Current state of play
- Companies that want to offer shares or bonds to investors in the European Economic Area (EEA), or to list them on an EEA ‘regulated market’, can do so with a prospectus approved in one member state. UK companies need therefore only seek approval from the Financial Conduct Authority (FCA).
- Regulators in other EEA jurisdictions cannot require a company with a prospectus approved by one member state to meet additional requirements before offering or listing shares or bonds (other than a translated summary).
Offering into, or listing in, the EEA
- There are circumstances in which companies are exempted across the EEA from preparing a prospectus to offer or list shares or bonds. This includes when they offer to any number of qualified investors in the EEA and up to 150 retail investors in each member state.
- Outside these exemptions, companies wishing to offer shares or bonds to retail investors around the EEA – or to list on a regulated market in the EEA outside the jurisdiction that approved their prospectus – can use a streamlined system to ‘passport’ their approved prospectus into any EEA jurisdiction.
- Prospectuses must follow the same content requirements – including a detailed ‘summary’ – regardless of where they are approved in the EEA or whether they relate to an initial or secondary offering or listing.
- The UK has ‘gold-plated’ certain EU requirements, which means companies seeking a premium listing of shares must comply with super-equivalent eligibility and continuing obligations. It is possible however to seek a ‘standard’ listing of shares or bonds in the UK on an EU directive minimum basis.
- Certain rules mean it’s easier for EEA companies to list in London than it is for companies incorporated elsewhere in the world, for example in relation to the ‘free float’ needed. Shares held by investors in the EEA are included in this 25 per cent ‘public hands’ requirement, meaning investors located in an EEA company’s home jurisdiction count towards this threshold. It is at the discretion of member states whether they also include investors located outside the EEA.
- There is a single set of disclosure and transparency rules for companies listed on a regulated market anywhere in the EEA, which means those with dual listings do not have to comply with separate obligations in more than one member state.
- The EU is currently consulting on reform of the Prospectus Directive and the capital markets generally, including proposals to take further steps towards a true capital markets union.
What should I be thinking about now?
- Will EEA member states recognise prospectuses approved by the UK? If not, will a company wanting to offer into or list in the UK and in the EEA need in future to get a prospectus approved both in the UK (for UK offers or listings) and by a further regulator in its EEA ‘home member state’ (to benefit from an EEA-wide passport)?
- Will the UK continue to recognise prospectuses approved by EEA member states? If not, what will be the process to ‘passport in’ to the UK?
Offering into, or listing in, the EEA
- Will the UK continue to work to the prospectus exemptions that apply in the EEA?
- Will the UK amend its prospectus content requirements to make it easier for me if I want to do a follow-on issue or subsequent listing?
- Will the UK amend its ‘standard’ listing category so it is subject to different eligibility or continuing obligation requirements, for example by lowering the ‘free float’ requirement? Will these make it easier, or more difficult, to list or maintain a standard listing?
- Will EEA companies find it more difficult to list in the UK, for example because investors located in their home EEA jurisdiction will be treated on a ‘third country’ basis and not routinely included in ‘free float’ calculations?
- What will the impact be on liquidity in the London market, for example where investors are required to invest in EEA-regulated market securities? Will London be a less attractive venue?
- Will compliance with UK financial reporting, major shareholding notifications and general information requirements be recognised as ‘equivalent’ by EEA member states, or will UK/EEA dual-listed companies need to comply with two sets of obligations?
- Even if the UK is ‘equivalent’ initially, how likely is it UK/EU standards will diverge over time?
- Where compliance with two sets of rules is required, how will this work in practice? Will it be possible to make one announcement to meet both UK and EU requirements?
- If the EU does update the Prospectus Directive, or takes further steps towards capital markets union, will the UK update its rules or will standards diverge?
The answers to many of these questions will depend upon the nature of a post-Brexit UK/EU relationship.