On November 30th 2015, the European Commission published its proposal for a Prospectus Regulation (the “Regulation”), which will, if adopted, replace the existing Prospectus Directive (Directive 2003/71/EC).
With this proposal, the Commission aims to make it easier for companies in Europe to raise funding on the capital markets, to provide all types of issuers with disclosure rules tailored to their needs, to make the prospectus a more relevant disclosure tool for investors and to achieve convergence between the prospectus regime and other disclosure regimes.
Key revisions of the proposed Regulation are:
- Increase of the threshold to determine when a company must issue a prospectus. Under the proposed Regulation, all capital raisings under EUR 500,000 (increased from EUR 100,000) will not require a prospectus. Furthermore, with respect to domestic offers for which no EU passport is sought, Member States may set higher thresholds up to EUR 10 million (increased from EUR 5 million).
- Smaller companies will only need to produce a lighter prospectus. The threshold for availing of this lighter prospectus has been increased from EUR 100 million market capitalisation to EUR 200 million market capitalisation.
- Widening of the range of situations where a lighter prospectus may be used by an issuer or an offeror who has already listed on a public market. Furthermore, no prospectus will be required for the admission to trading of securities fungible with securities already admitted on the same market if they represent less than 20% of the number of the already admitted securities, calculated over the last 12 months. Previously, the exemption only applied to shares and the threshold was set at 10%.
- Abolition of the exemption for non-equity securities (wholesale debt securities) with a denomination of EUR 100,000. While this exemption was originally introduced in order to protect retail investors, it incentivised investment-grade issuers to only issue non-equity securities with denominations of EUR 100,000 which had the unintended consequence of reducing secondary market liquidity and limiting the portfolio diversification of investors.
- Movement towards shorter and clearer prospectuses and avoidance of duplication of information already published: with respect to the summary of the prospectus, the length restriction will be reduced (6 sides of A4-paper) and shall be composed of four sections (an introduction containing warnings and three sections on key information on (i) issuer/offeror/person asking for admission (ii) the securities and (iii) the offer itself and/or the admission to trading. As regards the content of the rest of the prospectus, the risk factors shall be limited to those specific to the issuer and its securities, and conditional on them being material (based on probability of occurrence and expected magnitude of impact) for taking an informed investment decision. The range of information that may be incorporated by reference will be expanded.
- Availability by ESMA of all approved prospectuses online to provide more choice and means of comparability for investors.
- For frequent issuers, the introduction of an annual universal registration document which will speed up approval times as the competent authority being able to review the remaining documents (securities note and summary) within 5 working days instead of 10.
Introduction of a new requirement for third-country issuers to designate a representative established in its home Member State (within the meaning of the proposed Regulation) who shall be the contact point of the issuer for purposes of, and shall be jointly responsible for ensuring compliance with, the proposed prospectus rules.
The proposed Regulation will be sent to the European Parliament and the Council for adoption under the co-decision procedure.