The Capital Markets Union (CMU) action plan, first introduced in September 2015, is a comprehensive EU initiative aiming to create better and more integrated capital markets across Europe. The concept of SME Growth Markets, which is a key part of the CMU agenda, is a promising initiative aiming to facilitate better access to public capital for small and medium sized enterprises (SMEs), without compromising investor protection and market quality.
On September 1, Nasdaq First North became an SME Growth Market, a new type of multilateral trading facility (MTFs) introduced by MiFID II. The purpose of SME Growth Markets has been to create a joint EU standard for market operators and ultimately help facilitate better access to capital for SMEs.
SMEs represent the vast majority of all companies across the European economy and therefore play an important role in creating jobs and growth. These companies currently rely heavily on bank lending to fund their growth. According to statistics from the European Commission, bank lending accounts for 75 percent of all SME funding in Europe. At the same time, around one in five SMEs report that they are struggling to get the funding they need to further develop their businesses.
In light of this, there are justified reasons for policy makers to facilitate better access to growth capital, and Nasdaq therefore welcomes the concept of SME Growth Markets.
What will this mean for issuers? The legislative proposal put forward includes amendments in a number of key legislations, including the Market Abuse Regulation (MAR) and the Prospectus Regulation. The alleviations within MAR aim to achieve a balance between reducing the administrative burden for SMEs, for example relating to insider lists and storage of information, while at the same time ensuring that market integrity and investor protection is maintained. The proposed changes within the Prospectus Regulation allow companies to produce a simplified 'prospectus' more suited to SMEs that have already been listed on an SME Growth Market.
Apart from measures that will reduce administrative burden for issuers, the new market place status is also expected to give the Nasdaq First Growth Market an additional quality stamp as part of this EU framework. More SMEs could benefit from a public listing. Apart from the potential capital injection, a public listing often brings a significant boost to the company’s public profile and brand recognition. In addition, access to a broader investor base and market liquidity can give the company better access to additional equity capital and debt finance, and thereby reduce the current dependence on bank funding.
Equity investments always involve risks, in particular when they take place on growth markets. There are, however, on these growth markets where future success stories can take off. This is also confirmed by Nasdaq’s statistics from the Nordic markets: since Nasdaq First North was launched in 2006, close to 80 companies have transferred to our EU-regulated main markets, showing that the Nasdaq First North Growth Market is a market where SMEs can grow and mature.
A well-functioning and dynamic capital market constantly needs to be further developed and improved. Nasdaq’s ambition is to create better markets for both SMEs and investors, and we are confident that the SME Growth Market will help us achieve this. Active capital markets will strengthen Europe’s competitiveness and ultimately create more jobs, while both large and small investors are invited to take part in the growth journeys.
Further information about Nasdaq First North’s transition to an SME Growth Market can be found here.