European Commission Improves Investment Prospectus Directive

by Ulrika Lomas, Tax-News.com, Brussels

28 September 2009

The European Commission is ready to pass on Prospectus Directive amendments to the European Parliament and the Council of Ministers for consideration. The changes purport to simplify and reduce the red tape for issuers and intermediaries but improve legal clarity and the information provided to retail investors.

Internal Market and Services Commissioner Charlie McCreevy said: "These new rules meet the needs of issuers and investors and removes any unnecessary burdens on businesses. It takes account of the lessons learned from the financial crisis and will ensure that investors have all the information they need."

The Prospectus Directive lays down the rules governing the prospectus that has to be made available to the public when a public offer or admission to trading of transferable securities in a regulated market takes place in the EU. One of its major achievements is the introduction of a "passport mechanism": a prospectus approved by the competent authority in one member state is valid for public offers and admission to trading of securities in the entire EU.

The main changes proposed are as follows:

• some types of securities issue will be subject to less comprehensive disclosure requirements (small companies, small lenders, rights issues and government guarantee schemes);
• the format and content of the prospectus summary have been improved;
• there are clearer exemptions from the obligation to publish a prospectus when companies sell through intermediaries (“retail cascades”) and for employee share schemes;
• disclosure requirements that currently overlap with the Transparency Directive will be repealed;
• issuers of all non-equity securities will be able to determine their home member state;
• the definition of 'qualified investors' in the Prospectus Directive will be aligned with the one of 'professional clients' as defined in the Directive on markets in financial instruments.

The Prospectus Directive was originally published in the EU Official Journal on December 31, 2003 and member states were required to implement it in their jurisdictions no later than July 1, 2005.

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