Capital markets: the European Council adopts new prospectus rules
The European Council adopted new rules on prospectuses for the offering and listing of securities which will replace the current prospectus rules under the Prospectus Directive, as of May 2017. The new rules are aimed at lowering the regulatory hurdles that companies face when issuing equity and debt securities, and intend to simplify administrative obligations related to the publication of prospectuses while ensuring that investors are well informed.
On 16 May 2017, the European Council adopted new rules on prospectuses for the offering and listing of securities (the Prospectus Regulation) which will replace the current prospectus rules under Directive 2003/71/EC, as amended (the Prospectus Directive). The new rules are aimed at lowering the regulatory hurdles that companies face when issuing equity and debt securities, and intend to simplify administrative obligations related to the publication of prospectuses while ensuring that investors are well informed.
The Prospectus Regulation should help to strip away burdens and lead to shorter prospectuses, better and more concise information for investors, a fast track regime for companies that frequently tap capital markets, and a simplified disclosure regime for SMEs and secondary issuances. Some highlights:
- Exempt offers. No prospectus requirement applies for offers of securities to the public with a total consideration in the Union of less than EUR 1,000,000 (on a rolling 12-month basis). In addition, Member States may exempt offers of securities to the public up to a threshold of EUR 8,000,000 (on a rolling 12-month basis). Offerings addressed to qualified investors only, to fewer than 150 persons (other than qualified investors) per Member State and offers of securities whose denomination per unit amounts to at least EUR 100,000 remain exempt.
- Sub 20% and conversion exemptions. The prospectus exemption threshold for the admission to trading of new securities is doubled from up to 10% to up to 20% (on a rolling 12-month basis). A maximum threshold of 20% (on a rolling 12-month basis) is introduced for the exemption relating to the admission to trading of shares issued following a conversion or exercise of e.g. convertible bonds or warrants. It will be prohibited to combine these exemptions if this could lead to the immediate or deferred admission to trading over a period of 12 months of more than 20% of the number of shares already admitted to trading.
- Wholesale disclosure regime. The wholesale disclosure regime is being retained and wholesale bond prospectuses will be exempt from the summary requirement. The scope of the wholesale disclosure regime will furthermore be widened to include issues of debt securities that are admitted to an EU regulated market (or segment thereof) where access is limited to qualified investors.
- Simplified regime for SMEs. The proportionate disclosure regime for SMEs is further developed by the introduction of a EU growth prospectus. The format and reduced content will be specified in delegated acts to be adopted by the Commission.
- Simplified regime for secondary issuances. A simplified disclosure regime is introduced for public offers or admission to trading of securities by issuers already listed for at least 18 months. The format and reduced content will be specified in delegated acts to be adopted by the Commission.
- ‘Frequent Issuer’ status. A shelf registration concept derived from US practice is introduced that allows frequent issuers to submit an annual universal registration document (URD) meeting the requirements of a share disclosure regime. Frequent issuers may benefit from a fast-track approval process of 5 business days (instead of 10). When filed (and approved) for 2 consecutive years, subsequent URDs may be filed without prior approval and reviewed on an ex-post basis by the competent authority.
- Prospectus summaries. Prospectus summaries will become subject to strict content and format prescriptions. No more than 15 risk factors may be included in the summary.
- Risk factors. The risk factors should be limited to risks specific to the issuer and the securities and which are material to taking an informed investment decision. Risk factors will have to be categorized according to the probability of occurrence and expected negative impact.
Entry into force
The next step is for the Presidents of the Parliament and the Council to sign the text after which the Prospectus Regulation is expected to be published in the Official Journal of the European Union. The Prospectus Regulation will enter into force on the 20th day following such publication, however a staged approach will be taken to implement the new rules. The bulk of the provisions of the Prospectus Regulation shall apply 24 months after entry into force, except for (i) the changes described in the first bullet above which shall apply 12 months after entry into force, and (ii) the changes described in the second bullet above which shall apply immediately upon the Prospectus Regulation taking effect. The limitation of the conversion exemption shall not apply if, inter alia, the securities giving access to the shares were issued before the entry into force of the Prospectus Regulation.
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Nelleke Krol, Martijn Schoonewille, Cédric Raffoul, or Frédéric Franckx.
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Frédéric FranckxPartner Attorney at law / Avocat à la Cour
Frédéric Franckx, partner, is a member of the Corporate / M&A Practice Group and divides his time between our Luxembourg and New York offices. Frédéric heads our corporate and M&A practice in New York and is an active member of our Canadian and Latin-American desks.T: + 1 (212) 471 9338 M: +1 646 932 22 87 E: firstname.lastname@example.org