Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and Repealing Directive 2003/71/EC (the PR) will, pursuant to article 49 of the PR, enter into force on July 20th 2017 and be applicable as from July 21st 2019.
Because the PR shall be directly applicable throughout the European Union (EU) Member States, it is of paramount importance to determine now what are the main features and changes that will be introduced compared with the currently applicable regime of Directive 2003/71/EC (the PD) as implemented in the Grand-Duchy of Luxembourg (Luxembourg) by the law of July 10th 2005 on prospectuses for securities (the PL).
CAPITAL MARKET IN THE EU?
The capital markets union shall assist businesses to tap into more diverse sources of capital from anywhere within the EU, make markets work more efficiently and offer investors and savers additional opportunities to put their money to work, in order to enhance growth and create jobs.
A regulation, directly applicable throughout EU Member States, will reduce the possibility of divergent measures being taken at national level, and thus ensure a consistent approach, greater legal certainty and strengthen confidence in the transparency of markets across the EU, and reduce regulatory complexity as well as search and compliance costs for companies.
The PR must ensure investor protection and market efficiency, while enhancing the internal market for capital.
The PR has been published in the Official Journal on June 30th 2017 and will automatically come into force on July 20th 2017;
Most of the PR provisions will apply as from July 21st 2019 except few specific features which will be applicable as from July 20th 2017;
Other provisions will apply as from July 21st 2018.
Prospectus already approved under the PL before July 21st 2019 shall continue to be governed by the PL until (i) the end of their validity or (ii) July 21st 2020, whichever comes first.
PROVISIONS APPLICABLE AS FROM JULY 20th 2017
Article 1 (5) (a), (b) of the PR provides for exemptions from the obligation to publish a prospectus:
- when the securities to be admitted on the regulated market are the same than securities issued by the company and already admitted on the said regulated market; or
- when the shares to be admitted result from a conversion or exchange of other securities or from the exercise of the rights conferred by other securities and the resulting shares are the same than shares already issued by the company and admitted to trading on the regulated market;
In both cases, securities/shares must not represent more than 20% of (i) the number of securities already admitted to trading on the same regulated market (for article 1 (5) (a)) or (ii) the number of shares of the same class already admitted to the regulated market. Compliance with this threshold is assessed on a 12 month period for both exemptions but may be non-applicable in certain circumstances specified in article 1 (5) of the PR.
The exemption provided for by article 1 (5) (c), deals with securities which result from the conversion or exchange of other securities, own funds or eligible liabilities by a resolution authority due to the exercise of a power referred to in specific provisions of Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms.
Compared to the former applicable provisions (article 6 (2) (a) and (b) of the PL), there are some significant changes since the scope of exemption to publish a prospectus in case of securities of the same class than securities already admitted to trading on a regulated market is much wider under the PR since increased to 20% against 10% in the former regime.
Nonetheless, regarding the second exemption, the PR reduced its scope considering that such exemption was not compelled to any threshold under the PL. The only limit was that the issuance of shares of the same class could not involve an increase of the share capital.
PROVISIONS APPLICABLE AS FROM JULY 21st 2018
Offer of securities to the public with a total consideration in the EU of less than EUR 1,000,000, calculated over a period of 12 months, shall not trigger the obligation to publish a prospectus. EU Member States will not be allowed to compel them to the publication of a prospectus under national laws.
Such offers will likely be submitted in each Member States to specific disclosure requirements which will probably vary from one Member State to another, as long as such disclosure requirements are not disproportionate or unnecessary, within the meaning of the PR.
EU Member States are allowed to exempt, from the obligation to publish a prospectus, offers of securities to the public which are not subject to notification, under the PR, and which total consideration in the EU is under an amount to be decided by the Member State but which shall not exceed 8,000,000 Euro on a 12 month period.
Although it is of tremendous importance for all issuers which shares or securities are admitted on a regulated market to update their knowledge of the applicable legal framework, hopefully, the PR gives them time to adapt and adjust.