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The revised criteria allow UK-listed SPACs to avoid a suspension of their shares when announcing a de-SPAC deal.

By Nicola Higgs, David Berman, Chris Horton, James Inness, Rob Moulton, Anna Ngo, and Charlotte Collins

The UK, acting through the Financial Conduct Authority (FCA), will implement a new SPAC listing regime from 10 August 2021. This follows a consultation launched in April 2021 on the back of recommendations made by Lord Hill in his review of the UK listing regime.

The new regime removes the presumed suspension of a SPAC’s shares upon announcement of a de-SPAC until a prospectus on the enlarged group is published, which has been one of the main reasons that most recent SPAC activity in Europe has taken place on one of the Euronext exchanges, principally Amsterdam and Paris, rather than in London.

ESMA warns against investor protection risks and provides guidance on expected disclosures.

By Nicola Higgs, Chris Horton, James Inness, Rob Moulton, Oliver Seiler, Isabella Porchia, and Charlotte Collins

On 15 July 2021, ESMA published a statement on the prospectus disclosure and investor protection issues raised by special purpose acquisition companies (SPACs). SPAC activity in the EU has increased significantly in recent months, but there is not a harmonised regulatory approach to SPAC transactions across the EU, partly because structures and approach will depend on what is permitted under national law. Therefore, ESMA intends to clarify regulatory expectations regarding SPACs so that potential investors are provided with clear, comprehensible, and comparable information when making their investment decisions.

ESMA’s guidance aims to ensure a coordinated approach across the EU, including expectations as to how issuers should satisfy the specific disclosure requirements of the Prospectus Regulation, and how SPAC shares and warrants should be considered under the MiFID II product governance regime.

New ESMA guidance less strict than the established UK position on PFOF.

By Rob Moulton, Axel Schiemann, Thomas Vogel, and Charlotte Collins

On 13 July 2021, ESMA published a statement on payment for order flow (PFOF), the practice of brokers receiving payments from third parties for directing client order flow to these third parties as execution venues.

ESMA warns that the increase in retail client activity in the past year has highlighted the use of PFOF, both in the US and in some EU jurisdictions. ESMA explains that PFOF causes an inherent conflict of interest, as it incentivises brokers to choose the execution venue offering the highest payment, rather than the venue that will achieve the best outcome for the brokers’ clients.

Therefore, ESMA is of the view that, in most cases, the receipt of PFOF is unlikely to be compatible with MiFID II. ESMA requires firms to thoroughly assess whether, by receiving PFOF, they are able to comply with relevant MiFID II requirements, in particular those on best execution, conflicts of interest, inducements, and cost transparency. Interestingly, this contrasts with the stricter UK position. The UK FCA has made clear for many years that the receipt of PFOF is not compatible with firms’ obligations regarding conflicts of interest, inducements, and best execution. This is because the FCA considers that the price quoted by the execution venue will always be influenced by the fact that any profit will be reduced by the PFOF they are paying.