Proposal for a New Regulation Repealing the Prospectus Directive

On 30 November 2015, the European Commission published a proposal to replace the existing Prospectus Directive (Directive 2003/71/EC) with a regulation. The proposal for the new Prospectus Regulation forms part of the European Commission's plan to establish a Capital Markets Union by 2019. The proposed regulation covers the entire life-cycle of companies, from the start-up stage until maturity as frequent issuers on regulated markets, while striking a balance between eliminating unnecessary administrative burdens for issuers and ensuring investor protection through the provision of adequate information. According to the Commissioner for Capital Markets Union Jonathan Hill, the proposed Prospectus Regulation "will make the system simpler, cheaper and quicker".

The main changes introduced by the proposed Prospectus Regulation can be summarised as follows.

Higher exemption threshold for small capital raisings
The threshold to determine when companies must issue a prospectus will be raised. Capital raisings below €500,000 (up from €100,000) will no longer require an EU prospectus. In addition, the thresholds Member States are allowed to set for their domestic markets will be doubled from €5,000,000 to €10,000,000.

Less burdensome prospectus rules for smaller companies
The proposal introduces less burdensome rules for smaller issuers and the market capitalisation threshold for SMEs that wish to benefit from the new rules will be raised from €100 million to €200 million. In addition, a new optional Q&A format will help SMEs and small caps draw up their own prospectuses for shares and bonds.

Shorter prospectus summary
The proposal also aims to shorten the prospectus summary. Whereas under the Prospectus Directive the summary can be 15 pages or longer, the proposal reduces its length to no more than six A4 pages and models it on the key information document (KID) required under the PRIIPS Regulation.

Simpler secondary issuances for listed companies
Directive 2010/73/EU introduced a proportionate disclosure regime for offers of new shares by issuers whose shares in the same class are admitted to trading on a regulated market or a multilateral trading facility.

Unfortunately, this regime has been seldom used due to its narrow scope.

The proposal significantly extends the situations in which a simpler prospectus may be prepared to:

  1. issuers whose securities have been admitted to trading on a regulated market or an SME growth market for at least 18 months and that issue additional securities in the same class;
  2. issuers whose equity securities have been admitted to trading on a regulated market or an SME growth market for at least 18 months and that issue non-equity securities; and
  3. offerors of a class of securities admitted to trading on a regulated market or an SME growth market for at least 18 months.

Introduction of a fast-track approval mechanism
An optional fast-track approval mechanism for issuers admitted to trading on a regulated market or multilateral trading facility will be introduced. Companies that frequently tap into capital markets will thus be able to use an annual "Universal Registration Document" (URD), a sort of "shelf registration" containing all necessary information. In these cases, the supervisor should be able to scrutinise the remaining documents (securities note and summary) within five working days, rather than  ten, thus allowing five-day fast-track approval.

Other changes include improvements to the base prospectus, a broader range of information that an issuer may incorporate by reference in a prospectus, and a new focus on relevant rather than generic risk factors.

Once adopted, the proposed regulation will repeal Directive 2003/71/EC, along with its implementing measures. New implementing measures will then have to be adopted to set out the minimum content of prospectuses. The proposed regulation will be applicable only after the adoption of these implementing measures.

Pursuant to a grandfathering clause in the proposed regulation, prospectuses approved in accordance with Directive 2003/71/EC before the date of entry into force of the regulation will continue to be governed by the former.