The amendments to the Prospectus Directive aim to address deficiencies in the existing legal framework relating to securities prospectuses with a view of improving legal clarity and reducing burdens for issuers and intermediaries, while at the same time enhancing investor protection.
On 11 October 2010, the Council of the European Union adopted a new directive amending the Prospectus Directive 2003/71/EC and the Transparency Directive 2004/109/EC. The new directive is expected to be published in the Official Journal of the European Union shortly and has to be implemented by Member States into their national law within 18 months of the 20th day following publication in the Official Journal.
Key changes proposed by the new directive relate to the following:
Form of summary of prospectus
The form of the prospectus summary will be further harmonized as to format and content. This shall facilitate comparability of summaries of similar products. The summary shall serve as the key source of information for retail investors. It shall, in a concise and non-technical language provide key information on the following: (i) a short description of the risks associated with and essential characteristics of the issuer or any guarantor, (ii) a short description of the risks associated with and essential characteristics of the securities, (iii) the general terms of the offer including expenses charged to the investor, (iv) details of the admission to trading and (v) reasons for the offer and use of proceeds.
Certain exemptions from the obligation to publish a prospectus shall be modified. Most notably, thresholds are increased and the qualified investor definition shall be aligned to the MiFID professional client / eligible counterparty concept:
- offers made to fewer than 150 persons (formerly: 100 persons)
per Member State are exempt;
- offers made to investors who acquire securities for a total
consideration of at least EUR 100.000 (formerly: EUR 50.000) are
- offers to acquire securities with a denomination of at least
EUR 100.000 per unit (formerly: EUR 50.000) are exempt;
- offers made to qualified investor are exempt whereby the
exemption now relates to the qualification of professional clients
or eligible counterparties under MiFID.
The amended directive further extends the prospectus exemption for employee securities offers to offers by affiliated companies of the employer company. The exemption shall also apply to third country issuers whose securities are either admitted to trading on a EU regulated market or on a third country market if such market is considered equivalent in terms of e.g. transparency and market abuse standards.
In addition, the exemption from the obligation to publish a prospectus for securities offers in connection with a merger has been extended to cover divisions such as e.g. demergers (Spaltung) as well.
Use of prospectus by intermediaries
The revised directive clarifies that financial intermediaries reselling securities may use the issuer's prospectus during the term of its validity (and if duly supplemented) provided that the issuer has consented to such use by written agreement. In the absence of such written consent, the financial intermediary itself would be required to either publish a prospectus or assume liability for the information in the issuer's prospectus.
The period for withdrawal of investors following publication of a supplement to a prospectus shall now be two working days across the EU, whereas previously the Member States were allowed to set longer periods. A longer period may, however, be set by issuers or offerors. The final date of the right to withdraw must be indicated in the supplement.
The civil liability regime shall now also attach to any person solely on the basis of the summary or translations thereof, if the summary does not provide key information when read together with the other parts of the prospectus.
A prospectus shall be valid for 12 months with such period commencing from the date of its approval (rather than from the date of its publication).
The requirement to produce an annual document highlighting all information published by the issuer will be abolished.
Issuers now will be notified of the certificate of approval for passported prospectuses at the same time as the competent authority of the host Member State(s9. This shall ensure that issuers are provided certainty about passporting having become effective so that they may legally offer securities in the respective host Member State(s).
We expect most of the clarifications and amendments to have positive effects for issuers and offerors. For instance, smaller issuances falling under the 150 person exemption and employee securities offers may benefit from the changes. On the other hand, increasing thresholds for wholesale exemptions may potentially prove unfavorable. Whether the summary key information requirement will indeed enhance investor protection remains yet to be seen.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.