The Prospectus Regulation forms part of the European Commission’s capital markets union initiative, which was launched in September 2015 with the aim of creating a single European market for capital, and improving access to financing for European businesses.
Below is an overview, which does not purport to be exhaustive, of the main changes introduced by the Prospectus Regulation, compared to the regime under the Prospectus Directive.
2. Main changes introduced by the Prospectus Regulation
2.1 Small-offer prospectus exemption (Art. 1(3) Art. 3(2))
The Prospectus Directive does not apply to public offers of securities with a total value below EUR 5 million, calculated over a period of 12 months. The Prospectus Regulation lowers the mandatory exemption threshold to EUR 1 million, with the option for the Member States to set their own threshold anywhere from EUR 1 to 8 million.
In addition, Member States may impose certain disclosure requirements on offers with a value below EUR 1 million, to the extent that these requirements are not disproportionate or unnecessary.
2.2 Prospectus exemption for convertible and fungible securities (Art. 1(5)(a) and (b))
Under the Prospectus Directive, issuers who were already listed on a regulated market were exempt from the listing-prospectus requirement when they issued additional shares of the same class that did not represent more than 10% of that share class already listed on the same regulated market. The Prospectus Regulation raises this threshold to 20%.
In addition, the Prospectus Directive did not require a prospectus for shares issued as a result of the conversion or exchange of other securities or of the exercise of rights conferred by other securities, provided that the resulting shares were of the same class as the shares already admitted to trading on the same regulated market. The Prospectus Regulation introduces a 20% limit on the number of shares that can be issued in this way.
2.3 Prospectus summary (Art. 7)
- In an attempt to make the prospectus more accessible to investors and to address the sometimes-liberal inclusion by issuers of risk factors, some of them generic, under the Prospectus Directive, the Prospectus Regulation tightens the summary requirements: it reduces the maximum length of a summary to 7 sides of A4-sized paper when printed (subject to certain exceptions);
- the summary must contain 4 distinct sections (an introduction containing warnings; key information on the issuer; key information on the securities; and key information on the offer of the securities to the public and/or admission to trading);
- the summary must include the most material risk factors specific to the issuer, the securities being issued and the guarantor (if any). However, it may include not more than 15 risk factors.
2.4 Universal registration document (Art. 9)
A new feature of the Prospectus Regulation is the universal registration document (URD), which will allow issuers who are listed on a regulated market or multilateral trading facility (MTF) to draw up and file a URD every financial year for approval by the home Member State regulator. Drawing up and submitting a URD do not require that the issuer have the intention to offer or list securities in the foreseeable future.
The URD must describe the company’s organisation, business, financial position, and so on. Once an issuer has had a URD approved for 2 consecutive years, subsequent URDs may be filed with the competent authority without prior approval.
Issuers who have filed a URD will be deemed frequent issuers, regardless of whether they frequently issue securities in practice. Following filing and, if applicable, approval of a URD, prospectuses are fast-tracked for approval by national supervisors, thus reducing the approval time from 10 to 5 working days. In certain circumstances, issuers will also be able to fulfil some of their ongoing disclosure obligations under Directive 2004/109/EC (the Transparency Directive).
2.5 EU growth prospectus (Art. 15)
Building on the proportionate-disclosure regime introduced by the 2010 amendment to the Prospectus Directive, the Prospectus Regulation introduces the EU growth prospectus.
The EU growth prospectus is aimed at, provided they do not have securities admitted to trading on a regulated market:
- issuers, other than SMEs, who are listed on a SME growth market, with a market capitalisation below EUR 500 million
- issuers (other than those referred to above, who make an offer of securities to the public with a total consideration in the EU not exceeding EUR 20 million, calculated over a period of 12 months, who do not have securities traded on an MTF, and who had fewer than 500 employees on average during the last financial year.
The exact information that will be required in an EU growth prospectus will be set out in delegated acts to be adopted by the EU Commission not later than 21 January 2019. The Prospectus Regulation stipulates that an EU growth prospectus must, at a minimum, include a summary, a registration document, and a securities note. The EU Commission will be empowered to calibrate the EU growth prospectus disclosure requirements depending on the size of the issuer.
On 6 July 2017, the European Securities and Markets Authority published a consultation paper entitled “Draft Technical Advice on Content and Format of the EU Growth Prospectus”.
2.6 Risk factors (Art. 16)
The Prospectus Directive requires that risk factors be included when the risk is material to making investment decisions. The Prospectus Regulation adds to this threshold by requiring issuers to categorise risk factors according to their materiality, based on the probability of their occurrence and the expected magnitude of the negative impact of such risks. To assess the materiality of the risk factors provided, issuers may, but are not obliged to, use a qualitative scale of low, medium or high.
As is the case for the risk factors to be included in the prospectus summary, all risk factors included in the prospectus need to be specific to the issuer.
2.7 Incorporation by reference (Art. 19)
The Prospectus Regulation widens the range of information that can be incorporated by reference, provided that it has been published electronically and that it fulfils the language requirements set out in Art. 27 of the Prospectus Regulation.
Examples of such information include regulated information, annual and interim financial information, corporate-governance statements, and articles of association.
2.8 Publication of the prospectus (Art. 21)
Under the Prospectus Regulation, electronic publication will become the standard for disseminating a prospectus to the public. A hard copy of the prospectus will be available to an investor only upon specific request.
In addition, the prospectus must be published on a dedicated section of an easily accessible website, and shall be downloadable, printable and searchable in electronic format. If a summary must be prepared, such summary must be available as a separate document in the same section of the website as the prospectus. Access to the prospectus cannot be subject to the completion of a registration process, acceptance of a disclaimer limiting legal liability or payment of a fee whereby it is specified that warnings specifying the jurisdiction(s) in which an offer or an admission to trading is being made shall not be considered to be disclaimers limiting legal liability.
3. Entry into force and implementation
As noted above, the Prospectus Regulation entered into force on 20 July 2017. Most of its provisions will, however, apply only from 21 July 2019, with the following exceptions:
- the small-offer prospectus exemption (see 2.1 above), shall apply from 21 July 2018
- the prospectus exemption for convertible and fungible securities (see 2.2 above), shall apply from 20 July 2017.
It is expected that the practical implementation of a number of provisions in the Prospectus Regulation will be realised through delegated acts and regulatory technical standards to be adopted by the EU Commission.