EU plans stock market for small firms

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Fast-growing small firms will gain access to fresh sources of money by 2012 via a network of specialist stock exchanges under new European Commission proposals due next month.

EU Internal Market Commissioner Michel Barnier is set to adopt a French-inspired blueprint for helping SMEs to tap into stock markets as part of the European Single Market Act, due to be published in October.

Documents seen by EURACTIV France show Barnier wants to reduce the level of red tape required for small firms keen to list on stock exchanges and to raise the visibility of SMEs in the investment community.

The move follows a report published by French Finance Minister Christine Lagarde in March, which suggested a single access point for trading shares of young, high-growth businesses (EURACTIV 22/3/10).

According to a detailed draft of the Single Market Act, the Commission will look at way to develop "an efficient regional stock exchanges network or specific regulated markets focussed on SMEs by 2012".

Easing reporting requirements for listed SMEs

The plan to change disclosure requirements for companies proportionate to their size could prove contentious. The Commission notes that this should be done without undermining investor protection, but the idea of easing reporting requirements for SMEs was met with caution when floated in Lagarde's report earlier this year.

Investors say providing adequate information is essential for all firms if they are to attract funding from an informed market. Lagarde has suggested easing accounting standards for SMEs, as well as allowing them more time to publish quarterly reports and to produce less detailed prospectuses when listing on stock markets.

Accountants and investors say high-quality information will still be needed, and that finding the right balance between transparency and cutting red tape will be central to the success of the proposal.

New plan borrows heavily from Small Business Act

Several of the priority elements of the forthcoming Single Market Act are repackaged features of the Small Business Act (SBA), which was published in 2008.

The new document, which contains 51 'key actions' and 135 additional actions, emphasises the need to help small companies make the most of the internal market.

Smarter regulation, an EU-wide register of companies, an overhaul of accounting directives, cross-border trade and helping SMEs to access finance are just some of the elements of the Single Market Act borrowed from the SBA.

Similarly, the new document is likely to overlap broadly with the Commission's forthcoming innovation strategy.

Rebooting the venture capital market, reforming public procurement and helping SMEs to benefit from EU research funds are amongst the proposals expected from the innovation plan which have also been included in the draft Single Market Act.

Tough road ahead for single market

Ironing out the deep creases in Europe's internal market has been on the Brussels agenda for several years given the sluggish pace of reform by member states.

Now, with creeping protectionism returning in the wake of the economic crisis, officials see a renewed drive to complete the single market as essential.

However, several key components of the single market demonstrate how difficult it can be to bring down national barriers in areas like company law, intellectual property and healthcare.

Implementing the Services Directive has been slow and patchy, while the push for an EU patent appears to have run aground amid opposition from some member states to a unified patent court (EURACTIV 24/08/10).

According to a draft version of the Act written in late August, Barnier wants the first EU patent introduced by 2014 once linguistic and legal issues have been resolved, but that currently looks ambitious.

Similarly, plans to boost patient mobility as part of a cross-border healthcare directive have been inching forward after member states watered down European Commission proposals (EURACTIV 08/06/10).

The Commission wants cross-border health care wrapped up without delay but the MEPs say more work needs to be done before signing off on the plan (EURACTIV 15/06/10).

While the Single Market Act, due to be published on 6 October, should give renewed political impetus to completing the internal market, overcoming nationalist instincts of member state governments is likely to be the key to its success (EURACTIV 03/09/10).

The number of small companies listed on European stock exchanges has fallen due to a marked decline in new initial public stock offerings (IPOs) and the decision by some firms to 'de-list' and go private.

The vast majority of new IPOs in recent years have been on Asian stock exchanges, suggesting the problem is structural rather than simply a result of the financial crisis.

French Finance Minister Christine Lagarde suggested in July 2009 that Europe should extend the Small Business Act to make it easier for young, high-growth businesses to list on stock exchanges.

She commissioned Fabrice Demarigny, a capital markets consultant, to write a report on ways to improve access to capital markets in Europe.

In his report, published in March 2010, Demarigny uses the term Small and Medium-sized Issuers Listed in Europe (SMILEs) to describe the innovative companies Lagarde wants to help – a broader group than the EU's definition of SMEs.

Demarigny's blueprint for a network of secondary stock exchanges accessible to high-growth businesses through a single access point was endorsed by Christine Lagarde (EURACTIV 22/03/10).

Internal Market Commissioner Michel Barnier is currently finalising the EU Single Market Act, which will examine ways to overcome barriers to completing the internal market (EURACTIV 03/09/10).

  • 6 Oct. 2010: European Commission to publish Single Market Act.
  • 2012: Launch of regional stock exchange network or specific SME-focussed markets.

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