The new Prospectus Regulation: a step closer

The Council of the EU has adopted the new prospectus regulation. This will repeal and replace the Prospectus Directive (2003/71/EC) and the existing Prospectus Regulation (809/2004). This follows the adoption by the EU Parliament in April.

The next step in the legislative process is for the Presidents of the Parliament and the Council to sign the text during an official ceremony, after which the text will be published in the Official Journal of the EU. We understand that this is likely to happen in the next few weeks. The Regulation enters into force on the twentieth day following its publication in the Official Journal.

A staged approach is being taken to implementation, with the majority of the Regulation’s provisions applying from two years after the date of its entry into force. However, two provisions will apply immediately:

• an exemption to the requirement for a prospectus, in the context of an admission to trading, which allows issuers to issue capital which represents up to 20% of a class already admitted to trading over a 12-month period. This is an extension of the current exemption under which issuers can issue capital representing less than 10% of a class already listed; and
• a new cap on the exemption to the requirement for a prospectus regarding the admission to trading of shares resulting from conversion or exchange of other securities (e.g. convertible bonds) or from the exercise of rights conferred by other securities. This exemption will only apply where such shares represent less than 20% of the number of shares of the same class already listed.

In the UK, the ability to issue more securities without a prospectus is likely to be most relevant in the context of consideration shares issued in M&A processes. This is because the company would need to disapply pre-emption rights and exceed institutional investor limits if they were to issue 20% of share capital on a non pre-emptive basis.