Certain legal obligations apply when securities are offered to the public or admitted to trading on a regulated market. For example, offerors of securities are required to issue a prospectus to inform investors about the opportunities and risks of the investment. These securities prospectuses are often not easy for consumers to understand, as they sometimes extend to hundreds of pages. But the law on securities prospectuses has been fundamentally overhauled, with new rules applying from July for companies that offer securities on the capital market. The cause: since Sunday, 21 July 2019 (effective date), the new EU Prospectus Regulation, which has been in force since 20 July 2017, has applied in full.

Hopes pinned on EU Prospectus Regulation

The EU Prospectus Regulation has a number of different objectives. Firstly, it is intended to ensure that securities prospectuses are simpler and more user-friendly for consumers. Targeted, compact information in shorter prospectus summaries is intended to improve investor protection. This should make it easier for investors to make well-founded investment decisions.

Secondly, the Regulation is intended to make it easier for companies to access the capital markets. It should reduce the effort required to draw up prospectuses. Measures to achieve this objective include raising the thresholds at which the prospectus requirement applies and reducing prospectus requirements – particularly for small and medium-sized enterprises and for secondary issuances. This should make raising capital easier and more cost-effective.

Thirdly, the new EU Prospectus Regulation is an important part of the efforts to build a European Capital Markets Union. The goal is increased harmonisation both of supervisory law and of supervisory practice. This is made clear by the fact that the EU Prospectus Directive, which had to be implemented into national law by the member states, is now being replaced by a directly applicable European regulation.

The EU Prospectus Regulation therefore represents progress both for companies and for investors. BaFin is doing everything it can to make the transition as simple as possible.

Fundamental redesign of prospectus law

The fundamental redesign of prospectus law is reflected in the fact that many things that were previously governed by national law – for instance by the Securities Prospectus Act (Wertpapierprospektgesetz – WpPG) in Germany – are now standardised in the European Regulation itself. It contains rules for different forms of prospectuses: a standard prospectus, a wholesale prospectus for non-equity securities, a base prospectus, a simplified prospectus for secondary issuances and an EU Growth prospectus.

Broader exemptions from the prospectus requirement

The EU Prospectus Regulation raises the thresholds for the prospectus requirement. This means that it is now possible to offer securities to the public in Germany with a total consideration of up to and including eight million euros without a prospectus. In some circumstances, a securities information sheet will need to be published. There are special rules for certain types of offers, in particular for offers addressed to non-qualified investors (individual investment thresholds, for example – see expert article on the BaFin website dated 31 July 2018, although there is an exemption for securities that are to be offered to shareholders as part of a rights issue).

Requirements regarding prospectus contents

The EU Prospectus Regulation keeps to the principle that a prospectus must contain the necessary information which is material to an investor for making an informed assessment of:

• the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor
• the rights attaching to the securities and
• the reasons for the issuance and its impact on the issuer.

The annexes to the European Regulation implementing the EU Prospectus Directive from 2004 set out a wide array of specifications for the form and content of prospectuses. These stipulate in detail what information is to be provided and in what format for securities with different configurations. Similar annexes can be found in the new EU Prospectus Regulation. However, they do not go into as much detail and are therefore expanded by further provisions in the Commission Delegated Regulation (EU) 2019/980 of 14 March 2019.

Guidelines on risk factors

There are other sources of law to be taken into account in connection with the EU Prospectus Regulation. One example is the European Securities and Markets Authority (ESMA) Guidelines on risk factors under the Prospectus Regulation from 29 March 2019 . Their objective is to make the presentation of key risks more compact and focused with more easily understandable information on potential consequences. These guidelines will only officially enter into force once they are published on ESMA’s website in all of the official languages of the EU. Once they are published, BaFin will have two months to declare whether it will follow the guidelines or not. BaFin is already following the guidelines in full and taking them into account in its administrative practice when examining prospectuses under the new law, and started doing so immediately from the effective date (21 July 2019).

Universal registration document

The EU Prospectus Regulation introduced the new universal registration document. This document is intended for issuers whose securities are admitted to trading on a regulated market or on a multilateral trading facility within the meaning of Article 2(u) of the EU Prospectus Regulation. It can also be used for offers of securities to the public. Anyone who has had a registration document – for instance a share registration document for an IPO – approved under the law in force until 21 July 2019 can make use of this provision.

The difference between the previous registration documents and the new universal registration documents is that there is the possibility to file the universal registration document without needing prior approval from BaFin. The prerequisite for this is that the universal registration document has been submitted and approved for two consecutive business years in the past.

With the universal registration document, an issuer can gain the status of frequent issuer and, by fulfilling other requirements, use a faster approval process which provides for an examination period of just five working days.

Rules and exceptions for summaries

Article 7 of the EU Prospectus Regulation contains new provisions regarding prospectus summaries. As a rule, the summary may not be more than seven pages in length under the new provisions. An exception to this can sometimes apply when information in the prospectus summary is substituted with information in a key information document under the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs Regulation).

In terms of content, the EU Prospectus Regulation stipulates four sections for the summary: an introduction, containing warnings; key information on the issuer; key information on the securities; and key information on the offer of securities to the public and/or the admission to trading on a regulated market.

Publication of prospectuses

The rules governing the publication of prospectuses have also been rewritten (Article 21 of the EU Prospectus Regulation). The deadline for the publication of a prospectus is no longer tied to its approval and instead depends on the beginning of the offer to the public or the admission to trading on a regulated market. This means that the prospectus no longer needs to be published without undue delay following its approval and instead only needs to be published at a reasonable time in advance of, and at the latest at the beginning of, the offer to the public or the admission to trading on a regulated market. The final deadline for publishing prospectuses will therefore be later than it was under the previous legal provisions. In the case of an initial offer to the public of shares that are admitted to trading on a regulated market for the first time, however, the prospectus must be made available to the public at least six working days before the end of the offer.

Prospectuses will need to be published in electronic form on the internet in order for the publication to comply with the regulation. This should make access easier for investors. The previous options for publishing the prospectus by insertion in a newspaper or by making a copy available in printed form in specific locations are no longer provided for. However, potential investors are to be provided with a copy of the prospectus on a durable medium or in print free of charge on request, although this only applies to jurisdictions in which the offer of securities to the public is made or where the admission to trading on a regulated market is taking place.

Since 21 July 2019, under the new legal provisions issuers have been required to report more meta data when they file a prospectus (such as the Legal Entity Identifier (LEI), the global identifier for legal entities on the financial markets). The individual items of information are specified in Annex VII to the Delegated Regulation (EU) supplementing the EU Prospectus Regulation with regard to regulatory technical standards¹.

What are the provisions regarding the transition?

The EU Prospectus Regulation contains transitional provisions for prospectuses that have been approved under national law before the effective date. Such prospectuses continue to be governed by that national law until the end of their validity, or until twelve months have elapsed after the effective date, whichever occurs first.

For a transitional period of twelve months after 21 July 2019, BaFin will continue to provide certain functionality via its reporting and publishing platform (MVP Portal) in order that users can continue to file supplements and final terms after 20 July 2019 for prospectuses approved before 21 July 2019 using the MVP Portal without altering their systems. BaFin has already informed users registered on the MVP Portal accordingly.

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