The EU Capital Markets Union – New Prospectus Regulation Finally Published in Official Journal

The Prospectus Regulation constitutes a major part of the European Commission's plan to build a capital markets union (the "CMU") and, from 21 July 2019 onwards, will repeal the existing EU Prospectus Directive[1] which has governed securities offerings in the EU since 2005.

Background

In 2015, the European Commission conducted a consultation and thereby identified various shortcomings in the existing prospectus rules, which in practice deterred issuers from raising debt or equity in the capital markets in a cost-efficient manner. As part of its capital markets union action plan, the Prospectus Regulation – as directly applicable EU legislation – constitutes one of the key priorities under the Commission's CMU Action Plan adopted in September 2015 and is expected to contribute to a more uniform application of European prospectus rules. It is intended to achieve a true single market for capital across the EU and aims to

• make it easier and cheaper for small and medium-sized enterprises to access capital;
   
• introduce simplification and flexibility for all types of issuers, in particular for secondary issuances and frequent issuers;
   
• improve prospectuses for investors by introducing a retail investor-friendly summary of key information, catering to the specific information and protection needs of investors.

Key changes

The Prospectus Regulation will bring about a variety of changes for both equity and debt issuers, including:

• New EU Growth prospectus rules as an easy and affordable disclosure tool for SME issuers
   
• Less strict disclosure rules for secondary issuances
   
• Prospectus to mention only specific and material risk factors
   
• A shorter and more user-friendly prospectus summary
   
• New Universal Registration Document as fast-track approval for frequent issuers
   
• Greater opportunity to incorporate already published information by reference into prospectuses
   
• New central prospectus database where all prospectuses can be downloaded for free

Timeline

Except for some specific provisions which will already apply from 20 July 2017 or 21 July 2018, most of the new rules will apply only from 21 July 2019.

The following two prospectus exemptions for admission to trading will already apply from 20 July 2017 onwards:

• Shares issued on conversion of convertible or exchangeable securities
  
  A prospectus exemption applies for shares resulting from conversion or exchange of securities if the resulting shares represent less than 20 % of the shares of the same class already admitted to trading on the same regulated market over a period of 12 months.
   
• Less than 20 % of existing listed securities
  
  Regulated market issuers are not obliged to publish a prospectus for private placements of new securities of less than 20 % (up from currently less than 10 %) of their existing listed securities for a 12-month period. This exemption now applies to all types of listed securities (rather than only shares as was previously the case, provided that they are of the same class and traded on the same regulated market).

Next steps

The EU Commission and the European Securities and Markets Authority (ESMA) are tasked with developing draft level II legislation over the next few months. Consultations on these measures are expected to commence in the second half of 2017 and will relate to the content and presentation of key financial information, the exact format for prospectuses, base prospectuses and final terms, as well as the schedules defining the specific information to be included in a prospectus, and equivalence criteria for prospectuses drawn up under the laws of third countries. These last may become particularly relevant to the UK following Brexit.

We will monitor these developments and will provide regular updates if and when draft implementing legislation becomes available.

[1]     Directive 2003/71/EC as amended by Directive 2010/73/EU.