An Amendement of the Conditions for Listing Companies on the Sock Exchange

Nowadays, when a stock company wishes to join the Spanish stock market the minimum share capital requirement for negotiations to be listed on the stock exchange shall be complied with. This minimum limit consists of the 25% of the share capital. However, the European Union has considered amending it and, on November 2,2023, the Economic and Monetary Affairs Committee of the European Parliament voted in favor of easing the requirements to allow small companies to be listed on the stock exchange. 

What are the listing requirements? 

The companies that want to be listed on the stock market must meet the following requirements: 

• Acquire the corporate type of a Stock Company (S.A. or sociedad anónima) and have fully paid its share capital with no restrictions on transmissibility. 
• The shares must be represented by book entries. 
• Minimum capital of €1.202.025, excluding shares that represent 25% or more. 
• To have a minimum market value of €6.000.000.
• The distribution of shares must be considered sufficient. At least 25% must be distributed among the public. However, in Spain, free float is only required for the Continuous Market (a system whereby the four Spanish stock exchanges are interconnected as a single stock market). 

What is the reason for this new change? 

For some years now, the European Union has been concerned about the low number of new companies listed on the stock exchange, expressing the fact that in the last four years only seven companies have been listed on the national stock market (Amrest, Árima, Metrovacessa, Berkeley, Solarpack, Soltec, Línea Directa, Ecoener, Acciona Energía and Opdenergy). 

Bank financing has been a very interesting alternative for companies that needed liquidity to carry out their operations, as soon as interest rates were low. However, at present, the fees of this type of financing have increased significantly, causing a drop in M&A transactions, and making the idea of going public attractive for companies. 

Nevertheless, stock exchanges such as those in the United Kingdom or the United States offer better conditions than the Spanish one, so more and more companies prefer other jurisdictions for their stock market debut. In reaction to this, the European Union has formally proposed a legislative amendment to simplify the procedure to be followed by companies that wish to debut on the stock exchange. This new European regulation is called the Listing Act and is intended to give light to its leading measure, which is to set the minimum share capital to access the stock market at 10%.

What measures are proposed and what is the objective of this new modification? 

The current minimum limit entails a brake, especially for family groups that are thinking of going public for the first time. The foregoing, because these companies often prefer to allocate only a small part of their shares for public sale in order to have greater control and financial stability during their first contacts with the stock exchange. 

Consequently, reducing the free float from 25% to 10%, i.e., the minimum share capital required for a public limited company to list its share on the stock exchange, would entail an increase in the number of new companies on the Spanish stock exchange. Some experts even add that the reduction could be even set below 10%. 

In addition, other measures are added, such as: 

• The possibility of issuing shares with double voting rights, to reduce the risk and fear of losing control or the families that own a company. We refer to Dual Share Classes ("votos de lealtad"), which benefits the shareholders who are unwilling to sell their shares in the market and wish to maintain their stock options. Thus, a share held by family members who control the company would have two votes and those offered to the stock market would have only one vote.
• To reduce the volume of documentation (brochures) to be submitted by Small and Medium Enterprises (SME) and, consequently, to reduce costs and speed up the initial public offering (IPO) procedure. 

In short, this initiative is specifically aimed at expanding SMEs that aspire to be listed on the Continous Market, thus reducing the access requirements, as well as those that wish to access sources of financing other than bank financing. 

Is there any precedent in Spain? 

In Spain, some companies have already been exempted by the National Securities Market Commission (CNMV) to go public with less than 25% of their shares publicly disclosed. This is the case of Acciona Energía, which was allowed to cast only 15% of its share capital, since it was a particularly large operation. The current regulation enables this feature, which exempts the application of 25% in justified cases.

Therefore, it does not seem illogical to think that a new regulation that definitively reduces the free float percentage is possible. 

When could it come into effect? 

The new regulation was presented in December 2022 and approved on November 2, 2023, at the Economic and Monetary Affairs Committee of the European Parliament. However, it should be time for the Member States to ratify the new regulation within the European Council, even though the idea is that the new regulation will be automatically applicable in the countries of the European Union, without the need for transposition into national legislation, since it will be an amendment to a regulation and not the formulation of a new directive.

Thus, the amendment of the 2011 Directive is expected to come into effect during the year 2024.