Prospectus to be published when securities are offered to the public or admitted to trading on a regulated market

KEY POINTS

The regulation:

• removes the need for a prospectus for any offer of securities to the public, including crowdfunding (raising money from a large group of people, often via the internet) projects, below €1 million (previously the limit was €100,000);
• allows EU Member States to be exempt from the obligation to publish a prospectus for offers of securities to the public of up to €8 million, provided that they do not require notification (a passport³) – however, securities can only be admitted to a regulated market in the EU after prior publication of a prospectus (Article 3 (3));
• sets out rules to curb the tendency to overload prospectuses with generic risk factors;
• strengthens supervisory convergence by harmonising the scrutiny and approval of prospectuses (including the applicable timelines) throughout the EU;
• enables companies that frequently issue securities to use the universal registration document to secure fast-track approval from supervisors within 5 days;
• introduces a European online database, operated free of charge by the European Securities and Markets Authority (ESMA), containing all prospectuses approved in the European Economic Area.

The regulation requires a prospectus to enable an investor to make an informed decision. It must include:

• assets, liabilities, profits, losses, financial position and prospects for the issuer and any guarantor;
• rights attached to the securities;
• reasons for issuing the securities and their impact on the issuer;
• a clear and accurate seven-page summary (except for the admission to trading of non-equity securities only targeting qualified investors) which provides:
  • an introduction with warnings that the investor could lose all or part of the invested capital,
  • key information on the securities, including the type and class of securities and the rights attached to the securities,
  • information about the issuer,
  • a brief description of the nature and scope of a guarantee.

The regulation establishes a standardised and simplified EU growth prospectus for:

• SMEs, defined in Directive 2014/65/EU (the MiFID II directive) (see summary) as companies that meet at least two of the following three criteria:
  • an average number of employees during the financial year of less than 250,
  • a total balance sheet not exceeding €43 million,
  • an annual net turnover not exceeding €50 million;
• issuers, other than SMEs, whose securities are traded or to be traded on an SME growth market (a market that offers access to capital for SMEs), with an average market capitalisation (the market value of a company’s shares) of below €500 million;
• offerors of securities issued by issuers referred to in the two previous points;
• non-listed companies (not listed on any stock market) that offer securities to the public of less than €20 million in any given 12 months, provided that they have fewer than 500 employees;
• issuers, other than SMEs, that offer shares to the public and at the same time seek admission of those shares to trading on an SME growth market, provided that:
  • such issuers have no shares already admitted to trading on an SME growth market,
  • the combined value of the final offer price (or, if this is not available, the maximum offer price) and the total number of shares outstanding immediately after the share offer to the public is less than €200 million.

The abovementioned companies can benefit from this tailored prospectus provided that they have no securities admitted to trading on a regulated market.

The regulation also:

• provides for a simplified prospectus for companies listed for at least 18 months on a regulated market or an SME growth market and wishing to issue additional shares or raise debt (secondary issuance);
• harmonises the minimum information content of the document to be published for a prospectus exemption in connection with a takeover by means of an exchange offer, a merger or a division;
• introduces a prospectus exemption for offers of securities to the public made by crowdfunding service providers that do not exceed the threshold of €5 million in accordance with the conditions specified in amending Regulation (EU) 2020/1503.

In 2021, to help companies recover from the COVID-19 crisis, amending Regulation (EU) 2021/337 was adopted, introducing the new EU recovery prospectus for the period up to the end of 2022. This shorter prospectus, with a maximum length of 30 pages plus a two-page summary, made it easier for companies to raise capital to meet their funding needs, while ensuring adequate information was provided to investors.

Delegated acts

The European Commission has adopted the following acts:

• Delegated Regulation (EU) 2019/979 laying down details of the key financial information in the summary of the prospectus, the publication and classification of the prospectus, the advertisement for the securities and the supplement to a prospectus;
• Delegated Regulation (EU) 2019/980 laying down details of the precise content and format of the prospectus, and concerning the scrutiny and approval of the prospectus;
• Delegated Regulation (EU) 2021/528 setting out the minimum information content of the document to be published for a prospectus exemption in connection with a takeover by means of an exchange offer, a merger or a division;
• Delegated Regulation (EU) 2020/1272 amending and correcting Delegated Regulation (EU) 2019/979;
• Delegated Regulation (EU) 2020/1273 amending and correcting Delegated Regulation (EU) 2019/980.

Report

The Commission is required to report on the application of the legislation before 21 July 2022.