Reduced possibilities for reverse share splits due to changes in Euroclear’s rulebook

During the fall of 2024, a new version of Euroclear Sweden’s Rulebook for Issuers and Issuer Agents (the “Rulebook“) is intended to be published, with entry into force shortly thereafter. The amendments to the Rulebook are, inter alia, being implemented as a result of the European Corporate Action Standards, an initiative aimed to further harmonize European standards for securities markets. The update of the Rulebook includes amendments of the rules on rounding off in connection with reverse share splits.

In certain situations, it may be considered appropriate to combine a number of shares into a smaller number of shares. This process is usually referred to as a reverse share split. A reverse share split may be considered appropriate, for instance, when the shareholders of a company want to combine existing shares to achieve a smaller number of shares in the company in order to achieve a more appropriate stock price. An existing shareholder that holds a number of shares that is not evenly divisible by the determined exchange ratio can only be allocated an integer number of new shares. Following the updates to the Rulebook, it will only be permitted to round down the number of shares in the case of a reverse share split, with or without financial compensation for such rounding.

Rounding up, i.e. a procedure whereby a major shareholder provides so-called equalization shares to shareholders with holdings that are not evenly divisible by the exchange ratio, will no longer be permitted under the Rulebook. For instance: in a reverse share split where the exchange ratio is 1:100, and one owner holds 180 shares, the Rulebook will thus no longer allow for a larger shareholder to contribute 20 shares to the smaller owner to avoid fractional shares.

Rounding down in the case of a reverse share split requires either (i) a central sale of the excess shares or (ii) the consent of all shareholders concerned to the rounding down. It is practically impossible to obtain consent of all shareholders in listed companies. Under the Swedish Companies Act, centralized sales can only be carried out for companies on a regulated market. As a result, it will be practically impossible to carry out a reverse share split in companies listed on an MTF platform, e.g. Nasdaq First North Growth Market. Companies listed on an MTF that are considering carrying out a reverse share split should carry out such a measure before the end of the year, prior to when the new rules enter into force. The changes regarding rounding in connection with a reverse share split will not enter into force during fall 2024 as other parts of the amendments to the Rulebook, but as of January 1, 2025.

For further information or questions on how the regulation affects your company, please contact Setterwalls’ capital markets team.