The rules governing prospectuses are set to change, following the publication of the new Prospectus Regulation 2017/1129 in the EU's Official Journal on 30 June 2017. The new rules will affect both when a prospectus is required and its content. They also provide for a new fast track prospectus approval process for frequent issuers and a reduced disclosure regime for secondary issuers and for small and medium enterprises (SMEs) that do not already have securities admitted to trading.
Like the Prospectus Directive 2003/71, the Prospectus Regulation generally requires the publication of a prospectus when securities are offered to the public in the EU and/or when securities are admitted to trading on a regulated market situated or operating in the EU. However, the Prospectus Regulation contains a number of changes to the existing exemptions from this publication requirement. In particular:
- Offers of securities to the public with a total consideration in the EU of less than EUR 1,000,000 do not require a prospectus. Member states have the option of exempting offers of securities to the public with a total consideration in the EU of between EUR 1,000,000 and EUR 8,000,000, calculated over a period of 12 months, from the requirement to publish a prospectus. This option applies from 21 July 2018.
- An issuer with securities admitted to trading on a regulated market may admit further securities without a prospectus so long as they represent less than 20% (currently 10%) of the same class of securities already admitted to trading. This exemption applies from 20 July 2017.
- There is no requirement to publish a prospectus when admitting to trading on a regulated market shares of the same class as shares already admitted to trading on that market and resulting from the conversion or exchange of other securities where such shares represent less than 20% of the number of shares of the same class already admitted to trading, and subject to certain exceptions. This exemption applies from 20 July 2017.
Contents and form
Information in a prospectus must not only be “easily analysable” and in “comprehensible form” but also "concise". Risk factors should be limited to those risks which are material and specific to the issuer and its securities, to the exclusion of risks that are generic and only serve as disclaimers.
The Prospectus Regulation provides for a new and, in some respects, more prescriptive prospectus summary, which is divided into four sections: (a) an introduction containing warnings; (b) key information on the issuer; (c) key information on the securities; and (d) key information on the offer of securities to the public and/or admission to trading on a regulated market.
The summary must be concise and is required to have a maximum length of no more than seven A4 sheets, subject to some extensions. The risk factors included in the summary must be those specific risks that the issuer considers to be relevant to the investor and there must not be more than 15 in total.
As is the case under the Prospectus Directive, the Prospectus Regulation does not require a summary for a prospectus which relates to admission to trading on a regulated market of non-equity securities having a minimum denomination per unit of at least EUR 100,000. In addition, under the Prospectus Regulation a similar exemption applies where non-equity securities are traded only on a regulated market, or a specific segment thereof, to which only qualified investors have access for the purpose of trading such securities.
The Universal Registration Document
Frequent issuers have the option to draw up and publish every financial year a universal registration document (“URD”) containing legal, business, financial, accounting and shareholding information and providing a description of the issuer for that financial year. The URD will form a main part of the prospectus (along with the summary and securities note). It must be approved by the relevant competent authority in each of the first two years. Each subsequent URD may be filed without prior approval and may be reviewed by the relevant competent authority on an ex-post basis.
Issuers who publish a URD benefit from an accelerated prospectus approval process of 5 working days, as the URD has already been approved, or is available for review.
Specific Disclosure Regimes
The Prospectus Regulation maintains a specific disclosure regime for wholesale debt, which will be set out in delegated legislation. It also contains two sets of optional alleviated disclosure rules, for secondary issuances and SMEs, respectively.
Secondary issuances – An issuer already admitted to trading on a regulated market or an SME growth market for at least 18 months may issue a simplified prospectus for a secondary issue. The issuer will need to publish a prospectus summary, a specific registration document or securities note, as well as certain information including, financial information for the previous year, a summary of the relevant information disclosed under the Market Abuse Regulation 596/2014, and risk factors. In the case of equity securities, the issuer will also need to disclose the working capital statement, the statement of capitalisation and indebtedness, a disclosure of relevant conflicts of interest and related-party transactions, major shareholders and, where applicable, pro forma financial information. This information is to be further specified by the Commission through delegated acts.
SMEs – An SME that does not have securities admitted to trading on a regulated market, can draw up a distinct prospectus when offering securities to the public, namely an “EU growth” prospectus, comprising a specific summary, a specific registration document and a specific securities note. The European Commission must adopt a delegated act specifying the content and standardised format and sequence of the EU growth prospectus.
The Prospectus Regulation defines an SME to mean a company that:
- according to its last annual or consolidated accounts meets at least two of the following three criteria: on average, less than 250 employees during the financial year, a total balance sheet not exceeding EUR 43,000,000 and an annual net turnover not exceeding EUR 50,000,000.
had a market capitalisation of less than EUR 200,000,000 on the basis of end-year quotes for the previous three calendar years
For the most part the new rules will apply from July 2019, although some provisions will enter into force earlier. As the new legislation is in the form of a Regulation it will apply directly from that date and will not need to be be transposed into national law.
Much of the detail regarding the new prospectus rules will be set out in Commission delegated acts. ESMA is required to submit regulatory technical standards to the European Commission by 21 July 2018, and the Commission is required to adopt all delegated acts by 21 Jan 2019. On 6 July 2016, ESMA published three Consultation Papers on the Prospectus Regulation containing draft technical advice on the format and content of the prospectus, on the EU growth prospectus and on scrutiny and approval.
The Prospectus Regulation will repeal the Prospectus Directive, which was implemented into Irish law by the Prospectus (Directive 2003/71) Regulations 2005.