Recent Developments in the European Union Prospectus Regulation
Introduction
A new legislative package, the Listing Act, was adopted by the European Council on October 8, 2024 to make capital markets within the European Union (“EU”) more attractive and facilitate companies' IPO process. The Listing Act amends the EU Prospectus Regulation, the EU Market Abuse Regulation, the Markets in Financial Instruments Regulation (MiFIR) and the Markets in Financial Instruments Directive (MiFID II), while repealing the EU Listing Directive. It also introduces a new directive (Multiple Voting Rights Directive) to harmonize new rules for regulating share structures with multiple voting rights.
This Newsletter will examine the amendments introduced to the EU Prospectus Regulation by the Listing Act, in particular thresholds for being subject to a prospectus requirement, the format of the prospectus, and the prospectuses to be prepared in certain exceptional circumstances.
Amendment to the Thresholds for Being Subject to the Prospectus Regulation
One of the main amendments made to the EU Prospectus Regulation by the Listing Act is the changes made to the thresholds for being subject to a prospectus. Before the amendment, public offerings of securities with a total issue price of less than EUR 1 million, calculated over 12 months, were excluded from the scope of the EU Prospectus Regulation. However, Member States were authorized to grant exemptions from the requirement to publish a prospectus for public offerings whose total issue price did not exceed EUR 8 million, again calculated over 12 months.
With the Listing Act, these thresholds were updated and a double threshold system was introduced. Under the new system, the prospectus requirement is abolished for securities issues with a total issue amount below EUR 12 million, calculated over 12 months throughout the EU. However, Member States have been given the flexibility to set this threshold at EUR 5 million, depending on the size of their capital markets.
This amendment aims to facilitate small and medium-sized enterprises' public offering processes and ease the burden of preparing prospectuses.
Amendments to the Exceptions to the Prospectus Preparation Obligation
The Listing Act has expanded the exceptions to the obligation to prepare a prospectus.
If securities are to be offered to the public for trading in regulated markets or SME growth markets, provided that (i) these securities have similar characteristics to fungible securities that have already been traded in the same market, (ii) the number of new securities is less than 30% of the number of existing securities traded on the same market in the last 12 months, (iii) the issuer is not in the process of restructuring or bankruptcy, and (iv) certain information is submitted electronically to the competent authority and made publicly available, the said securities issue was exempted from the obligation to prepare a prospectus.
The issuance of securities is exempted from the obligation to prepare a prospectus provided that (i) the securities to be issued have the same characteristics as securities traded in a regulated market or SME growth market where the securities have been traded continuously for at least 18 months; (ii) the securities offered are not issued in connection with a merger, demerger or acquisition by way of exchange; (iii) the issuer is not in the process of restructuring or bankruptcy; and (iv) certain information is submitted electronically to the competent authority and made publicly available. These regulations aim to reduce bureaucratic burdens and facilitate access to financing for small and medium-sized issuers.
In addition, the exemption limit for credit institutions was increased, and the limit for public offerings by banks that did not require a prospectus was raised from EUR 75 million to EUR 150 million.
Changes to the Prospectus Format and Content
Among the amendments introduced by the Listing Act are revisions in the prospectus format. To make prospectuses more understandable and accessible, the prospectus format has been simplified and standardized. Adopting a uniform prospectus format across the EU is aimed at investors to compare different prospectuses more easily.
A page limit has been introduced to enhance readability, reduce preparation costs for issuers, promote EU-wide harmonization, and enable investors to analyze and utilize prospectuses more efficiently. Under the new regulations, the number of prospectuses for share issues is limited to 300 pages. However, considering the complex financial structures of securities other than shares and debt instruments, imposing a page limit for those securities was not deemed appropriate. In addition, the prospectus summary, information incorporated by reference, and information required to be provided in cases where the issuer has a complex financial history, makes a significant financial commitment or undergoes a significant financial change are not included in the page limit.
In line with digitalization efforts, it has been made mandatory to submit prospectuses only in electronic format and hard copy requests have been eliminated.
Furthermore, the structure and content of prospectus summaries have been standardized, with specific requirements for the order and format of the information to be included.
The Listing Act also revised the minimum content of the prospectus and narrowed its scope. Under these amendments, historical financial information is now limited to the last two financial years for equity issues instead of three years, and only the last financial year for debt instruments. However, in connection with the historical financial information for the relevant period, issuers must include (consolidated) management reports and, where necessary, sustainability reports, either directly in the prospectus or incorporated by reference.
New regulations have also been introduced regarding presenting risk factors in the prospectus. Accordingly, the risk factors included in the prospectus will be limited to the significant risks specific to the issuer and securities that may affect the investment decision. Risk factors that contain general expressions, are intended only for disclaimer purposes or are not sufficiently clear for investors will not be included. Risk factors will be categorized and the most important risks in each category will be ranked following the specified evaluation system.
Types of Prospectuses to be Prepared in Special Cases
The Listing Act introduces specific prospectuses to enable issuers to complete the process more cost-effectively and efficiently. In this context, two types of prospectuses have been introduced: the EU Follow-on Prospectus and the EU Growth Issuance Prospectus.
The EU Follow-on Prospectus for secondary issues may be used by issuers whose securities have been continuously traded on a regulated market or SME growth market for at least 18 months. This prospectus will be up to 50 pages in length. The approval period for this prospectus is limited to 7 business days. This period is 10 business days for standard prospectuses.
The EU Growth Issuance Prospectus is specifically designed for small and medium-sized enterprises and growth-stage companies. This prospectus offers a more simplified format and can be up to 75 pages long. This prospectus can be used if the total value of the securities provided to the public is less than EUR 50 million and is suitable for small and medium-sized enterprises, companies listed on the SME Growth Market and others that meet specific criteria. This new format is expected to reduce the bureaucratic hurdles and costs faced by small and medium-sized enterprises in the IPO process.
Conclusion
The changes introduced by the Listing Act to the EU Prospectus Regulation aim to make capital markets more efficient and accessible. The new regulations simplify the format of prospectuses to facilitate the public offering processes of small and medium-sized enterprises while ensuring that investors can access and understand prospectuses more easily.
These changes seek to provide a more transparent, predictable, and cost-effective prospectus process for both issuers and investors. Establishing a harmonized regulatory framework across the EU will encourage the development of capital markets, facilitate companies’ access to financing, and contribute to economic growth.
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