On 9 August 2002, the European Commission has presented an amended proposal for a Directive on prospectuses, taking account of the European Parliament's opinion on the original proposal (see Special feature in SMN 27). On 5 November, the Council of ministers already reached a political agreement on this. The amended proposal would make it easier and cheaper for companies to raise capital throughout the EU, while reinforcing protection for investors by guaranteeing that all prospectuses, wherever in the EU they are issued, provide them with the clear and comprehensive information they need. A prospectus is a disclosure document, containing key financial and non-financial information, that a company makes available to potential investors when it is issuing securities (stocks, shares, bonds etc.) to raise capital and/or when it wants its securities admitted to trading on exchanges. The Directive would introduce a new "single passport for issuers". This means that once approved by the authority in one Member State, a prospectus would then have to be accepted everywhere else in the EU. In order to ensure investor protection, that approval would only be granted if prospectuses meet common EU standards for what information must be disclosed and how.
All types of securities normally traded in the market fall within the scope of the proposed Directive. The Directive only concerns initial disclosure requirements. Conditions for admission to listing remains subject to existing European and national requirements in that respect. This means that corporate governance issues are not affected by this proposal.
The amended proposal includes more flexible arrangements for firms, without compromising on guaranteeing protection and sound information for investors.
Compared with the Commission's original proposal (May 2001), the main changes are:
- the introduction of special EU rules for securities with a high minimum denomination (€ 50 000), which are designed to be traded by professionals. This adapted regime includes different content for the prospectus, no requirement for a summary, different language rules and the possibility for the issuer to choose on a case by case basis to which competent authority they submit their prospectuses for approval. Issuers would not need always to have their prospectuses approved in the same Member State and there would be no mandatory registration with a single authority;
- an adapted regime aimed at making things easier for small and medium-sized companies, which would not be obliged to draft a prospectus if only a small amount of securities
( € 2 500 000) is offered to the public. Where a prospectus is required, its content would
be adapted for smaller companies and the requirement to update information annually would be limited to a reference to their annual financial statements;
- choice left to the issuer on the format of the prospectus (single or split document);
- disclosure standards based on international standards (IOSCO) with schedules adapted depending on the nature of the issuer and the type of securities involved, for example: equity securities such as shares, non-equity securities such as bonds, derivatives securities such as covered warrants, securities with a high minimum denomination and mortgage bonds;
- the introduction of new prospectus formats for frequent issuers, notably for offering Euro Medium Term Notes, derivatives securities such as covered warrants, or for mortgage bonds issued on a continuous or repeated basis;
- an effective regime for the "single passport". For companies to issue securities, or admit them to trading, in any EU Member State, they would simply need to notify the authorities in that country of their prospectus and show that it has already been approved by the appropriate authority in another Member State.
This proposed Directive is a centrepiece of the EU's Financial Services Action Plan and of the drive to create an integrated European securities market by 2003. The European Council of Barcelona, in March 2002, asked for the Directive to be adopted by the end of 2002.
The Commission's original proposal was adopted in May 2001. Following Parliament's opinion in March 2002 and discussions in Council under the Belgian and Spanish Presidencies, the Commission has adopted a modified proposal which seeks to conciliate many divergent views.
On 5 November, the Council of ministers reached a political agreement on this modified proposal. Once the Council has adopted a formal common position, the proposal will be forwarded to the European Parliament for its second reading under the so-called co-decision procedure.
The full text of the modified proposal is available at http://ec.europa.eu/internal_market/en/finances/mobil/index.htm
Hubert Grignon Dumoulin
DG Internal Market - G.2
Tel.: + 32 (0) 2 299 26 15
Fax.: + 32 (0) 2 295 56 06