Further to proposals by the European Securities and Markets Authority (“ESMA”), the Prospectus Directive regime in Europe, particularly the requirements in relation to the form of prospectuses, transaction summaries, final terms and supplements have undergone some major changes. These changes have been brought about by amending the Prospectus Directive and the Commission Regulation (EC) No 809/2004 (the “Amending Regulations”), which came into effect on 1 July 2012. As a result, issuers with established programmes or those looking to establish new programmes will have to carefully consider the implications of the new requirements.
There is a one year relief period from the new requirements pursuant to the “grandfathering” provisions in the Amending Regulations, which applies to prospectuses and base prospectuses approved (predominantly under the former prospectus regime) prior to 1 July 2012. However, as grandfathering ceases to be available, issuers will have to consider the content of the base prospectus for any programmes, including carefully considering (in view of the new format of final terms, which are far less flexible compared to those under the old regime) what types of securities and what features are most likely to be issued, as otherwise, the base prospectus will need to be supplemented or an entirely new base prospectus will need to be approved for any new issuance. Some market participants have expressed concern that this lack of flexibility could adversely affect structured product innovation.
While the aim of the amendments is to bring about greater uniformity amongst final terms and prospectuses, so that they can be easily comparable, issuers under established programmes will have to go through the arduous and sometimes painful process of aligning their disclosure sections (just when they thought all was smooth sailing under the established documentation!) in accordance with the new requirements. Also, in our experience the “devil is in the detail” and the required changes will inevitably have a cost burden on issuers. Therefore, the earlier the better when it comes to assessing the impact of the new regime!
From a timing perspective, issuers will need to start considering the impact of the required changes well in advance if they wish to avoid delays when it comes to renewing their programmes and particularly, in order to avoid delays when it comes to issuing (sometimes within short periods of favourable market conditions). As is inevitable with implementation of new regulatory policy, there will be a certain period during which regulatory and listing authorities come to grips with the new requirements and so, issuers may need to factor in multiple rounds of comments from listing authorities and the consequent impact that their review process may have on timing. It is hoped that listing authorities will adopt a consistent approach across the various jurisdictions in Europe (which in our experience, has not always been the case) when approving prospectuses drafted under the new regime as this is a key objective of the Amending Regulations.
Whilst the drive towards uniformity clearly has its advantages, it will be interesting to see whether prospectus disclosure under the new regime is seen as in fact more complex by investors. One thing is clear, going forward issuers and their legal advisers will have to closely monitor future developments in this regard as the European Commission and ESMA continue to be very active in refining and providing guidance on the Amending Regulations.
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