The new EU Prospectus Regulation 2017/1129 (the Regulation) comes into force on 20 July 2017. The Regulation repeals and replaces the Prospectus Directive and will apply to all prospectuses issued on or after 21 July 2019. More immediately, however, from 20 July 2017 Main Market issuers will benefit from a change to the admission to trading exemptions and, from 21 July 2018, all issuers will benefit from a widening of the offer exemptions.
A key area identified by the EU Commission in 2014 towards building an EU-wide capital markets union was the need to modernise the prospectus regime to make it easier and more efficient for businesses to raise funds publicly.
The changes to the regime have been enacted through the Regulation, which has direct effect in each member state, to avoid inconsistencies between member states. Certain parts of the Regulation will need further elaboration in technical standards which ESMA must propose and the Commission adopt.
The Regulation does not change the triggers for the requirement to publish a prospectus. It remains the case that a prospectus is necessary if there is:
- an offer of transferable securities to the public in the EU; or
- an admission of transferable securities to trading on an EU regulated market.
20 July 2017 changes
A prospectus will not be necessary for the admission to trading of securities representing, over a 12-month period, less than 20 per cent of the same class of securities already admitted to trading on the same EU regulated market.
This is an increase from the current 10 per cent. This change will make it cheaper and more straightforward for Main Market companies to fundraise on a larger scale, for example through a placing.
The current exemption for conversions and exchanges is also modified by a new cap. No prospectus will be necessary on the admission of shares resulting from the conversion or exchange of other securities, providing those shares represent, over a 12-month period, less than 20 per cent of the shares of the same class already admitted to trading on the same EU regulated market.
21 July 2018 changes
EU member states may choose to exempt domestic-only offers of securities to the public where the total consideration over a 12-month period is less than €8 million (currently €5 million).
Assuming the UK raises the threshold, this will enable AIM and other smaller cap companies to increase their retail offerings without the need for a prospectus.
21 July 2019 changes
Various other changes to simplify producing a prospectus will take effect. These include:
- A simplified disclosure regime for secondary issues: This will replace the existing proportionate disclosure regime for rights issues. It will be available to any issuer already admitted to trading for at least 18 months on an EU-regulated market or an SME growth market (a new category under MiFlD II which will apply from January 2018).
- A growth prospectus: This will be a simplified, proportionate disclosure regime. It will be available to SMEs, mid-sized companies with securities traded on an SME growth market and other non-listed issuers that make small issues (not more than €20 million over a 12-month period) and meet certain other conditions.
- Summaries: New rules on summaries will aim to make them more accessible. Summaries will still have a uniform structure and prescribed contents, but issuers will have more flexibility on how to set them out. The maximum permitted length of a summary will reduce from the current 7 per cent of the prospectus or (if longer) 15 pages to seven sides of A4. It will only be possible to include a maximum of 15 of the most material risk factors.
- Risk factors: There will be a more prescriptive regime for risk factors. Risk factors will be limited to those that are specific to the issuer or the securities or both and are material for taking an informed investment decision. Risk factors have to be presented in a limited number of categories with the most material risk factor in each section being presented first. Materiality will be assessed on the probability of a risk occurring and the expected extent of its negative impact.
- Universal registration document: This will give frequent issuers with securities admitted to trading on a regulated market or multilateral trading facility (such as AIM) the ability to file an annual generic document containing the registration document element for future prospectuses. Filing a universal registration document will give an issuer "frequent issuer status", which may allow it to benefit from an accelerated prospectus approval process.
On the current Brexit timetable it is likely that the UK will have left the EU by July 2019 and the Regulation will no longer be directly applicable in the UK. However, given the approach that the UK government has outlined on legislating for Brexit, it would seem likely that equivalent rules will insofar as is possible be put in place.