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Further amendments to the Prospectus Regulation

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Summary: The European Parliament has now adopted, with amendments, the new Prospectus Regulation (the “Regulation”). This ebrief looks at the amendments made, the new restrictions and the likely timing from here.

Further to our previous ebrief (FCA consultation on changes to Prospectus Rules), the European Parliament has now adopted, with amendments, the new Prospectus Regulation (the “Regulation”).

The amendments made include:

  • reinstating the existing provision on the number of natural or legal persons to whom an offer to the public can be made without the requirement to produce a prospectus ie. 150 legal persons per member state (excluding qualified investors).  It had originally been proposed that this be increased to 350 legal persons but this has now been rejected; and
  • introducing restrictions to the proposed exemptions available to issuers from the obligation to publish a prospectus when their securities are to be admitted to trading on a regulated market.  

New restrictions

It was previously proposed, and consulted on in March 2017 by the FCA, that measures be introduced into the Prospectus Rules to:

  • increase the threshold, over a 12 month period, for further issues of securities (not just shares) from ‘less than 10%’ to ‘less than 20% of the number of securities already admitted to trading on the same regulated market’ before an issuer would be required to publish a prospectus; and
  • limit the existing exemption available with respect to not requiring an issuer to publish a prospectus in connection with the issue of an unlimited number of shares resulting from the conversion or exchange of other securities, over a 12 month period, to less than 20% of the number of shares of the same class already admitted to trading on the same regulated market. This measure is more restrictive than is currently in place but would not apply where (i) a prospectus has already been drawn up for the securities “giving access to” the shares to be admitted to trading; or (ii) the securities “giving access to” the shares to be admitted to trading were in issue before the Regulation comes into force.

These measures still remain in the Regulation that has been adopted but the European Parliament has clarified that these two exemptions cannot be combined together if such combination could lead to the immediate or deferred admission to trading on a regulated market over a period of 12 months of more than 20% of the number of shares of the same class already admitted to trading on the same regulated market; in those circumstances, the issuer would still be required to publish a prospectus.

Timing

The Regulation, which will be directly applicable in the UK, still requires approval by the European Council but, once approved, it will be published in the Official Journal and come into force 20 days later.  Most of the changes set out in the Regulation will come into force 12 or 24 months later but the restrictions on the 20% limit will apply from the date the Regulation comes into force.  For this reason, the FCA may need to publish a further consultation on these changes prior to the Regulation coming into force, which is expected in May or June of this year.  Please get in touch with Gareth or Tessa, or your usual BLP contact if you would like to discuss this further.

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