On 15 January 2010 the Committee of European Securities Regulators (CESR) published the tenth version of its frequently asked questions (FAQs) regarding prospectuses. The FAQs are intended to provide market participants with responses to questions which are commonly posed to CESR concerning the Prospectus Directive (2003/71/EC) and the European Commission’s Regulation on Prospectuses (EC 809/2004).

The publication adds a new paragraph to the FAQs published in September 2009. The new paragraph relates to FAQ 6 concerning free offers.

The ninth version of FAQ 6 examined whether free offers (for example, under an employee share scheme) can be considered to fall outside the definition of a public offer and whether, if they do fall within the definition, they can be considered to have a total consideration of zero and so fall outside the scope of the Prospectus Directive. CESR states that, where securities are offered for free, no prospectus should be required. This is because there is no ‘offer of securities to the public’ within the meaning of Article 2.1.d of the Prospectus Directive since the definition refers to a communication containing sufficient information to enable an investor to make a decision as to whether to purchase the shares. Where the shares are offered for zero consideration, no such decision is required.

The tenth version of FAQ 6 also includes the following new information. Article 4.1.d of the Prospectus Directive provides that, where a prospectus is not required and the shares to be allotted are allotted free of charge, a document should be produced “containing information on the number and nature of the shares and the reasons for and details of the offer”. Article 4.1.e of the Prospectus Directive provides that such a document should also be produced where securities are allotted by an employer (or an affiliated undertaking) to existing or former directors or employees. CESR states in the new paragraph added to FAQ 6 that the obligation to make a document available detailing the number and nature of the shares and the reasons for and details of the offer will only apply where the offers fall within the definition of an offer (as set out in Article 2.1.d) and the offers do not fall within the excluded offers under Article 1.2.h or the exemption from the obligation to produce a prospectus under Article 3.2.e of the Prospectus Directive. A free offer of securities, where no decision is made by the recipient of the securities, will therefore not require such a document to be produced.

(CESR, Frequently Asked Questions Regarding Prospectuses: Common positions agreed by CESR Members - 10th Updated Version, 15.01.10)