UK: Changes To The Prospectus Rules

Last Updated: 22 November 2011
Article by James Wilkinson

One of the key features of the Prospectus Rules is the requirement on companies to publish a prospectus if offering transferrable securities (usually shares or debentures) to the public. There are certain exemptions to this general rule and these exemptions are in the process of being slightly relaxed.

The changes are a result of the Prospectus Directive (2003/71/EC)1 ("Amending Directive"), which has to be implemented by EU member states no later than 31 July 2012. The UK government will implement the employee share option scheme changes within that time frame but has opted to implement a change to the general exemptions with effect from 31 July 2011

Exempt Offers

Two of the most used exemptions to avoid issuing a prospectus were previously:

  • the first €2.5m to be raised through the issue of transferrable securities in any rolling 12-month period; and
  • if the offer was being made to fewer than 100 people per EU member state.

The changes to the Prospectus Rules, which the UK government expects will save UK businesses a total of approximately Ł12m each year, increase the above thresholds to €5m and 150 people respectively.

These changes are particularly likely to benefit businesses which are undertaking secondary fundraisings and those businesses considering admission to an exchange other than the Main Market (such as AIM and PLUS ). Not only do the changes offer significant financial benefits, they could also save time as there will be no need to submit a draft prospectus to the Financial Services Authority.

Employee shares exemption

Employers often wish to either grant share options or give/sell shares to their employees. Share options tend to be non-transferable and therefore will usually fall outside of the Prospectus Rules. The giving of free shares to employees will usually tend to fall outside the Prospectus Rules as well. However, inviting employees to purchase transferable securities in their employer will often fall within the remit of the Prospectus Rules.

Such an offer to employees (including directors and former directors) will not require the publication of a prospectus if:

  • either of the exemptions set out above in "Exempt Offers" apply;
  • any of the other general exemptions in section 86 Financial Services Act 2000 apply (for example the minimum payable by each employee for their transferable securities is €50,000)2; or
  • the employing company's transferable securities are traded on an EU regulated market (being a list of markets maintained by each member state's competent authority and which includes the Main Market and PLUS but does not include AIM)3 and has published an "information document"4.

The current position is that companies which are either not listed on any exchange or listed in the EU (for example the New York Stock Exchange, Australian Stock Exchange and Tokyo Stock Exchange) are required to publish a full prospectus before offering their transferable securities to employees (unless either of the first two bullet points above apply).

The changes required by the Amending Directive are to be implemented by 31 July 2012 and will also allow the following employing companies to offer transferable securities to their employees without publishing a prospectus:

  • all companies who are either registered in or have their head office in the EU; and
  • companies located outside of the EU and whose securities are admitted to trading on a third country market, provided that the European Commission has determined that the third country market offers equivalent protections to those applied by EU regulated markets.

The above changes could prove very useful for large non-EU employers as major exchanges are likely to be added to the equivalence list but the real effect will only become apparent once we see how strictly and how quickly the European Commission applies the equivalence rules and adds markets to the list once the relevant competent authorities can



2. The full list of s.86 exemptions can be found at

3. The Financial Services Authority is the UK's competent authority and the full list of UK-based regulated markets can be found at

4. Described in the Amending Directive as "a document containing information on the number and nature of the securities and the reasons for and details of the offer"

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