The European Parliament recently examined the legislative proposal from the European Commission for a new Prospectus Regulation. The European Parliament resolved to adopt amendments to the Commission’s proposal. We examine the main amendments adopted including the introduction of an EU Growth prospectus regime.
Amendments adopted by the European Parliament to the draft Prospectus Regulation
In our March 2016 publication entitled “New EU Prospectus Regulation”, we outlined the main changes proposed by the European Commission (the “Commission”) to the new Prospectus Regulation (more commonly known as “PD3”) to overhaul and modernise the Prospectus Directive 2003/71/EC (as amended) (the “PD”) currently in place. The PD sets out the rules for publishing prospectuses when companies wish to list shares or raise capital by offering investment opportunities by means of a public offer. As part of the EU ordinary legislative procedure, the European Parliament (the “Parliament”) examined PD3 and resolved on 15 September 2016 to adopt amendments to PD3.
The main differences adopted are:
1. Universal registration document
If an issuer has had a universal registration document approved by the competent authority every financial year for two consecutive years (the Commission had proposed three) subsequent registration documents or amendments to such universal registration documents may be filed with the competent authority without prior approval subject to some exceptions.
2. Changes in minimum issuance thresholds where a prospectus is required
Under PD3 no prospectus will be required for an offer of securities in the EU with a total consideration below €1,000,000 (the Commission had proposed €500,000) calculated over a 12 month period. Member States may extend this exemption by setting out in national law a threshold between €1,000,000 and €5,000,000 (the Commission had proposed a Member State discretionary threshold of €500,000 - €10,000,000) calculated over a 12 month period. However, a further amendment provides that offers of securities to the public made under the above exemption shall not benefit from the passporting regime, must contain a clear indication that the offer is not of a cross-border nature and the issuer cannot actively solicit investors outside that Member State.
3. Changes to prospectus summaries
The allowable page limit is being further reduced to six A4 pages. The Parliament has introduced a provision that allows an issuer, in exceptional circumstances, to draw up a longer summary of 10 A4 pages where necessary because of the complexity of the issuer’s activities, the nature of the issue or the securities issued and where there is a risk that the investor would be misled without the additional information.
4. Changes to risk factors
The Parliament has introduced new requirements that:
- risk factors shall also include those resulting from the level of subordination of a security and the impact on the expected size or timing of payments to holders of the securities under bankruptcy, or any other similar procedure, including, where relevant, the insolvency of a credit institution or its resolution or restructuring in accordance with Directive 2014/59/EU; and
- ESMA shall develop guidelines on the assessment of the specificity and significance of risk factors to assist competent authorities in their review of risk factors in a manner which encourages appropriate and focused risk factor disclosure by issuers.
A maximum of 10 of the most significant risk factors specific to the issuer can be contained in the summary.
The Parliament made an amendment to provide that offers of securities to:
- fewer than 350 natural or legal persons per Member State (the Commission had proposed 150); and
- a total of no more than 4000 natural or legal persons in the EU (other than qualified investors and certain venture capital funds)
are exempt from the obligation to publish a prospectus.
6. Simplified prospectus for a secondary issue
The Commission had proposed that a simplified prospectus for a secondary issuance may be produced by issuers whose securities have been admitted or traded on a regulated market or SME growth market. An SME growth market means a multilateral trading facility (“MTF") that is registered as an SME growth market in accordance with Directive 2014/65/EU. The Parliament has expanded the availability of a simplified prospectus for a secondary issuance to issuers whose securities have been admitted or traded on a MTF, other than SME growth markets, where those MTFs have disclosure requirements equivalent to the ones required for SME growth markets under MiFID.
7. EU Growth prospectus
The Parliament has introduced an EU Growth prospectus regime which is available to small and medium-sized enterprises (“SMEs”), to issuers making an offer of securities to the public that are to be admitted to trading on an SME growth market and to issuers offering securities to the public with a total consideration in the EU not exceeding €20,000,000. This regime allows those entities to draw up an EU Growth prospectus in the case of an offer to the public, except where the securities are to be admitted to trading on a regulated market. The EU Growth prospectus proposed will take a standardised form, will require reduced information to be disclosed and, it is hoped, will encourage the use of capital market financing by SMEs.
The amendments adopted by the Parliament will now be considered in a trilogue between the Parliament, the European Council (the "Council") and the Commission to ensure that these are acceptable to the Council. The proposal will either be accepted by the Council or it can adopt a first reading position and send its first reading position to Parliament for second reading. However, this trilogue phase is normally undertaken to ensure a first reading agreement. This process is expected to conclude in late 2016 or early 2017 and the Regulation is expected to come into effect in the course of 2017 with no confirmed date for its implementation.
As part of the Capital Markets Union and the overhaul of the Prospectus Directive regime, one of the core objectives of the Commission proposal is to make it easier and less expensive for companies, particularly SMEs to raise finance on capital markets and to provide clear information for potential investors, including retail investors. The broadening of the threshold for exemption from the scope of PD3 and the introduction of the EU Growth prospectus regime by the Parliament should assist in furthering this objective.