Set forth below in this report is a brief overview of the legal and regulatory framework governing the listing and issuance of securities in France. This framework is principally laid down in the general rules applicable to companies under the Law of July 24, 1966 and in the rules governing the financial markets, principally the law of January 22, 1988 relating to stock exchanges and the law of August 2, 1989 relating to safeguarding and ensuring the transparency of the financial markets.
1. The Official Market
The main market on the stock exchange is the official market ("cote officielle"), which is divided into two markets: the monthly settlement market ("marche a reglement mensuel"), on which the most actively-traded securities are listed, and the cash settlement market ("marche au comptant"). On the monthly settlement market, settlement and delivery takes place at the end of every month. Sellers or buyers may decide to extend the settlement date to the end of the next month. On the cash settlement market (as well as on the secondary market and the over-the-counter market) settlement and delivery take place on a current basis, in practice within three business days.
In order for a company to have its securities listed on the official market, certain minimum public flotation criteria must be met.
With respect to shares of capital stock issued in France by a French company, at least 25% of the capital must be held by the public (defined as any shareholders (including salaried employees) other than board members or holders of 5% or more of the company's capital) prior to or upon listing. The CBV may accept a lower percentage if the capital of the issuer is at least FF 30 million ($5.7 million) and at least 600,000 shares are held by the public (respectively FF 10 million and 200,000 for listing on any of the six regional French stock exchanges other than the Paris Bourse).
With respect to debt securities issued in France by a French company, any issuance must be of at least 20,000 securities with a minimum aggregate value of FF 100 million in order to be listed. Debt securities which give their holders the right to receive shares of capital stock (through conversion or any other means) may only be listed if such shares of capital stock are already listed.
With respect to securities issued in France by a non-French company, there is no minimum amount required. However, there must be a sufficient public "float" to ensure an orderly market.
2. The Secondary Market
For shares to be listed on the secondary market ("second marche"), at least 10% of the issuer's capital must be held by the public upon listing or, soon afterwards, as a result of a transaction already undertaken at the time of the listing. Alternatively, one or several shareholders may arrange for financial intermediaries to place publicly 10% of the issuer's capital. Debt securities can only be listed if the issuer's shares are already listed on the secondary market. Non-French companies cannot list debt securities on the secondary market.
3. The Over-The-Counter Market
Unlike the official market and the secondary market, the over-the-counter market ("marche hors cote") is not subject to the same degree of regulation by the stock exchange authorities. The market is ensured by the brokers themselves, similar to a system of market making.
LISTING ON THE MARKETS
In seeking a listing, an issuer must submit a prospectus to the COB for its review. If the securities are to be listed on the official market, a complete prospectus must be filed with the COB at least fifteen business days beforehand and is subject to the prior approval of the COB by the grant of a "visa" (COB Regulation no 91-02). However, this delay is reduced to two days in the event that the issuer incorporates by reference another prospectus less than one year old or has registered a "document de reference". The latter is a document providing detailed information about the issuer (similar in many ways to an annual report), which can be registered every year with the COB. A "document de reference" contains no transaction-specific information and serves as "base prospectus". Only a "note d'operation" describing the offered shares and an update of the information contained in the "document de reference" is then required.
Companies registered in the European countries (EC) or any other member state of the European Economic Area (EEA) and seeking a listing on the official market may obtain recognition in France of a prospectus duly approved by the stock exchange authorities of another EC or EEA member state.
Listing on the secondary market of securities issued by an EC or EEA company requires the filing of shorter form of prospectus ("note de presentation") at least three months in advance and no visa is necessary, although the COB reviews its content (COB Regulation no 88-04).
A full prospectus subject to COB approval is required for a listing on the secondary market if the issuer is not an EC or EEA company (COB Regulation no 88-04).
Issuance and listing of securities issued by a company which is not established in an OECD country is subject to the prior approval of the French Ministry of the Economy.
Simultaneously with the COB filing, a listing application must be filed with the CBV by a financial intermediary. The issuer must undertake to communicate on a regular basis certain information to the CBV once it is listed. The CBV has six months to notify its decisions to the issuer but, in practice, the CBV may agree to shorten the time. The CBV's approval is valid for three months, but is subject to COB veto if such listing is contrary to the investors' interests, if the financial statements are inaccurate, or if there has been insider trading.
There are three procedures for listing existing securities on the official market or the secondary market.
With respect to any of such three procedures, the SBF may require that purchasers deposit all or a portion of the purchase price with a financial intermediary, in order to avoid speculative orders for an excessive number of securities. In the event that, as a result of the procedure retained for introduction, the first quoted price exceeds abnormally the offering price or the allocation is excessively reduced, the SBF may delay the listing or require that a different procedure be followed.
1. The Ordinary Procedure
The ordinary procedure ("procedure ordinaire") may be used in certain situations where there is no sale of securities, such as, for example, where shares to be listed on the official market are already listed on the over-the-counter market or the secondary market, or new shares are issued following a merger of listed companies, or shares issued by a non French company are already listed on a foreign stock exchange. In the latter case, the quoted price may be determined by way of "arbitrage" in relation to the price quoted on the foreign stock exchange. The SBF may also require that a number of shares be available for sale to the public in order to establish a quoted price and to maintain an orderly market.
The required diffusion of shares in the public may be achieved prior to the listing by an underwritten offering to the public. Such an offering usually occurs during the week preceding the listing. The SBF may require that a number of shares be available for sale to the public on the listing date in order to establish a quoted price.
The ordinary procedure may also be used to offer shares to the public on the listing date through financial intermediaries acting on behalf of selling stockholders or as underwriters. At least two business days prior to listing, the SBF publishes a notice indicating the minimum price at which the financial intermediaries are willing to sell the shares and the maximum permitted variation in the initial quoted price, depending on the amount of subscriptions and a possible reduction of the allotment. On the day of listing, the brokers collect purchase orders which must indicate a price equal to or higher than the offer price and then indicate to the SBF the number of such purchase orders which they have received. Only the financial intermediaries involved in the listing procedure may sell shares on the day of listing. The SBF then sets the quoted price and, if necessary, the rate of allocation in the event of an over-subscription.
2. The Procedure of Sale at a Minimum Price
Under the procedure of sale at a minimum price ("procedure de mise en vente a un prix minimal"), either the selling stockholder(s), the issuer through its representatives or financial intermediaries offer to the public a certain number of shares at a minimum price by notice published by the SBF at least five business days prior to listing. The minimum price may be modified up to two business days before listing. The purchase orders which must indicate a fixed price equal to or higher than the offer price must be notified to the brokers no later than the day preceding the listing. The brokers then transmit such orders to the SBF in accordance with the terms and deadline laid down by the SBF.
The SBF may eliminate any purchase orders which it considers to be abnormally high. In the event of an over-subscription, the SBF determines the first quoted price and the allotment by allocating, in practice, 25% of the shares to the purchase orders indicating the highest price without reduction, and then may increasingly reduce allotments, as the price of purchase orders decreases. The first quoted price is the price at which the last order is allotted.
3. The Public Offering Procedure
Under the public offering procedure ("offre publique de vente" or "OPV"), a specified number of securities are offered to the public at a fixed price. An offering of shares underwritten by financial institutions may be made to the public prior to the listing date.
The seller may provide that certain categories of purchase orders will be allotted in priority. The public offering is announced by a notice published by the SBF at least five business days before the listing, which also sets forth the offering price and the terms of reduction of allotments in the event of over-subscriptions. The price may be modified up to two business days before the listing. The day of the listing, the SBF centralises the purchase orders transmitted by the brokers. Such orders must be at the fixed OPV price. The seller may condition its offer upon a minimum number of shares being sold on the listing date. In the event that the OPV succeeds, the first quoted price is the OPV price.
ISSUANCE OF SECURITIES
1. Equity Securities
A decision to issue new shares for cash requires the approval of a company's shareholders at an extraordinary meeting by a majority of two-thirds of the holders of voting rights attending the meeting.
The shareholders may decide to delegate to the board of directors the authority to decide upon the capital increase subject to a maximum amount; such delegation is valid for 26 months. If the issuer is already listed on the cote officielle or the second marche, the board may in turn delegate to the president the authority to increase the capital.
Shareholders have a preferential right to subscribe to newly-issued securities for cash, pro rata to their share of the capital, during a period of at least ten business days. They may exercise or trade this right during this period, or renounce individually their right. The board of directors may, under certain conditions, offer to the public the shares which the shareholders have not subscribed pursuant to their rights.
The shareholders may also waive their right, by a two thirds majority, in favour of a designated beneficiary or in order to offer shares to the public. The subscription price must then be at least equal to the amount of net assets per share or, at the option of the issuer, a price determined by a specialist, or, if the shares of the issuer are listed, the average price during a consecutive ten- business day period chosen during the twenty-business day period preceding the issuance. In practice, the COB requires that either the subscription price be very close to the last quoted price or that the shareholders have a priority right (which they cannot trade) to subscribe to the new shares during a five- to ten-day period.
In the event of an offering to the public, a prospectus must be approved by the COB and, if a listing is contemplated in France, an application must be filed with the CBV.
Alternatively, listing of newly-issued shares can be made in accordance with the three procedures described above if such new shares are subscribed by shareholders or financial intermediaries for resale on the market pursuant to such procedures.
2. Debt Securities
A decision to issue debt securities requires the approval of a company's shareholders at an ordinary meeting by a majority of the holders of voting rights attending the meeting, unless the securities give right to receive (through conversion or any other means) equity securities, in which case an extraordinary meeting is necessary, as described above.
A public offering of debt securities (other than those giving right to convert into or to subscribe to shares) is made under the supervision of the Comite des Emissions (the "Committee"), a body composed of representatives of the Treasury Department of the Ministry of the Economy and of the major banks. The Committee co-ordinates the issuance of bonds by both government and private sector entities and determines the calendar for all debt issuances.
Bond issuances of an amount comprised between FF 500 million and FF 1 billion must be notified to the Committee at least 15 days in advance ("Procedure du Petit marche controle"); the Committee reserves the right to postpone any such issuance. With respect to bond issuances of more than FF 1 billion, the timing is fixed with prior agreement of the Committee.
In the event of an offering to the public, a prospectus must also be approved by the COB and, if a listing is contemplated in France, an application must be filed with the CBV.
Originally published in International Financial Law Review's Capital Markets Yearbook 1994, Euromoney Publications Plc.
For further information contact Herve Letreguilly on +33 1 4471 1717.
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.
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