Formalising the retail cascade exemption, and extending the exemptions 
for securities offered to employees
In November 2010 the European Parliament and Council adopted the Amending Directive (the AD (Directive 2010/73/EU)), which revises the Prospectus Directive and the Transparency Directive. Member States have until 1 July 2012 to implement the AD into national law. On 13 December 2011 HM Treasury and the Financial Services Authority published a joint consultation paper (CP (CP11/28)) setting out how they propose to implement the AD in the UK.
The purpose of the AD is, in the words of the CP:
“to increase legal clarity and the overall efficiency of the prospectus framework, as well as an opportunity to simplify the regime for the benefit of issuers, without compromising investor protection.”
The AD also makes changes to the Prospectus and Transparency Directive to ensure that issuers are not required to duplicate their disclosures under the two regimes and to ensure the two regimes are aligned.
Two of the measures contained in the AD have already been implemented into UK law, as we discussed in this post. Those changes increased, from 1 July 2011:
- The number of investors to whom an offer of securities may be made before a prospectus is required, from 100 to 150 investors; and
- The total size of the offer that may be made before a prospectus is required, from €2.5 million to €5 million.
The CP summarises the key changes that have been made to the Prospectus Directive:
• “Proportionate disclosure regime: This was introduced for small companies admitted to trading on a regulated market; pre-emptive offers of equities; and for offers of debtsecurities by lenders (totalling up to €75 million per year). The requirements of the proportionate disclosure regime will be set out in Level 2 legislation developed by technical work conducted by the European Securities and Markets Authority at Level 2.
• Prospectus summaries: Improvements have been made to strengthen the format, content and comparability of the prospectus summary. The extent to which liability ought to attach to the prospectus summary has also been clarified. Further work is being undertaken at Level 2 to determine the specific contents and format of a summary.
• Final Terms and Supplementary Prospectuses: The Amending Directive clarifies that final terms to a base prospectus should only contain information which is specific to the issuance. The specific demarcation of information between final terms and a supplementary prospectus is being undertaken at Level 2.
• Exemptions and thresholds: Revisions have been made as to the scope of provisions and exemptions which determine when the Prospectus Directive applies and whether a prospectus is needed. These generally involve increases in the threshold and exemption amounts. The Amending Directive also extends the current exemptions from producing a prospectus for employee share schemes to benefit non-EEA companies with employees in the EEA.
• Retail cascades: The exemption from the obligation to publish a prospectus for subsequent resales of securities through intermediaries (known as the ‘retail cascade’) has been formalised.
• Supplementary prospectuses and withdrawal of rights: Clarification is provided as to the period for which a supplement must be produced. Additionally, the rights of investors to withdraw from an offer have been clarified.
• Alignment with other EU regulation: Disclosure requirements which overlap with the Transparency Directive have been repealed. Additionally, the definition of a ‘qualified investor’ has been brought into line with the Markets in Financial Instruments Directive (MiFID) definition.”
The joint Treasury / FSA consultation closes on 13 March 2012.
Also on 13 December 2011, the European Securities and Markets Authority published its second consultation on technical advice to the European Commission on possible delegated acts in relation to the Prospectus Directive, as amended by the AD.
UPDATE: On 29 February / 1 March 2012 ESMA published its final technical advice on possible delegated acts concerning the Prospectus Directive as amended by the Directive 2010/73/EU (the Amending Directive). See ESMA’s final report here, press release here and letter to the Commission here.
UPDATE 16 April 2012: Prospectus Regulation: European Commission publishes draft delegated regulation under the Amending Directive
UPDATE 6 June 2012: Amending the prospectus regime: HM Treasury and FSA response to their consultation on UK implementation of the Amending Directive
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