Investment funds and other undertakings for collective investment in transferable securities (UCITS) wishing to place their units in foreign jurisdictions often make offerings only to institutional investors, in an attempt to avoid compliance with the costly and burdensome disclosure procedures normally involved in public offerings. While most jurisdictions treat such placings as exempt transactions, the scope of the exemptions and the conditions subject to which they are available to issuers may vary from one country to another. Moreover, other restrictions may affect offerings of securities in other jurisdictions.

In Italy, the regulation governing the offering of units of UCITS not falling within EC Directives 85/611 and 88/220 (which will be considered here) is, in different sectors, inspired by conflicting views of whether placings with institutional investors should be treated as exempt transactions. A coordination of the applicable rules into a consistent scheme is not, therefore, an easy task.

Regulatory Framework
Except for available exemptions, the following restrictions and requirements apply to offerings of units of UCITS in Italy:
(i) authorisation by the Ministry of Treasury; and subsequently
(ii) notification to the Bank of Italy; and
(iii) filing of a prospectus with CONSOB.

For ease of comprehension, items (i) and (ii) will be discussed after item (iii).

If the securities are offered to the 'public', a prospectus must be filed with CONSOB. Under a CONSOB regulation offerings addressed to defined categories of institutional investors (the 'Institutional Investors') are not treated as offerings to the 'public'.

CONSOB requires (i) to be previously notified in writing of such offerings and (ii) after completion of the placement, to be notified of the institutions which have acquired the offered securities.

Ministry Of Treasury
An authorisation of the Ministry of Treasury is required if the offering is addressed to the 'public'.

Unlike the requirement considered above (prospectus), no statutory exemption exists for offerings to institutional investors . Thus, determining whether such offerings are to be treated as offerings to the 'public' for purposes of the authorisation is a matter of interpretation. In the absence of an official position of the Ministry of Treasury, two good arguments lead to deny that said offerings require an authorisation of the Ministry of Treasury:

(i) Most conditions for the issuance of the authorisation (see footnote) indicate clearly that the authorization has the same rationale as the prospectus, ie it is designed to protect unsophisticated investors. Hence, the concept of 'public' should be interpreted here consistently with the definition provided by the CONSOB regulation.

(ii) The statute requiring the authorisation provides that 'authorised' UCITS must comply with the disclosure requirement disc ussed above (prospectus) and other connected duties. As such requirements do not apply where offerings are exclusively addressed to Institutional Investors, it is sensible to conclude that no authorisation is required either in respect of such offerings.

Past experience indicates, however, that the Bank of Italy has a different view pursuant to which no offering would be allowed (irrespective of who the offerees are) unless an authorisation is obtained. The concern is that institutional investors may re-sell the securities to unsophisticated investors without the latter being protected by the issuer having previously fulfilled the conditions for the authorisation.

Bank Of Italy
The 1993 Banking Law carried a new systematic regime of the controls over offerings of (domestic and non-domestic) securities aimed at ensuring the stability and efficiency of the financial markets.
Under the above regime:

(a) all offerings of securities (except certain exempt securities) for amounts equal to or exceeding 10 billion Lire (100 billion Lire for some standardised debt instruments) over any 12-month period must be notified to the Bank of Italy, whether or not they constitute public offerings;

(b) the Bank of Italy may (i) defer or forbid the offerings if their size and/or concentration (considering other notified offerings) seem incompatible with the market dimensions (save different agreements with the offerors - eg split of the offerings in to more tranches) and/or (ii) forbid the offerings for specific reasons relating to the characteristics of the securities.

A 1994 regulation of the Bank of Italy provides that non-domestic UCITS making the above notification must include details on the implementation of the procedure with the Ministry of Treasury. Thus, offerings of units of such UCITS to institutional investors for amounts equal to or in excess of 10 billion Lire will most likely be forbidden by the Bank of Italy unless an authorisation by the Ministry of Treasury is first obtained.

The authorisation may only be granted if the concerned UCITS:

(i) have structural and operational features and are subject to controls in their home country similar to those of Italian UCITS ;

(ii) have set up a branch office in Italy; and

(iii) have entrusted an Italian bank (or an Italian branch of an EC bank) to act as their agent in the subscription and redemption of their units and with the safe-keeping of a share of their portfolio proportional to the units placed with Italian investors.

Also, the officers of the UCITS must meet certain requirements of honourableness and there must be co-operation arrangements between the Italian supervisory authorities and those of the UCITS' home country.

Enzo Schiavello of Gianni, Origoni & Partners, Milan

For further information please contact Mr. Schiavello on +392 76 00 97 56 or enter text search "Gianni, Origoni and Partners" and "Business Monitor".