that regulated market if the issue of shares does not entail a capital increase,
•   securities offered as a method of payment in a takeover bid, provided that the security document is available for those securities, which the Commission considers to be equivalent to the prospectus,
•   securities offered or to be awarded in connection with the restructuring of the issuer, provided that the document is available containing the information that the Commission considers to be equivalent to the prospectus data,
•   shares offered or to be allocated to existing shareholders as dividends paid in the form of shares of the same class as the shares in respect of which those dividends are paid, provided that:
  • i. those shares are of the same class as those already admitted for trading on that regulated market, and
  • ii. that a document is available that contains information on the number and rights of the shares with reasons and details of the offer,
•   securities offered or to be allocated by the employer or affiliate to executives or employees, provided that:
  • i. these securities are of the same class as securities already admitted for trading on that regulated market, and
  • ii. that a document is available containing information on the number and nature of the securities and the terms and conditions and details of the offer.
•   shares resulting from the conversion of other securities or the exercise of rights arising from other securities, provided that those shares are of the same class as those already involved in trading on that regulated market,
•   shares already involved in trading on another regulated market, subject to the following conditions:
  • i. if those securities or securities of the same class have already been involved in trading on another regulated market for more than 18 months,
  • ii. that, for securities first accepted for trading on a regulated market, acceptance for trading on another regulated market is linked to an approved prospectus that was made available to the public in accordance with the relevant law,
  • iii. that current trading obligations in another regulated market have been fulfilled;
  • iv. that person seeking to engage in trading on that market makes an summary prospectus available to the public in a language accepted by the Commission,
  • v. that the summary prospectus is publicly available, and
  • vi. that the content of the summary prospectus fulfils the conditions prescribed for the summary prospectus by the Law and that the summary prospectus contains the information on the place where the valid prospectus and financial information published by the issuer in accordance with the law can be obtained.

Notwithstanding the abovementioned exemptions from the publication of the prospectus, the Law contains certain provisions that deal with the rules for publication of the prospectus.

In that line, and with respects to the manners for the prospectus publishing, the issuer, offeror or person asking for admission to trading on a regulated market shall ensure availability of prospectus to the public:

•   by insertion in at least one newspaper widely circulated in the territory of Montenegro, 
•   in a printed form to be made available, free of charge, to the public at the offices of the regulated market on which transferable securities are being admitted to trading, or at the registered office of the issuer and at the offices of the financial intermediaries placing or selling transferable securities, including payment agents,
•   on the issuer’s website and, if needed, on the website of the financial intermediaries placing or selling transferable securities, including payment agents,
•   on the website of the regulated market where the admission to trading is sought, and
•   on the Commission’s website.

The text and the format of the prospectus, and/or the supplements to the prospectus, published or made available to the public, shall at all times be identical to the source document approved by the Commission.

Where the prospectus is made available by publication in electronic form, a paper copy must nevertheless be delivered to the investor, upon his request and free of charge, by the issuer, the offeror or the person asking for admission to trading on a regulated market. If the public offering is done through a financial intermediary, the same obligation would be applied to financial intermediary concerned as well.

In addition, the Commission shall publish all the prospectuses approved over a period of previous 12 months on its website.

As a special manner of publishing the prospectus, it will be deemed as published by advertising, if:

•   it is related either to an offer to the public of securities or to the admission to trading on a regulated market, and
•   its aim is to specifically promote a possible subscription or acquisition of securities.

Those advertisements shall be clearly recognisable as such and the information contained in those shall not be inaccurate, or misleading and shall be consistent with the information contained in the prospectus. All information concerning the offer to the public or the admission to trading on a regulated market communicated by the issuer, the offeror or the person asking for admission to trading on a regulated market, even if not for advertising purposes, shall be consistent with that contained in the prospectus.

Nevertheless, the Commission shall have the power to exercise control over the publication and advertising of a prospectus in accordance with the Law.

4.2. Language of the prospectus for local and international offerings

The prospectus needs to contain all information which (bearing in mind the particular nature of the issuer and securities publicly offered or admitted to trading on a regulated market), are necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses, as well as of the rights attaching to such securities.

Information contained in the prospectus need to be (i) true, (ii) complete, and (iii) consistently, transparently and comprehensively presented.

The content of the prospectus differs depending on the type of the issuer and the type of the securities to be issued, but in general contains the following:

•   summary prospectus – it needs to, in a brief and simple manner, contain the information on the essential characteristics and risks associated with the issuer, guarantor (if any) and the securities. Summary prospectus is not required if the prospectus relates to the admission to trading of debt securities having an individual nominal value of at least EUR 100,000,
•   issuer’s responsible persons,
•   persons responsible for audits of financial information,
•   selected financial information,
•   risk factors,
•   information about the issuer,
•   business overview,
•   organizational structure,
•   operating and financial review,
•   capital resources,
•   research and development, patents and licences,
•   trend information,
•   profit forecasts or estimates,
•   management,
•   remuneration and benefits,
•   board practices,
•   employees,
•   major shareholders,
•   related party transactions,
•   financial information concerning the issuer’s assets and liabilities, financial position and profits and losses (along with relevant financial statements/auditor’s reports),
•   material contracts,
•   third party information and statement by experts,
•   documents available for insight,
•   information on subsidiaries,
•   information on securities which will be offered/admitted to trading,
•   offer details,
•   listing details,
•   selling shareholders,
•   offer costs,
•   dilution details,
•   certain additional information,

5. Prospectus Approval Process

5.1. Competent Regulator

The competent regulator in Montenegro with regards to the prospectus approval process is the Commission. Its role is strictly prescribed by the Law, in terms of enactment of the decision approving or rejecting the prospectus delivered for the approval by the issuer.

The Commission the statutory independent regulatory body set up to regulate and monitor the issuing and trading of securities in accordance with international rules and principles of the International Organization of Securities Commissions (IOSCO), the legal framework of the European Union in this field (EU Acquis) and the rules of the European Securities and Markets Authority (ESMA).

The Commission is a full member of IOSCO and also a signatory to the multilateral Memorandum of Understanding and Co-operation recognizing the capacity of the Commission for equal co-operation and exchange of information between IOSCO members. In addition, the Commission is a signatory to the Memorandum of Understanding and Exchange of Information with Regulators from the region and is a signatory to the Memorandum of Understanding and Co-operation in the field of money laundering and terrorist financing.

The Commission was accepted by the European Competent Authority for Capital Markets as a signatory to the Memorandum of Understanding on Alternative Investment Funds. The purpose of the signing of the Memorandum is to enhance cooperation, exchange of information and experience related to the supervision of alternative investment funds, while implementing the rules on confidentiality and exchange of information applicable to EU, ESMA and European Systemic Risk Board (ESRB).

b. Timeline, number of draft submissions, review and approval process

The timeline and the process of approval of prospectus in Montenegro is regulated by the Law.

Request for approval of the prospectus for the purpose of public offering of securities may be submitted to the Commission by the issuer, offeror or person asking for admission to trading on a regulated market.

In addition to the aforementioned request, the applicant shall submit the following:

•   decision of its competent authority to issue securities or to ask for admission of securities to trading accompanied by all additional information to be submitted to the regulated market,
•   its prospectus consisting of one or more documents,
•   its Articles of Association and Articles of Incorporation,
•   other documents stipulated by the Commission.

The content of the request and accompanying documents are prescribed by the Commission.

The Commission shall decide upon the request for approval of the prospectus within ten business days following the date of submission of the request. However, when the issuer who has not previously offered securities publicly offers securities to the public or applies for admission to trading on the regulated market for the first time, the CMA shall decide on the request within twenty business days following the date of submission of the request.

The period in which the Commission shall decide begins on the first business day after the date of the request receipt. If the Commission does not decide on request for approval of a prospectus within the set time limits, it shall be considered that the prospectus was not approved.

On the other hand, in case that the Commission determines that the documents provided are incomplete or that supplementary information is required, the time limits shall be counted only following the date on which such information is provided by the issuer. If this is the case at hand, the Commission shall, within ten business days following the date of submission of the request notify the issuer of the need for supplementing the documentation or additional information.

Furthermore, the Commission shall approve a prospectus for securities to be offered to the public or admitted to trading on the regulated market by a decision, when:

•   the prospectus contains the necessary information prescribed by the Law, and
•   all of the other relevant requirements have been complied with.

The Commission will approve the prospectus when it determines that the information contained in the prospectus and the documents submitted with the request are complete and in accordance with the Law.

After its issuance, the Commission shall submit the decision on approving or refusing the prospectus to the applicant.

The Law also defines the reasons for refusing the request for the issuance of the approval, while prescribing that the Commission shall refuse the request for approval to publish a prospectus when:

•   the request was submitted by an unauthorized person,
•   the request is incomplete, i.e. the prospectus or information submitted along with the prospectus do not meet the requirements set by the Law and the applicant failed to amend the request, i.e. remove the irregularities within the time limits,
•   the approval of the competent authority was not obtained in accordance with the law,
•   the certificate that a regulated market is ready to include securities to trading was not obtained,
•   a prospectus contains incorrect, incomplete and misleading information or the essential facts are excluded causing incorrect, inaccurate or misleading information of investors, and the applicant did not remove the irregularities within the set time limits,
•   the applicant is the issuer who failed to act in accordance with the measures imposed during the supervision by the Commission,
•   data and information contained in the prospectus do not comply with the decision of the issuer to issue securities, their admission to trading or are not in accordance with other data required to be submitted along with the request,
•   the prospectus relates to public offer of securities and the decision of the competent authority of the issuer on issuance of securities is null and void,
•   a bankruptcy proceeding has been initiated over the issuer,
•   the fee for issuance of the approval determined by the Law was not paid.

The Law also prescribed the rules which will be applied in case that the Commission is of the opinion that certain amendments or additional information are required. In that line, the Commission may require:

•   the issuer, the offeror or the person asking for the admission to trading on a regulated market, to include in the prospectus supplementary information if necessary, for investor protection,
•   the issuer, the offeror or the person asking for the admission to trading on a regulated market and the persons that control them or are controlled by them, to provide certain information and documents
•   auditors and managers of the issuer, the offeror or the person asking for the admission to trading on a regulated market, as well as a financial intermediary entrusted with execution of public offer or admission to trading, to provide certain information and documents.

6. Listing Process

6.1. Timeline, process with the stock exchange

As previously explained in Section 3. “Key Listing requirements” the listing of various financing instruments is subject to prior decision of the MSE. Since the data contained in the aforementioned Section 3 clearly depict the necessary documentation to be submitted alongside the respective request, this section will be used for pointing out the relevant timeline and process information with the MSE.

The request for admission is considered to be correct if it was submitted by an authorized person, if the request was signed by the authorized person and if all the prescribed and requested documents were submitted to the MSE upon request.

The decision to include a financial instrument on a regulated market shall be made by the executive director of the MSE within sixty days from the day of receiving the complete documentation.

The financial instrument shall be deemed to be admitted to the regulated market as of the date of the decision enactment. In its decision, MSE determines the first trading day with such financial instrument, while also submitting the decision without delay to the Commission and publishing it onto website. Since the request for admission can be submitted to the MSE by the person without consent of the issuer, the MSE shall inform the issuer that its financial instruments are traded with on regulated market operated by the MSE.

7. Corporate Governance

7.1. Corporate governance code / rules (INED, board and supervisory composition, committees)

The MSE is organized on the principle of member firms, which trade on their own behalf and for their own account (dealers) and on behalf and for the account of their clients (brokers). A member of the MSE may be any legal entity that is registered as a stockbroker under the Law and fulfils the conditions prescribed by the MSE Statute. In addition, members of the MSE may be banks and insurance companies when they obtain the approval of the Commission to conduct stock trading.

The bodies of the MSE are:

•   the assembly,
•   the board of directors,
•   the executive director, and
•   the secretary.

The assembly is the highest body of the MSE. This position is based on its status and property powers of the assembly and is manifested in its authority prescribed by law and the statute.

The assembly is made up of all shareholders of the MSE. They prove their presence at the session by signing the attendance list. The session shall be convened once a year, and if necessary, may be convened several times during the year, under the conditions and in the manner prescribed by law.

The audit report is being considered at the assembly. For legitimate decision making, the number of people present at the session, a quorum, is indispensable. The assembly also adopts its rules of procedure, decides on the formation of funds and reserves that are not required by law, and decides on other issues.

The board of directors is a mandatory body of the MSE, which has a managerial and supervisory function over the day-to-day operations. The board of directors has a president and four members elected by the assembly, at each regular annual meeting. A person with the approval of the Commission may be appointed as a member of the board of directors and, as a minimum, have a higher education qualification or vocational qualification, personal reputation, appropriate professional qualifications and experience in the financial sector. Of course, a member of the board of directors may not be a person who has been convicted by a final court decision for an act that makes him or her unworthy of exercising his/her functions as a member, further, a deputy, councillor or person elected to work in state administration bodies and local self-government units, unless Montenegro has ownership interest in the MSE. Neither can the person who is a director, a member of the board of directors an employee or a person with qualified participation in another market organizer, the Central Depository and Clearing Company, and other organizations where a conflict of interest may arise, be a member of the board of directors.

The executive director is the independent executive body of the board of directors for the operational management of the MSE’s operations. Its office term is four years, and it may be reappointed. The executive director, as stated above, is appointed and dismissed by the board of directors, and it is obliged to report to the board of directors on its work.

The executive director is obliged to execute the orders of the board of directors and to execute its decisions in connection with the operations, representation, management of the stock of the SMSE, conclusion of contracts, opening of accounts in banks, employment of persons and their distribution, etc. The executive director is specifically empowered to take care and responsibility for the legality of the MSE, to prepare and propose business members, candidates for employment.

The executive director shall be relieved of his/her duties by the board of directors if it requests so, as well as in cases when it was silent on the important facts for its position, does not act conscientiously and with due care, works against the interests of the MSE, uses property for his/her own use, uses confidential information, or does not enforce decisions and orders of the MSE bodies etc.

The secretary is an executive body that performs administrative tasks on behalf and on behalf of the MSE. It is also appointed and dismissed by the board of directors. What is interesting is that the same person may be elected executive director and secretary. The conclusion of a contract of employment, accountability, notification to the board of directors, the conditions of employment and the term of office of the executive director shall also apply to the secretary. The secretary has the right and the duty to organize the assembly and carry out activities related to informing the shareholders, then to provide expert assistance to the shareholders in the exercise and protection of their rights, to be available to the shareholders every business day for all questions regarding their rights. In addition, the secretary also organizes, and coordinates tasks related to the work of the board of directors, submits documentation to the competent authorities and other tasks regulated by regulations.

As regards supervisory authorities, the main bodies are the independent auditor and the audit committee.

The independent auditor is selected and dismissed by the assembly and audits the financial statements at the end of the financial year.

The audit committee has three members, appointed by the board of directors. At least one member must have knowledge of accounting and auditing and must not be an employee, shareholder or member of the board of directors of the MSE. The audit committee monitors the process of financial reporting, the efficiency of internal control of the legal entity and internal audit, monitors also the statutory audit of annual financial statements, the independence of the certified auditors involved, makes recommendations to the assembly on the choice of the auditing company or authorized auditor and other.

8. Documentation and Other Process Matters

8.1. Over-allotment (greenshoe or brownshoe structure)

The Law contains limited provisions on underwriting – it recognises the underwriter as an investment company which provides underwriting services in relation to placing of financial instruments on the firm commitment basis.

While over-allotment is not clearly regulated under Montenegrin laws, it could be deemed as possible and available, since there is no explicit ban with that respect.

8.2. Stock lending agreement – whether it is used and whether there are any issues (tax, takeover directive)

Stock lending is not explicitly prohibited under the Montenegrin laws, however, as far as our knowledge goes, the stock lending agreement was not widely used in Montenegro, while the tax implications should be observed in each particular case.

8.3. Stabilisation – whether allowed and on what terms (MAR, local regimes)

Similar as to the underwriting, the Law tends to regulate certain issues in relation to the stabilization. In that line, the prohibition on insider trading and on the market abuse shall not apply to trading securities or related securities stabilization instruments when stabilization is carried out over a specified period, or the stabilization is notified to the Commission, and when restrictions on compliance are observed price in accordance with market rules.

The issuer, the bidder or other entity carrying out the stabilization shall notify the Commission of all stabilization transaction data at the latest at the end of the seventh day of trading from the date of the transaction.

In order to achieve the clarity of these rules, the Law defined that the stabilization is the purchase or offer to buy securities or transactions equivalent to related instruments conducted by an authorized credit institution or investment firm within the meaningful distribution of those securities solely for the purpose of maintaining the market price of those securities during a predetermined period due to pressure on their securities sale.

9. Ongoing Reporting Obligations (Life as a Public Company)

9.1. Annual and interim financials

Even though the significant part of the piece of legislation regarding the capital market in Montenegro has adopted in 2018 or later, it recognized the need for establishing the legal framework for issuers’ reporting obligations.

In that line, the most significant reporting obligations of the issuers can be divided in two parts:

•   the reporting obligations towards the Commission, as prescribed by the Law, and
•   the reporting obligations towards the MSE, as prescribed by the Rules.

Reporting obligations towards the Commission

The main reporting obligations that the issuer has towards the Commission can be divided depending on the frequency of the reporting obligation. Specifically, the main reporting obligations of the issuers are divided in the following manner:

•   annual financial reporting,
•   half-yearly financial reporting, and
•   quarterly financial reporting.

The issuer shall make public on its website its annual financial report and shall submit it to the Commission, at the latest three months after the end of each financial year and shall ensure that it remains publicly available for at least ten years following the date of its publication.

Issuer’s annual financial report shall contain:

•   audited financial statements along with auditor’s report,
•   management report, and
•   statements of issuer’s responsible persons that:
  • the financial statement was prepared in accordance with the relevant accounting standards and gives a true and fair view of assets, liabilities, financial position and profit or loss of the issuer, as well as its subsidiary undertaking included in the consolidated report, and
  • the management report includes a fair review of the development and performance, as well as the issuer and subsidiary undertakings’ position incuded in the consolidated report, together with a description of the principal risks and uncertainties that it faces.

Where the issuer is not required to prepare consolidated accounts, financial statements shall include balance sheet made in accordance with the law governing accounting. The auditor’s report, signed by the person responsible for auditing the financial statements, shall be disclosed with the annual financial report. At the request of the Commission, the auditor is required to submit to it the required information and data in accordance with the provisions of the Law.  Delivery of information by the auditor at the Commission’s request shall not constitute a breach of any contractual or legal restriction on disclosure of information by the auditor.

The issuer shall make public a half-yearly financial report covering the first six months of the financial year on its website and submit the same to the Commission at the latest two months after the expiry of the reporting period and ensure that the half-yearly financial report remains available to the public for at least ten years following the date of its publication.

Half-yearly financial report shall contain:

•   half-yearly financial statements,
•   half-yearly management report, and
•   statements of issuer’s responsible persons that:
  • the financial report was prepared in accordance with the relevant accounting standards and gives a true and fair view of assets, liabilities, financial position and profit or loss of the issuer, as well as its subsidiary undertaking included in the consolidated report, and
  • the management report includes a fair review of important events that have occurred during the reporting period, the impact of important events on the condensed set of financial statements, the description of the principal risks and uncertainties for the remaining six months of the financial year and the data on major related parties’ transactions.

The statements of the issuer’s responsible persons shall contain names, surnames and positions of responsible persons.

The issuer having its registered office in Montenegro shall make public on its website its quarterly financial report and submit the same to the Commission at the latest one month after the end of each quarter and shall ensure that it remains publicly available for at least ten years following the date of its publication.

The quarterly financial report shall contain:

•   quarterly financial statements,
•   quarterly management report, which specifically contains the important events that have occurred during the reporting period, the impact of important events on the condensed set of financial statements, the description of the principal risks and uncertainties until the end of a financial year and the data major related parties’ transactions.
•   statements of issuer’s responsible persons that:
  • the financial statement was prepared in accordance with the relevant accounting standards and gives a true and fair view of assets, liabilities, financial position and profit and loss of the issuer, as well as its subsidiary undertaking included in the consolidated report, and
  • the management report includes a fair review of the development and performance, as well as the issuer and subsidiary undertakings’ position included in the consolidated report, together with a description of the principal risks and uncertainties that it faces.

The statements of the issuer’s responsible persons shall contain names, surnames and positions of responsible persons.

When it comes to the responsibility, the issuer, its board of directors and accountant who prepared financial statements of the issuer shall be responsible for the accuracy and publication of the aforementioned reports Consequently, those persons shall pay compensation to any person who has suffered damage as a result of any false, misleading or incomplete information, however, those shall not be held liable if they prove that they were not aware of and could not be aware of any false, misleading or incomplete information, provided that they acted in accordance with the best practice.

However, there are certain exemptions with respect to these reporting obligations. In that sense, these reporting obligations would not be applicable towards the units issued by collective investment undertakings other than the closed-end type, or to units acquired or disposed of in collective investment undertakings of the closed-end type.

In addition, these reporting obligations shall not apply to:

•   Montenegro and local self-government units, and
•   an issuer exclusively of debt securities admitted to trading on the regulated market, the denomination per unit of which is at least EUR 100,000.00 or, in the case of debt securities denominated in a currency other than euro, the value of such denomination per unit is, at the date of the issue, equivalent to at least EUR 100,000.00.

Reporting obligations towards the MSE

Apart from the reporting obligations (out of which main are pointed out above) to the Commission, the MSE prescribed certain reporting obligations as well, for those issuers whose financial instruments are admitted to SE Market (both Prime and Standard Market) and Free Market.

In that line, the issuer whose financial instruments are admitted to SE Market (Prime and Standard) should deliver to the MSE the following:

•   financial statements (annual, semi-annually and quarterly) – within one month from the last day of the period for which the financial report relates,
•   management report – qualitative opinion and an alignment of the results of the issuer in the reporting period, as well as determining the future movement of its operations – with the annual report,
•   audit report – within the deadline set by the Law,
•   report on changes in the significant share in the issuer’s capital, within three days from the date when the changes occur,
•   notification of acquisition or disposal of own shares – within three days from the date of acquisition or disposal,
•   notification of the allocation and payment of dividends – within three days from the date of the decision,
•   notification of changes in rights in issued shares – within three days from the day of making the decision,
•   report on the application of the Code – with the annual report,
•   notification of the convening of the session of the shareholders assembly, proposal of decisions and materials, and decisions and minutes from the session of the shareholders assembly, within eight days from the date of publishing the notice, or the date of the session,
•   price sensitive and insider information, in accordance with the provisions of the Law, without delay,
•   notification of the transactions of the managers – in accordance with the provisions of the Law, within three working days from the date of conclusion of the transaction,
•   event calendar – a list of the dates on which the issuer owes to hold the session of the shareholder’s assembly, publish the financial statements, pay dividends, and the dates of other events relevant to shareholders – at the latest fifteen days before the beginning of the business year, 
•   notification of the scheduled meeting of the board of directors and report after the meeting of the board of directors on which it is decided on: financial statements, pay dividends and interim dividends, on changes in share capital – within eight days from the date of the session, and
•   additional reports and information at the MSE’s request, which the MSE finds important to protect investors and ensure efficient and transparent trading.

On the other hand, the issuer whose financial instruments are admitted to Free Market should deliver to the MSE the following:

•   financial statements (annual, semi-annually and quarterly) – within the deadlines set by the Law for submission to the Commission,
•   management report – qualitative opinion and analysis of the results of the issuer in the reporting period, and evaluation of the future movement of its business – with the annual report,
•   audit report – within the deadline set by the Law for submission to the Commission,
•   notification of the allocation and payment of dividends – within three days from the date of the decision,
•   notification of changes in rights from issued shares within three days from the date of the decision,
•   notification of the transactions of the managers – in accordance with the provisions of the Law, within three working days from the date of conclusion of the transaction,
•   price sensitive and insider information, in accordance with the provisions of the Law, without delay,
•   notification of the convening of the shareholders assembly, as well as for the minutes from the session of shareholders assembly – within eight days from the day of the session, and
•   additional reports and information at the MSE’s request, which the MSE finds important to protect investors and ensure efficient and transparent trading.

9.2. Ad hoc disclosures

The Law provides for several ad hoc disclosure which needs to be made, while the most significant are:

  Reporting on change in voting rights. At the end of each calendar month, during which occurred the change in number of voting shares to which the share capital of the issuer is divided or the change in number of voting rights attached to these shares, the issuer shall be required to publish on its website information of any new changes and the new total number of voting shares.

  Reporting on treasury shares. The issuer of shares, when acquires or disposes of the treasury shares, either itself or through a person acting in his own name but on the issuer’s behalf, shall make public the proportion of the treasury shares, but not later than four trading days following such acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5 % or 10 % of the voting rights.

Similar as to the periodic reporting obligations, these ad hoc disclosures would not be applicable towards the units issued by collective investment undertakings other than the closed-end type, or to units acquired or disposed of in collective investment undertakings of the closed-end type.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

Contributed by ODI Law.

1. Market Overview

The Macedonian Stock Exchange (MSE) is the only regulated stock exchange in North Macedonia which acts as a central marketplace for the admission and trading of equity, debt and other securities. The MSE was established in 1995 and commenced trading in 1996. The MSE is a member of the Federation of Euro-Asian Stock Exchanges (FEAS) and affiliated member of Federation of European Stock Exchange (FESE).

The MSE, similar to other stock exchanges in South-East Europe (SEE), is relatively small and has not attracted investments from large institutional investors as tend to view the whole SEE region as one marketplace. In 2014, to facilitate integration with other SEE markets, the MSE, together with the Bulgarian Stock Exchange (BSE) and the Croatian Stock Exchange (ZSE) established SEE Link. SEE Link is a special purpose business vehicle which operates an electronic system for order-routing between the stock exchanges in the SEE. The principal objective of SEE Link was to integrate regional equities markets without merger or corporate integration, using only technology that will enable participating stock exchanges to remain independent yet complement and to allow investors a more accessible and more efficient approach to these markets through a local broker.

Today, SEE Link has combined equity market capitalisation of over USD 50 billion allowing order routing of almost 1200 securities listed on exchanges in Bulgaria (BSE), Bosnia and Herzegovina (BLSE and SASE), Croatia (ZSE), Macedonia (MSE), Serbia (BELEX) and Slovenia (LJSE).

2. Overview of the local stock exchange and listing segments (markets)

There are two principal markets in North Macedonia, each of which is operated by the MSE:

Official Market. The official market for listed securities (the “Official Market”) is the MSE’s flagship market for larger, more established companies. The Official Market is home to the largest Macedonian companies that are subject to the highest standards of regulation and governance. The Official Market has four main segments:

•   Super Listing segment.
•   Exchange Listing.
•   Mandatory Listing.
•   Listing of Small Joint-Stock Companies.

Regular Market. The Regular Market is a market of unlisted securities which has two main segments:

•   Market of Companies with Special Disclosure Obligations which includes companies (i) that have made an initial public offering (IPO); or (ii) companies that have a share capital of at least EUR1 million and at least 50 shareholders.
•   Free Market, where all securities, other than those in the Official Market and the Market of companies with special Disclosure Obligations are traded

3. Key Listing Requirements

3.1. Equity Capital Markets

3.1.1. Listing of shares on the Super Listing sub-segment

The listing of shares on the Super listing sub-segment requires an issuer to meet the following conditions:

(i) to prepare audited financial statements for the last three years, of which with unqualified opinion for the previous year;

(ii) to be profitable in the previous 3 years;

(iii) to have a share capital of at least EUR 10 million;

(iv)  to have a free float ratio of at least 20%;

(v) to have at least 200 shareholders; and

(vi) to operate a web site in Macedonian and English.

3.1.2. Listing of shares on the Exchange listing sub-segment

The listing of shares on the Exchange listing sub-segment requires an issuer to meet the following conditions:

(i) to prepare audited financial statements for the last two years;

(ii) to have a share capital of at least EUR 5 million;

(iii) to have a free float ratio of at least 10%;

(iv) to have at least 100 shareholders; and

(v) to operate a web site.

Shares issued by a company which has not prepared audited financial statements for the previous two years can be listed on the Exchange listing sub-segment if the issuer has issued securities through an IPO in the previous year.

3.1.3. Listing of shares on the Mandatory Listing sub-segment

Companies which meet the below conditions must be listed on this market sub-segment:

(i) to prepare audited financial statements for the last two years;

(ii) to have a share capital of at least EUR 1 million;

(iii) to have a free float ratio of at least 1%; and

(iv) to have at least 50 shareholders.

3.1.4. Listing of shares on the Market of small joint-stock companies’ sub-segment

The listing of shares on the Market of Small Joint-Stock Companies’ sub-segment requires a company to prepare audited financial statements for the previous year and to have a share capital of at least EUR 250,000. The issuer listed on Market of small joint-stock companies’ sub-segment is obliged to publish all announcements stipulated in Special reporting obligations prescribed in Macedonian Listing Rules through a listing Sponsor for a minimum period of 1 year.

3.2. Debt Capital Markets

The listing of long-term debt securities on the Exchange Listing sub-segment requires a company to prepare audited financial statements for the last two years and to have a share capital of at least EUR 200,000. If the company has not operated for at least 2 years, it must have audited financial reports at least for the last year.

Long-term debt securities issued by North Macedonia, state institution, a state-owned public company, municipality or the National Bank and long-term debt securities guaranteed by North Macedonia are listed on the official market after a submitted application from the issuer. The long-term debt securities issued by issuers whose shares or long-term debt securities are already listed on the Official Market of the MSE are listed on the Official Market after the submission of the data prescribed in the Macedonian Listing Rules. The same conditions also apply to the listing of short-term debt securities.

4. Prospectus Disclosure

Unless there is an applicable exemption, a prospectus is required for the issue of equity securities in North Macedonia where:

•   There is an offer of securities to the public.
•   There is an application for admission of securities to trading on the Official Market.

The Securities Exchange Commission (SEC) in its capacity as the competent authority for oversight of the securities market in North Macedonia, must approve the prospectus of any Macedonian company that wishes to list its securities on the Official Market or to offer them to the Macedonian public.

In an IPO of a class of securities that is admitted to trading on a regulated market for the first time, the prospectus must be made available to the public at least fourteen calendar days before the end of the offer. The prospectus, whether a single document or consisting of separate documents, will be deemed to be available to the public when published electronically on the website of any of the (i) MSE; (ii) the issuer’s registered office; (iii) the registered office of the listing sponsor; (iv) on the issuer’s website.

If a potential investor makes a specific demand for a paper copy, the company, the offeror or the person asking for admission to trading on a regulated market is required to deliver a printed version of the prospectus. A prospectus should contain the information necessary to enable investors to make an informed assessment of the:

•   Assets and liabilities, profits and losses, financial position and prospects of the issuer and of any guarantor.
•   Rights attaching to the securities and the reasons for the issuance and its impact on the issuer.

The above information may vary depending on the nature of the issuer, type of securities offered and the circumstances of the issuer. The issuer and its Board have primary legal responsibility for the prospectus. They are obliged to confirm that to the best of their knowledge, the information contained in the prospectus is in accordance with the facts and that the prospectus makes no omission likely to affect its import. Any person that has authorised any part of the contents of the prospectus will incur liability for that part of the prospectus (this includes the reporting accountants for their reports included in the prospectus).

4.1. Offers exempt from a prospectus

An issuer whose securities are already listed on the Official Market of the MSE is not required to produce a prospectus in case of issuance of new securities in the following circumstances:

(i) Securities representing less than 20% of the number of shares of the same class already admitted to trading if the new offer will increase the yield by less than 20%

(ii) Shares issued in substitution for shares of the same class already admitted to trading on the same regulated market, where the issuing of such shares does not involve any increase in the issued capital.

(iii) Shares created by conversion of convertible securities.

4.2. Information on acceptance of a listing

The prospectus of a company which wishes to be listed on the Official Market must set out the following information, as a minimum:

(i) front page (which will include the title “prospectus”; the company logo; the name of the company and the address of the company; listing the shares of the company and data on the date of the quotation; and the sponsor of the listing);

(ii) statement of the issuer’s Board confirming the truthfulness of the information set out in the prospectus;

(iii) particulars of the company (name and registered office, court registration, a brief history of the company from its establishment until the day of submission of the request);

(iv) a brief description of the principal activity of the company and organisation of operations;

(v) a brief description of employees and a chart of the company’s qualification structure;

(vi) number of shares, by type, as well as the rights to the shares arising from the Statute of the company;

(vii) shareholder structure, number of more significant shareholders holding more than 10% and their share in the total number of shares, as well as the percentage of shares held by the Board;

(viii)  a brief description of the development perspectives in the business operation, and especially in the production, sales, inventories, costs and sales prices, conquering new markets;

(ix) a brief description of the company’s stock trading, including a chart of the movement of the company’s stock price;

(x) a brief description of dividend and dividend policy, including a chart of the dividend paid per share for the last three years) and

(xi) financial statements (revised financial statements for the last three years – income statement, balance sheet, cash flow statement and statement of equity and equity change, with the auditor’s opinion). If the issuer owns majority shareholdings in other companies, it must provide consolidated annual financial statements and a report on the management and operation of the group of companies.

The prospectus must be published in the Macedonian language. Additionally, the prospectus may be published in another language.

5. Prospectus Approval Process

The MSE is the ‘competent authority’ in North Macedonia for reviewing and approving prospectuses for listing, and the company will need to follow the formal admission requirements set out in Securities Law (including the relevant by-laws) and Listing Rules.

6. Listing Process

The Board of Directors of the MSE is authorised to review the application for listing and decide within 30 days from the day of receipt of the application. If necessary, the Board of Directors may request the issuer to provide additional information. The review period in such cases is extended for the time required to submit the necessary information. The MSE will not (except in exceptional circumstances) accept securities on listing until all documents relevant for consideration are available to the MSE. Failure to fully comply with this rule may result in a delay in consideration of the application for a listing.

For the purpose of listing of securities, the issuer, through its sponsor, submits to the MSE a listing application, containing all relevant documentation in written form (one original copy of the documentation is sufficient) and on CD no later than 16:00 to MSE. If the listing application refers to shares, it must indicate whether the application relates to a listing of shares on Super Listing, Exchange listing, Mandatory Listing or the Market for Small Joint-Stock Companies.

The listing application, along with the relevant documentation, is evaluated by the MSE Listing Commission, formed by MSE Boards of Directors. The Listing Commission, based on the submitted application and documentation, prepares an opinion and a proposal to the Board of Directors. The MSE Board of Directors makes an assessment of a listing application and the opinion of the MSE Listing Commission.

7. Corporate Governance

The MSE adopted a Corporate Governance Code applicable to companies listed on the MSE (the “Code”) back in 2006. It includes a set of 15 principles to be applied on a voluntary basis (only companies listed on the “Super Listing” segment (currently one bank) are required to implement the Code on a “comply or explain” basis). The Code is based on the OECD Principles of Corporate Governance from 2004 and has not been revised since its adoption. In addition to MSE, the SEC has responsibilities for supervising issuers listed on MSE, including on some corporate governance-related matters (e.g. acquisition of qualifying holdings within listed companies). The Code does not include any provisions on ESG matters.

8. Documentation and Other Process Matters

Stabilisation is the practice by which the lead manager or bookrunner supports the price on a new issue of shares for a limited period after the admission of the shares to the market, intending to maintain a stable price during this period. Price stabilisation is undertaken for certain large issues of securities, such as on an IPO because it (amongst other matters) helps promote the orderly operation of the market and counteract short selling.

In principle, the nature of price stabilisation potentially constitutes the offences of market abuse, creating a misleading impression and/or insider dealing, which is prohibited in North Macedonia. Although there is very limited practice, the prohibitions on insider dealing, unlawful disclosure of inside information and market manipulation should not apply in the following circumstances:

•   Stabilisation is carried out for a limited period.
•   Prescribed information is disclosed and notified to the competent authority of the trading venue.
•   Adequate limits with regard to price are complied with.
•   Trading complies with the standards set out in the trading rules of the MSE.

9. Ongoing Reporting Obligations (Life as a Public Company)

The quantity and quality of publicly available information regarding public companies vary depending on whether a company is listed or is a company with special disclosure obligations. Listed companies must publish details on their operations under the disclosure requirements of the Listing Rules which require more detailed disclosure than the regulator’s disclosure rules which apply to companies with special disclosure obligations. Further, the Listing Rules provide for different disclosure requirements for listed companies depending on which market segment of the MSE their shares are traded.

Generally, all listed companies on the Official Market must disclose:

•   Quarterly, semi-annual and annual financial reports, the management reports and the interim reports.
•   Underwriting of new shares, changes of rights deriving from existing shares, purchase of treasury shares and free-floated shares.
•   The identity of any shareholders or board members who have acquired 5% of the voting shares of the company.
•   Information about related-party transactions entered into by the board members and affiliated entities of the company.
•   Price-sensitive information on an ad hoc basis.
•   Material changes in the liquidity of the company.
•   Dividend calendar.
•   Corporate governance reports (only banks)

Contributed by Rymarz Zdort.

1. Market Overview

The Warsaw Stock Exchange (the “WSE”) is the biggest exchange in Central and Eastern Europe and organises trade on one of the fastest-growing capital markets in Europe.

The WSE was Europe’s third-biggest market by the number of IPOs in 2017 (on a par with the Spanish exchange BME). The total value of initial public offerings (“IPO”) on the WSE was over EUR 1.8 billion in 2017, the highest since 2011. The IPO of Play Communications SA on the WSE was the eighth-biggest European IPO in 2017. In 2018 and 2019, a significant decline was observed in terms of IPO deal count and deal volume. The WSE recorded 20 and 16 IPOs in 2018 and 2019 respectively. The total value of offers on the WSE (in total on the regulated market and NewConnect) amounted to PLN 65.9 million (EUR 15.4 million) in 2019. It means a decrease of approximately 80 percent compared to 2018, which was the weakest year in terms of total value offers since 2003, according to the report “IPO Watch Europe 2019” prepared by the consulting company PwC.

According to WSE data, corporate bonds issued by 116 issuers were listed on Catalyst in 2019 with PLN 68.7 billion in debt capital raised. A significant portion of the bonds issued by Polish financial institutions and blue chip companies, especially those issued in EUR and other foreign currencies, are listed on foreign stock exchanges, in particular the Luxembourg stock exchange.

2. Overview of the local stock exchange and listing segments (markets)

The WSE, being the only Polish stock exchange, organises the trade of financial instruments on both a regulated market and a non-regulated market. In addition to that, there is also a part of a debt financial instruments market that is organised by BondSpot S.A. (“BondSpot”), a member of the WSE’s capital group.

With respect to the regulated market operated by the WSE, such market has two segments: the Main Market and the Parallel Market. The Main Market, which is regarded as the “official exchange market” in Poland within the meaning of the Financial Instruments Trading Act of 29 July 2005, is designed for companies that meet specific requirements, particularly with regard to their capitalisation, sufficient dispersion of stock ownership (i.e. a minimum number of free-float shares) and disclosure of certain financial information. Conversely, the listing requirements applicable on the Parallel Market are less stringent; the Parallel Market is open to trading of financial instruments of companies with lower capitalisation, if compared to the Main Market companies, and lesser free-float requirements. As of 7 April 2020, there were 342 companies listed on the Main Market and 105 companies listed on the Parallel Market.

Outside the regulated market, the WSE organises the trade of financial instruments on the “NewConnect” market (“NewConnect”), operating as a “multilateral trading facility” (MTF) within the meaning of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (“MIFID II”). NewConnect has been designed as a platform in which companies with lower capitalisation, usually from the IT sector, may raise capital in the initial stages of their operation. NewConnect companies usually contemplate entering the Main Market or the Parallel Market upon achieving the required capitalisation and meeting other requirements.

In addition, the Polish capital market comprises a debt financial instruments market, broadly referred to as “Catalyst” (“Catalyst”). Within Catalyst, there are in total four segments: two of them being “regulated markets” within the meaning of MIFID and two of them operating as MTFs. The WSE operates two segments designed for retail investors (one in the form of the regulated market and one as an MTF) and BondSpot operates the remaining two segments, which are designed for wholesale investors.

3. Key Listing Requirements

3.1. WSE Main Market and the Parallel Market

The provisions of EU and Polish law provide for a number of specific requirements that must be met in order for a company’s shares to be eligible for listing on the WSE. These requirements vary, to a certain extent, depending on whether the shares are to be listed on the Main Market or on the Parallel Market, with the requirements for listing on the Parallel Market being less stringent than those for the Main Market. In general, and in line with the practice of other European jurisdictions, the listing requirements relate to the company’s organisational form, capitalisation and shareholding structure, as well as require the adoption of specific resolutions by the company’s general meeting, the dematerialisation of its shares, the preparation, approval by a competent authority (if required) and publication of a prospectus or other offering/listing document, and formal resolutions of the WSE’s management board on the admission of the shares to trading on the WSE and the introduction thereof to listing on the WSE.

As regards the requirements for listings on the Main Market and the Parallel Market, these include, among other things, the following:

(i) organisational form: the company to be listed must operate in the form of a joint-stock company or in the equivalent form for non-Polish issuers, which means that the company must first undergo a transformation process if it has been incorporated in another legal form;

(ii) minimum capitalisation: the value of all of the shares in the company and the forecasted market price must equal at least EUR 15 million;

(iii) minimum free-float: the shareholders of the company that each hold shares representing less than 5% of the votes exercisable at the general meeting of the shareholders should in total hold (a) at least 15% of the shares referred to in the application for admission to WSE listing, and (b) at least 100,000 of the shares referred to in the application for admission to WSE listing, and the value thereof should amount to at least EUR 1 million (calculated based on their most recent sale/issue price);

(iv) no bankruptcy or liquidation proceedings may be underway with respect to the company; and

(v) the transferability of the shares may not be restricted.

In respect of a listing on the Main Market, in addition to the requirements set forth above, the following requirements also apply:

(i) the application for the admission to trading on the Main Market must apply to all of the shares of the same type (e.g. ordinary shares);

(ii) minimum free-float: the shareholders of the company that each hold shares representing less than 5% of the votes exercisable at the general meeting of the shareholders should in total hold (a) at least 25% of the shares referred to in the application for admission to WSE listing, and (b) at least 500,000 of the shares referred to in the application for admission to WSE listing, and the value thereof should amount to at least EUR 17 million (calculated based on their most recent sale/issue price); and

(iii) the company must have published its audited financial statements for a period of at least three consecutive years prior to the date of the application for admission to trading on the WSE.

In general, apart from the above, the listing of a company on the WSE (on both the Main Market and Parallel Market) also requires the drafting and approval of a prospectus (which is discussed in detail below) by the Polish regulator, i.e. Polish Financial Supervision Authority (the “PFSA”), as well as the adoption of specific resolutions by the company’s general meeting, including a resolution on the application for admission to the trading on the WSE.

The shares in the company must be dematerialised, which also requires: (i) the adoption of a resolution relating thereto by the company’s general meeting; and (ii) the execution of an agreement between the company’s management board and the National Depositary of Securities (the “NDS”) pursuant to which the shares to be offered by way of a public offering and/or listed will be registered in the depository for securities maintained by the NDS. The listing process is finalised by way of the management board of the WSE adopting resolutions on the admission and introduction of the company’s shares to trading on the WSE.

3.2. NewConnect

The requirements for listing on NewConnect are less stringent than those for the WSE Main Market and Parallel Market listings.

There are important differences between listing on NewConnect listing and the WSE Main Market and Pararell Market, in particular with respect to the minimum free-float requirement. Accordingly, at least 15% of the shares referred to in the application for admission to listing on NewConnect must be held by no fewer than ten shareholders, and each of such shareholders may hold no more than 5% of the total number of the votes exercisable at the company’s general meeting. The company applying for admission to listing on NewConnect is required to publish the audited financial statements for the year prior to the date of the application for admission.

3.3. Catalyst

The introduction of bonds to listing on the debt financial instruments market, i.e. Catalyst, requires the satisfaction of similar requirements as with respect to shares. Such requirements include the following: (i) bonds may only be issued by specific entities (including limited liability companies, joint-stock companies, limited joint-stock partnerships and municipalities) and must be in dematerialised form; (ii) the publication of an information document (a prospectus or an information memorandum), which, subject to certain exceptions, must be approved by the Polish regulator; (iii) the transferability of the bonds may not be restricted; and (iv) no bankruptcy or liquidation proceedings may be underway with respect to the bond issuer.

4. Prospectus Disclosure

The legal framework pertaining to disclosure rules on the capital and debt securities offerings in Poland are regulated mainly on the European Union level with the cornerstone legal act being Regulation (EU) 2017/1129 (“Prospectus Regulation”) and delegated acts (Commission Delegated Regulations 2019/980 and 2019/979) connected therewith, which are applicable directly throughout the European Union and lay down, among other things, the requirements to be complied with when drawing up prospectuses or other offering documents, as well as the requirements related to their approval by the relevant authorities and their dissemination to the public. Certain additional requirements within the scope not regulated by the Prospectus Regulation and the Commission Delegated Regulations under the Prospectus Regulation and where permissible thereunder are also included in national regulations, in particular the Polish Act on Public Offerings, Conditions Governing the Admission of Financial Instruments to Organised Trading and Public Companies of 29 July 2005 as amended (the “Public Offering Act”). In addition, the guidelines of the European Securities and Markets Authority (the “ESMA”) relating to the prospectus (such as Q&A on the Prospectus Regulation or risk factors) and certain guidelines issued by the Polish regulator as well as established market practice have an impact on the prospectus disclosure.

The Prospectus Regulation is applicable to the offer of securities to the public, which is understood as a communication to persons (not applicable to offers addressed to one person/entity) in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities, whereby such offer might be performed also through placement of securities through financial intermediaries.

In principal, the above-mentioned offers, as well as admissions of securities to trading on the regulated market, trigger the obligation to publish a prospectus; however, the Prospectus Regulation provides for certain exemptions pursuant to which:

(i) it is not applicable to certain securities, including inter alia: units issued by collective investment undertakings other than the closed-end type or certain state-issued or guaranteed securities;

(ii) it is not applicable to offers, the total consideration for which in the EU does not exceed EUR 1 million calculated over a period of 12 months (additionally, the Prospectus Regulation allows member states to exempt from the prospectus obligation offers the value of which is between EUR 1 million and 8 million; in the case of Polish regulations, the exemption relates to offers under EUR 2.5 million);

(iii) the prospectus obligation is not applicable to certain offers, including: (i) offers addressed solely to qualified investors; offers addressed to fewer than 150 addresses per member state other than qualified investors; offers of securities, the nominal value of which amounts to at least EUR 100,000 per security; offers of securities whereby each investor will acquire securities for a total consideration of at least EUR 100,000; and (ii) provided that a special information document is published, securities offered in connection with a takeover by means of an exchange offer; securities offered, allotted or to be allotted in connection with a merger or division; offers of dividend shares to the existing shareholders; and offers addressed to the management or employees;

(iv) the prospectus obligation is not applicable to certain admissions of securities to trading on the regulated market, including: (i) securities fungible to securities already admitted to trading (below 20% of the securities admitted to trading over the period of 12 months); shares resulting from the conversion/exchange of other securities of from the exercise of the rights conferred thereunder; and (ii) provided that a special information document will be published, securities offered in connection with a takeover by means of an exchange offer; securities offered, allotted or to be allotted in connection with a merger or division; offers of dividend shares to the existing shareholders or shares to be offered thereto free of charge; and offers addressed to the management or employees,

whereby in principal, the above exemptions might be applied jointly.

With respect to additional disclosure requirements under Polish securities regulations, the Public Offering Act imposes, inter alia, the following obligations:

(i) with respect to offers of securities in the territory of EU, the total value of which ranges between EUR 100,000 and 999,999 (over a period of 12 months) – the obligation to publish an information document which will include a responsibility statement from the issuer, information on material risks factors, and basic information on the issuer, including financial information, and the intended use of the proceeds from the issue of securities;

(ii) with respect to offers of securities in the territory of EU, the total value of which ranges between EUR 1,000,000 and 2,499,999 (over a period of 12 months) – the obligation to publish an offering memorandum in the form of a single document;

(iii) with respect to offers of securities addressed to less than 150 persons per member state other than qualified investors, where the number of addresses, together with the number of addresses to whom analogous (less than 150 addresses) offers of the same type of securities were addressed over the period of the last 12 months, exceeds 149 – the obligation to publish an offering memorandum being subject to approval by the PSFA.

In addition to standard offering documents such as a prospectus (in the form of a single document or a set of documents comprising a registration document, an offer document and a summary) or an offering memorandum, the Prospectus Regulation introduced a so-called “EU growth prospectus” applicable mainly to small and mid-sized enterprises allowing for a simplified disclosure obligations regime, and thus reducing the cost of the offering.

Additionally, in case of larger offers addressed to international institutional investors, including offers structured in compliance with Regulation S and Rule144A, the issuers usually prepare an International Offering Circular (the “IOC”), which is an offering document prepared in English for the purpose of advertising activities and offering securities to international investors outside Poland. In general, the IOC contains the same information as a prospectus prepared in Polish without detailed information on terms of Polish retail offering, and which may include additional information resulting from the requirements of foreign disclosure regimes or market practice for international offerings (like information required by Industry Guides issued by the US Securities and Exchange Commission). The IOC is not subject to the approval of the PFSA or of any other registration or notification obligations.

The format of the prospectus and the scope of the disclosure included therein is set forth in the Prospectus Regulation, the Commission Delegated Regulations 2019/980 and 2019/979 connected therewith as well as recommendations and guidelines issued by the ESMA. Also, certain guidelines issued by the Polish regulator as well as established market practice have an impact on the prospectus disclosure. A prospectus subject to the approval of the PFSA should, in principal, be drafted in Polish, but in the event that a public offer or admission to trading on a regulated market is to take place exclusively in a member state other than Poland, the prospectus may be drawn up either in Polish or English. Additionally, with respect to a public offer or admission to trading on a regulated market in Poland as the host state, a prospectus disseminated to the public must be drawn up in Polish or English or translated into one of such languages, whereas in case of a prospectus prepared in English, a Polish translation of the summary must be published.

5. Prospectus Approval Process

In principle a prospectus or other offering document of a Polish issuer subject to approval based on EU or national regulations must be submitted to the PFSA through the intermediation of an investment firm.

Unlike in certain other European jurisdictions, a prospectus submitted to the PFSA must be signed and fully complete, i.e. must include all of the relevant information, schedules, financial statements auditor’s report and representations required under applicable laws. Thus, the issuer and/or the offerors are liable for the content thereof as of the first filing of the prospectus. The PFSA does not review and comment on advanced drafts of the prospectus prior to its approval; nonetheless, it is possible to organise a courtesy meeting with the regulator in order to discuss the structure of the offering, the envisaged timeline of the process or the way of supplementing the prospectus by more recent financial information during the approval process.

The whole prospectus approval process takes approximately two to three months, depending on the type of offering (initial public offering or secondary public offering) or the industry of issuer. Prior to the approval of the prospectus, the PFSA may provide comments or demand modifications to the prospectus or additional disclosure, often several times (in practice, three to four rounds of comments). After all of the PFSA’s comments have been addressed and the prospectus has been amended/supplemented accordingly, the PSFA issues an administrative decision on the approval of the prospectus.

Notwithstanding the fact that the Prospectus Regulation and delegated acts (Commission Delegated Regulations 2019/980 and 2019/979) connected therewith as well as the ESMA’s recommendations and guidelines intended to unify the disclosure regimes throughout all of the EU member states, it must be noted that with respect to offering documents being subject to the approval of the PFSA, there are some minor differences and additional requirements resulting from the market practice peculiarities established by the PFSA. For instance, with respect to information on material agreements to be disclosed in the prospectus, despite the fact that the EU regulations require only information on the material agreements concluded by the issuer otherwise than in the ordinary course of business, the PFSA may require disclosure relating to the material agreements concluded in the ordinary course of business or detailed disclosure of related-party transactions.

The PSFA also exhibits a greater degree of scrutiny in terms of the details of the prospectus disclosure. There are certain matters that are especially scrutinized by the PFSA, which may result in detailed questions being raised or even changes to the substance of such matters being requested, including, for example: related party transactions, liquidity, high financial leverage, the functioning and actual oversight of a supervisory board or the rules of remuneration of the members of the governing bodies of the issuer, and post offering preferential rights of shareholders.

In general, the prospectus can be published and the offer of securities in Poland can be commenced only following the approval of the prospectus by the PFSA or its notification to the PFSA by the competent regulatory authority approving the prospectus in a different jurisdiction (under the EU passporting procedure). The prospectus may be made available to the public in different ways, including, but not limited to, the most common option – publication on the issuer’s website.

The Public Offering Act regulates liability for the information contained in a prospectus and the supplement thereto being true and accurate and for the prospectus and the supplement thereto not omitting anything that could affect their import, in particular with respect to the authenticity, accuracy and completeness of the information contained in the foregoing documents. The above-mentioned liability rests on, among others:

(i) the issuer – for all information;

(ii) the offeror – for information about the offeror and the sale of securities conducted thereby, and if an offeror is a parent entity of the issuer or exerts a significant influence thereon (shareholding of 20% and more) – for all information; and

(iii) the entity or person preparing or participating in the preparation of information – for the information it has prepared or in the preparation of which it participated (in line with market practice, the legal counsel is responsible for the parts relating to a description of the legal environment, and the offering agent or manager, for the terms and conditions of the public offering in Poland),

whereby in any case the civil liability depends on: (i) the fault of the above entities; and (ii) on the investor proving loss and the link between such loss and the omission or inaccuracy of information.

A prospectus needs to indicate the responsible entities together with the declarations thereof that, to the best of their knowledge, the information contained in the prospectus is consistent with the state of facts and the prospectus does not omit anything that could affect its import and, in particular, that the information included therein is true, accurate and complete. In practice, such declarations indicate the specific information for which a given entity is liable (all information or information included in specified chapters of the prospectus). Additionally, in order to limit the potential liability of certain entities (i.e. underwriters and managers), especially in the case of larger and international offerings, due diligence processes are conducted with respect to the issuer and its operations and additional documents are issued by auditors (comfort letters) or legal counsel (legal opinions and disclosure letters).

6. Listing Process

In general, the listing of securities on the regulated market in Poland requires their dematerialisation and the admission to trading by the relevant market operator.

Securities that are subject to a public offering within the territory of Poland or those subject to admission to trading on the regulated market in Poland cease to exist in certificate form upon their registration in the securities deposit pursuant to an agreement with the NDS, the Polish depositary and settlement institution (the securities cease to exist in certificate form and, thus, exist only in book-entry form), except for securities offered to the public that will not be subject to admission to trading on the regulated market or introduced exclusively to an alternative trading system (i.e. NewConnect) that may keep their certificate form, if the issuer so decides.

In order to conclude a registration agreement with the NDS, the issuer has to deposit with an investment firm operating in Poland the certificates representing the securities being the subject of the dematerialisation and submit an application that includes the respective authorisation to register the securities with the NDS in the form of a relevant corporate consent granted by the competent governing body of the issuer (for Polish issuers – general meeting of shareholders). The registration agreement is concluded based on the above-mentioned application and pursuant to a resolution of the management board of the NDS.

Following the satisfaction of the listing requirements described in the section “Key Listing Requirements” above, the issuer may apply for the admission and introduction to trading of securities on the relevant markets. With respect to shares to be admitted to trading on the regulated market operated by the WSE (both the Main and Parallel Market), following the formal application of the issuer, the WSE issues its decision by way of the adoption of resolutions first on the admission and then on the introduction of shares to trading and sets the first listing date within approximately 7 days of the submission of the application by the issuer (within approximately 10 days after pricing of the offering). Unlike certain other markets, the settlement of equity offerings in Poland is not based on a delivery-versus payment principle. Investors (both retail and institutional investors) pay for the shares prior to the final share allocation and the shares allocated to such investors are registered on their securities accounts around one week upon payment, but always prior to the first listing day on the WSE. The detailed timing for admission and introduction of shares to trading is usually pre-agreed with the WSE.

The applications for admission to trading and introduction to listing on the WSE are standard documents that are usually submitted directly following the final allocation of the shares to investors. The issuers have to attach to such application a number of documents, including the opinion of the WSE participant (e.g. an investment firm being a WSE member), a prospectus or other offering document and a resolution of the NDS on the registration of the shares with the depository operated by the NDS. Unlike in the case of certain other foreign markets, the conditional trading of shares on the WSE prior to the first listing day is not permitted. In respect of newly issued shares it is possible to list on the WSE rights to shares, being securities representing rights to newly issued shares, before their registration by the registry court.

7. Corporate Governance

When preparing for an initial public offering of securities, the issuer should bear in mind the necessity to adjust its corporate governance rules in order to comply with the applicable laws (corporate governance rules applicable following the admission of securities to trading on the regulated market), the corporate governance rules developed by the WSE applicable to companies listed thereon and the investors’ expectations.

Below please information on the corporate governance principles applicable to issuers, the shares in which are to be listed on the regulated market operated by the WSE. Additionally, the PFSA has adopted special corporate governance rules for entities being subject to its supervision, such as banks, investment funds, general pension funds, brokerage houses and insurance companies.

7.1. Articles of association

In principle, the articles of association (the “AoA”) of companies, the shares in which are to be listed on the regulated market in Poland should constitute a legal framework that will allow for transparent rules of decision making and, to a certain extent, for the lack of discriminatory preferences that are not based solely on the proportionality of the shareholding of a given investor. In particular, the AoA:

(i) should not provide for any special rights of shareholders; however, it is permitted to introduce limited personal rights to appoint supervisory board members;

(ii) should not contain restrictions on voting rights; and

(iii) can contain provisions on shares preferred in terms of voting rights; however, such shares cannot be publicly offered, or admitted and introduced to trading on the regulated market.

7.2. Supervisory Board

The supervisory board of a public company (i.e. including issuers of bonds listed on the regulated market) should comprise at least five members, at least two of whom should meet the independence criteria set forth in the Act of 11 May 2017 on statutory auditors, auditing firms and on public supervision (the “Act on Statutory Auditors”) and the WSE Best Practices that refer to the criteria set forth in Annex No. II to the Commission Recommendation of 15 February 2005, on the role of non-executive or supervisory directors of listed companies and on the committees of (supervisory) the boards thereof, whereby usually, it is recommended that independent members of the supervisory board meet all of the above criteria.

In practice, prior to the appointment, a candidate for an independent member of the supervisory board submits to the issuer a written statement on the fulfilment of the criteria of independence.

The structure of the supervisory board of companies being the issuers whose securities are admitted to trading on the regulated market should include at least an audit committee, whereby a remuneration and nominations committees are optional. Pursuant to the Act on Statutory Auditors, the audit committee should comprise at least three members, of which more than half (including the chairman) will need to meet the independence criteria set forth in the Act on Statutory Auditors. Moreover, at least one member will need to have knowledge and skills in the field of accounting and at least on member will need to have knowledge and skills in the sector in which the issuer conducts its business. The requirements regarding the functioning and composition of an audit committee apply also to companies that intend to apply for the WSE listing (which is understood as the moment of the adoption of a resolution by the general meeting of the shareholders regarding the listing).

7.3. Approval of related party transactions

In the case of issuers the shares in which are admitted to trading to the regulated market operated by the WSE (with the exception of foreign issuers), pursuant to the Public Offering Act, the execution of a transaction between such issuer and its related party (within the meaning of IAS 24 “Related Party Disclosure”) the value of which exceeds 5% of the total assets of the issuer will require the obtainment of the consent of its supervisory board, with the exception of: (i) transactions executed on an arm’s length basis in the ordinary course of business; (ii) transactions executed by the issuer with its subsidiaries, provided that the issuer is the sole shareholder of the subsidiary with which it has executed a transaction; and (iii) transactions regarding the payment of remuneration to members of the governing bodies in accordance with the remuneration policy within the meaning of the Public Offering Act (please see “Say on Pay” below). Additionally, the AoA may provide that the consent to conclude an agreement with a related party may also be granted by the general meeting of the shareholders. In the above scope, the provisions of the Public Offering Act implement EU Directive 2017/828.

For disclosure obligations relating to the related party transactions see section “Ongoing Reporting Obligations (Life as a Public Company)”.

7.4. Say on Pay

In the case of issuers the shares in which are admitted to trading to the regulated market operated by the WSE (with the exception of foreign issuers and certain financial institutions), the remuneration of members of the governing bodies of the issuer should be paid exclusively in accordance with the remuneration policy adopted by the general meeting of the shareholders, which should include, among others: (i) a description of the fixed and variable components of remuneration, as well as bonuses and other cash and non-cash benefits; (ii) a description of the terms of contracts; (iii) an explanation of how the pay and employment conditions of employees of the issuer other than members of the governing bodies were taken into account when establishing the remuneration policy; and (iv) an explanation of how the remuneration policy contributes to the implementation of the issuers’ business strategy, long-term interests and stability. In the above scope, the provisions of the Public Offering Act implement EU Directive 2017/828.

For disclosure obligations relating to the remuneration policy see section “Ongoing Reporting Obligations (Life as a Public Company)”.

7.5. WSE Best Practices

In accordance with the internal regulations of the WSE, in order to ensure the transparency of operations and to build investor confidence, issuers listed on the Main Market of the WSE should observe the principles of corporate governance set out in the Best Practices for GPW Listed Companies 2016 (the “WSE Best Practices”) that have been developed in accordance with the European Commission Recommendation of 9 April 2014 on the quality of corporate governance reporting (2014/208/EU). The WSE Best Practices are to be followed on a “comply or explain” basis, and thus issuers do not have to comply with all of the rules set out therein; however, the intention of the scope to the extent of which the WSE Best Practices will be complied with must be included in the prospectus. Apart from this, WSE-listed issuers are required to provide a statement on the compliance with the WSE Best Practices in their annual report and to notify to the market, by way of a current report, of any decision taken with regard to any permanent or incidental incompliance with the WSE Best Practices.

The WSE Best Practices recommendations and detailed principles pertain to: (i) Disclosure Policy and Investor Communications; (ii) Management Board and Supervisory Board; (iii) Internal Systems and Functions; (iv) General Meeting and Shareholder Relations; (v) Conflict of Interest and Related Party Transactions; and (vi) Remuneration.

Additionally, a simplified and analogous version of the WSE Best Practices is applicable to issuers the shares in which are listed on NewConnect, an alternative trading system outside the regulated market operated by the WSE.

8. Documentation and Other Process Matters

8.1. Stabilisation

In connection with an offering in Poland it is possible to take stabilisation actions under which one or more of managers acting as the stabilisation manager(s) will be able to acquire shares or other securities on the regulated market operated by the WSE or on another market in order to stabilise their price at a level higher than the level that would have been established in different circumstances. Stabilisation aims to address potential price fluctuations in the first days following the first listing day (for initial offerings) or the pricing of the offering (for secondary offering), and support the market price but only if such price drops below the final offer price. Therefore, stabilisation may not be used to increase the price in excess of the final offer price.

Stabilisation is not a common element of public offerings in Poland. Historically, stabilisation was envisaged and carried out in relation to the largest offerings in Poland that also combined the private placements of shares to international institutional investors.

The principles of stabilisation transactions are set out in the MAR and in Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016 supplementing Regulation (EU) 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the conditions applicable to buyback programs and stabilisation measures (the “Stabilisation Regulation”). In addition, the detailed terms of stabilisation are set out in the underwriting agreement/placement agreement and/or a separate stabilisation agreement entered into by a selling shareholder or an issuer and a stabilisation manager. The prospectus disclosure relating to stabilisation is defined in the Prospectus Regulation and the Commission Delegated Regulations thereto.

Under the MAR and the Stabilisation Regulation, stabilisation is exempted from the prohibition on insider dealing, market manipulation and unlawful disclosure of inside information so long as:

(i) the undertaking of the stabilisation is for a limited period (in respect of shares, the time period is no longer than 30 calendar days, whilst in respect of bonds it is no longer than 60 days);

(ii) the relevant information prior to and post stabilisation is disclosed to the competent authority and to the market;

(iii) the required disclosure is made in the prospectus or other offering documents; and

(iv) the stabilisation is carried out in compliance with adequate limits with regard to price.

For example, within stabilisation transactions relating to shares, shares may be acquired by a stabilising manager within no more than 30 calendar days from the date of commencement of their listing or pricing date or final allotment date (depending on the type of offering) at a price no higher than the final offer price. A stabilisation manager, however, is not required to take any stabilisation actions, and any such actions may be stopped at any time.

Typically, the size of the stabilisation does not exceed 15% of the offering size (typically around 10% of the final offering size).

8.2. Stabilisation option (Greenshoe vs Brownshoe structure)

The greenshoe, brownshoe and overallotment options are not common elements of public offerings in Poland. Historically, as a mechanism enabling the settlement of, and accompanying, the stabilisation, they were used solely in relation to the largest offerings in Poland that also combined the private placements of shares to international institutional investors.

For certain regulatory reasons and tax risks, in those limited number of offerings that envisaged stabilisation, the structures were based either on a brownshoe (“reverse green shoe”) option or a Polish specific – conditional share purchase agreement, instead of a green shoe option, stock lending and overallotment.

A brownshoe or “reverse green shoe” option is a form of put option that gives the owner of the shares the right to sell the shares to a given party by a predetermined date and at a specified price. In other words, within the stabilisation period the stabilising manager acquires shares on the market at a price not higher than the final offer price, and then upon the lapse of the stabilisation period sells such shares back to a selling shareholder or an issuer under the put option.

A conditional share purchase agreement is an agreement between a selling shareholder and a stabilising manager pursuant to which after pricing, the selling shareholder sells to a stabilising manager shares in the pre-determined number usually corresponding to the number of shares finally allotted to foreign investors, however, not exceeding 10% or 15% of the offering size, subject to a condition subsequent that the shares are acquired by the stabilising manager in the course of the stabilisation transactions. The acquisition of the shares by a stabilising manager in the course of the stabilisation transactions, constituting the fulfilment of the above-mentioned condition subsequent, results in the transfer of the ownership title to such shares back to the selling shareholder in one or more transactions during or after the end of the stabilisation period.

The brownshoe or a conditional share purchase agreement has the same effect on share price as the regular greenshoe option but, instead of buying shares from the selling shareholder, the stabilising manager has the right to sell the shares back to the selling shareholder or issuer, but only if the share price falls below the offering price and the stabilising managers purchases the shares on the market.

The share transfers in the exercise of the stabilisation options are subject to tender offer-relating obligations that may impact their usage in transactions that may result in crossing the relevant thresholds. In principle, under Polish law crossing 33% or 66% of the total voting rights in a public company requires a launch of a mandatory tender offer for up to 66% or up to 100%, respectively, of the shares in such company.

8.3. Over-allotment and stock lending

An over-allotment is an option available to the managers that allows the sale of additional shares from what a selling shareholder plans to sell in an initial public offering or secondary/follow-on offering. The over-allotment option gives the managers the right, but not the obligation, to purchase from the issuer or the selling shareholder a specified number of additional shares beyond the number offered in the original offering at the offering price.

Due to the reasons mentioned above, a standard over-allotment structure based on the greenshoe option with stock lending is rather uncommon as regards Polish offerings.

9. Ongoing Reporting Obligations (Life as a Public Company)

Once the securities of a company have been admitted to trading on the WSE, the company becomes a public company within the meaning of the applicable laws, and thus, the subject to the disclosure obligations provided for in the provisions of both Polish and EU laws, including the provisions of the MAR. As of the date of the first listing of its shares, the company will, in particular, be required to disclose current and periodic information, inside information and certain information pertaining to its general meetings, corporate governance (i.e. its remuneration policy) and transactions with related parties, as well as to maintain a list of persons with access to inside information. In addition, the shareholders of such company who hold substantial blocks of its shares will be required to notify the company and the PFSA in the event of changes in their stock ownership.

As regards current information, under the Regulation of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers of securities and conditions under which such information may be recognised as being equivalent to information required by the legal regulations of a state which is not an EU Member State (the “Reporting Regulation”), a public company listed on the WSE is required to publish a current report upon the occurrence of specific events such as, among other things, a change in the rights attached to the company’s securities, the appointment or removal of a managing or supervisory person, or the registration of an amendment to the company’s articles of association.

In addition, the Reporting Regulation also requires a public company listed on the WSE to publish quarterly, semi-annual and annual reports that will present the company’s financial information for a given accounting period, including, in particular, the financial statements for such period (with the requirement that the half-yearly financial statements are reviewed by independent auditors and annual financial statements are audited by independent auditors). In this respect, the disclosure obligations of WSE-listed companies are more complex than in other European jurisdictions. If a public company is a controlling company of a capital group, it will additionally be required to publish, within the periods specified above, consolidated quarterly, semi-annual and annual reports for the capital group.

With respect to “inside information”, as of the date of the application for the admission of the company’s securities to trading, the company will be required to comply with the directly applicable provisions of the MAR and publish any information having a significant impact on the price of the company’s securities. As required by the MAR, the company also needs to maintain a list of persons having access to inside information. Additionally, the company must disclose information regarding the transactions of the persons discharging managerial responsibilities and the persons closely associated with them.

WSE-listed companies incorporated in Poland are subject to additional disclosure obligations with respect to the convocation and organisation of their general meetings. The convocation of the general meeting of a Polish public company needs to be announced within the specified time period, include drafts of the resolutions to be adopted, and meet other specific requirements as to its contents and form of publication.

Apart from that, recently adopted Polish laws provide for additional disclosure obligations applicable to public companies and pertaining to the adoption and publication of a remuneration policy, as well as the publication of information about material related-party transactions. See section “Corporate Governance – Approval of related party transactions – Say on pay”.

The remuneration policy is to be published by a public company on its website. In addition, each year, the supervisory board of a public company is to prepare an annual remuneration report containing a comprehensive review of the total remuneration, including all benefits (regardless of their form), received by each member of the management or supervisory board in the last financial year pursuant to the adopted remuneration policy. Such report is to be subject to the advisory opinion issued by the company’s general meeting and published on the company’s website.

As regards the disclosure of material related-party transactions, public companies are required to publish on their websites information about certain transactions entered into with their related parties. This obligation pertains to transactions deemed to be “material”, i.e. to those exceeding 5% of the total assets of a company (with certain exceptions). The relevant disclosure needs to identify the related party, the value of the transaction made therewith and allow for an assessment as to whether the transaction was fair and reasonable from the perspective of the company and its shareholders who do not qualify as related parties.

Polish law also provides for disclosure requirements with respect to the shareholders of public companies listed on the WSE. In general, any shareholder who has reached or exceeded a specific threshold (or its ownership has decreased below such threshold) is required to notify the company and the Polish regulator about the occurrence of such event within a specific time period.

Disclosure obligations applicable to companies with securities listed on NewConnect and Catalyst are less stringent that those applicable to WSE-listed companies. In this regard, NewConnect-listed companies are required to publish current information upon the occurrence of specific events (with such reported events being similar to those that need to be reported by WSE-listed companies under the Reporting Regulation, including information regarding the convocation and organisation of general meetings). They are also under the obligation to publish periodic information in the form of quarterly and annual reports. These reports must include financial statements that, only in the case of annual reports, need to be audited by independent auditors.

Issuers of bonds listed on Catalyst are required to publish current reports upon, among other things, the issuance or redemption of their bonds, failure to pay off the bonds on the payment date, or regarding the convocation of the bondholders’ meeting. In addition, issuers publish periodic information in the form of semi-annual and annual reports (with the latter also being required to be audited by independent auditors).

Contributed by Filip and Company.

1. Market Overview

1.1. Biggest ECM and DCM transactions over the past 2-3 years

The Bucharest Stock Exchange (BSE) has, starting with 2017, registered 3 dynamic years in both ECM and DCM transactions, which led to Romania’s promotion, in September 2019, from Frontier Market to Emerging Market status, three years after the country was added to the Watch List.

In terms of ECM transactions, the biggest transaction on the Romanian capital market over the past 3 years remains the IPO of Digi Communications N.V. (the parent company of the Digi Group, one of the leading telecommunications companies in Central and Eastern Europe), which took place in May 2017, which was also the largest initial public offer of a private company ever on the BSE. The DIGI offering included a total of 23.9 million shares, representing 25.6% of the total shares issued by the company, with a total value of over RON 944 million (i.e., approximately EUR 207 million). Other large recent IPO transactions include:

• Sphera Franchise Group (which operates KFC, Pizza Hut and Taco Bell franchises, with its operations predominantly located in Romania, but also in Republic of Moldova and Italy) IPO, which took place in November 2019 and included 9.8 million shares, representing 25% of the total number of shares issued by the company, with a total value of over RON 285 million (EUR 62 million); and
• Purcari Wineries (a leading player in the wine and brandy segments in the Central and Eastern Europe) IPO, which took place in 2018 and included 9.8 million shares, representing 49% of the total number of shares issued by the company, with a total value of over RON 186.2 million (EUR 40 million).

As regards DCM transactions, some of the most important recent listings on the BSE include:

• NE Property Cooperatief U.A. (part of the NEPI Rockcastle group, which owns and develops real estate properties) bonds issued on the Main Market of the BSE, through two offerings carried out in November 2017 and May 2019, attracting a total of EUR 1.1 billion, as follows: (i) one offering amounting EUR 500 million in 2017, at a fixed interest of 1.75% p.a., payable on an annual basis (7-year maturity) and (ii) one offering amounting EUR 500 million in 2019, at a fixed interest of 2.625% p.a., payable on an annual basis (4-year maturity);
• Globalworth Real Estate Investment Limited (part of the Global group, which owns and develops real estate properties) corporate bonds listed on the Main Market of the BSE, through two offerings, attracting a total of EUR 1.1 billion, as follows: (i) one offering amounting EUR 550 million in 2017 at a fixed interest of 2.875% p.a., payable on an annual basis (5 year maturity) and (ii) one offering amounting to EUR 550 million in 2018 at a fixed interest of 3% p.a., payable on an annual basis (7 year maturity);
• Banca Comerciala Romana’s bonds issuance amounting to RON 600 million, which took place in December 2019. The bonds have a fixed interest of 5.35% p.a. payable annually (7-year maturity). This was the largest RON-denominated bonds issuance on the local market;
• Banca Transilvania’s private placement of bonds carried out in June 2018, which attracted EUR 285 million, with a variable rate of EURIBOR 6M + 3.75% p.a., payable on an annual basis. (10-year maturity); and
• Alpha Bank’s issuance of covered bonds (the first issuance of covered bonds by a Romanian bank) carried out in May 2019, which attracted EUR 200 million, with a variable rate of EURIBOR6M + 1.5% p.a., payable on a half-year basis (5-year maturity).

In recent years, Romanian issuers have also been active on the international debt capital markets. The most recent issuance is that by RCS & RDS (the Romanian subsidiary of the Digi Communications’ group’s issuance of two series of senior secured bonds with a total value of EUR 850 million, which took place in February 2020 and which were listed in late March 2020 on the regulated market operated by Irish Stock Exchange plc (traded as Euronext Dublin) – this was one of the largest bond issues of a Romanian issuer. Prior to the RCS & RDS issuance, its parent company, Digi Communications, also issued bonds during previous years on the international debt capital markets, such as the issuance of senior secured bonds with a total value of EUR 350 million in late 2016, supplemented by a tap issuance in the amount of EUR 200 million in January 2019.

In addition to the corporate issuances, over the last 9 years the Romanian State has been an active issuer of debt instruments on the international capital markets, under its EUR 31 billion medium term notes.

2. Overview of the local stock exchange and listing segments (markets)

The BSE is the sole stock exchange in Romania, after the merger that took place in 2017 with the Sibex Stock Exchange, the other market operator that was absorbed by the BSE.

The BSE operates two markets: the Main Market, which is the regulated market of the BSE, and the AeRo Market (or Alternative exchange in Romania), which is the shares market segment of the BSE’s alternative trading system.

2.1. Regulated market

The Regulated Market is intended for companies that meet certain listing criteria regarding the size, history and free float (please refer to the key listing requirements provided at point 3 below) and is therefore a viable option for large companies (blue chip companies). Stringent rules and enhanced investor protection are applicable on the regulated market.

The BSE regulated market dedicated to shares is structured into 2 categories, as follows: Premium category and Standard category. For the admission to trading in the Premium Category, companies must, inter alia, have the market value of the free float of at least EUR 40 million. For the Standard category, the free float must be at least 25% of the shares.

2.2. Non-regulated market

The BSE’s non-regulated market is the AeRO market, which is BSE’s market for Small and Medium sized Enterprises that do not yet fulfill the size or the length-of-operation criteria for listing on the Main Market. AeRO market has less regulatory restrictions and more freedom for issuers and other market participants.

3. Key Listing Requirements

3.1. ECM

3.1.1. Key Listing Requirements on the regulated market operated by the BSE (i.e., the Main Market)

3.1.1.1. Requirements regarding the issuer

• the issuer is a joint stock company (or a similar form of company, according to the laws of its home jurisdiction), duly incorporated and functioning in accordance with the laws of its home jurisdiction;
• the issuer’s early capitalisation has to be at least the RON equivalent of EUR 1 million or, if its capitalisation cannot be estimated at the date of the listing application, the Issuer has the capital and reserves, including the profit or loss from the last financial year of at least the RON equivalent of EUR 1 million;
• the issuer has been in operation for at least 3 years prior to the listing application and has prepared and communicated the financial statements for the same period; and

The issuer may be exempted by the FSA from the capitalisations and minimum duration since incorporation requirement, provided that the following two cumulative criteria are met: (i) there will be an adequate market for the issuer’s shares; and b) the issuer is capable of meeting the requirements for periodic and ongoing information disclosure which will apply to it as listed company, and investors have sufficient information to make an informed decision in connection to the issuer and its shares.

3.1.1.2. Requirements regarding the shares to be listed

• shares must be transferable, fully paid for, in book entry form and registered in a securities account;
• shares must be registered with the FSA prior to their admission to trading (the FSA issuing a certificate attesting such registration); and
• the free float for shares belonging to the same class has to be at least 25% of the shares (for standard tier listing) or at least EUR 40 million (for premium tier listing)

3.1.2. Key Listing Requirements on the AeRO market operated by the BSE

3.1.2.1. Requirements regarding the issuer

• the anticipated capitalisation of the issuer should be at least the RON equivalent of EUR 250,000; this estimation will be based on either a private placement or previous initial public offering or a trading history on another market or, in the absence thereof, an evaluation carried out by an authorised advisor together with the Issuer and considered acceptable by the BSE;
• the issuer must have a contract with an authorised advisor and maintain it for at least 12 months after the admission to trading (BSE may shorten or extend this period as it deems appropriate); and
• the issuer is not subject to bankruptcy proceedings, nor to judicial reorganisation proceedings

3.1.2.2. Requirements regarding the shares to be listed

• shares must be transferable, fully paid for, in book entry form and registered in a securities account;
• the shares must be registered with the FSA; and
• the free float for shares belonging to the same class has to be at least 10% of the issued shares or the number of shareholders holding shares of the same class must be at least 30

3.2. DCM

The list of requirements for listing bonds on both the Main Market and the AeRO market operated by the BSE is relatively limited:

• the issuer has to be organised as a joint stock company (or a similar form of company, according to the laws of its home jurisdiction), duly incorporated and functioning in accordance with the laws of its home jurisdiction; and
• for the Main Market, the aggregate value of the bonds issued has to be at least EUR 200,000. However, lower values are also allowed, but they require the ASF’s special approval.

4. Prospectus Disclosure

4.1. Regulatory regimes (Prospectus Regulation or similar) – equity and debt

The prospectus is the key disclosure document used to offer and/or list financial instruments.

As Romania is part of the European Union, the legal framework regulating prospectus disclosure consists mainly of the following EU regulations:

• 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”);
• Commission Delegated Regulation (EU) 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004 (the “Prospectus Delegated Regulation”); and
• Commission Delegated Regulation (EU) 2019/979 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission Delegated Regulation (EU) 2016/301 (the “Prospectus RTS Regulation”).

According to the Prospectus Regulation, information contained in the prospectus should be sufficient and objective and should be written and presented in an easily analysable, concise, and comprehensible form. The information in a prospectus should be adapted to the type of prospectus, the nature and circumstances of the issuer, the type of securities, and whether the investors targeted by the offer are solely qualified investors. A prospectus should not contain information which is not material or specific to the issuer and the securities concerned, as that could obscure the information relevant to the investment decision and thus undermine investor protection.

The issuer, offeror, or person asking for the admission to trading on a regulated market may draw up the prospectus as a single document (which is the market practice in Romania) or as separate documents.

The Prospectus Delegated Regulation imposes specific minimum information requirements for a prospectus as set out in its Annexes. The relevant Annexes that will apply in each particular case will depend on, among others, the type of securities being issued, the type of issue (in certain cases), the nature of the issuer, whether the issuer has a complex financial history or has made a significant financial commitment.

4.2. Local market practice

The majority of transactions on the Romanian capital markets are done in reliance on Regulation S under the U.S. Securities Act of 1933, which means that upon the preparation of the prospectus due diligence is limited (usually consisting of one or two due diligence meetings and/or questionnaires addressed to the issuer’s management and excludes an extensive assessment of commercial agreements or other type of documents pertaining to the issuer) and the level of disclosure does not usually include management’s discussion and analysis on the issuer’s performance over the period corresponding to the financial statements included in the prospectus.

In addition, managers do not usually require comfort letters from the issuer’s auditors in connection with the financial information included in the prospectus (mainly because the managers do not engage in underwriting the offerings). However, auditors usually issue consent letters to express their approval for the issuer to use the financial reports and financial information in the prospectus.

4.3. Language of the prospectus for local and international offerings

The language regime is the one set out in article 27 of the Prospectus Regulation (similar provisions being included in the Romanian Regulation 5/2018 on issuers of financial instruments and market operations), i.e.:

where an offer of securities to the public is made or admission to trading on a regulated market is sought only in Romania and Romania is the home Member State for the purposes of the Prospectus Regulation, the prospectus shall be drawn up in Romanian;

where an offer of securities to the public is made or admission to trading on a regulated market is sought in one or more Member States, excluding Romania and where Romania is the home Member State for the purposes of the Prospectus Regulation, the prospectus shall be drawn up either in a language accepted by the competent authorities of those Member States or in a language customary in the sphere of international finance (together with a summary of the prospectus in the official language of the relevant Member States, or at least one of their official languages, or in another language accepted by the competent authorities of those Member State), at the choice of the issuer, the offeror or the person asking for admission to trading on a regulated market; for the purposes of the approval and scrutiny by the FSA of the prospectus, it shall be drawn up in Romanian or in a language customary in the sphere of international finance, at the choice of the issuer, the offeror or the person asking for admission to trading on a regulated market; and

where an offer of securities to the public is made or an admission to trading on a regulated market is sought in more than one Member State, including Romania as the home Member State for the purposes of the Prospectus Regulation, the prospectus shall be drawn up in Romanian, and shall also be made available either in a language accepted by the competent authorities of each host Member State or in a language customary in the sphere of international finance (together with a summary of the prospectus in the official language of the relevant Member States, or at least one of their official languages, or in another language accepted by the competent authorities of those Member States), at the choice of the issuer, the offeror, or the person asking for admission to trading on a regulated market.

5. Prospectus Approval Process

5.1. Competent Regulator

The competent authority at national level for reviewing and approving the prospectuses is the Romanian Financial Supervisory Authority (FSA).

5.2. Timeline, number of draft submissions, review and approval process

The FSA practice in terms of prospectus approval is to have two informal submission rounds of the prospectus before the formal and final submission. Thus, the FSA usually has maximum two rounds of comments on the document, for each round of comments a minimum period of one week being budgeted. Once the FSA has no more comments, the prospectus is formally submitted for approval.

Following the formal submission, the FSA decides on the approval of the prospectus within 10 working days from the date of the registration of the formal application. This term may be extended to 20 working days where the offer to the public involves securities issued by an issuer that does not have any securities admitted to trading on a regulated market and that has not previously offered securities to the public.

If the FSA does not issue a decision on the prospectus within the deadlines set out above, this is not considered as a tacit approval of the prospectus.

6. Listing Process

6.1. Timeline, process with the stock exchange

6.1.1.1. Listing process on the regulated market operated by the BSE

The most common steps for listing on the Regulated Market are:

• Passing a corporate resolution to decide on the offering and/or the listing of financial instruments on the regulated market.
• Retaining advisors for the transaction, as well as the intermediary/intermediaries (authorised by the FSA or passported). The intermediary involved in the listing process should be a participant to the BSE trading system.
• Selecting the type of offering and preparation of such offering, i.e.,:
  • exempted offering (“Private Placement”) – made in reliance on the exemptions set out under article 1 para. (4) of the Prospectus Regulation, such as an offering addressed to a limited number of investors, to qualified investors, investors subscribing a minimum value etc.; preparation and approval of a prospectus is not required for the offering itself, however the issuer will have to prepare a listing prospectus, which will have to be approved by the FSA; or
  • non-exempted offering to the general public (“Public Offer”) – requires preparation of a prospectus for both the offering and the listing, FSA’s approval.
• Prospectus drafting;
• Application for the approval in principle of the listing of financial instruments with the BSE (the issuer will have to submit an application for admission to trading attaching (i) the prospectus (in draft form); (ii) service agreement concluded between the issuer and the Central Depository; and (iii) the decision of the statutory body of the issuer regarding the listing;
• Conducting the Private Placement/Public Offer through an intermediary;
• Registration of the financial instruments with the FSA;
• Registration of the financial instruments with the Central Depository, in order to ensure the clearing and settlement for exchange transactions and to keep the issuer’s shareholders registry, as the case may be;
• Final approval of the admission to trading by the BSE; and
• First trading day.

In case of ECM transactions, to the extent the offering made by a Romanian issuer has a primary element, the steps described above will include the registration of new shares (after the offering is closed) with the Trade Registry. Until the registration of newly issued shares with the Central Depository, allocation rights representing such shares may be traded (but only if the issuer has decided to have such allocation right).

6.1.1.2. Listing process on the AeRo market operated by the BSE

In practical terms, the same steps as the one described for the listing on the regulated market of the BSE will apply (albeit, if there is Private Listing, instead of a listing prospectus a simplified information “memorandum” will have to be prepared instead).

6.1.1.3. Timeline of the listing process

The actual listing procedure in front of the BSE usually takes up to 10 days. However, both ECM transactions (in particular IPOs, as the most complex transactions) and DCM transactions imply a timeline aimed to accommodate negotiations between the parties involved, drafting the prospectus and ancillary documents, as well as approval formalities in front of the FSA or other competent regulatory authorities (other than the BSE). Therefore, in case of IPOs, the process (including preparatory formalities and execution of all required steps) may take between 6 months and 1 year. In case of DCM transactions, these usually take from 3 to 6 months.

7. Corporate Governance

7.1. Corporate governance code / rules (INED, board and supervisory composition, committees)

Companies listed on the regulated market of the BSE need to comply with the BSE Corporate Governance Code, in effect starting from January 4, 2016.

The BSE Corporate Governance Code requires that all companies listed on the BSE include a statement in their annual report on their compliance with the BSE Corporate Governance Code. Any failure to comply with the provisions of the BSE Corporate Governance Code must be disclosed through a current report filed with the BSE, the principle applied being that of “comply or explain.”

The BSE Corporate Governance Code contains a number of principles and provisions which must be observed by the companies listed on the BSE, inter alia with respect to the composition, role, functioning and compensation of the management bodies, risk management and internal control, financial reporting and disclosure, including the following main principles:

• the Board of Directors or the Supervisory Board should have at least five members;
• the majority of the members of the Board of Directors should be non-executive and at least one member of the Board of Directors or Supervisory Board should be independent, in the case of Standard Tier companies; not less than two non-executive members of the Board of Directors or Supervisory Board should be independent, in the case of Premium Tier Companies;
• each member of the Board of Directors or Supervisory Board, as the case may be, should submit a declaration that he/she is independent at the moment of his/her nomination for election or re-election as well as when any change in his/her status arises;
• the Board of Premium Tier companies should set up a nomination committee formed of non-executives, which will lead the process for Board appointments and make recommendations to the Board. The majority of the members of the nomination committee should be independent;
• the Board of Directors or Supervisory Board, as the case may be, should set up an independent audit committee capable of ensuring the integrity of financial reporting and of the internal control system, including the internal and external audit processes;
• the Board should set up an audit committee, and at least one member should be an independent non-executive; among its responsibilities, the audit committee should, inter alia, undertake an annual assessment of the system of internal control, should review conflicts of interests in transactions of the company and its subsidiaries with related parties and should monitor the application of statutory and generally accepted standards of internal auditing;
• the issuer should have a remuneration policy and rules defining that policy; it should determine the form, structure and level of remuneration of members of the Board, the CEO and when applicable, members of the Management Board.

7.2. Any other ESG considerations

Public companies are required to include in their annual report a non-financial statement regarding environmental, social and personnel issues, as well as considerations on human rights protection, anti-corruption and anti-bribery. In addition, companies with at least 500 employees may also be required to publish a separate report touching on the matters mentioned above.

From a market practice perspective, in recent time Romanian issuers have come under greater pressure to demonstrate the existence and robustness of their oversight of environmental, social and governance factors and make appropriate disclosures to their investors and stakeholders. In particular, due to the active and extensive investing of supranational entities on the Romanian market, issuers are made subject to specific ESG policies imposed by such supranational investors.

8. Documentation and Other Process Matters

8.1. Over-allotment (greenshoe or brownshoe structure)

Greenshoe options are usually granted to the stabilising manager (see letter c below for considerations on stabilisation) to cover the short position created by any over-allocations made in connection with the offer and any short positions arising from stabilising action.

Brownshoe options (or reverse greenshoe, where the underwriters sell back the shares to the issuer or the offeror following the offering) are even less common, due to the fact that local-only transactions are usually done without underwriting and any repurchase by the issuer itself triggers additional requirements (as for a Romanian company this would be equal to having a share buyback).

8.2. Stock lending agreement – whether it is used and whether there are any issues

The stabilising manager (see letter c below for considerations on stabilisation) may utilise a stock loan to borrow shares to settle any over-allocations, creating a short position which has to be closed by the end of the stabilisation period (the stabilising manager will either exercise the greenshoe option – if it has one, or use shares acquired in the market in connection with stabilising activities (or a combination of the two).

8.3. Stabilisation – whether allowed and on what terms (MAR, local regimes)

Stabilisation is subject to the regime laid down by Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (“MAR”) and the Commission Delegated Regulation (EU) 2016/1052 with regard to regulatory technical standards for the conditions applicable to buy-back programmes and stabilisation measures.

The main requirements for stabilisation are the following:

• it is carried out for a limited period of time (up to 30 calendar days);
• relevant information must be disclosed and notified to the competent authority, in a manner which enables fast access and complete, correct and timely assessment of the information by the public; and
• adequate price limits must be complied with, i.e. for equity securities stabilisation cannot be executed above the offer price and for securities which are debt convertible or exchangeable into equity securities, stabilisation of these debt instruments cannot be executed above their market price at the time of the public disclosure of the final terms of the new offer.

Romania has not implemented any “gold plating” procedures in addition to the ones laid down by the EU regulations.

9. Ongoing Reporting Obligations (Life as a Public Company)

9.1. Annual and interim financials

As long as a company’s shares are listed on the BSE, such company is required to disclose any regulated information which shall be disclosed pursuant the Law no. 24/2017 on issuers of financial instruments and market operations and Regulation no. 5/2018 on issuers of financial instruments and market operations (both implementing the provisions of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, commonly known as the “Transparency Directive”).

Thus, a public company must publish its annual accounts within four months after the end of each financial year and its half-yearly figures within two months after the end of the first six months of each financial year. Within five calendar days after adoption of its annual accounts, the Company must file its adopted annual accounts with the FSA.

Also, a public company must publish its annual report, including the company’s annual accounts together with the report and a statement of the board of directors, as well as the independent auditor’s report, within four months after the end of each financial year. The same documents must be filed with the FSA and the BSE within the same deadline.

9.2. Ad hoc disclosures

Public companies are required to make public privileged information in connection with the company, as well as information in connection with important new events in the company’s activity which may have an effect on the price of its shares, pursuant to the regime laid down by MAR.

Local regulations provide a list of situations (non-exhaustive) when a company is required to make such ad-hoc disclosures, including:

• convening of the general meeting of shareholders;
• resolutions passed by the general meeting of shareholders or, as the case may be, information in connection with failure to fulfill quorum and majority requirements for passing resolutions;
• change of control, including indirect change of control;
• changes in the management;
• replacement of the company’s auditor and causes for this change;
• termination or decrease of contractual arrangements which have generated at least 10% of the company’s income during the previous financial year;
• changes in the specific features and/or in the relating to all classes of financial instruments issued by the company, including changes in the rights attaching to derivative financial instruments issued by the company itself and attaching rights in connection to shares issued by the company;
• litigation proceedings involving the company;
• start of the process for cease of activity or for resuming the activity by the company, start and completion of insolvency/bankruptcy proceedings, judicial reorganization, dissolution proceedings;
• off balance sheet operations with significant effects over the financial results of the company;
• changes in company’s obligations, with significant effect on its activity and financial situation;
• material acquisitions or disposal of assets (the acquisition or disposal is deemed material if the assets represent at least 10% of the total asset value of the company, either before or after the transaction);
• execution of any agreements which exceed in value 10% of the net turnover of the company during the last financial year or agreements concluded outside the ordinary business of the company; and
• new products or services launched by the company or a new development process, which affects the company’s resources.

The relevant notices will have to be published without delay, but in any case no later than 24 hours after the occurrence of the relevant event or after the company being aware of the relevant information.

Contributed by Alrud.

1. Market Overview

The Russian securities market has been rapidly developing since the early 1990’s and has seen many phases, from boom to crisis. Despite its volatility, it can be characterized as an efficient, emerging stock market with a well-developed infrastructure that notably attracts significant numbers of foreign investors. The Bank of Russia (CBR) is the integrated regulator of the Russian financial sector. The CBR consolidated the regulatory powers over capital markets following the dissolution of Federal Financial Markets Service, on 1st September 2013.

1.1. Biggest Equity Capital Markets (ECM) and Debt Capital Markets (DCM) transactions over the past 2-3 years

As regards the ECM transactions, the Russian market has experienced a significant decline in the number of IPOs in the past 3 years. Only three companies held IPOs in Russia in 2017, the most notable being that of Detsky Mir, or Children’s World, the largest children’s goods retailer in the CIS region. (This IPO raised USD 355 million.) In 2018 and 2019, there were no IPOs in the Russian market. However, Headhunter, a Russian largest online job-search platform went public on NASDAQ in 2019 and raised USD 220 million, which was the first Russian IPO in the US following the Ukrainian crisis.

The Russian Secondary Public Offering market has been more active over the past 3 years. The largest transactions, during this period, include domestic, public secondary offerings in 2019 by Norilsk Nikel, a Russian nickel, palladium mining and smelting company (raised USD 550 million), Polyus Gold, a Russian gold mining company (raised USD 390 million), and, in 2017, by Magnit, one of the largest Russian retail chains (raised USD 735 million).

Russian companies also held a number of SPOs on foreign exchanges, including the London Stock Exchange (LSE). These include LSE offerings by Evraz, a steel-making and mining group, En + Group, a Russian energy and metals company, and the above-mentioned Polyus Gold.

The debt market remains the key source of financing for many Russian corporates, its size having doubled since 2014. The issuers with the highest volumes of bond issuance include oil-mining corporations such as Rosneft and Transneft, DOM.RF, a state mortgage agency which issues mortgage-backed bonds, and leading Russian banks, including Sberbank, VTB and Gazprombank. 

2. Overview of the local stock exchange and listing segments (markets)

2.1. Regulated market

Moscow Stock Exchange (MOEX) is the main securities exchange, hosting trading in equities, bonds, derivatives, currencies, money market instruments and commodities. It was created as a result of a merger of two largest state-controlled stock exchanges, Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS). The National Settlement Depository having the status of Russia’s central securities depository and the National Clearing Centre, which acts as the central counterparty, also form part of MOEX Group.

MOEX is one of the top 20 stock exchanges in the world by total capitalisation of traded shares, and one of the 10 largest exchanges for bonds and derivatives. More than 700 issuers have their securities listed on MOEX.

Another Russian stock exchange is the Saint-Petersburg Exchange (SPBEX). Originally known as a platform for trading in commodities, SPBEX was rebranded in 2014 and launched trading in Russian shares, as well as admitting to trading foreign shares from the S&P 500 Index (such as Apple, Twitter, Netflix). This allows Russian retail investors access to a wide range of stocks of top global issuers.

2.2. Non-regulated market

Transactions with unlisted securities and OTC derivatives are made in a non-regulated market. Such transactions are sometimes entered into using an exchange infrastructure. For instance, MOEX provides services for non-organized trading in bonds through a special platform: this enables users to find counterparties for private transactions. As for the OTC derivatives market, the CBR intends to place certain restrictions on these trades, in particular, introduce mandatory centralized clearing and margin requirements, with respect to selected types of over-the-counter derivatives.

2.3. Listing segments

Pursuant to the Federal Law No. 39-FZ “On Securities Market” dated 22nd April 1996, as amended (the “Securities Law”), listing means inclusion of securities in the list of securities, admitted to organised trading for entering into sale and purchase agreements, including in the quotation lists, by a Russian stock exchange.

The list of securities admitted to organized trading includes quotation and non-quotation sections. The list established by MOEX consists of three levels. The first and second levels are quotation lists, and the third level forms a non-quotation part of it. Inclusion to each level is subject to compliance of the securities, and their issuer, with general listing requirements and a particular set of requirements.

The advantages of admission of securities to quotation lists include enhancing the liquidity of the securities and the issuer’s status, as well as increasing the number of potential buyers. In turn, requirements for admission to the first and second levels are stricter, as they constitute a certain comfort for the investors. The non-quotation part enables both long-existing companies and start-ups, that want to avoid more burdensome requirements, to gain access to financial market.

3. Key Listing Requirements

Securities can be admitted to the list in the course of their placement, which is the transfer of the securities, by an issuer, to the first owners. This is achieved by entering into transactions (i.e. primary offering), and circulation, which is entering into transactions that entail a transfer of title to the securities.

Requirements for the admission of securities to the stock exchange list can be divided into general, or applicable to all listing levels, and additional, which shall be complied with respect to admission to the quotation levels of the list.

General requirements include the following:

• the securities shall comply with the requirements of the laws of the Russian Federation, including regulations of the CBR;
• A prospectus is registered in respect of the securities;
• The issuer undertakes obligations to disclose information, in accordance with the requirements of the securities laws of the Russian Federation.

Securities can be admitted in a non-quotation third level of the list based on compliance with the general requirements.

To be listed in the first and second levels, the issuer must ensure the observance of the additional requirements, which are different for shares and bonds.

3.1. ECM

Additional requirements for shares can be divided into four main categories:

The number of free-float shares and their total market value

For instance, in respect of the first level of the list, the free float must be at least 10% of shares, if a market capitalization of shares exceeds RUB 60 billion, and the total market value of shares must be not less than RUB 3 billion for ordinary shares, and RUB 1 billion, for preferred shares.

Minimum period of existence of the issuer

To be eligible for the first level, the issuer must have been in business for at least 3 years, while the minimum length of existence for the second level is 1 year.

Drafting and disclosure of financial (accounting) statements, in accordance with the International Financial Reporting Standards (IFRS), or other internationally-recognized reporting standards

The applicable reporting periods differ for the first and second level of the list, being 3 completed years and 1 completed year, preceding the date of admission of the shares into the list, respectively.

Corporate governance requirements

The structure and functions of the issuer’s management bodies must conform to the requirements established by MOEX listing rules. For inclusion in both the first and second levels of the list, the issuer must have a board of directors and an audit committee, a corporate secretary and an internal department responsible for internal audit, as well as adopt bylaws on internal audit and a dividend policy.

Apart from the requirements common for both quotation parts, the conditions for admission to the first level include a higher number of independent directors on the board of directors and an audit committee in comparison with the second list, formation of a remuneration committee and a nominations committee, and adoption of bylaws establishing the position of corporate secretary.

3.2. DCM

Additional requirements for bonds partially coincide with those for shares, in particular, drafting and disclosure of financial (accounting) statements in accordance with the IFRS, or other internationally-recognized reporting standards. However, other additional requirements, for admission of bonds into the quotation lists, are distinct from the conditions for shares and can be classified as follows:

The minimum amount of the total volume of bonds and the maximum nominal value of a single bond:

The minimum amount of the total volume of bonds must be at least RUB 2 billion for admission to the first level, and at least RUB  500 million, to the second level. The maximum nominal value of a single bond must not exceed RUB 50,000 or, if the value is denominated in a foreign currency, 1,000 monetary units in such currency, for both levels.

The minimum period of existence of the issuer, or a person providing security, in respect of bonds:

In respect of the first level, the issuer must exist at least 3 years. The second level listing may be performed, if the issuer has existed at least 1 year or, if security is provided with respect to bonds, not less than 3 months, provided that the guarantor, or surety, exists at least 1 year.

Absence of previous default on obligations on behalf of the issuer:

There should be no previous defaults, or at least 3 or 2 years should have passed since the termination of the relevant obligations, with respect to the first and second level respectively.

Level of credit rating of the issuer, or a person providing security, in respect of bonds:

The levels of credit rating must be not less than those set forth by the MOEX.

Nomination of representative (trustee) for bondholders:

The requirement is applicable to unsecured bonds to be listed in the second level.

Corporate governance requirements

The list of corporate governance requirements for bonds is less than those for shares. However, these include formation of a board of directors, internal audit department and adoption of a policy on internal audit.

The additional requirements for specific types of bonds, for instance, exchange-registered bonds, state-issued bonds, as well as securities of foreign issuers, can further differ.

4. Prospectus Disclosure

4.1.. Regulatory regimes (Prospectus Regulation, or similar) – equity and debt and local market practice

The prospectus is the key document of the issuer, when listing its securities on a stock exchange, and is the main source of information about the company, for both the regulators and potential investors. For this reason, the prospectus must be comprehensive and structured, to be understood by both professional and less-sophisticated investors.

The prospectus includes both information, which is compulsory to be disclosed under the disclosure requirements of regulatory bodies, and information which the company wants to disclose voluntarily, in order to attract investors.

The prospectus regime in Russia is primarily governed by the Securities Law.

The detailed requirements for the prospectus disclosure are set out in the secondary legislation, including:

• Regulation of the CBR No. 454-P dated 30th December 2014 “On information disclosure by the issuers of issue-grade securities” (contains detailed requirements for the form and content of the prospectus, its drafting and filing with the relevant authority);
• Regulation of the CBR No. 428-P dated 11th August 2014 “On standards for the issuance of securities, the procedure for state registration of the issuance (additional issuance) of issue-grade securities, state registration of reports on the results of the issuance (additional issuance) of issue-grade securities and registration of prospectuses of securities” (covers procedural matters on registration of the prospectus);
• Order of the Federal Financial Markets Service of Russia No. 12-10/pz-n dated 6th March 2012 “On approval of the procedure for registration of prospectuses of securities of foreign issuers and admission of securities of foreign issuers to placement and (or) public circulation in the Russian Federation by decision of the federal executive body for the securities market”;
• Regulation of the CBR No. 703-P dated 2nd December 2019 “On the procedure of maintaining the register of issue-grade securities and providing the information contained therein” (states that the content of the register of issue-grade securities, issued by CBR, includes information on the prospectus).

The prospectus regime is different, with regard to equity and debt securities, mostly in procedural questions. In addition, the statutory forms of prospectus, established by the CBR, vary depending, in particular, on the type and class of securities, the number of issues of securities during the calendar year, the type of the issuer’s main activities.

In order to register the issuance of the issue-grade securities, placed by subscription, the securities prospectus shall be drafted and filed with the CBR (or the Russian exchange with respect to exchange-registered bonds).

The prospectus, as the Russian legislators specify, shall contain and reflect all the circumstances that could have a significant impact on the decision-making process of potential investors. The content of prospectus remains the same for equity and debt securities, with some exceptions set out below.

The prospectus must contain:

• The introduction (summary of the prospectus of securities)
• The issuer shall ensure that introduction (or summary) to the prospectus is easily understood by non-qualified investors. The introduction summarizes information that allows members of the public general to gain a general idea of the issuer’s activity and its securities, the main risks associated with the issuer and the acquisition of its securities, and, in case of placement of shares and securities convertible into shares, also the general conditions for the placement of equity securities, if needed.
• the information about the issuer and its financial and business activities
• This can include information about the history of the formation and activities of the issuer, information on its registration, managerial bodies and bank accounts, business industry and its main business results, its share capital, market capitalization and other financial indicators, etc.
• the issuer’s financial statements and other financial information specified in the Securities Law (including the audited, annual financial statements for the last three years, with the audit report; the audited interim financial statements with the audit report, if prepared; the audited annual consolidated financial statements for the last three years with the audit report; the audited interim consolidated financial statements with the audit report or review document.
• The consolidated financial statements are prepared as per the IFRS. Russia adopted IFRS in 2011, and Russian companies have provided consolidated financial statements since 2012.
• key information about the person providing security for the issuer’s bonds, as well as the conditions for such security (if any);
• the conditions for the placement of shares and securities convertible into shares (if any)
• other information provided for by any of the federal laws of the Russian Federation, including the Securities Law

This list is not exhaustive and the Securities Law and other federal law provide for more information to be specified in additional part of the prospectus.

The Securities Law allows registering a prospectus as a single document, or a two-part document. The first part (called the ‘main part’ of a prospectus) must include the introduction, information about the issuer and its financial and business activities and the issuer’s financial statements and other financial information specified in the Securities Law. In this case, the introduction might not contain information about the placed securities and the main conditions of their placement. The second part of the prospectus (called the ‘additional part’) may be filed with the relevant authority, separately from the main part and must contain other information that should be disclosed in the prospectus.

4.2. Language of the prospectus for local and international offerings

As a general rule, the prospectus shall be in the Russian language: the official state language of the Russian Federation. If a foreign issuer decides to list its securities on the Russian Stock Exchange, the foreign language version of prospectus will be provided, with its certified translation into Russian.

5. Prospectus Approval Process

5.1. Competent Regulator

The regulator responsible for prospectus registration, in the Russian Federation, is the CBR. The competence of the CBR over the registration of prospectus is established by the Federal Law No. 86-FZ “On the Central Bank of the Russian Federation (Bank of Russia)” dated 10th July 2002, as amended.

In respect of exchange-registered bonds, the prospectus is registered with a stock exchange.

5.2. Timeline, number of draft submissions, review and approval process

The prospectus of a limited liability company, or a joint-stock company, must be approved by the board of directors (supervisory board), or a managerial body performing functions of the board of directors (supervisory board) of such company, in accordance with the Russian federal laws. The prospectus of legal entities, established in other forms, must be approved by a person performing functions of the sole executive body of the issuer, unless otherwise provided by the Russian federal laws.

The prospectus must be signed by a person acting as, or performing functions of, the sole executive body of the issuer, or an official of the issuer, authorized by such person. The issuer can decide that the prospectus should additionally be signed by its financial advisor, who cannot be affiliated to the issuer. The prospectus with respect to secured bonds must also be signed by the security provider. The persons signing the prospectus confirm the reliability and completeness of all information contained in the prospectus.

Where the prospectus is registered together with the issuance of the securities, the CBR takes the decision on registration of the issuance within 20 business days, from the receipt of documents. If the prospectus is registered independently from the registration of the issuance of the securities, the approximate timetable for the prospectus registration varies, depending on the form of the prospectus. For instance, 20 business days are required for the CBR to register the prospectus prepared as a single document, or only the main part of the prospectus. The additional part will be registered within 15 business days.

There is an option of preliminary review of documents that are necessary for registration of the issuance of securities. In such case, the issuer submits its prospectus (in 2 copies) with other relevant documents, in hard copy, as well as in electronic form, and on the CD to the CBR. The CBR considers the submitted documents and makes the decision on their conformity within 20 business days. After preliminary review, the term for registration, of the issuance of the securities, is reduced to 10 business days.

6. Listing Process

6.1. Timeline, process with the stock exchange

A typical, minimum timeframe for listing (without the time for registration of prospectus and preparatory stages) shares and bonds may be around 1 month. This period includes the process of filing the statement with the stock exchange, securing the decision on securities listing by the authorized body of the stock exchange and giving a notice of the decision to the issuer.

The issuer shall enter into a services contract with MOEX to be able to submit an application for listing of its securities. After entering into a contract, the issuer must apply for listing and provide the necessary documents, as required by the listing rules. Based on the results of the consideration, MOEX decides whether to accept, or reject, the application and list the securities within 20 business days with respect to admission to the first and second levels of the list, and 13 business days, with regard to the third listing level.

The issuer can also apply for a pre-listing, being the process of checking by MOEX whether a company complies with the stock exchange and governmental requirements for listing. This procedure takes 15 business days from the receipt of the documents. The issuer must remove any inconsistences within 3 months from receipt of the pre-listing evaluation results, and can apply for verification of their removal, not later than 15 working days prior to the expiration of this 3-month period. After provision of pre-listing service, if all mistakes are corrected, MOEX makes a decision on securities listing, within 5 business days from the provision of all necessary documents.

7. Corporate Governance

7.1. Corporate governance code / rules (INED, board and supervisory composition, committees)

In 2014, the CBR approved the Code of Corporate Governance. This document is not mandatory for Russian companies. However, in accordance with the official position of the CBR expressed in its Letter No. 06-52/2463 dated 10th April 2014, it is recommended for joint-stock companies, if they have securities admitted to organized trading of those securities.

Separate provisions of the Code of Corporate Governance are reflected in the requirements for corporate governance, applicable to inclusion of securities to the first and second listing levels.

In particular, the Code of Corporate Governance contains guidelines on forming a balanced board of directors, its role in the company, electing independent directors and forming board committees, board members’ remuneration rules.

7.2. Other ESG considerations

MOEX publishes two ESG indices: the MOEX-RSPP Responsibility and Transparency Index and the MOEX-RSPP Sustainability Vector Index. The indices include shares of Russia’s largest companies listed on MOEX, selected based on the analysis of disclosure of information about their activities, in the sphere of corporate social responsibility and sustainable growth. Among the companies regularly included in the indices are commodity, steel, energy, infrastructure companies, almost half of which are state-owned.

In 2019, MOEX launched a separate Sustainability Sector. The sector comprises three independent sectors, being a green bond sector, a social bonds sector and a sector for national projects. The requirements for listing of foreign and locally-issued bonds in the Sustainability Sector were incorporated in the new version of MOEX listing rules. The main condition for sustainable listing is conforming to the requirements set out in the Green Bond Principles of the International Capital Market Association (ICMA), or the standards of the Climate Bonds Initiative (CBI). Compliance with these requirements must be confirmed by an external review provider.

8. Documentation and Other Process Matters

8.1. Stabilisation – whether allowed and on what terms (MAR, local regimes)

While stabilisation has been long actively used in the international securities offerings of Russian issuers, in the Russian markets it was first included in the issuance documentation relatively recently, in particular, in the 2012 IPO of Megafon, one of the largest mobile and telecom operators in Russia. The particular stabilization mechanism used in the Megafon offering was a greenshoe over-allotment option, allowing bookrunners to buy additional shares.

Since then, the greenshoe structure was stipulated, among others, in several other major MOEX IPOs, including 2017 IPOs of Detsky Mir and Obuv Rossii, one of the top two Russian footwear retailers.

The issuers entering into price stabilization, with market-makers, shall disclose this information in the form of a material fact statement on their website.

9. Ongoing Reporting Obligations (Life as a Public Company)

Companies that publicly issue their securities must carry out ongoing disclosure of information. The information is disclosed by issuers in the following forms:

• annual and semi-annual consolidated financial statement;
• quarterly report; and
• material facts statements.

9.1. Annual and interim financials

The issuer shall disclose its interim consolidated financials by publishing it on the Internet in within 3 days of its preparation and approval by authorized management body of the issuer, but, in any case, within 60 days of the end of the second quarter, and its annual consolidated financials, within three days of the signing of the auditor’s report, but, in any case, within 120 days of the end of the reporting year.

Both interim and annual consolidated financial statements are also included in the issuer’s quarterly reports.

The issuer’s quarterly report is prepared in accordance with the form established by the CBR for each completed quarter. The quarterly report shall be published by the issuer within 45 days from the end of the reporting quarter. The quarterly report should be available on the issuer’s website for not less than 5 years from the deadline for its publication, and if it had not been published by the deadline, from the date of its publication.

9.2. Ad hoc disclosures

Material facts are those which, being disclosed, can substantially affect the value or quotations of securities.

The following information, among others, can be considered material facts:

• the issuer’s general meetings and their decisions;
• recommendations as to, and procedure for dividend payments;
• reorganisation, or liquidation, of the issuer;
• approval of the issuer’s constituent documents;
• changes in the composition of the issuer’s managerial bodies, etc.

The material fact statements should be published within the following timeframes, after occurrence of the material fact: in a newswire service – not later than 1 day later; and on the issuer’s website – not more than 2 days later. The text of the material fact statement should be available on the company’s website for not less than 12 months from the deadline for its publication, and if it had not been published by the deadline, from the date of its publication.

Although the number of IPOs and bond offerings in Central and Eastern Europe over the past few years remained significantly lower than in Western Europe, the capital markets in CEE have been playing an increasingly important role in providing capital to local businesses and an exit strategy for selling shareholders.

The IPOs of Nova Ljubjanska Banka in Slovenia, Avast in the Czech Republic, and the Port of Tallinn in Estonia, as well as bond offerings in Lithuania, Ukraine, Turkey, Poland, and Romania (to name just a few) constituted some of the biggest offerings in Europe targeted at local, regional, and international investors, and are testament to the significant potential of this region. The need for accessible and efficient capital markets is also universally recognised by local and EU regulators, investors, and market participants.

This guide sets out an overview of key requirements applicable to IPOs and bond offerings across the region and has been prepared in cooperation with experienced professionals recognised as key capital markets practitioners in each jurisdiction. Our intention is to provide a user-friendly summary of the main listing requirements and IPO/bond process, described in practical terms and presented in a consistent manner across all countries. In addition, the guide highlights ongoing reporting and compliance requirements as well as corporate governance rules applicable to public companies.

While we focus primarily on the countries of CEE, we have also included a UK chapter to serve as a point of reference and to summarize the IPO/bond offering process for those companies in the region wishing to list on the London Stock Exchange (as, indeed, a number have in recent years). In 2019, 30% of all European IPO proceeds were derived from the offerings on LSE, and despite Brexit and the ongoing coronavirus pandemic, the UK continues to be the most liquid market and the LSE the most active stock exchange in Europe.

Going public or issuing a public bond is never a straightforward decision or easy process for first-time issuers. Regardless of the chosen listing venue, full preparation, and an expected timeline, it is a long journey – but one which will hopefully pay off at the end. We hope that this guide will address some of the most important considerations, help issuers and offerors avoid the unexpected, and make the road less bumpy.