Both the Euro MTF, as well as the regulated market of the Luxembourg Stock Exchange (LuxSE) have been equipped with their respective professional segments reserved to qualified and professional investors and will not be accessible to non-retail investors

The introduction of these segments represents a more efficient alternative for products exclusively targeting professional investors -including eligible counterparties, as per the Mifid classification and where a listing and admission to trading is still required. 

As a stock exchange, LuxSE lists structured products aimed at both retail and institutional investors, said Carlo Oly (pictured), head of relationship management.

“Structured products are a core element of our activities and we are investing heavily in this space,” he said. “Our objective is to be the most attractive listing venue for structured products. We are therefore constantly striving to enhance our offerings from a technological, commercial and of course regulatory perspective.”

The two professional segments offer more choice to issuers and provide an additional layer of transparency to investors. “The trigger for our decision were the regulatory requirements under Mifid 2,” said Oly, adding that by using the professional segments, which is not accessible to retail investors, issuers can show that they only target qualified investors.

“This not only helps in the primary market but also when it comes to secondary trading as it can support distributors with their target market assessment.”

The two new segments are expected to be of interest to investment funds, such as reserved alternative investment funds which are only open to qualified investors. 

The advantages for issuers and Investment Service Providers are multifaceted, range from issuance to distribution, according to Oly.

Priips Kid

“An additional potential benefit for issuers is that the Key Information Document (Kid) requirement under Priips falls away,” said Oly. “Listing a product on the professional segment does however not change the issuers and distributors’ legal obligations concerning investors’ qualifications. The exchange does not verify this assessment for them. Our professional segments ensure that the labelling is transparent and clearly visible to all counterparties.”

The first reactions from issuers and their legal advisers were positive, said Oly. “They welcome this initiative, as it provides an additional layer of protection to ensure products end up in the targeted market segment,” he said.

Overall, the exchange has recorded “a strong performance in structured product listing activity on our markets in 2018 (+/-10%), particularly from French and US investment banks that recognise the many benefits of a listing in Luxembourg”.

“We expect this trend to continue in 2019 despite the more volatile market backdrop,” said Oly.

The new segments have lenient prospectus requirements and are subject to less onerous standards provided that trading involves solely non-equity securities; and trading over the securities is exclusively accessible to qualified investors. In addition, the new segments require less information and details, the obligation to draw up a summary is waived, and the language requirements are flexible.

From a product governance perspective under Mifid 2, by using the professional segment, which is not accessible to retail investors, issuers can show that they do not target retail investors and simplify the obligations to periodically review and update the product target market, and the product distribution strategy.  

The Stock Exchange does not verify whether investors are qualified or not and it is for members to deny to place orders of retail investors, said Oly.