European Union: Corporate Law Update: New EU Prospectus Regulation

The European Commission is attempting to overhaul the existing Prospectus Directive regime. The Commission has provided for material changes in its proposed Prospectus Regulation published on 30 November 2015, both as to when a prospectus is needed and also the content of the prospectus.

The Prospectus Regulation, provided by the European Commission (the "Commission"), is aimed at addressing concerns that prospectuses are overly long and unwieldy and are not fit for purpose. Prospectuses are viewed by some as liability management tools for the issuer rather than serving to protect investors. The Prospectus Regulation also aims to provide a lighter regime for SMEs so that it will be easier for these types of issuers to access capital markets.

If adopted, the Prospectus Regulation will have direct effect without requiring implementation at the national level, unlike the previous Directives. Once finalised, the regulation will come into effect 12 months after it enters into force. The main changes are:

1. Universal Registration Document

A disclosure process similar to the 'shelf registration' disclosure process in the US is being introduced. This will involve a fast track procedure for prospectus approval for frequent issuers who draw up an annual 'universal registration document'. The aim is to allow issuers who have filed this document to tap into the market more quickly. 

2. Change in minimum issuance thresholds where a prospectus is required

Under the Prospectus Regulation, no prospectus will be required for an offer of securities in the EU with a total consideration below €500,000 - calculated over 12 months. Member States will have discretion to set the threshold for the exemption from the requirement to produce a prospectus for domestic issues of securities, with no cross-border passporting, between €500,000 and €10 million - calculated over 12 months.  

Market commentators differ as to the effect this change will have on the thresholds under the existing Prospectus Directive, as the drafting under the existing directive is inconsistent.

3. Change to summaries

Summaries will change in both content and format so that they will be similar to a key information document under PRIIPs - the Packaged Retail Investment and Insurance Products Regulation.

The allowable page limit is being reduced from 15 to six pages. No more than five risk factors relating to the issuer and five risk factors relating to the securities may be included.

4. Change to risk factors

Issuers will be required to categorise each risk factor as high, medium or low risk and will no longer be permitted to include generic risks. Having to categorise the risk factors will be difficult for issuers and they may be reluctant to categorise risks as medium or low in case this exposes them to liability if it turns out subsequently that the categorisation was incorrect. There is a concern that almost by definition a risk factor that transpires but was categorised as "low" or "medium" may be regarded as incorrectly categorised.

5. Removal of safe harbour from prospectus requirement for issues with denominations of at least €100,000

The minimum denomination of at least €100,000 exemption has been removed. This will likely result in issuers increasingly relying on the remaining safe harbours such as offering securities:

  • to qualified investors;
  • to fewer than 150 non-qualified investors; or
  • with a minimum commitment of €100,000 per investor,

in order to avoid producing a prospectus.

This change is intended to address a concern that issuers were issuing debt securities in large denominations in order to avoid the prospectus burden, and that this was leading to less secondary market liquidity and investors having access to a smaller pool of potential investments.

6. ESMA online storage and search function

ESMA will introduce a free and searchable online database containing all prospectuses approved in the European Economic Area.

7. Clarification on position for retail cascades

The term "retail cascade" is used to describe a distribution mechanism where low denomination securities are offered to retail investors by a distribution network of financial intermediaries, rather than by the issuer directly.

Under the new regime, financial intermediaries should be able to rely on the initial prospectus produced and published by the issuer as long as the issuer consents to its use and it is valid and properly supplemented. This will have the effect of making the prospectus a 'live' document rather than a 'one day' document. Financial intermediaries will need to take a view on the continued validity and accuracy of the prospectus after the issue date.

It is difficult to anticipate how this will work in practical terms, as well as the knock-on impact it may have on the process for producing the prospectus including issues such as verification.

8. Scope expanded for minimum disclosure regimes for follow-on issuances and SMEs

The new regime widens the circumstances where a 'minimum disclosure' prospectus may apply for issuers on a regulated market or an SME growth market for at least 18 months where they issue debt securities or equity securities of the same class. In addition, for the minimum disclosure regime for SMEs, the threshold market cap for qualifying as an SME has been increased from €100 million to €200 million.

It is not known what will be required under the minimum disclosure regimes until the Commission publishes regulatory technical standards on it this year.

9. Admission to trading exemption increased from 10% to 20%

Subsequent issues of securities on the same regulated market will not require a prospectus provided that the securities being offered represent less than 20% of the existing securities. This significantly increases the existing exemption which is limited to shares only with a maximum of 10% of existing shares. This may be of limited practical effect in Ireland given the pre-emption rights requirements of the applicable corporate governance codes.

10. Scope to incorporate documents by reference has been expanded

The range of information which an issuer can incorporate by reference has been expanded. For new issuers this can include their financial information and for existing issuers it may also include management reports and corporate governance statements.

It will remain to be seen whether the Prospectus Regulation will achieve its stated intentions. While some of the changes are helpful, the practical effects will need to be monitored. The change to the way risk factors in the prospectus may be expressed may prove difficult for issuers, at least in the short term. Many market commentators feel the Prospectus Regulation did not introduce sufficient levels of changes or improvements to achieve its aims. A lot of the detail for the changes remains to be developed in secondary legislation, so how the proposed changes will apply in practice will need to be reviewed carefully on an ongoing basis. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions