The European Parliament, the Council and the Commission have agreed on revamped prospectus regulation. The reform was proposed by the Commission on 30 November 2015 as part of its Capital Markets Union Action Plan in order to improve access to finance for companies and simplify information for investors.
The prospectus is the gateway to capital markets for many companies, but can often be costly and burdensome for companies to produce, especially smaller ones, as it often requires hundreds of pages of detailed information. For investors, it can prove difficult to wade through very detailed information.
The new EU prospectus rules will exempt the smallest capital raisings from the burden of producing a lengthy and expensive prospectus. Start-ups and SMEs can now raise up to €1 million on local growth markets without a prospectus. Member States are able to set higher thresholds to support growth in their domestic markets. These thresholds will be increased from €5m to €8m. For small companies who want to raise money across the EU, a new EU growth prospectus will be created for use by small and medium-sized companies (SMEs) and mid-caps. The EU growth prospectus will also help investors to make informed investment decisions based on the clearer information provided.
Secondary markets in corporate bonds will receive a boost from the new alleviated corporate bond prospectus that will now become available irrespective of denomination sizes when admitted to professional markets.
The new prospectus rules will also help to strip away burdens, deliver shorter prospectuses, better and more concise information for investors and a fast track regime for companies that frequently tap capital markets.
Vice-President Valdis Dombrovskis, in charge of Financial Stability, Financial Services and Capital Markets Union, said: "We have completed another milestone of the Capital Markets Union, cutting unnecessary red-tape to make it easier and cheaper for companies, especially SMEs, to raise money in the capital markets. Investors will get clearer information to make their investment decisions. This will encourage more cross-border investment opportunities and help Europe to grow."
The agreement provides for the following changes:
- The smallest capital raisings and crowdfunding projects up to €1 million will not need to issue a prospectus at all.
- The EU prospectus will only be mandatory from € 8 million in capital raised, almost doubling the previous €5 million threshold. For offerings below that threshold, issuers can raise capital according to local market rules issued by growth markets. This will support the growth of local or regional stock small company exchanges (including the future SME growth markets introduced by MiFID II).
- There will be a new EU growth prospectus that will be available for SMEs, mid-caps admitted to an SME Growth market or small issuances by non-listed companies. This will boost the ability of small and growing companies to raise money across the single market.
- An alleviated corporate bond prospectus will be available for admission to wholesale debt markets. Previously, the alleviated debt prospectus was only available for debt issued in denominations of at least € 100 000, a denomination size which made it difficult for many investors to invest in corporate debt. The new corporate debt prospectus aims to introduce more liquidity into secondary markets for corporate bonds.
- Frequent participants in the capital markets will now have a frequent issuer regime that they can activate once an opportunity to raise funds arises, which will halve approval times from 10 days to 5.
- A shorter prospectus for secondary issuances will allow issuers already admitted to stock markets and SME growth markets to benefit from a lighter prospectus for any "follow-up" issuances.
- Prospectus summaries will become shorter and the language used will be easier to understand for investors.
- No more paper prospectuses will be required, except if a potential investor explicitly requests one. This should result in considerable cost savings and move prospectuses to the digital age.
- A new European online prospectus database will be operated free of charge by European Securities and Markets Authority (ESMA).
The agreed text now goes to the European Parliament and the Council of the EU for a final vote.
The current Prospectus Directive 2003/71/EC harmonises rules for the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. It was adopted in order to make it easier and cheaper for companies to raise capital throughout the Union on the basis of approval from only one supervisor in a Member State. Under the Directive, issuers, offerors or persons asking for the admission to trading on a regulated market can use a "passport" for their prospectuses for cross-border offers and listings without further approval procedures in other Member States.
The Directive also ensures harmonised minimum protection for investors by guaranteeing that all prospectuses, wherever they are published, provide them with the clear, comprehensive and standardised information they need to make informed decisions. Investors therefore benefit from common EU standards for prospectus disclosure and approval by national supervisors. The Directive only concerns initial disclosure requirements for a public offer or admission on a regulated market. It neither affects on-going nor ad-hoc reporting obligations laid down in the Transparency Directive and Market Abuse Regulation.
This Commission proposal came following a review based on a public consultation. The consultation revealed that while overall the Directive was meeting its objectives of market efficiency and investor protection, in a number of cases it creates legal uncertainty and unjustified burdensome requirements, which increase costs and create inefficiencies hampering the process of raising funds on the securities markets in the EU. This proposal addresses these weaknesses whilst ensuring regulatory continuity in areas which work well under the current regime.
The proposed Regulation is a major milestone in the path toward a European Capital Markets Union.
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