Today the European Commission (“Commission”) published a consultation paper on the Prospectus Directive (“PD”) regime with a view to reshaping and reforming the current system.
The consultation comes 10 months ahead of the required assessment of the PD and is in response to potential shortcomings in the current framework….”the process of drawing up a prospectus……….is often perceived as expensive, complex and time-consuming”. Overly long documents have brought into question the effectiveness of the PD from an investor protection perspective.
The consultation is welcome. Whilst it may not suit the lawyers(!), anything designed to simplify the process as long as it doesn’t compromise investor protection must be sensible.
However, the distinction between regulated markets and MTFs (including AIM) should, in our view, remain. This is one of the attractions of AIM’s more flexible regime. AIM is a market set for growth companies and imposing this so-called level playing field will result in certain offerings/issues of shares becoming “more expensive, complex and time-consuming” for AIM companies and will have an adverse effect on deal deliverability and AIM generally.
Comments must be received by 13 May 2015.
Key aspects under review
The Commission is seeking views, amongst other things, on:
- When a prospectus is needed – are the current exemption thresholds still appropriate? Should there be additional exemptions for secondary issues in addition to the proportionate disclosure regime for rights issues. For example, raising the exemption threshold from 10% to at least 20% and/or granting a prospectus exemption for rights issues (where the pre-emption rights have not been disapplied)?
To introduce a level playing field across the EU, should a prospectus be required when securities are admitted to trading on an MTF (ie. AIM)? This would be in addition to the current requirement for a prospectus where AIM securities are offered to the public, unless an exemption applies?
- What information should be included in the prospectus – as the proportionate disclosure regime for rights issues does not appear to have delivered the desired results, with issuers in most Member States not using it, should it be modified or extended? Should there be a limit on the length of each section of a prospectus i.e. risk factors etc. to avoid the overall prospectus becoming too long?
- How prospectuses are approved – should the scrutiny and approval process be more transparent and flexible? For example, by making public the first draft prospectus filed with the UKLA for review and then allowing the issuer to carry out certain marketing activities in relation to the offer or admission, beyond advertising, in the period between the first submission and approval of the final version. This would have the benefit of allowing issuers to gauge investor appetite.