The European Commission has adopted a legislative proposal for a new Prospectus Regulation (the Proposed Regulation) which would repeal and replace the existing Prospectus Directive and the accompanying Prospectus Regulation prescribing the form and content of the required prospectuses. The Proposed Regulation was announced as a key element of the Capital Markets Union which intends to stimulate the free flow of capital in the EU.

Although the Commission believes that the current prospectus regime generally functions well, it feels that certain requirements could be improved to alleviate the administrative burden for companies which draw up a prospectus and to make the prospectus a more valuable information tool for potential investors. Thus, the Proposed Regulation puts special emphasis on four groups of issuers:

• issuers already listed on a regulated market or an small and medium-sized enterprise (SME) growth market, which want to raise additional capital by means of a secondary issuance. The Proposed Regulation notes that issuers whose securities are already listed on a regulated market (this category accounts for around 70% of all prospectuses approved in a given year), or the future SME growth market, should enjoy the benefit of an alleviated prospectus for their secondary issuances. The reformed minimum disclosure rules for secondary issuances are expected to reduce the cost of drawing up prospectuses and to make the resulting disclosure more relevant for potential investors;
• the Proposed Regulation notes that SMEs should likewise be offered the option to draw up a distinct, tailor-made prospectus when they offer securities to the public, focusing on information that is material and relevant for companies of such size. It is noted that this kind of prospectus should, however, not be available to SMEs admitted to trading on regulated markets to avoid creating a two-tier disclosure standard on regulated markets which might undermine investor confidence. In addition, a new optional “question and answer” format is expected to help SMEs in drawing up their own prospectus, thus saving considerable legal fees;
• frequent issuers of all types of securities. The envisaged annual “universal registration document” for frequent issuers should result in cost reductions for companies who intend to have frequent recourse to capital markets and want to have a “shelf” registration document in place that is cleared by the national competent authority and allows them to swiftly seize opportunities to raise capital. Recourse to the proposed universal registration document intends to shorten prospectus approvals, once the opportunity to raise capital presents itself from currently 10 to 5 working days; and
• issuers of non-equity securities. The favourable treatment of non-equity securities with a high denomination per unit have led to unintended consequences, creating distortions in the European bond markets and making a significant share of bonds issued by investment-grade companies inaccessible to a wider number of investors. The Proposed Regulation therefore removes the incentives to issue debt securities in large denominations with a view to removing one of the identified barriers to secondary liquidity on European bond markets.

The Proposed Regulation also intends to further incentivise the use of the cross-border “passport” for approved prospectuses, which was introduced by the Prospectus Directive.

View European Commission Prospectus Directive page, 30 November 2015