Changes to the prospectus regime

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Summary: The European Commission published proposals for the prospectus regime aimed at simplifying the rules for companies when raising finance on capital markets. It may be some time before we see these proposals in force as they will need to be presented to the European Parliament and Council before they can take direct effect. BLP outline the key changes that may come about as a result of these proposals.

On 30 November, the European Commission (“Commission”) published proposals aimed at simplifying the rules for companies when raising finance on capital markets. These proposals are intended to bring about “real advantages” to the market. In particular, the increase to the current exemption thresholds are likely to be very welcome, together with the simplified disclosure regime for secondary issuances. All of these should lead to significant cost savings for corporates and will assist them when capital raising.

However, it may be some time before we see these proposals in force as they will need to be presented to the European Parliament and Council before they can take direct effect.

Key changes proposed:

Exempt offers to the public

Member States will be able to increase this threshold from €5m to €10m. The Commission estimates that approximately 100 prospectuses (around 3% of annually approved prospectuses) will no longer be required and this will also assist smaller pre-emptive fundraisings. However, this change is not mandatory and a figure will need to be adopted in each Member State and as with the rise to €5m, this is likely to mean that different limits will apply in different member states for a period.

Secondary fundraisings

As the proportionate disclosure regime, introduced in 2012, has been of little use in practice, a new simplified prospectus regime for secondary issuances will be introduced which will widen the range of situations where a lighter prospectus may be prepared. When applying for admission to trading on a regulated market, the Commission also proposes to raise the dilution threshold for the prospectus exemption from 10% to less than 20%. These two changes are expected to have a significant impact as about 70% of prospectuses approved annually are for secondary fundraisings.

Fast track and simplified frequent issuer regime

Frequent issuers who undertake capital raisings which require the publication of a prospectus will be able to produce annually an approved “Universal Registration Document”. This document will then form part of a “tripartite prospectus” enabling issuers to produce the remaining documents (securities note and summary) in a shorter period of time, 5 business days.

Lighter prospectus for SMEs

The Commission will create a lighter regime for smaller issuers (with a market cap of less than €200m).

Shorter prospectuses

To provide better and more succinct information for investors, there will be a new user-friendly summary consisting of three sections (key information on the issuer, the security and the offer/admission) with a maximum length of 6 A4 sides, as opposed to 15 or longer. In addition, only material specific risk factors should be included in the prospectus allocated to categories based on the issuer’s assessment of the probability of their occurrence and the expected magnitude of their negative impact.

Single access for all prospectuses

There will be a free online access to all prospectuses approved in the EEA.

Finally, as part of this process the prospectus advertisement regime will also be modified, particularly where a supplementary prospectus is required. Further updates will be sent as the proposals are progressed and more details are provided.

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