Prospectus Directive review - equities
Among other things the draft regulation contains the following changes from an equities perspective:
Exemptions: Member States are given the option to exempt certain offers from the requirement to produce a prospectus. This applies to all offers with a total consideration between Euro 500,000 and an amount up to Euro 10,000,000. This option only applies to domestic offers which are not seeking to passport into other Member States.
Currently, an important exemption to the requirement to publish a prospectus when requesting an admission to trading applies to the issue of shares representing (over a period of 12 months) less than 10% of the number of shares of the same class already admitted to trading on the same regulated market. The draft regulation raises this level to 20%.
Risk factors: Risk factors will need to be allocated across a maximum of three categories ranked according to their materiality (i.e. the probability of occurrence and the extent of the negative impact of occurrence taking place). ESMA are tasked with developing guidelines on this.
Universal registration document: The regulation introduces an optional shelf registration mechanism for "frequent issuers" admitted to trading on regulated markets or multilateral trading facilities. Under this new feature of the prospectus regime, every year an issuer would complete a registration document. This would lead to a fast-track approval (5 days instead of 10 days) with the competent authority when a prospectus is later required. The regulation also allows issuers to integrate their annual and half-yearly financial reports into the universal registration document, fulfilling their obligations under the Transparency Directive. After an issuer has had a universal registration document approved by the competent authority every financial year for three consecutive years, subsequent universal registration documents may be filed with the competent authority without prior approval.
The draft regulation will now be sent to the European Parliament and the Council of the EU and the trilogue process will commence. This process is expected to conclude in late 2016 or early 2017. In a number of areas the Commission will empower the European Securities and Markets Authority to develop guidelines and regulatory technical standards to augment the regulation so it is important to remember that we do not have the full picture at this stage.
The draft states that the regulation will apply from a date 12 months after it enters into force. We expect that, at the earliest, this would be late 2017.