ESMA publishes consultation paper on its draft technical advice for delegated acts supplementing MAR and MiFID II provisions
Following the European Commission's recent adoption of the Listing Act, the European Securities and Markets Authority (ESMA) has on 12 December 2024 published a new consultation paper on its draft technical advice for delegated acts supplementing the Market Abuse Regulation (MAR) and MiFID II provisions (the "Consultation Paper").
The Listing Act, adopted by the Council of the European Union on 8 October 2024, and published in the Official Journal on 14 November 2024, introduces significant changes to MAR and the Prospectus Regulation aimed at simplifying listing requirements and improving access to capital markets, particularly for SMEs. While certain amendments to MAR and the Prospectus Regulation entered into force on 4 December 2024, some provisions have a deferred entry into application from 15 to 18 months after such date, i.e. on 5 March 2026 and 5 June 2026, respectively.
Several provisions included in the Listing Act will require the adoption of Level 2 measures. These will consist of a number of implementing and delegated acts to be adopted by the Commission, some of them based on technical standards to be drafted by ESMA.
In this context, ESMA has in the Consultation Paper provided its initial technical advice on the delegated acts supplementing specific provisions of MAR that the Commission shall adopt in respect of i) disclosure of inside information in a protracted process and ii) conditions to delay the disclosure of inside information.
While the Consultation Paper also includes technical advice on the delay of disclosure of inside information, it is noted that ESMA acknowledges that the amendment to Article 17(1) of MAR, which exempts inside information from intermediate steps in a protracted process from public disclosure, is expected to narrow the scope and practical relevance of the delay mechanism under Article 17(4).
Given this shift in focus, this newsletter primarily addresses ESMA's analysis of protracted processes, particularly its analysis of protracted processes versus one-off events and its classification of protracted processes.
Protracted processes
To reduce the regulatory burden on issuers and increase legal certainty while maintaining appropriate market integrity, the Listing Act modifies the disclosure obligation contained in Article 17(1) of MAR in relation to "protracted processes".
Under the new regime, pursuant to the new Article 17(1) of MAR, the obligation for an issuer to inform the public as soon as possible about the inside information directly concerning the issuer shall not apply to "inside information related to intermediate steps in a protracted process […], where those steps are connected with bringing about or resulting in particular circumstances or a particular event. In a protracted process, only the final circumstances or final event shall be required to be disclosed, as soon as possible after they have occurred."
Identifying the exact moment when an event becomes final is not always straightforward, thus the new Article 17(12) of MAR requires the Commission to adopt delegated acts to establish and review, as necessary, (i) a non-exhaustive list of final events or final circumstances in protracted processes and, (ii) for each event or circumstance, the moment when it is deemed to have occurred and must be disclosed according to Article 17(1) of MAR.
It is worth noting that the amendment brought to Article 17(7) clarifies that if the confidentiality of inside information relating to intermediate steps in a protracted process is no longer ensured, the issuer must disclose that inside information as soon as possible. As a result, the issuer is obligated to disclose inside information regarding the process whenever a leak occurs before the final event or circumstance. In our view, this does not constitute a material change in the legal position, as these requirements already applies in cases where the disclosure of inside information has been delayed.
Distinction between protracted processes and one-off events
In the Consultation Paper, ESMA distinguishes between protracted processes and one-off events. Here it is noted that Recital 67 of the Listing Act identifies that a non-protracted process is "a one-off event or set of circumstances, notably when the occurrence of that event or set of circumstances does not depend on the issuer".
By contrast, ESMA understands a protracted process to be a series of several actions or steps spread in time which need to be performed, in order to achieve a pre-defined objective or result.
Further, ESMA recognize that protracted processes can be internal to the issuer or involve external parties, such as contract counterparties or public authorities. These processes range from daily business activities (e.g. agreements, licenses) to extraordinary transactions (e.g. mergers, reorganizations) and legal proceedings.
ESMA identifies three categories of protracted processes:
- Internal protracted processes: These involve actions solely within the issuer's control, such as reorganizations, capital increases, and dividend distributions.
- Processes involving external counterparties: These include agreements with third parties, such as mergers, acquisitions, or strategic partnerships.
- Processes involving public authorities: These involve interactions with regulatory or other public authorities, such as licensing applications or legal proceedings.
Protracted processes that are entirely internal to the issuer
According to ESMA, protracted processes that are entirely internal to the issuer involve only the issuer, allowing the issuer to determine autonomously their completion. They include for example reorganisations, increase of capital and distributions of dividends.
When the issuer is the sole actor in such processes, ESMA considers that the decision by the issuers governing body ensure a sufficient degree of certainty regarding the outcome of the process. Consequently, the adoption of the decision by the issuers governing body should triggers the disclosure obligation. This body would typically be the board of directors or management board, but it can also be an individual like the CEO, where he or she has been empowered through delegation by the board of directors or directly by the by-laws to adopt certain decisions.
In some cases, the governing body's decision must be validated or approved by another corporate body, such as a shareholders meeting or supervisory board in a two-tier governance structure. For instance, decisions on dividend distribution may require final adoption by shareholders at the general meeting. However, ESMA considers that disclosure should occur when the governing body initially makes the decision, as this provides sufficient certainty about the process's outcome.
ESMA is of the view that publication cannot wait for the final decision of the shareholders general meeting as their agenda is usually published or shared with a broad group of shareholders, effectively making the information public. This will be the case for Danish listed companies where the notice convening the general meeting, including the agenda and a detailed description of the agenda items, must be made publicly available.
Protracted processes that involve the issuer and external counterparts
ESMA identifies processes involving the issuer and a private counterparty as situations where the issuer enters into agreements. These can include certain extraordinary transactions carried out to reach strategic objectives, such as mergers, acquisitions, or disposal of relevant assets, including subsidiaries. Additionally, they can include other contractual relationships the issuer may need to have in place for its ongoing business or corporate activity, such as business agreement or employment contracts.
In such cases, ESMA considers that the sole decision of the issuer is insufficient to achieve a degree of certainty regarding conclusion of the agreement, as this is also subject to the counterparty's decision. As a result, ESMA considers that when another private party is involved, a sufficient degree of certainty regarding the conclusion of the agreement is only achieved when both parties commit to enter into the agreement, after they agreed on its main elements or conditions.
In case of extraordinary transactions (e.g. mergers, acquisitions of assets), where the decisional process is structured and designed by law or the by-laws, the completion of the negotiations on the main conditions is generally followed by a decision by the respective corporate bodies of the two parties. As a result, ESMA is of the view that it is possible to conclude that there is agreement on the core conditions and formal commitment to enter into the agreement when the competent bodies/persons of all parties involved, having the respective decision power, have taken the decision to sign off the agreement. For the same reasons outlined in the previous section, also in this case the decision relevant for the disclosure should be the one taken by the competent bodies/persons of all parties involved, regardless of the need for subsequent validation or approval by another corporate body (e.g, the shareholders' general meeting).
ESMA also notes that coordination of the decision-making process of all parties could occur already during the negotiations, to avoid any conflicting or non-synchronised communications to the public.
Lastly, ESMA notes that when decisions are to be taken by a person delegated by the governing body within the issuer, with less formalities in comparison to extraordinary transactions, the moment when both parties take the decision to commit to the agreement may occur only when both parties become legally bound by the agreements. That moment could occur at the signing of the final agreement or, in some instances, earlier if a preliminary agreement or any other preliminary commitment is made according to the applicable law.
Protracted processes that involve the issuer and public authorities
According to ESMA, protracted processes involving the issuer and a public authority fall into two subcategories.
Processes driven by a public authority involving the issuer (e.g. legal proceedings)
This subcategory includes processes where the authority drives the decision-making, and the issuer participates through interactions and exchanges of information. Disclosure is required only upon the formal notification of the authority's decision, as the outcome remains uncertain until that point. ESMA emphasizes that informal communications before the authority's final decision do not trigger disclosure requirements.
Processes that are triggered by the issuer and whose final outcome is decided by a public authority (e.g. licensing and authorisation)
The second category includes processes initiated by the issuer, where the final outcome is determined by the public authority. In such cases, two distinct stages of disclosure arise. The first stage occurs when the issuer submits its request to the authority, concluding the issuer-led process (e.g. applications for intellectual property rights, licensing, or product commercialization permissions). The second stage occurs when the authority formally communicates its decision to grant or reject the request, concluding the authority-led process. For these authority-led processes, the disclosure obligation is triggered only upon receipt of the formal decision, even if earlier exchanges of information between the issuer and the authority qualify as inside information.
In the Consultation Paper, ESMA provides further guidance on certain specific types of processes, some of which is further detailed below.
Specific processes: Financial reports, profit warnings, earning surprises and forecasts.
ESMA considers the production of a financial report by the issuer to be a unique type of protracted process, as the figures detailed in the report could qualify as inside information prior to the issuance of the report. The financial reporting process involves not only confirming the figures but also presenting them in a way that is clear and understandable for investors. Consequently, ESMA proposes that disclosure should occur when the periodic financial report is finalized, illustrating the confirmed figures.
In this context, ESMA acknowledges that before the formal adoption of the report, identifying a specific moment when the figures are fully determined and validated can be challenging, as the process of collecting and confirming data is typically spread over time. Additionally, ESMA acknowledges that jurisdictions differ in their requirements for the involvement of governing bodies in financial reporting. Some require only acknowledgment of the report, while others mandate formal approval. Therefore, ESMA's proposed delegated act takes into account these variations according to the applicable legal framework, and propose that the moment of disclosure is when the financial results have been or formally acknowledged or approved by the competent body/person having the decision power under national law or bylaws.
ESMA emphasizes that profit warnings or earnings surprises, particularly when they deviate from expectations or previous communications, are distinct from the processes involved in producing periodic financial reports. Such information constitutes separate inside information and must be disclosed to the public immediately once it becomes available to the issuer.
Specific processes: Takeover
ESMA acknowledges that a takeover bid initiated by the issuer for a target company involves an internal decisional process qualifying it as a process. However, when the issuer is the target of a takeover bid, ESMA emphasizes the importance to distinguish between friendly hostile takeovers.
In a friendly takeover, the parties agree on the transaction, typically following an internal process within the issuer, which often includes formulating recommendations for shareholders regarding the bid. Conversely, in a hostile takeover, the acquiring company bypasses management and appeals directly to shareholders, making it a single/"one-off" event (the bid placement) rather than a process due to the absence of internal decision-making.
Based on this distinction, ESMA proposes that in the case of a takeover bid initiated by the issuer, disclosure should occur upon the management body decision. For takeovers targeting the issuer, only friendly takeovers qualifies as a process, with disclosure required when the management decides to recommend or not recommend accepting the bid.
Specific processes: Biotech companies trials and commercialisation authorisations
ESMA acknowledges that biotech and pharmaceutical companies typically conduct extensive tests, medical trials, and gather feedback from the scientific community before submitting an authorization request to commercialize their products. While these activities are part of the broader process leading to the submission, the test phase itself can be considered a separate process due to its duration, complexity, structured nature, and potential to generate inside information.
For instance, a "trend vote" by members of a scientific committee, indicating whether they are likely to recommend marketing authorization, may prompt an issuer to discontinue the licensing application process. Such a decision could constitute inside information. Similarly, negative test results might lead the issuer to abandon the authorization request process, which could also qualify as inside information.
Given these considerations, ESMA proposes treating medical tests and trials as a distinct process. The conclusion of these tests or the collection of significant feedback should be identified as a specific final event requiring disclosure.
Plesner observations
The ESMA Consultation Paper introduces significant refinements and clarifications as to the future disclosure regime under MAR, particularly regarding protracted processes. By distinguishing protracted processes from one-off events and offering specific guidance on internal processes, transactions involving external parties, and engagements with public authorities, ESMA aims to reduce regulatory burdens while maintaining market integrity. These helpful updates provide issuers with greater clarity on disclosure obligations, particularly around intermediate steps and final outcomes in various processes.
It must be expected that the current guidance and practice from the Danish Supervisory Authority regarding inside information and disclosure timing likely will need to be revised as a consequence of the amendments to the disclosure regime under MAR and the expected outcome of ESMA's technical advice in the Consultation Paper. Also, we generally expect that market practice for disclosure will change significantly if the proposal from ESMA is confirmed in the final rules, as it will give listed issuers much more flexibility to handle the information flow.
Issuers is encouraged to closely monitor the development of these delegated acts and prepare for their potential impact on disclosure practices. If you have any questions or require assistance navigating these changes, please do not hesitate to reach out to our team of experts or your usual Plesner contact.
Next steps
When finalising its technical advice to the European Commission, ESMA will consider all feedback received in relation to this Consultation Paper by 13 of February 2025. ESMA has settled for an eight-week consultation period to be able to meet the deadline for delivering its technical advice, set on 30 April 2025.
A Final Report containing a summary of all consultation responses and a final version of ESMA's technical advice is expected to be delivered to the European Commission and published on ESMA's website in Q2 2025.
For further information, reference is made to ESMA's official Consultation Paper