The Council of the European Union adopted on 16 May 2017 the proposed regulation which lays down requirements for the drawing up, approval and publication of prospectuses when securities are offered to the public or admitted to trading on a regulated market (New Prospectus Regulation).
The New Prospectus Regulation will repeal and replace the Prospectus Directive (2003/71/EC) and the Prospectus Regulation (809/2004) and is part of the Commission's initiative to establish a Capital Markets Union. The New Prospectus Regulation, which is directly effective in EU Member States, aims to reduce the administrative burden on issuers when raising capital and diversify the sources of capital available for businesses, so they ultimately become less reliant on bank funding.
Some of the key changes to the existing regime that the New Prospectus Regulation will introduce are set out below:
Triggers for the publication of a prospectus
Offers of securities to the public with a total consideration in the EU of less than €1 million will fall outside the New Prospectus Regulation and no requirement to publish a prospectus will arise. This is increased from €100,000 under the existing regime. Member States may however require other disclosure requirements at national level to the extent that such requirements do not constitute a disproportionate or unnecessary burden on issuers.
Member States will have the option of exempting offers of securities to the public not exceeding a monetary amount of up to €8 million (increased from €5 million), calculated over a period of 12 months, from the obligation to publish a prospectus. Any such exempt offers however cannot benefit from EU passporting rights.
Issuers with securities admitted to a regulated market may issue, over a period of 12 months, new securities representing up to 20% of the same class of security without publishing a prospectus (increased from 10%).
The admission to trading on a regulated market of shares resulting from the conversion or exchange of other securities are exempt from the requirement to publish a prospectus, provided that the resulting shares represent, over a period of 12 months, less than 20% of the number of shares of the same class already admitted to trading on the same regulated market (currently there is no limit).
The two exemptions above may not be combined if such combination would lead to the admission to trading of more than 20% of the number of shares of the same class already admitted to trading on the same regulated market over a period of 12 months.
The rules governing the structure of the summary at the front of the prospectus will be relaxed under the New Prospectus Regulation. Issuers will no longer be required to complete summary tables containing "elements". Instead the summary will comprise four sections: (a) an introduction, containing warnings; (b) key information on the issuer; (c) key information on the securities; (d) key information on the offer of securities to the public and/or the admission to trading on a regulated market. The permitted length of the summary has been reduced to a maximum of seven sides of A4-sized paper when printed.
Universal registration document
Issuers who frequently publish prospectuses may benefit from an accelerated approval process with the competent authority by preparing every financial year a universal registration document (which must be approved by the competent authority in the first two years) describing the company’s organisation, business, financial position, earnings and prospects, governance and shareholding structure. The competent authority in the UK is the FCA. Accelerated approval of the prospectus is then subject to the issuer: (i) confirming that on filing each universal registration document or submitting it for approval it has, to the best of its knowledge, complied over the last 18 months with its disclosure obligations under the Market Abuse Regulation (596/2014) and under the Transparency Directive (2004/109/EC); and (ii) amending its universal registration document to reflect any comments from the competent authority.
Reduced disclosure regime
Issuers whose securities have been admitted to trading on a regulated market or an SME growth market (being a multilateral trading facility where at least half of the issuers have a market capitalisation of less than €200 million) for a period of at least 18 months may elect to issue a simplified prospectus for a secondary issue. The reduced disclosure regime is predicated on the basis issuers will have already disclosed information to the market. The New Prospectus Regulation broadens the application of the reduced disclosure regime to offers other than those made on a pre-emptive basis.
SMEs with no securities admitted to trading on a regulated market may produce, in the case of an offer of securities to the public, a lighter prospectus that is easier and less costly to produce than a standard prospectus. SMEs include companies with a market capitalisation of less than €200 million or companies which meet at least two of the following three criteria: an average number of employees during the financial year of less than 250, a total balance sheet not exceeding €43 million and an annual net turnover not exceeding €50 million.
Risk factors must be ranked in order of materiality in each category and issuers may disclose their assessment of the likelihood of the risk materialising (low, medium or high).
The New Prospectus Regulation will come into force on the twentieth day following its publication in the Official Journal of the European Union and most provisions shall apply from 24 months from the date of entry into force.