July 24, 2020 / 10:07 AM / 17 days ago

FACTBOX-EU tweaks securities rules to help coronavirus-hit companies

LONDON, July 24 (Reuters) - The European Commission proposed quick-fix amendments on Friday to European Union securities rules to help companies exit the COVID crisis quickly.

The main proposals are:

CUTTING RED TAPE

Professional investors like investment banks will have their own, lighter set of cost, charges and other documentation that must be sent to investors. Paper-based investor communications as a default option will to be scrapped, saving tens of millions of euros a year in postage alone. Existing protections remain in place for trades with retail investors.

PROSPECTUSES

A temporary short-form prospectus of no more than 30 pages will be created for companies that have already been listed for at least 18 months and want to issue more shares, but not bonds. The aim is to cut by half the cost of a prospectus for secondary issuance, which typically costs around a 800,000 euros.

Smaller banks are already allowed to issue debt worth up to 75 million euros on the market without a prospectus. That threshold would be raised to 150 million euros.

RESEARCH UNBUNDLING

Research provided by brokers must currently be priced separately from other services like execution of trades. Critics say that has led to a decline in research on small and medium-size companies (SMEs). The EU is proposing to temporarily exempt research on SMEs and fixed income from this unbundling requirement.

COMMODITY DERIVATIVES

Volatility in markets during the early part of the coronavirus crisis in March highlighted inflexibility in commodity markets.

Strict “position limits” on energy commodity markets like gas and electricity to be lifted to allow EU-based contracts to grow. Brussels also wants more commodity derivatives trading to be based in the EU now that Britain, the region’s biggest trading centre, has left the bloc.

No changes to position limits on agricultural commodities.

SECURITISATION

“Securitisation” refers to creating a security based on a pool of loans and is used to take risks off a bank’s balance sheet.

The Commission is proposing that its regime for Safe, Transparent and Standardised (STS) securitisation is extended to include “synthetic” securitisation, or where the transfer of risk is done by using credit derivatives or financial guarantees.

The Commission is also proposing amendments in capital rules to make securitisation of non-performing loans more attractive as banks face a rise in poorly performing corporate loans during the pandemic. The tweak will help shift more risk from banks to the wider market to free more room for lending.

WHAT NEXT?

The proposals need approval from the European Parliament and EU states but are expected to become law by the end of the year. The Commission will make further proposals for more in-depth securities reforms in September to build a Capital Markets Union. (Reporting by Huw Jones)

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