Published: 12th April 2018

Of relevance to: All firms involved in the production of prospectuses when securities are offered to the public or admitted to trading on a regulated market
Key date: 21 January 2019

The European Securities and Markets Authority (“ESMA”) has published the first part of its Technical Advice (“TA”) under the new Prospectus Regulation (“PR”), covering the areas of format and content of a prospectus, the EU Growth prospectus and the scrutiny and approval of a prospectus.

The Prospectus Directive (Directive 2003/71/EC), and its revision in 2009, will be repealed when the PR (EU Regulation 2017/1129) comes into force, as will Regulation (EU) No 809/2004 and all the schedules and building blocks it contains. The aim of the PR in the context of the Capital Markets Union is to facilitate access to financial markets for companies, particularly small and medium-sized enterprises (“SMEs”), by making it easier and cheaper for them to access capital, and to improve prospectus accessibility for investors.

Subject to endorsement by the European Commission (“EC”), the TA will form the basis for the delegated acts to be adopted by the EC by 21 January 2019.

Format and content of prospectus

ESMA sets out a number of changes to the existing prospectus regime aimed at easing requirements for issuers, with a view to reducing the cost and administrative burden in using a prospectus, as well as a number of additional disclosure requirements that are deemed necessary for investor protection.

Universal Registration Document

Introduced by the PR, the Universal Registration Document (“URD”) is a new registration document for frequent issuers of securities that are listed on a regulated market or a Multilateral Trading Facility.

A URD can optionally be used by frequent issuers to offer securities, irrespective of their type (shares, debt, derivatives) or of the nature of the issuer (large company or SME). ESMA has now further developed the content of the URD, which should result in issuers being able to swiftly seize market opportunities.

The content of a URD is closely aligned with the standard share registration document and is similar, in terms of the range of information covered, to what would be required in the context of an initial public offering on a regulated market. Its introduction is based on the premise that an issuer that draws up, every year, a complete registration document in the form of a URD, should benefit from fast-track approval (five working days, instead of ten) when a National Competent Authority (“NCA”) approves a prospectus consisting of separate documents.

The PR allows frequent issuers to use the URD as a medium to publish the periodic information required by the Transparency Directive (Directive 2004/109/EC).

Format and content of the EU Growth prospectus

For smaller companies wishing to tap into European markets, the PR provides a considerably lighter regime and less complex requirements for issuing a prospectus.

The EU Growth prospectus, a new type of prospectus, will be available for small and medium-sized enterprises (“SMEs”), companies with up to 499 employees (small mid-caps) admitted to an SME growth market, or small issuances by unlisted companies.

The TA identifies the minimum disclosure requirements for the EU Growth prospectus, the order in which they should be presented, and the format and content of the specific summary.

In order to ensure a proportionate regime for SMEs, ESMA has adapted the disclosure requirements to the issuer’s size and the complexity of its operations and balanced them against the needs of investor protection.

As less research is expected to have been produced since MiFID II came into force, especially for smaller listed companies, it is even more important that investors receive reliable, clear and readable information.

Scrutiny and approval of the prospectus

The final set of this TA sets out criteria for scrutiny and procedures for approval and filing of the prospectus.

ESMA proposes that standard criteria for scrutiny of the completeness, comprehensibility and consistency of the prospectus should be adopted, and that, beyond these standard criteria, NCAs should be afforded a certain level of flexibility which, in ESMA’s view, is necessary to ensure investor protection.
Product costs for securities, including implicit costs, under MiFID II and the PRIIPS Regulation from 1 January 2018.

Despite many Consultation Paper respondents not agreeing with the proposal that implicit costs should be included in the price disclosure under item 5.3.1 of Annex 5 (as they already have to provide information on product costs for securities, including implicit costs, under MiFID II and the PRIIPS Regulation from 1 January 2018), ESMA requires, to the extent that they are known, the expenses included in the price charged to the subscriber or purchaser should be disclosed.

ESMA doesn’t consider the requirement as onerous or costly to the issuer and maintains this information is important for an investor in order to make an informed investment decision.

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