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The new EU prospectus regulation: a few details

David Collins and partners, Dentons, London, 27 July 2017

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The European Union's prospectus regulation, which will eventually replace its prospectus directive, is now law in all 28 countries. A couple of its provisions apply now, although most of it comes into force in July 2019.

The regulation forms part of the EU's "capital markets union project," whose purpose is to make it easier for firms, particularly smaller ones, to raise funding and reach investors across borders.

As of last week (20 July), an issuer with securities admitted to trading on a regulated market may admit further securities without a prospectus as long as they represent less than 20% of the same class of security (calculated over a 12-month period). This is higher than the old 10%.

A similar 20% limit applies to shares to be admitted to trading on a regulated market where those shares result from the conversion or exchange of other securities. There used to be no limit.

From July 2018 onwards, no prospectus will be necessary for capital 'raisings' [a word absent, both in the singular and the plural, from the directive] below €1 million, calculated over a 12-month period. Furthermore, EU states will be able to exempt offers of securities to the public from the prospectus requirement if the total consideration for these in the EU does not exceed €8 million [£7,153,260] over a 12-month period. Offers of securities made under this exemption will not benefit from passporting.

Most of the regulation's provisions, however, will begin to apply in July 2019. There will be a new, simplified prospectus for companies that have had securities listed for at least 18 months and want to raise more capital by a secondary issue. Unlike the current proportionate disclosure regime for secondary, the new regime will not be limited to pre-emptive offers.

A "growth prospectus" will be available, principally for offers by small and medium-sized enterprises that do not already have securities admitted to trading on a regulated market. This will be a simplified, standardised form of prospectus, with reduced disclosure requirements.

There will be a new annual "universal registration document" for use by companies that often access the capital markets, containing all the necessary information on a company that wants to list shares or issue debt.

The form of prospectus summary will be more straightforward and less rigidly prescribed. It will be modelled on the key information document required under the Packaged Retail and Insurance-based Investment Products [PRIIP] Regulation.

For offers to the public or the admission to trading of securities in connection with a takeover, merger or division, the current requirement for a document "equivalent" to a prospectus will be simplified.

In its draft form the regulation contained a proposal to increase the number of people to whom an offer may be made before a prospectus is necessary. This has not come to pass and the figure therefore remains at fewer than 150 natural or legal persons per member state, other than qualified investors.

The Financial Conduct Authority has already set out its proposals to update its prospectus rules in advance of those provisions of the regulation that came into force last week.

By July 2019 the UK will, on the current Brexit timetable, have already left the EU and the regulation will no longer apply directly. However, HM Government might put equivalent rules in place.

* David Collins can be reached on +44 20 7246 7597, Richard Barham is on +44 20 7246 7109 and Candice Chapman is on +44 20 7246 7141

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