The Prospectus Directive [2003/71/EC], together with the Prospectus Regulation (EC No. 809/2004) provides for a single regime governing the content, format, approval and publication of prospectuses in the EU. Under the Prospectus Directive, a prospectus must be published in the case of an offer of securities to the public or when securities are admitted to trading on a regulated market. The Prospectus Regulation in turn provides the form and content of the prospectus.

In a bid to make the process less costly and more efficient for SMEs (small and medium-sized enterprises), the European Commission set in motion a process to review the Prospectus Directive. Following a consultation paper, the Commission has adopted a legislative proposal for a new Prospectus Regulation which is intended to repeal and replace the Prospectus Directive (including the current Prospectus Regulation).

Proposed Amendments

The key proposed changes are as follows:

1. Limiting the scope of the prospectus obligation – the current Prospectus Directive provides that in the case of an issue where the value of the securities exceeds €100,000, a prospectus must be published. In a bid to facilitate the process for SMEs to raise funding in the EU, the proposed Regulation has introduced a higher threshold of €500,000. Member States will also be able to set higher thresholds for their domestic markets and will also have the choice to exempt offers of securities to the public from the prospectus requirement under the Regulation, provided that the offer is only made in that Member State and the total consideration of the offer is between €500,000 – €10,000,000, calculated over a period of 12 months. The Regulation shall not apply to offers of securities to fewer than 350 persons in any Member State and to a total of no more than 4,000 persons in the EU (other than certain investors), or to offers with a total consideration in the EU below €1 million, calculated over a period of 12 months;
2. A lighter prospectus regime for SMEs – SMEs wishing to tap European markets would be able to follow an easier regime with less complex requirements to issue a prospectus (where this is required). Such companies would be required to draw up a distinct prospectus when making an offer of securities to the public provided they have no securities admitted to trading on a regulated market. All SMEs with a market capitalisation below €200 million (an increase from the current limit of €100 million) would qualify for this new regime;
3. Simplified, shorter prospectus and better investor information – the introduction of a new, simplified prospectus for companies that are already listed on the public market that want to raise additional capital by a secondary issuance. The new Regulation specifies more clearly the information required in order to make prospectuses shorter and clearer. The “alleviated prospectus” would only contain minimum financial information covering the last financial year and information on the terms of the offer, use of proceeds, risk factors, board practices, directors’ remuneration, shareholding structure or related-party transactions;
4. Prospectus summary – the introduction of a new prospectus summary, which is closely modeled on the Key Information Document (KID) required under the PRIIPS Regulation. The summary will include the three main sections covering key information on the issuer, the security and the offer/admission together with the necessary warnings. In exceptional circumstances, a competent authority may allow an issuer to produce a longer summary where the complexity of the issuer’s activities so requires. No summary will however be required where the prospectus relates to the admission to trading on a regulated market of non-equity securities offered solely to qualified investors;
5. Fast-track and simplified frequent issuer regime – the Regulation proposes the introduction of an annual Universal Registration Document (URD), which will be an optional “shelf” registration mechanism for use by companies that frequently issue securities. The URD will contain all the necessary information about the company listing shares or issuing debt. Issuers who regularly maintain an updated URD with their supervisors would benefit from a five-day fast-track approval when they wish to issue shares, bonds or derivatives; and
6. Single access point for all EU prospectuses – the European Securities and Markets Authority (ESMA) will be able to provide free and searchable online access to all prospectuses approved in the EEA.

Next Steps

The proposed Regulation will be discussed in the coming weeks by the European Parliament and the Council of the EU. It will translate into a more efficient passporting system for prospectuses across EU Member States while providing more protection to investors through a simplified prospectus and the introduction of the summary.

For more information or if you have any questions, please feel free to contact Dr Cherise Abela on cabela@gtgadvocates.com

Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.