16 March 2016

EP: Draft report on the proposal for a regulation on the prospectus to be published when securities are offered to the public

One of the key issues in the Commission’s proposal lies between the lower (500 000 euro) and upper threshold (10 million euro). The Commission’s proposal in Article 3 allows Member States to decide on a threshold below which public offers are either exempt from the Regulation or are subject to a national regime. This can lead to fragmentation of the single market as it could result in 28 different systems for public offers of a size falling between these thresholds. Such an approach corresponds more to a Directive rather than a Regulation and as a result, the creation of a true single market in capital is hampered. Harmonized rules are needed for the establishment and functioning of the internal market.

Therefore, the rapporteur has introduced a new element for smaller issuances (in the space between the two thresholds): issuers will have a choice to opt-in and use the ‘EU Growth Prospectus’. This allows issuers to apply an EU light regime which can be "passported" across the Union. Without prejudice to this option for issuers, member states may still decide to provide for an exemption or a national regime to address market specificities in the different Member States.

The rapporteur has considered the Prospectus Regulation in the context of other existing investor protection regulations with the aim to ensure consistency and avoid duplication. The PRIIPS Regulation aims to ensure that complex instruments are disclosed properly to investors. MIFID regulates the appropriate access of investors to financial products and includes specific investor protection rules where investment intermediaries sell or advise clients on investment products to avoid mis-selling. The Market Abuse Regulation (MAR) aims to uphold market integrity and transparency of capital markets by prohibiting abusive behaviour (insider dealing or market manipulation) and requiring ad-hoc public disclosure by issuers of price sensitive information. In this context the Prospectus Regulation should ensure that investors have access to information which is readable, comprehensible and relevant for investors to make an informed investment decision.

Here the most important element in the Commission’s proposal is the summary (Art. 7) which should be aligned with the KID under PRIIPS as much as possible. The rapporteur further clarifies that the summary should be read together with other parts of the prospectus in order for the investor to make an investment decision. A specific warning should be included in the summary on the extent to which investors can lose their investment in a worst case scenario. The offering or admission documents should also include a clear warning for investors where no prospectus or supervision is required.

The removal of the exemption for bonds above a denomination of 100 000 euro is supported by the rapporteur, but not for the reasons stated by the Commission. In the rapporteur's view, this exemption (linked to the denomination) does not achieve its purpose of retail investor protection. The removal of the exemption is premised on the development of a more proportionate regime based on the type of investor (qualified investor versus non-qualified investor).

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