Prospectus Directive and Prospectus Rules: recent developments

Prospectus Regulation: On 30 November 2015, the European Commission published a legislative proposal for a new Prospectus Regulation which is intended to repeal and replace the Prospectus Directive (PD3). The proposal forms part of the EU Commission's Action Plan on Building a Capital Markets Union, published on 30 September 2015.

The Council of the European Union (Council) published its negotiating position in the form of a draft regulation regarding the proposed amendments to the Prospectus Directive in June 2016. The European Parliament adopted its Report on the Prospectus Regulation in the form of a draft regulation amending the proposal on 15 September 2016.

On 14 March 2017, the European Parliament resolved at first reading to adopt with amendments the proposal. The proposal must now be adopted by the Council.

The Prospectus Regulation will come into force 20 days after its publication and this is expected to take place by June 2017. Most of the Prospectus Regulation will not take effect until two years after its publication in the Official Journal. See below for those provisions that will apply immediately.

ESMA advice on Prospectus Regulation: On 28 February 2017, the European Commission asked the European Securities and Markets Authority (ESMA) to provide technical advice on a number of aspects of the Prospectus Regulation. The mandate to ESMA consists of two parts:

• Part 1 - to provide technical advice on the following matters within nine months:
  • the disclosure requirements for universal registration documents and other procedural matters relating to universal registration documents
  • the format of the prospectus, the base prospectus and the final terms and the applicable disclosure requirements (when the Regulation becomes applicable the existing Prospectus Directive disclosure requirements will be repealed)
  • the disclosure requirements applicable to simplified prospectuses (to be used for secondary issues)
  • the format and disclosure requirements applicable to EU Growth Prospectuses, and
  • the criteria for the scrutiny of prospectuses and the procedures for approval of prospectuses.
• Part 2 - to provide technical advice on measures specifying the following matters within 18 months:
  • the minimum information to be included in documents describing a merger or a takeover by way of an exchange offer, and
  • general equivalence criteria for prospectuses drawn up under the laws of non-EU states.

Amendments to Prospectus Rules

Most aspects of the Prospectus Regulation (once approved) will apply 24 months after the regulation comes into force. However, certain provisions will apply immediately on the date that the regulation comes into force and the Financial Conduct Authority (FCA) is consulting now on those measures as part of its regular quarterly consultation (CP17/6). The changes proposed by the FCA are to replace the current exemption from the requirement to publish a prospectus:

• where the annual increase of shares admitted to trading is less than 10% as the Prospectus Regulation increases the threshold to 20% and applies it to securities, not just shares, and
• for shares resulting from a conversion or exchange of other securities or from the exercise of the rights conferred by other securities, as the Prospectus Regulation limits the exemption, save in certain circumstances, to 20% of the number of shares of the same class already admitted to trading on the same regulated market over a 12 month period.

Responses are due by 03 April 2017 and the FCA intends to make these rule changes effective from the date the Prospectus Regulation comes into force.

Potential impact

See the following articles:

FCA: consultation on changes to Prospectus Rules
CMU: European Commission seeks technical advice from ESMA on PD3

More information

See our PD3 feature.