Contributed by Cobalt.
1. Market Overview
Nasdaq Riga is the only stock exchange in Latvia. It is supervised by the Bank of Latvia and belongs to the Nasdaq Baltic Exchange group. It is part of a unique structure, consolidating the common market platform and capital market infrastructure for the three Baltic States. Nasdaq Riga uses a uniform trading platform and one depository with Vilnius and Tallinn stock exchanges, forming the uniform Baltic stock market. The Baltic Exchange provides a trading platform for shares of more than 70 companies from Estonia, Latvia, and Lithuania, and maintains bond listings of more than 60 companies as well as treasury notes of the governments of Latvia and Lithuania. Nasdaq Baltic offers issuers and investors a common marketplace for trading and common information distribution.
Over the past year, Baltic debt markets have maintained progressive activity. Latvian bond issuers have been particularly active. Both Latvia’s financial institutions and financial technology companies, such as BluOr Bank and Eleving Group, as well as commercial companies, such as CleanR Grupa and Coffee Address Holding, have successfully placed their bonds either on the Baltic Bond List or the Baltic First North Market. Similarly, issuers in Estonia and Lithuania have also been active: for instance, Estonia’s financial institution Bigbank has listed its bonds on Nasdaq Tallinn, while Lithuania’s state-owned holding company EPSO-G has made sustainability-linked bond listing on Nasdaq Vilnius.
There have also been new IPOs in the equity capital market. In 2022, Indexo, a Latvian pension management company, was listed on the Nasdaq Baltic Main List. This listing follows the successful IPOs of Hepsor, Enefit Green, and DelfinGroup initiated in 2021.
2. Overview of the local stock exchange and listing segments (markets)
2.1. Regulated market
Nasdaq Baltic stock exchanges have structured listings primarily on the Main List, Secondary List, and Bond List. The Main List and the Second List of the Nasdaq Baltic Exchanges are compliant with European Union regulations, and the listing requirements are guided by EU standards. The regulatory requirements for these two lists are more complex than for the First North alternative market.
Baltic company bonds are listed on a joint Baltic Bond List. They include bonds of major Latvian commercial entities and Latvian government treasury bills.
The Baltic Main List offers shares of solid business entities from Latvia, Lithuania, and Estonia. The Main List companies shall have a sound financial position, market capitalization of at least EUR 4 million, sufficient free float, reporting according to IFRS, and a history of at least three years of operations. These special requirements for inclusion do not apply to Secondary List companies.
In addition to the above, Nasdaq Riga has also established special requirements for the listing of shares on the SPAC List (shares of SPAC (Special Purpose Acquisition Company)) and the listing of investment certificates on the Investment Fund List.
2.2. Non-regulated market
In addition to both regulated lists of shares, the Nasdaq Baltic stock exchange hosts a non-regulated, alternative market, Nasdaq First North. This is a multilateral trading facility (MTF), or “alternative market,” operated by the different exchanges within Nasdaq. This section of the share market does not have the legal status of an EU-regulated market. Companies on First North are subject to the rules of Nasdaq Baltic/First North rather than the legal requirements for admission to trading on a regulated market.
3. Key Listing Requirements
The listing requirements for the admission of equity and debt securities vary quite considerably depending on the market. For instance, First North is tailored specifically to permit small and medium-sized companies to access public markets, with lower thresholds for admission and less stringent continuous disclosure requirements. Also, as noted above, special requirements for the listing of shares on the SPAC List and listing of investment certificates on the Investment Fund List apply.
Pursuant to the Rules of Nasdaq Riga, an issuer that wants to have its securities listed on Nasdaq Riga has to be registered and its activities should be in compliance with the laws and other legal acts of its country of registration, its Articles of Association, and applicable Rules of Nasdaq Riga.
Nasdaq Riga has the right not to admit to trading the securities of an issuer that is subject to liquidation, insolvency, or bankruptcy proceedings or has initiated suspension of its operation, nor when there are reasonable doubts about the issuer’s ability to continue its commercial activity or where the issuer has had permanent solvency problems before submitting the listing application. In addition, the issuer’s economic, legal, or other situation or activity may not jeopardize the interests and fair and equal treatment of investors.
Only freely transferable dematerialized securities may be listed on Nasdaq Riga and the transfer right of such securities may not be restricted by the Articles of Association of the issuer.
Lastly, the securities applied for listing should be book-entered with the central securities depository Nasdaq CSD SE or another foreign central depository with whom Nasdaq Riga and/or the Nasdaq CSD SE have entered into an agreement on cooperation in the provision of payments
In relation to ECM, a distinction shall be made between the Main List, the Secondary List, the First North Market, and the SPAC List.
(a) Main List
Issuers that apply for listing of their shares on the Main List have to be active in the main field of their economic activity for at least three years and at least their last annual report has to be prepared in compliance with the IFRS.
Shares may be listed on the Main List if the issuer’s anticipated market capitalization (or, if it cannot be assessed, the equity of the issuer) is at least EUR 4 million. However, Nasdaq Riga has a right to set exceptions to this requirement if sufficient interest from investors about the trading of the relevant shares is expected.
Pursuant to the Rules of Nasdaq Riga all shares of the same category should be listed and are subject to a 25% free float requirement – or, if the number of shares in free float is smaller than 25%, when the capitalization of the shares on free float exceeds 10 million.
(b) Secondary List
The requirements for listing shares on the Secondary List are the same as for the Main List, except for the requirement to have a market capitalization and free float of shares.
(c) First North
The issuer should comply with the general listing requirements discussed above and it is not subject to the requirements of minimum period of operation history, market capitalization, and free float of shares. In addition, there is no requirement that the issuer’s financial statements be prepared in compliance with the IFRS. However, the issuer is obliged to engage an adviser certified by Nasdaq Riga.
(d) SPAC List
Shares may be listed on the SPAC List only if the issuer of the SPAC shares has been established for the sole purpose of, in a specified time period, publicly raising capital to merge with one or more companies, which carry out economic activity and whose shares are not listed on another regulated market or another type of trading system. SPAC shall not conduct any other economic activity.
No quantitative requirements or restrictions are applicable to the SPAC which apply for listing on the SPAC List and the shares issued by them. However, at least 90% of the gross proceeds from the sale of the SPAC shares must be deposited in a credit institution, which is licensed in European Economic Area and is independent from the issuer. The remaining amount, which shall not exceed 10% of the gross proceeds from the sale of the SPAC shares, can be used for the economic activity of the SPAC.
SPAC prospectus or comparable document (if in accordance with the provisions of regulatory provisions, SPAC is not obliged to prepare a prospectus) shall include the information specified in the public statement of the European Securities and Markets Authority, dated July 15, 2021, SPACs: prospectus disclosure and investor protection considerations or any subsequent additions or amendments of this document.
In relation to DCM, a distinction shall be made between the Bond List and First North Market.
(a) Bond List
Issuers that apply for listing of their debt securities on the Bond List have to be active in the main field of their economic activity for at least two years and at least their last annual report has to be prepared in compliance with the IFRS.
The total nominal value of the debt securities applied for the listing should be at least EUR 200,000.
(b) First North
Issuers should comply with the general listing requirements discussed above. They are not subject to the requirement of a minimum period of operation history, and there is no requirement that their financial statements be prepared in compliance with the IFRS. In addition, there is no requirement that the debt securities applied for the listing have a certain value. However, the issuers are obliged to engage an adviser certified by Nasdaq Riga.
3.3. Investment Fund List
In addition to ECM and DCM, investment certificates may be listed on the Investment Fund List upon condition that an investment fund or an alternative investment fund, that issues investment certificates, conforms to the provisions of the Investment Management Companies Law or Alternative Investment Fund and their Managers Law, is registered with the Bank of Latvia or in a country of the European Economic Area and has the right to distribute investment certificates in Latvia.
The purpose of the Investment Fund List is to inform the investors about listed investment funds and the value of their shares, the sell and buy price of the investment certificates, and the trading results.
4. Prospectus Disclosure
4.1. Regulatory regime (EU Prospectus Regulation or similar) – equity
When the company is seeking admission to the Main List or the Secondary List, the key disclosure document is a prospectus. Nasdaq Riga Alternative Market First North Rules are applicable to companies seeking admission to First North (assuming that they do not conduct an “offer to the public”) and in which case the key disclosure document is a “company description.”
The prospectus regime in Latvia is governed by the Prospectus Regulation and the delegated legislation which includes the Commission Delegated Regulation (EU) 2019/980 (PR Delegated Regulation) relevant for the format, content, scrutiny, and approval of the prospectus and the Commission Delegated Regulation (EU) 2019/979 (Prospectus RTS Regulation) relevant for the technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal. In addition, the PR Delegated Regulation imposes specific minimum information requirements for a prospectus as set out in the Annexes of the PR Delegated Regulation. The relevant Annexes that will apply in each particular case are prescribed by Articles 2 to 23 of the PR Delegated Regulation and will depend on, among others, the type of securities being issued, the type of issue (in certain cases), the nature of the issuer, whether the issuer has a complex financial history or has made a significant financial commitment.
The Prospectus Regulation requires a prospectus to be written in an easily analyzable, concise, and comprehensible form and to contain the necessary information which is material to an investor for making an informed assessment of the financial position, etc. of the issuer, the rights attaching to the securities being offered and the reasons for the issue and impact on the issuer. It may be published in a single document (which is the typical Latvian practice) or in three separate documents comprising a registration document (containing information relating to the issuer), a securities note (containing information concerning the securities being offered), and a prospectus summary.
The key information that the Prospectus Regulation requires to be included in a prospectus includes:
- risk factors informing potential investors of the material risks to the issuer, its industry, and the securities being offered;
- the last three years (two years for non-equity securities) audited financial information prepared in accordance with IFRS;
- details of any significant changes in the financial or trading position of the company since the date of the latest published audited or interim financial information included in the prospectus;
- in relation to equity securities, a working capital statement;
- an operating and financial review (OFR) describing the company’s financial condition, changes in financial condition, and results of operations for the periods covered by the historical financial information included in the prospectus;
- summaries of material contracts entered into outside of the ordinary course of business by the company’s group;
- details of any significant shareholders of the issuer, whose interest is notifiable under the issuer’s national laws;
- in relation to equity securities, details of any related party transactions that the company has entered into during the period covered by the historical financial information and up to the date of the prospectus;
- details of any legal proceedings that the company has been party to in the last year;
- prescribed information on the company’s directors and senior management, including remuneration, benefits, and interests in the shares of the company (including share options) and also with respect to the company’s corporate governance; and
- responsibility statements from the company, the directors, and any proposed directors, confirming that they accept responsibility for the information contained in the prospectus and that, to the best of their knowledge (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and contains no omission likely to affect its import.
The prospective issuers can omit information from a prospectus in limited circumstances where the Bank of Latvia may authorize that disclosure of such information would be contrary to the public interest, seriously detrimental to the issuer (provided that the omission would not be likely to be misleading the public) or the information is of minor importance in the specific situation and would not influence the assessment of the financial position and prospects of the issuer.
A supplementary prospectus will need to be published if any significant new factor, material mistake, or inaccuracy relating to the information included in the original prospectus arises during the period after publication of the original prospectus but before the later of the securities being admitted to trading and the closing of the offer to the public. Significantly, the issuance of a supplementary prospectus triggers withdrawal rights for any investor who had previously agreed to purchase shares in the offering. Such rights are exercisable before the end of the second working day after the day on which the supplementary prospectus was published.
4.2. Regulatory regimes (EU Prospectus Regulation or similar) – debt
When the company is seeking admission to the Bond List, the key disclosure document is a prospectus. Nasdaq Riga Alternative Market First North Rules are applicable to companies seeking admission to First North (assuming that they do not conduct an “offer to the public”) and in which case the key disclosure document is a “company description.”
The regulatory regime in relation to DCM in Latvia is governed by the Prospectus Regulation and the PR Delegated Regulation, as described in Section 4.1.
4.3 Local market practice considerations
For local market practice considerations please refer to Section 4.1.
4.4. Language of the prospectus for local and international offerings
Where an offer of securities to the public is made or admission to trading on a regulated market is sought only in Latvia, the prospectus shall be drawn up in Latvian. However, where an offer of securities to the public is made or an admission to trading on a regulated market is sought in more than one Member State including Latvia, the prospectus can be drawn up in English and the prospectus summary should be translated into Latvian and, if required, also in the official languages of the host Member States.
5. Prospectus Approval Process
5.1. Competent authority/regulator
The Bank of Latvia is the competent authority in Latvia for reviewing and approving prospectuses and the company will need to follow the formal admission requirements set out in the Rules of Nasdaq Riga.
5.2. Timeline, review, and approval process
According to the Prospectus Regulation Bank of Latvia shall take a decision on approval of the prospectus within 10 working days of the submission of the draft prospectus. The time limit may be extended to 20 working days where the offer to the public involves securities issued by an issuer that does not have any securities admitted to trading on a regulated market and that has not previously offered securities to the public.
The number of drafts that can be submitted to the Bank of Latvia is not limited. However, local practice is to provide the Bank of Latvia with a draft that is very close to the final version.
6. Listing Process
6.1. Timeline, process with the stock exchange
The issuer that wants to have its securities listed on any of the lists of Nasdaq Riga shall submit to Nasdaq Riga a listing application and all other documents specified herein.
(a) Main List and Secondary List (ECM)
If the issuer applies its shares for listing on the Main List or the Secondary List, it must append the following documents to the listing application:
1) a copy of the issuer’s registration certificate or a similar document certifying the legal status of the issuer (fact of registration);
2) a copy of the Articles of Association of the issuer;
3) a report of the Management Board of the issuer on business plans for the current and at least the next reporting period;
4) a copy of the decision of the issuer’s shareholders’ meeting on amendments to the Articles of Association and the increase of its share capital;
5) a resolution on submission of the listing application taken by the authorized management body of the issuer;
6) a prospectus registered with the Bank of Latvia or an offering document;
7) copies of audited annual reports for the last three years;
8) if an agreement with a member of Nasdaq Riga on market making for the securities of the issuer has been concluded, the information about the conclusion of the agreement and a description of the main provisions of the agreement;
9) in the event the issuer has a parent company, confirmation of the parent company and the issuer that there do not exist any arrangements that the issuer would have to transfer the entire profit or a part thereof to its parent company and that none such would be made during the listing period on Nasdaq Riga; and
10) in the event the Issuer has a parent company, the parent company’s written commitment to conform to the Rules of Nasdaq Riga.
Nasdaq Riga shall take a decision on listing within 10 days following receipt of all required documents and information.
(b) Bond List (DCM)
If the issuer applies its debt securities for listing on the Bond List, it must append the following documents to the listing application:
1) a copy of the issuer’s registration certificate or a similar document that certifies the legal status of the issuer (fact of registration);
2) a copy of the Articles of Association of the issuer;
3) a copy of the resolution on the issuance of debt securities and submission of the listing application taken by the authorized management body of the issuer;
4) a prospectus registered with the Bank of Latvia or an offering document;
5) copies of audited annual reports for the last two years; and
6) if an agreement with a member of Nasdaq Riga on market making for the securities of the issuer has been concluded, the information about the conclusion of the agreement and a description of the main provisions of the agreement.
Nasdaq Riga takes a decision on listing within 10 days following receipt of all required documents and information.
(c) First North (ECM and DCM)
If the issuer applies its shares or debt securities for listing on First North, it must append the following documents to the listing application:
1) a certified copy of the issuer’s registration certificate or a similar document that certifies the legal status of the issuer (fact of registration);
2) a copy of the Articles of Association of the issuer;
3) a resolution on submission of the listing application taken by the authorized management body of the issuer;
4) a prospectus registered with the Bank of Latvia, an offering document, or the company’s description if the issuer is not required to prepare the prospectus or an offering document;
5) copies of audited annual reports for the last two years;
6) a report of the Management Board of the issuer on the business plans of the issuer for the current and at least next reporting period, unless disclosed in the prospectus or the company’s description; and
7) an agreement with a certified adviser.
Considering the specific circumstances, Nasdaq Riga has the right to make exemptions and decide that the submission of certain documents is not necessary.
Nasdaq Riga takes a decision on admission of securities to trading on the First North within three months following receipt of all required documents and information.
7. Corporate Governance
7.1. Corporate governance code/rules (independent director, board and supervisory composition, committees)
Companies listed on Nasdaq Riga shall follow and implement the Corporate Governance Code, dated 2021, which, among others, supplements the corporate governance recommendations previously introduced by the Principles of Corporate Governance and Recommendations on their Implementation, approved by Nasdaq Riga in 2010. These guidelines govern all-important corporate issues of listed entities, including convening and managing shareholders meetings, the composition of the supervisory council and board, remuneration policies, and internal controls of listed entities. The Corporate Governance Code provides imperative requirements for sharing information with shareholders and the promotion of effective shareholder involvement in decision-making processes.
Requirements for independent non-executive directors are determined by the Corporate Governance Code. It provides a recommendation that at least half of the council members shall be independent. Independent candidates for council membership shall make a declaration that they meet the independence criteria as established by the Corporate Governance Code. The rules determine that the council as a whole has a set of skills, experience, and knowledge, including on the sector concerned, to be able to perform their duties fully and the principles of diversity shall be observed when forming the council.
In addition, the Corporate Governance Code provides that it is particularly important that listed companies shall develop an internal culture and ethics code that serves as a standard of conduct for the company’s management and employees. The code of ethics shall reflect the core values defined by the company, as well as the standards of ethical and professional conduct and guidelines for their achievement and implementation.
7.2. Any other ESG considerations
The Corporate Governance Code acknowledges that investors and other stakeholders are increasingly concerned about environmental, social responsibility, and sustainability issues, which are as important as a company’s financial performance. These trends have a direct impact on corporate governance, forcing companies to re-evaluate existing processes and adapt to investors’ requirements by expanding the concept of corporate governance and changing the traditional idea that the shareholder is the main stakeholder in the company.
As a result, the Corporate Governance Code establishes certain ESG requirements. For instance, in the strategy development process, the management board shall take into account the implementation of the current strategy, the current situation in the company, trends in the industry and on the market, business model, opportunities and risks, stakeholder interests, environmental, social and governance aspects, etc. Also, a code of ethics shall help to create a responsible, safe, and comfortable work environment, which in turn promotes employee confidence and ethical behavior, thus also ensuring the implementation of the company’s long-term objectives. In addition, it is also established that the information to be published on the company website shall, inter alia, include the company’s non-financial reports (on the company’s environmental impact, social and employee aspects, respect for human rights and anti-corruption measures, including the sustainability report) for at least three last financial years.
Also, Nasdaq Baltics has emphasized environmental criteria in commencing the listing of green bonds of several issuers. The Nasdaq Baltic Bond List currently includes 11 sustainable bond offerings. In 2015 Latvia’s Latvenergo was the first in Nasdaq Baltics and the first state-owned energy company in Eastern Europe to offer green bonds. Since then, a number of companies (including, Latvian development finance institution ALTUM and Latvian electricity transmission operator Augstsprieguma tikls) have commenced a series of issues of green bonds. Rules of bond issues contain a set of standards for a company’s operations that environmentally and socially conscious investors have used to screen potential investments.
8. Ongoing Reporting Obligations (Life as a Public Company)
Listed companies are required to comply with various ongoing reporting obligations, which vary based on whether the securities are included in the regulated market or alternative market Firth North.
In addition to the reporting requirements provided in the Financial Instruments Market Law, there are also reporting requirements provided in the Rules of Nasdaq.
Moreover, both listed and unlisted companies will need to ensure that they meet the ongoing obligations under Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (MAR), as a breach of MAR by an individual or legal person is a civil offense punishable by a fine and administrative sanction.
8.1. Annual and interim financials
The companies whose securities are listed on a regulated market of Nasdaq Riga must publish their audited annual reports prepared in accordance with the IFRS within four months of its financial year end and unaudited interim reports prepared in accordance with the IFRS within two months of the interim financial period.
The companies whose securities are listed on the alternative market First North must publish their audited annual reports not later than on the day on which, in accordance with the regulatory acts of the registration country of the issuer, the annual report is to be audited and/or approved, and unaudited semi-annual reports within three months of the end of the reporting period.
8.2. Ad hoc disclosures
Companies with securities listed on the regulated market of Nasdaq Riga or on the First North alternative market are also subject to various ad hoc reporting requirements, including the obligation to publish the inside information in accordance with the requirements of MAR.
Companies with securities listed on the Nasdaq Riga regulated market are required to disclose, inter alia, information about: changes in the issuer’s management board, supervisory board or auditors; changes of the issuer’s legal address or actual location of the office; all proposed changes in the rights or liabilities of holders of securities; the court or arbitration proceedings which have been initiated by the issuer or against the issuer (provided that such proceedings are affecting or may affect the price of the issuer’s listed securities); initiation of legal protection, insolvency or liquidation of the issuer, its parent company or its material subsidiary; the issuer’s intention to seek for secondary listing on another regulated market; all circumstances and events that have materially affected or which could materially affect the issuer’s business or financial standing; convening of shareholders’ or bondholders meeting; payment of dividends; increase or reduction of share capital and acquisition of its own shares; issuance of debt securities; significant changes in the issuer’s shareholders, and other significant events.
Disclosure requirements for the companies whose securities are listed on alternative market First North are less stringent and, inter alia, includes disclosure of information about: changes in the issuer’s management board, supervisory board, or auditors; convening of shareholders’ or bondholders meeting; increase or reduction of share capital; the issuer’s intention to seek for admission to trading of its securities on another multilateral trading facility or a regulated market; and other significant events.