CNMV explores facilitating initial public offerings (IPOs)

On December 5, 2024, during the presentation of the OECD Capital Market Review of Spain 2024, the chair of the Spanish Securities and Exchange Commission (“CNMV”) announced that they were exploring processes to facilitate initial public offerings (“IPOs”).

All this within a context where the Letta report and the Draghi report have highlighted the importance of strengthening European capital markets and diversifying funding sources for companies. This, precisely, has been the purpose of the Listing Act approved by the European Union (“EU”), a package of legislative measures aimed at making EU capital markets more attractive, especially small and medium-sized enterprises (“SMEs”). See Post | The EU Listing Act has been published.

Below, we highlight the key points of the speech given by the CNMV chair and we share the relevant paragraphs:

Need to offer new alternatives

The current IPO process, designed in the nineties, has not adjusted to today's market realities; therefore, new alternatives are needed that can coexist with the traditional process. This involves offering new options to issuers, advisors and investors, so they can choose which way works best for their interests.

Admission to listing without previously meeting free float requirement

In the coming months, the CNMV and BME — the operating company of all the securities markets and financial systems in Spain— intend to allow the admission to listing of large companies on the Spanish stock exchange, without requiring a prior distribution of shares to the public, following the approval of the prospectus and verification of the admission documents.

Special trading segment and subjection to listed company regime

Shares will be listed in a special segment, not open to retail investors, and companies will be required to comply with the regulations that apply to listed companies.

Prior distribution of shares

In the weeks or months following the admission to listing in the special segment, companies must take the necessary measures to meet the 10% free float requirement. This can be achieved through a public offering or through a private placement process via accelerated bookbuilding (“ABO”), which allows them to make the most of the market’s windows of opportunity.

In his speech, the CNMV chair referred to a free float threshold of 10% and not the current 25%. It is worth remembering that Directive 2024/2811/EU, which forms part of the Listing Act, has instructed Member States to reduce the minimum free float required for admission to listing from 25% to 10%, without any geographical restriction within the EU/EEA area, by June 5, 2026. See Post | The EU Listing Act has been published.

Trading once required free float percentage is reached

As soon as the share capital reaches a free float of 10%, the shares would be listed under normal trading.

Fitting in to current capital market rules

The CNMV chair pointed out that this alternative IPO process can be carried out without the need for any legislative reforms. It is worth remembering that article 66.7 RD 814/2023 already states that the prior free float requirement “will not apply when shares are distributed to the public through a regulated market and provided that the CNMV considers that the distribution will be carried out in the market in the short term.”

Recital 12 of Directive (EU) 2024/2811 supports the existence of alternatives regarding meeting free float requirements, stating that “Member States should be able to allow for alternative ways to measure whether a sufficient number of shares have been distributed to the public. Compliance with the 10% threshold, or with the alternative requirements provided at national level for ensuring a minimum free float, should be assessed at the time of admission to trading.”

Extract of the CNMV chair's speech: “I would like to announce today that CNMV will be considering new ways of first admissions to trading of shares in Spanish regulated markets. We have had, basically, the same IPO process since the nineties. But this is not anymore the market of the nineties. IPOs need some reinvigorating shot and issuers face too many risks and uncertainties when launching an IPO process. We will therefore explore alternatives that can be available along the traditional IPO process. In the coming months, together with BME, we will allow the approval of prospectuses and admission to listing by large companies in the Spanish regulated stock exchange without the need for a prior distribution of shares in the public.

That way, the issuer will be able to have the prospectus verified by CNMV, with the same stringency and oversight as a normal IPO, have the shares admitted in the regulated market, start compliance with all rules and regulations of listed companies and then address the distribution in the following weeks or months, adapting to market circumstances and demand. That could be done with a public offer or with an accelerated book building and this could be very agile to adapt to favorable windows. Of course, while the company does not have enough free float, it would be listed in a specific segment, not open to retail investors and would pass to the normal trading segment as soon as it reaches 10% of free float.

Nothing of this is enshrined or prohibited by law. Actually, it is a method as compliant with the current rules as the traditional one, and the proof is that the CNMV does not have to change a single rule to allow it. With this alternative method, we want to incorporate innovation to the process, and allow issuers, their advisors (and of course the investors) to determine which way works better for their interests.”