As part of its Capital Markets Union action plan, in June 2017 the EU adopted the new Prospectus Regulation (2017/1129), which overhauls the prospectus regime and is intended to improve accessibility to capital markets for both issuers and investors.
The new Prospectus Regulation will enter into force on 20 July 2017 and, save for certain exemptions summarised below, will apply from 21 July 2019.
Changes to certain prospectus exemptions effective on 20 July 2017
On 20 July 2017, the following changes to exemptions from the obligation to publish a prospectus when securities are admitted to trading on a regulated market, which are set out in the new Prospectus Regulation, will have effect:
- issuers will be able to increase the number of their securities admitted to trading without the need for a prospectus, provided that the new securities are of the same class and represent less than 20% of the issuer’s securities already admitted to trading on the same regulated market, calculated over a 12 month period (doubling the current 10% threshold); and
- where the relevant securities are issued as a result of the conversion or exchange of other securities or the exercise of rights conferred by other securities, where the resulting shares are of the same class as the shares already admitted to trading on the same regulated market, the exemption from the requirement to publish a prospectus will be limited to circumstances where the resulting shares represent less than 20% of the number of shares of the same class already admitted to trading on the same market, calculated over a 12 month period.
In addition to the above changes, from 21 July 2018 EU member states will be able to increase the threshold for prospectus-exempt “domestic-only” offers to the public from €5 million to €8 million. However, it is important to note that the exemption will only apply to the requirement to prepare a prospectus when there is an offer to the public and a prospectus will still be required for admission to trading (unless an issuer can rely on another exemption). The remaining Prospectus Regulation provisions will take effect on 21 July 2019.
ESMA Consultation Papers
On 6 July 2017, following a formal request for technical advice from the European Commission, the European Securities and Markets Authority (ESMA) published three consultation papers on the new Prospectus Regulation. The consultation papers contain draft technical guidance on: (1) the format and content of the prospectus; (2) the format and content of the EU Growth Prospectus; and (3) scrutiny and approval of the prospectus.
Although ESMA proposes largely to maintain the existing regime, the consultation paper on the format and content of the prospectus includes a number of proposals which are aimed at reducing the burden and costs on issuers when preparing a prospectus, while making the documents more comprehensive for investors. Such proposals include: (1) removing the requirement for a report by auditors or independent accountants on profit forecasts; and (2) aligning the content requirements of the operating and financial review section of the prospectus with those included in the Accounting Directive (2013/34/EC) in respect of management reports.
ESMA has also developed draft requirements for the contents of Universal Registration Documents (URDs) and for secondary issuances. ESMA proposes that the content of URDs should conform to the content requirements for share registration documents with the addition of certain items required to be disclosed under the Transparency Directive (2004/109/EC) that are not replicated in the Prospectus Regulation. For secondary issuances, ESMA has proposed that disclosure requirements should be reduced to take account of information relating to the issuer that is already publicly available (in particular, ESMA suggests that the operating and financial review section should not be required as this information should already be published by the issuer in compliance with the Transparency Directive and the Market Abuse Regulation).
The second consultation paper published by ESMA contains draft technical advice dealing with the format and content of the new EU Growth Prospectus for small and medium enterprises. While noting that the EU Growth Prospectus is subject to a lighter disclosure standard than a typical prospectus, the guidance proposes that the EU Growth Prospectus should be required to include, amongst other things, a cover note and a cross reference table illustrating documents and information incorporated by reference, as ESMA considers this to be in line with current market practice and a source of pertinent information for investors. ESMA also proposes that a standardised format and sequence for registration documents and securities notes is adopted; however, investors should have the flexibility to define the order of the individual information items in the sections to present their investment proposal in a more ‘open and accessible’ manner.
The third and final consultation paper contains draft technical criteria for scrutiny and procedures for approval and filing of the prospectus. The consultation paper states that ‘ESMA proposes that standard criteria for scrutiny of the completeness, comprehensibility and consistency of the prospectus be adopted and that beyond these standard criteria competent authorities be afforded a certain level of flexibility to take into account that prospectus scrutiny is by nature a qualitative process’. In regard to approval and filing, ESMA technical advice largely reiterates the provisions set out in Commission Delegated Regulation 2016/301, which was adopted in 2015.
The consultation closes on 28 September 2017, and a final report containing a summary of all consultation responses and a final version of ESMA’s technical advice will be published on ESMA’s website in the first quarter of 2018.