Euronext's Alternext: A Tailor-made Market For Small And Mid Caps

Small and mid cap companies play a vital role in the European economy, but only a small percentage of them are publicly traded. As the euro zone’s leading exchange, Euronext is reiterating its commitment to help these companies grow at a time when European Union (EU) regulations are imposing tougher requirements on regulated markets.

Alternext is an innovative solution well-suited to midsized companies seeking to finance growth and gain access to capital markets. It is an exchange-regulated market that offers simplified access to financial markets and streamlined listing requirements for small and midsized companies from every sector of the economy, while ensuring compliance with rules on investor disclosure and the control of financial information.

The market will gradually cover the entire euro zone, keeping pace with the harmonisation of EU regulations. Alternext will officially open for business on 17 May with the listing of MeilleurTaux. Around ten more listings are slated to follow between mid-May and mid-July.

1. Easier access to capital markets

Alternext makes it easier for small and mid cap companies to access capital markets. To apply for listing, only two years' financial statements are required and companies can choose which accounting standards they wish to adopt.

Applicants can follow one of two processes:

• Admission with a public offer
  In this case, the company must place at least €2.5 million in public hands – an ideal free float for small and mid cap stocks – and publish a prospectus approved by the regulator pursuant to the EU's Prospectus Directive. Once the Directive has been implemented (by 1 July 2005), prospectuses will be approved by the home-country regulator, making it easier for eurozone stocks to list on Alternext.
• Direct admission following a private placement
  Companies can list directly on Alternext, without a simultaneous public offer, provided they have made a private placement of at least €5 million with five or more qualified investors within the two years preceding the listing application. Companies must publish an offering circular, which is not reviewed by the regulator. This process allows the company to become a public company with greater visibility, enables professional investors to create liquidity and facilitates a subsequent public offer by providing the issuer with experience as a listed company.

According to Jean-François Théodore, Chairman of the Managing Board and CEO of Euronext: "Euronext's core business is to provide financing solutions for companies. Relying on our key position at the heart of the euro zone, we are launching Alternext, a tailor-made market for small and mid caps. These companies are a vital component of our list and a source of renewal".

Martine Charbonnier, Euronext’s Executive Director of Listing, said: “The creation of Alternext meets the needs of an entire community of interests, comprising issuers, investors, venture capitalists and financial intermediaries. It also confirms Euronext’s commitment to small and mid cap companies. As an exchange-regulated market with streamlined listing requirements, Alternext is ideally placed to become the focal point for small and mid cap trading in the euro zone.”

2. Disclosure requirements tailored to small and mid caps and ensuring investor protection

Companies listed on Alternext must respect financial transparency requirements that are suited to the structure of small and mid cap companies while meeting investors’ need for information.

More specifically, the applicant commits to:

• making periodic disclosures: annual and half-yearly accounts
• making ongoing disclosures of price-sensitive information
• reporting directors' trades.

Investor protection is assured in several other ways on Alternext. For example, standing offers must be made to minority shareholders; and market abuse – price manipulation, disseminating false information, insider trading – will be punished.

3. Listing sponsors provide specialist expertise

A new category of market participant, the listing sponsor, has been created for the launch of Alternext. These Euronext-recognised and approved intermediaries, whose presence is mandatory, will provide applicants with specialist expertise for a period of at least two years.

The listing sponsor plays two main roles as the company's long-term partner:

• helps and advises the applicant to prepare for an Alternext listing
• supports and guides the issuer throughout its life as a listed company, making sure it complies with disclosure requirements

Alternext presently has seven listing sponsors: Arkeon Finance, Avenir Finance Corporate, CM-CIC Securities, EFI, Oddo Corporate Finance, Société Générale and Sodica. This list will naturally grow as Alternext and its list of companies expands.

4. An innovative trading procedure designed to enhance liquidity

Alternext offers two complementary and transparent trading procedures to enhance liquidity in stocks with a smaller free float. The trading day is organised around a market making session followed by an end-of-day auction.

The presence of market makers, which will be optional, enhances liquidity via continuous display of bid/ask spreads for minimum quantities; it also facilitates block trades and increases the number of investors specialised in mid caps. Investors can choose how they want their orders executed, and spreads and prices are displayed in order to ensure transparent trading.

The two methods are complementary: they ensure that stocks are regularly quoted and they maintain the existing market practices of different investor categories.

So far, Winterflood and KBC have announced that they intend to act as market makers on Alternext.

The launch of Alternext is the final stage in the overhaul of the listing arrangements for all Euronext regulated markets. This project resulted in the creation of Eurolist and the introduction of Small & MidCap Experts, along with a new range of dedicated indices. With Alternext, Euronext is reiterating its commitment to small and mid caps, a key factor for renewing and giving fresh impetus to the list.

Appendix: Alternext, serving an entire community of interests