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Association for Financial Markets in Europe
As a general comment AFME notes that while the new regime will bring in numerous changes to the prospectus format and content, the majority of these changes are, in AFME’s view, incremental improvements. In addition, AFME notes that ESMA has retained the current disclosure annexes as these are understood by the market and only requires disclosure of a specific item to the extent that it is relevant to the Article 6 disclosure test for the relevant type of security.
We would make the following high-level general comments, by way of introduction.
(1) Simplified prospectus disclosure - importance of maintaining flexibility to disclose additional information
In AFME’s view, while the simplified disclosure which is being suggested may be helpful for certain issuers, there will be many occasions where issuers will want to include additional information to that required by Annexes 18 and 19 or to reflect requirements and practices (including ordering of information) in other markets. It is therefore important that, as contemplated at Level 1, the Commission and ESMA ensure that National Competent Authorities (NCAs) allow issuers to include additional disclosure, where appropriate, or permit derogations, where necessary, to track the disclosure requirements of other markets.
In particular, many larger issuers have a significant US investor base that they need to access when undertaking a secondary issuance. A proportionate disclosure regime which does not allow for taking account of the US disclosure requirements would not be used by issuers seeking to access US investors, as the resulting prospectus would only be suitable for use in connection with European issuance.
(2) Universal Registration Document or URD
Aside from markets like France where there is already a practice of making annual disclosures in a registration document format, AFME considers that it is unlikely that the new URD regime will trigger a change in approach across all of the EEA, as a result of the following factors:
issuers rarely require a prospectus every year for an equity issuance and therefore the production of an annual URD, as required by the Level 1 Regulation, may prove inefficient; and
even where an issuer has prepared a URD, in order to publish a prospectus it will be necessary to publish a securities note and, in most cases, a summary, and these will have to be approved by the relevant NCA. It is also unclear whether a URD will have to be approved again when it is part of a prospectus. Accordingly, there may be limited time advantages to preparing a URD.
(3) ESMA Q&A on Prospectuses
The ESMA Q&A issued under the existing Prospectus Directive regime contain a significant amount of useful guidance. AFME's view is that it would be helpful if these were updated and carried forward under the new regime.
AFME understands that ESMA is proposing to issue guidance to national competent authorities regarding the application of the two exemptions which came into effect on 20 July 2017, to ensure a common approach amongst NCAs.
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ICAEW
ICAEQ has given careful consideration to ESMA’s consultations on technical advice under the new Prospectus Regulation and have contributed to the responses by our European federation, Accountancy Europe.
It would like to make some comments in relation to the proposal that there should be no obligation to include an accountant’s or an auditor’s report for equity and non-retail equity prospectuses (Q14). The requirement for such reports by listing and takeover authorities has a long established history in Europe and is a contributing factor to the market’s confidence in company communications. In the UK, the requirement goes back decades. We believe that absent from the commentary in the consultation paper are an assessment of the potential impact of the proposed removal of the obligation on market confidence and evidence that investors would be willing to forego the additional credibility provided by such reports.
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LSEG
In general LSEG supports the proposals that ESMA is putting forward, especially as these are consistent with market feedback that only minimal changes are required to the current annexes. In particular it supports that the Prospectus Regulation provides for a new possibility for companies to issue debt with no minimum denominations. It strongly supports the solution which was found last year in the legislative discussions, whereby the popular wholesale disclosure regime remains unaltered but there is a new ability to access this more proportionate regime for lower denomination issues where these are restricted to admission to trading only on markets to which only qualified investors can have access.
LSEG would have preferred no restriction of such instruments in the secondary market to professional investors only however this still represents a step forward. It knows that investors have been clear that they would prefer lower denominations to avoid concentration risk for smaller funds as only larger funds are able to subsume a minimum size of €100k, creating an un-level playing field between funds. The removal of the minimum €100k denomination will also benefit issuers through a more diversified investor base and greater liquidity, potentially lowering their cost of capital. Lower denominations will also allow market makers to support liquidity whilst reducing demands on their balance sheets and improve settlement efficiencies (as the ECB has argued).
LSEG key points
· it supports that minimal changes are proposed to the wholesale annexes
· it highlights the value of a use of proceeds section for the Environmental, Social and Governance bond issuance sector (Q5)
· it supports the new ability to issue lower denominations on qualified investor only markets and we support the idea of a new definition of wholesale debt to include QI only market debt as well as €100k denomination debt (Q7)
· it requests a clarification on the requirement to include more information on third party statements (para 57 of CP), Q10
· it welcomes the removal of selected financial information (Q10)
· it does not oppose the requirement to disclose the issue price where there is an application for admission to trading needs calibrating for certain special circumstances (Q26)
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ICMA
ICMA welcomes the ESMA Consultation Paper on the measures specifying the criteria for the scrutiny of prospectuses, in particular the completeness, comprehensibility and consistency of the information contained therein, and the procedures for the approval of the prospectus (Article 20(11) of the Prospectus Regulation). ESMA has highlighted the general conditions which have to be met for the prospectus to be approved and outlining criteria for the scrutiny of "the three Cs": completeness, comprehensibility and consistency of the prospectus.
ICMA agrees with the clear acknowledgement that the criteria for determining whether a prospectus is complete will include assessing the nature of the issuer, the securities and/or the offer/admission. This reflects the variable nature of securities and the variable intended audiences for different prospectuses and is to be welcomed.
ICMA's view is it might be sufficient for the criteria simply to include the statement that "the correct schedules and building blocks have been used for drawing up the prospectus". The additional limb that "the prospectus reasonably addresses all the information items of the applicable disclosure schedules" seems extraneous. Instead, we would suggest that the national competent authorities (NCAs) should simply rely on the obligation imposed by Article 6 of the Prospectus Regulation (EU) 2017/1129 on anyone producing a prospectus that it "shall contain the necessary information which is material to an investor for making an informed assessment".
Moreover, the requirement to determine that the prospectus "reasonably addresses" certain items may imply a judgement by the NCA on the level of disclosure. This is particularly so in light of the discussion in paragraphs 21 - 23 of the Consultation, which suggest that, whilst NCAs have no obligation to look beyond the prospectus, they may, at their discretion, choose to undertake further diligence on the issuer and raise comments about other information outside the prospectus which might be relevant for inclusion. We would also suggest that, notwithstanding the fact that the draft NCA "disclaimer" contained in the parallel ESMA Consultation on prospectus content (ESMA31-62-532) states that the NCA approval does not constitute an endorsement of the issuer (e.g. item 1.5 in the draft Share Annex at page 41 in Consultation ESMA31-62-532), the suggestion that NCAs have any obligation to assess the completeness or appropriateness of an issuer's disclosure should be avoided.
ICMA would advise removal of the second limb, for the reasons stated above. Should an adapted version remain, ICMA would suggest that the reference to "all information" should be modified and restricted only to items which are pertinent to the issuer and the issue. Again, this might perhaps suggest a judgement call on the part of the NCA if the limb remains, even with such an amendment.
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FESE
FESE would encourage ESMA to consider specific regimes currently adopted by the existing markets for growth companies, for example in the case of the approval procedures, and to reuse their features as much as possible. It believes that, when considering the content of the Growth Prospectus, it is useful to remember that the market operator may always consider adding requirements for issuers as part of the listing rules for a market. Although many requirements are naturally and still should be harmonised across the EU, there may well be practices which have developed in a local ecosystem and which motivate certain requirements. Especially smaller companies in earlier stages of growth are more dependent on local investors for financing, and thus the room for local adaptation of rules becomes especially important.
In certain jurisdictions, for example, the admission document can be vetted by the exchange itself (under the supervision of the local NCA) in case of admissions to trading (it is the case of Euronext Growth markets), or of public offers prospectuses below certain amounts (Greece). Furthermore, in the case of Nasdaq’s First North a practice of “Company Description” has proved to work consistently. They are appropriately short, concise and informative documents, not too costly for the issuer to produce and relatively easily to understand for investors.
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Draft technical advice on format and content of the prospectus
Draft technical advice on content and format of the EU Growth prospectus
Draft technical advice on scrutiny and approval of the prospectus