Luxembourg Stock Exchange Professional Segments – The Real Impact

What changes?

Both the Euro MTF, as well as the Regulated Market of the Luxembourg Stock Exchange are from now on equipped with their respective Professional Segments i.e. trading platforms reserved to qualified, non-retail investors.

By "qualified investors" reference is made to the MiFID II client classification. Hence, it comprises professional clients (per se and elective), as well as eligible counterparties, unless they have opted-out and have requested to be treated as non-professionals. The introduction of these segments represents a more efficient alternative for products exclusively targeting professional investors as per the MiFID classification.

Drivers for the introduction of Professional Segments

Increased liquidity in the bond markets is being achieved in 3 main ways:

  1. Less onerous prospectus disclosure in one step.

    Regulation (EU) 2017/1129 (Prospectus Regulation) paved the way for enhanced bond market liquidity, by significantly easing access to wholesale funding. This is achieved through reduced prospectus disclosure and more flexible language requirements (when it comes to public offers solely addressed to qualified investors).

    The launch of a product in one of the Professional Segments automatically meets the standards for the alleviated prospectus regime (as set out further below).

  2. Minimized regulatory compliance risk for MiFID Firms when they handle products traded on the Professional Segments.

    The exclusively dedicated Professional Segments provide for a de facto fixed target market, which serves as a valuable solution to 2 important backstops in funding:

    Primary bond market: "Co-Manufacturing" by several MiFID Firms (often in different member states) is a common underwriting tool for issuers. Nonetheless, Co-Manufacturing Agreements are typically heavily negotiated, as practical and logistical issues arise in relation to role attributions, particularly when it comes to target market assessment/review.

    As target market related obligations are mitigated for products traded on the Professional Segments, the above agreements will be easier to negotiate and implement and issuance will be facilitated.

    Secondary bond market: Distributors face difficulties in the identification of the target market, as they are typically not connected to the manufacturer. These difficulties are now tackled by the new Professional Segments, whereby the target market is defined per se (through selection of the professional platforms).

  3. ...

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