Following its consultation earlier this year, the European Commission has adopted a legislative proposal for a new Prospectus Regulation which is intended to repeal and replace the Prospectus Directive along with its corresponding implementing measures (including the current Prospectus Regulation).
The Prospectus Directive [2003/71/EC], together with the Prospectus Regulation (809/2004), provide for a single regime throughout the EU governing the content, format, approval and publication of prospectuses. Key elements of the Prospectus Directive include:
- a requirement for a prospectus to be published where either an offer of securities is made to the public or securities are admitted to trading on a regulated market;
- harmonised disclosure standards for prospectuses, and a requirement for prospectuses to be approved by the relevant competent authority;
- a requirement to include a summary of the prospectus;
- a choice as to the format of the prospectus;
- a requirement for a supplement to be published if any significant new factor arises or a material inaccuracy in the prospectus is noticed between the approval of the prospectus and the closing of the offer or commencement of trading; and
- a number of exemptions to the requirement to publish a prospectus.
The Prospectus Regulation prescribes the form and content of a prospectus required by the Prospectus Directive.
Review of Prospectus Directive
The Commission is required to review the application of the Prospectus Directive (as amended) by no later than 1 January 2016 and, as its application has been identified as a short-term priority in the Commission's Investment Plan for Europe and the proposed Capital Markets Union (as previously reported in Equity Issues), the Commission published a consultation paper on the review of the Prospectus Directive in February 2015. The new Prospectus Regulation is the Commission’s response to that consultation.
New Prospectus Regulation
Proposed amendments to be made by the new Regulation include:
- scope of the prospectus obligation - the introduction of a higher threshold to determine when companies must issue a prospectus. Under the Regulation, no EU prospectus would be required for capital raisings below €500,000, as opposed to the current €100,000 threshold). Member States will be able to set higher thresholds for their domestic markets and will also have the choice to exempt offers of securities to the public from the prospectus requirement under the Regulation, provided that the offer is only made in that Member State and the total consideration of the offer is between €500 000 and an amount which cannot exceed €10 million, calculated over a period of 12 months;
- specific disclosure regime for SMEs - the introduction of a "lighter prospectus" for small and medium-sized enterprises. The proposed disclosure regime for SMEs would allow such companies to draw up a distinct prospectus in the case of an offer of securities to the public provided that they have no securities admitted to trading on a regulated market. The prospectus schedules for such companies (which will be set out in detail by delegated acts) will focus on information that is material and relevant for companies of such size. All SMEs with a market capitalisation below €200 million (which represents an increase from the current limit of €100 million) would qualify for this new regime;
- specific disclosure regime for secondary issuances - the introduction of a new, simplified prospectus for companies that are already listed on the public market that want to raise additional capital by a secondary issuance. The new disclosure regime for secondary issuances would apply to offers or admissions concerning securities issued by companies already admitted to trading on a regulated market or an SME growth market for at least 18 months. In such cases, the ‘alleviated prospectus’ will only contain minimum financial information covering the last financial year and will include information on inter alia the terms of the offer, use of proceeds, risk factors, board practices, directors’ remuneration, shareholding structure or related-party transactions;
- prospectus summary – the introduction of a new prospectus summary, which is closely modelled on the key information document required under the PRIIPS Regulation. As well as the introductory section containing warnings, there will be three main sections in the summary covering key information on the issuer, the security and the offer/admission respectively;
- universal registration document (URD) - the introduction of an annual universal registration document, which is an optional "shelf" registration mechanism for use by companies that frequently access the capital markets. The URD contains all the necessary information on a company that wants to list shares or issue debt. Issuers who regularly maintain an updated URD with their supervisors will benefit from a five day fast-track approval when they wish to issue shares, bonds or derivatives; and
- single access point for all EU prospectuses. It is intended that ESMA will provide free and searchable online access to all prospectuses approved in the EEA.
The draft Regulation will now be sent to the European Parliament and the Council of the EU for discussion and adoption under the co-decision procedure. A number of delegated acts will also need to be adopted by the Commission, and draft regulatory and technical standards and guidance will need to be developed by ESMA in respect of various provisions of the Regulation.