Small and Medium Enterprises Growth Markets Andrea Perrone (*) 1. Introduction Trading venues play a crucial role in the capital-raising process. Listing on a recognized venue signals the quality of the issuer, 1 mitigating the risk of adverse selection caused by the asymmetry of information between issuer and investor. In addition, trading venues increase secondary market liquidity, offering investors greater opportunities for exit and a better chance of achieving the expected returns on which an initial investment is based. 2 This is particularly important for the financing of small and medium enterprises (hereafter SMEs). Liquid trading venues are crucial for venture capital exit 3 and therefore represent an institutional precondition for developing venture capital as a means of SME financing. 4 In accordance with the traditional focus of the European Union (hereafter EU) on SME financing and its more recent attempt to support SMEs’ access to capital markets, 5 Directive 2014/65/EU (hereafter MiFID II) has introduced the new category of SME Growth Markets (hereafter SME GMs). The new regime addresses some recurrent issues relating to the regulation of trading venues, such as listing standards, financial reporting, and prevention of market abuse. Aimed at preserving the status quo, in which SMEs prefer second-tier exchange-regulated markets, typically in the form of multilateral trading facilities (hereafter (*) I am grateful to Mario Anolli, Giuseppe D’Agostino, Victor De Seriere, Carmine Di Noia, Luca Enriques, Han Gulyás, Giovanni Petrella, and Stefano Valente for their insightful comments on an earlier draft. Matteo Arrigoni, Gregory Black, Enrico Restelli, and Jonathan Whitcomb provided excellent assistance. Errors remain my own. 1 Niamh Moloney, EU Securities and Financial Markets Regulation (3 rd edn, Oxford University Press 2014) 169 (hereafter Moloney, EU Securities). 2 Thierry Foucault, Marco Pagano and Ailsa Roell, Market Liquidity: Theory, Evidence, and Policy (Oxford University Press 2013) 5 (hereafter Foucault, Pagano and Roell, Market Liquidity) 3 Moloney, EU Securities (n 1) 174. 4 Gordon D. Smith, ‘The Exit Structure of Venture Capital’ (2005) 53 UCLA L. Rev. 315, 356. 5 Niamh Moloney, ‘The Legacy Effects of the Financial Crisis on Regulatory Design in the EU’ in Eilís Ferran, Niamh Moloney, Jennifer G. Hill and John C. Coffee, Jr (eds), The Regulatory Aftermath of the Global Financial Crisis (Cambridge University Press 2012) 177 ff (hereafter Moloney, ‘Legacy Effects’). SME financing is among the priorities set by the Commission in the Capital Markets Union Action Plan: Commission, ‘Action Plan on Building a Capital Markets Union’ COM (2015) 468 final, 9 f (hereafter CMU Action Plan); Commission, ‘Addressing Information Barriers in the SME Funding Market in the Context of the Capital Markets Union’ SWD (2017) 229 final.