On 23 May 2013, the European Securities and Markets Authority (ESMA) published version 19 of its Prospectuses: Questions and Answers. Click here to see the updated version.

By way of background, the purpose of ESMA's publishing Questions and Answers (Q&A) is to promote common supervisory approaches and practices. The Q&A document provides responses to questions posed by both the general public and competent authorities in relation to the practical application of the Prospectus Directive (PD). The content is intended to provide competent authorities with appropriate guidance so that they are able to conduct their supervisory activities under the PD in accordance with the position set out in the responses. Additionally, the responses are meant to provide market participants with an indication of how to properly implement the PD rules, without intending to impose an extra layer of requirements. ESMA notes, however, that only the European Court of Justice can give a legally binding interpretation of the provisions of EU legislation.

The updated version includes four new questions and answers, three of which relate to issues of equity securities and one of which relates to issues of debt securities. We cover the main points below.

Profit estimate

The Prospectus Regulation defines a "profit estimate" as a profit forecast for a financial period which has expired and for which results have not yet been published. ESMA considers that the results for an expired financial period are published for these purposes when the final figures which have been approved by the person responsible within the issuer are published and the auditor's report is published.

ESMA further clarifies that 'quarter four' reports which contain unaudited results for an annual financial period should be considered as interim financial information, rather than as profit estimates.

Estimate expenses charged by a financial intermediary in a retail cascade

ESMA clarifies that the issuer, offeror or person seeking admission to trading on a regulated market is not required to disclose expenses charged to the investor by financial intermediaries offering securities in a retail cascade. ESMA explains that, whilst the financial intermediaries are the offerors in a retail cascade, their offer is not the current offer which is the subject matter of the prospectus. Expenses charged to investors by the financial intermediaries will be disclosed in the financial intermediaries' terms and conditions.

Age of last year audited financials for issuers of debt and derivative securities subject to the proportionate disclosure regime

The Prospectus Regulation provides that issuers of debt and derivative securities subject to the proportionate disclosure regime must give a statement in the prospectus in respect of their audited historical financial information. ESMA clarifies that only a statement with regard to audited financial information is required to be included in the prospectus – not the whole set of financial statements, as it recognises that issuers would find it 'practically impossible' to have audited financials in place just after the end of the financial year. Consequently, ESMA believes that the issuer is under an obligation to include the statement as soon as the financial year has expired and when the issuer has access to the audited financials for that period.

Furthermore, ESMA believes that, in the absence of an explicit provision regarding the age of the latest financial information, the last year of audited financial information may not be older than 18 months.

Age of last year audited financials for issuers of equity securities subject to the proportionate disclosure regime

ESMA considers that the last year of audited financial information may not be older than 15 months from the date of the registration document, in cases where the issuer does not include interim financial statements in the registration document. If the issuer submits a prospectus to the competent authority and the audited financial information is older than 15 months (but up to 18 months), ESMA considers that the competent authority could approve the prospectus if the issuer has included audited interim financial statements in the registration document. Furthermore, ESMA clarifies that the interim financial period for interim financial statements should cover at least the first six months of the financial year.