The Directive 2010/73/EU dated 24 November 2010, amending the directive 2003/71/EC (the "Directive"), aims at simplifying rules on prospectuses for securities and on information about the issuers of transferable securities on financial markets, and at upgrading investor protection. Said directive forms part of a legislative simplification plan agreed by the European Council in March 2007 with the aim of boosting the competitiveness of European companies by reducing administrative burdens that generate costs and inefficiencies.
On 3 July 2012, the law aiming at implementing the directive (the "Law") was voted, amending both the prospectus law dated 10 July 2005 and the transparency law dated 11 January 2008, as further detailed hereunder.
Qualified investors redefined
In order to facilitate private placements falling within the exemption available for offers to "qualified investors," the definition of qualified investor has been aligned with the definitions of professional clients and eligible counterparties set out in the Financial Markets Directive (MiFID). This change is intended to reduce the complexity and costs of private placements by allowing security issuers to rely on their lists of professional clients and eligible counterparties already in place.
Increase of EUR 50,000 threshold
Before entry into force of the Law, offers made to investors who acquired securities for a total consideration of at least EUR 50,000 were exempt from the requirement of an approved prospectus. Securities with a denomination of at least EUR 50,000 were likewise exempted. This threshold is now increased to EUR 100,000 by reference in the Law to the limits set forth by the Directive, with the argument that the 50,000 threshold no longer reflected the distinction between retail investors and professional investors in terms of investment capacity.
The same increase of the threshold, previously fixed at EUR 50,000, is enacted in the transparency law dated 11 January 2008. Under said law, issuers with minimum denominations of EUR 50,000 were exempted from the obligation to publish annual and semi-annual reports as well as further reporting obligations. In this regard, it should be noted that the increased threshold is applicable as of 31 December 2010, so that any securities admitted or to be admitted to an EU–regulated market from this date on need to be issued in denominations of at least EUR 100,000 in order to benefit from this exemption.
Change of "100-persons" – exemption
Offers addressed to fewer than 100 non-qualified investors per EU member state were previously also exempted from publishing an approved prospectus. From the 1st July 2012, up to 150 non-qualified investors may be targeted by an offering, regardless of the prior publishing of a prospectus.
Scope of the Prospectus Directive and of the New Law
The exemption for offers within the European Union where the total consideration is less than EUR 2.5 million calculated over a period of 12 months has been amended to increase the threshold to EUR 5 million total consideration. Likewise, the exemption for offers of non-equity securities issued in a continuous or repeated manner by credit institutions where the total consideration is less than EUR 50 million calculated over a period of 12 months has been amended to increase the threshold to EUR 75 million.
Clarification of prospectus use in "retail cascades"
A "retail cascade" is a situation where securities are sold to retail investors by financial intermediaries and not directly by the issuer. For such offers made by intermediate financial service providers (banks, IFA's, or asset managers), the Law now state that a new/separate prospectus will not be required for as long as a prospectus has been made available by the issuer, provided that the issuer has consented by written agreement to its use by the financial intermediaries. In this case, the issuer will remain liable for the content of the prospectus to investors. In the absence of such consent, formalized and expressed in a written agreement, the intermediary will need to publish a prospectus himself as he cannot rely on the prospectus of the issuer.
Tightened rules for prospectus summary
The Directive 2010/73/EU and the Law define the prospectus summary as key for the due investor information; as a consequence, the requirements for the summary are considerably enhanced. Such summary must henceforth disclose the nature and risks of the issuer, the guarantor and the relevant securities, the general terms of the offer, the details of the admission, and the reasons for the offer as well as the use of the proceeds. From now on, the law further sets out that prospectus' summaries should adopt a common format for the sake of clarity, i.e. equivalent information must always appear in the same place in the summary, thereby allowing investors to compare securities offers.
Annual Information Statement dropped
The obligation to publish an annual information statement, which contains or refers to all information made available by the issuer to the public over the preceding twelve months, as provided for under the previous prospectus regime, is abolished.
Prospectus supplements
The current prospectus regime clarifies that the period during which publication of a supplement for any material changes or errors is necessary, will end on the latter of the close of the offer or the admission to trading. Furthermore, the right granted to investors having already agreed to purchase a security, prior to the publishing of a supplement, to withdraw their acceptance will only apply to public offers (but not in case of trading on stock exchange) for a period of two working days after the publication of the supplement; issuers may, however, grant longer periods for the withdrawal right.
Larger exemptions for employee participation schemes
The requirement to publish a prospectus for offers made to existing or former employees by the employer or an affiliated company with registered office in the European Union was abolished as per the entry into force of the Law. Under the previous legislation, this exemption was restricted to companies admitted to trading on a regulated market. In addition, the exemption for employee participation schemes is extended to companies located outside the European Union listed on qualifying third-country stock exchanges. Third-country markets qualify when the legal and supervisory framework in place foresees requirements equivalent to those set out in the Market Abuse Directive, the Transparency Directive, and MiFID ("Equivalence Test" by the European Commission).
Validity of prospectus, unchanged but clarified
In spite of discussions about a longer validity period of up to 24 months, a prospectus remains valid for a period of 12 months which shall, under the new legal framework, run from the date of approval of the prospectus and not as of the publication date, as this was previously the case.
Certain provisions of the Law entered into force on 3rd July 2012 – except for certain provisions which are only applicable as from July 5, 2012, being the date of publication of the Law in the Luxembourg gazette.
Finally, the European Securities and Market Authority (ESMA) has been mandated to propose technical adjustments and clarification to be brought to the current European prospectus legislation, which might result in an amendment of the current legal framework.
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.
