MEMORANDUM
A / To / Commission services for consultationDe / From / Hubert du Vignaux
Marc-Etienne Sébire
Rosetta Ferrère
Laetitia Jouglain /
Tel. +33 (0)1 40 75 36 36
Fax +33 (0)1 40 75 37 68
Réf. / Re / Review of Prospectus Directive
Date / 10 March 2009
You will find hereinafter our comments on the Commission's draft proposals related to the intended recast of the directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and amending directive 2001/34/EC (the "Prospectus Directive") in the context of the Action Programme for Reducing Administrative Burdens in the European Union, as set out in the consultation document dated 10 January 2009 published on the Commission's website.
1. CHANGES PROPOSED
· Article 2(1)(e): qualified investors
The first proposed change would consist in an alignment of the definition of qualified investors with that of professional clients under the MiFID Directive in order to include in the scope of "qualified investors" natural or legal persons that investment services providers actually consider to be professional clients or eligible counterparties in accordance with the MIFID criteria.
We do not agree with this suggestion. Those professional clients that would be included in the definition of qualified investors would be those that qualified as such not by operation of law (i.e., meeting the objective criteria) but on an optional basis. Such qualification is designed to govern the relationship between such person and the relevant investment services provider only. It is also purely bilateral between the investment services provider and its client. This entails that the same person may be treated differently by various investment services providers. Further, the qualification of the same person as professional client by an investment services provider may vary over the course of the time. Finally, the qualification is not publicly available.
This raises a number of difficulties. For example, how should a person be treated in a transaction where he/she is considered as a professional client by one of the managers of the transaction and not the others? Should such person be treated as a qualified investor or not depending on the investment services providers with whom he/she is in contact? In this case, is it appropriate that he/she be treated differently in the same transaction? Accordingly we believe that this criterion is not objective enough to be used for the definition of qualified investors, and we do not agree with the proposed change to Article 2.1(e) of the Prospectus Directive.
· Article 3: exempt offer
The last paragraph of Article 3(2) provides that each of subsequent resale of securities must be regarded as a separate offer to determine whether a prospectus is needed even though the initial offer was exempt from the requirement to publish a prospectus.
Such provisions gave rise to a number of questions in the case of retail cascade occurred on the basis that it was difficult in that case to determine (i) whether the financial intermediaries or the issuer should be responsible for producing the prospectus and its supplements; (ii) the level of information to be disclosed in this prospectus and (iii) if subsequent prospectuses were required for each stage of a placement of securities through financial intermediaries.
For these reasons, it is suggested to delete the last sentence of the last paragraph of Article 3(2) of the Prospectus Directive.
We do not think that such a deletion would solve the problems mentioned above. Indeed, the last sentence of the last paragraph of Article 3(2) is a mere consequence of (i) the first sentence of the same paragraph and (ii) the definition of "offer of securities to the public" provided in Article 2(1)(d).
We strongly believe that this paragraph, insofar as it is an "anti-avoidance" provision effectively preventing the easy circumvention of the prospectus requirement, is absolutely necessary and should under no circumstances be deleted or even weakened.
Actually, it is our experience that retail cascades are operated in most of the Member States and that it only raises problems in jurisdictions where responsibilities for drafting and content of prospectus are not clearly defined by implementing texts. Where local law has clearly treated these aspects, there are no difficulties (e.g. French law). The same analysis has been made by the CESR, whose recommendations attempt to assist Member States in determining the person responsible for drafting the prospectuses. Clarification in this respect could also be included in the Prospectus Directive to further assist Member States and the competent authorities in their implementations measures, by using in Article 3(2) the concept of "offeror or person asking for the admission to trading on a regulated market" already included in Article 5(3) and 5(4) of Prospectus Directive; this would certainly contribute to clarify the responsibilities for drafting prospectuses and the level of information to be included. But it remains that this issue is purely domestic and should be addressed locally by each Member State.
· Article 4.1 (e): Exemptions for Employee Share Schemes
It is suggested to extend the exemption for certain offers of securities to employees provided for in Article 4(1)(e) of Prospectus Directive to share schemes for EU employees of companies listed on third country exchanges or in EU exchange-regulated markets or non listed companies, so that those employees be not penalised in comparison to EU employees of companies listed on a EU regulated market.
We agree with this proposition. Nevertheless, we are in the opinion that the set of information to be provided to employees should be determined by the Prospectus Directive itself (or the implementing Regulation).
· Article 10: information
We agree with the Commission's analysis and the proposition to delete Article 10 of the Prospectus Directive
· Article 16: supplement
It is suggested that certain technical issues relating to Article 16 be addressed at level 3. However, due to their particular importance, we do think that the issues mentioned should rather be dealt with by the Prospectus Directive itself. In particular, the terms "significant new factor" should be clarified in the Prospectus Directive and replaced by "significant adverse new factor". We also agree with the proposition to specify in Article 16 that, in case where there is both an offer and admission to trading, the obligation to supplement the prospectus ceases once the trading begins, even if the public offer is still open.
Another proposal relates to further harmonisation of the time limit in relation to the right of withdrawal of investors triggered by the publication of a supplement.
In order to reduce the legal uncertainty for cross-border offers or admission to trading, we think that any harmonisation of the right of withdrawal can only be positive. This harmonisation should concern not only the time period for the exercise of the right of withdrawal (the two-day period should be compulsory and not only stated as a minimum), but also the starting point of such period since in cross-border offers, the publication of the supplement is likely to occur on different dates.
Consequently, we agree with your proposition to clarify these two points in Article 16.2. However, we believe the proposed wording does not address any of these points and should rather read as follows: "Investors who have already agreed to purchase or subscribe for the securities before the supplement is published shall have the right, exercisable in any relevant jurisdiction within two working days after the publication in such jurisdiction to withdraw their acceptance."
· Article 2(1)(m)(ii): modifications of thresholds
It is suggested to remove the €1.000 threshold in order to enable issuers to choose the competent authority on a case-by-case basis and thus increase the flexibility for the issuance of debt.
We do not agree with this proposition because we believe that such a proposition would create concrete risks in terms of investors' protection, in particular for persons investing in securities with a denomination of less than €1.000. Indeed, under the Prospectus Directive, retail investors are regarded as needing a certain level of protection when making their investment decisions, especially in terms of language of the prospectus and knowledge of the issuer, both elements which in practice may only be appreciated by the authority of the member state where the issuer has its registered office. This is precisely the reason why under the Prospectus Directive, no choice is given for shares and capital instruments. The same rationale applies here, and we would insist to keep the €1.000 threshold for debt instruments as it is.
2. OTHER ISSUES IDENTIFIED
· Disclosure obligations: the prospectus and its summary
You asked us to give our opinion on the effectiveness of the summary of the prospectus, taking into account (i) the objective to deliver a fully understandable and useful representation of the products' main features from a retail investor’s perspective and (ii) the excessive costs and burdens it may involve for certain issuers, especially small and medium-sized companies.
We are of the opinion that even if the summary may constitute a charge for small and medium-sized issuers, such charge is extremely limited because (i) it is only required in limited cases where retails investors are concerned (ii) in case of cross-border offers, it remains the only element an issuer may be obliged to translate into the targeted retail investors' language and as such is often their main source of information and (ii) the overall length of the summary is always limited. As a consequence, we do not recommend amending provisions regarding the summary.
· Disclosure obligations for small and medium sized companies
Small and medium sized companies consider that the threshold of €2.5 million for the prospectus exemption is too low and creates difficulties in raising funds in the EU.
Two solutions have been proposed:
a) the threshold of 2.5 million € could be raised; or
b) a reduced amount of information could be required for the cases when a small quoted company offers equity to the public. This would result in the creation of a "mini" prospectus which might correspond better to the needs and size of small firms.
We believe that a combination of these two propositions should be considered with two thresholds of €5 and €15 million respectively: (i) under a first €5 million threshold, no prospectus would be needed, (ii) for offers with a total consideration between €5 and €15 million, a "mini" prospectus would be required and (iii) for offers with a total consideration beyond €15 million, a full Prospectus Directive compliant prospectus would be required.
It should be noted that a similar solution has been successfully experienced in France. The Autorité des marchés financier has recently adopted a professional guidebook for the drafting of prospectuses by small and medium-sized companies[1] which set out the disclosure requirements for these issuers with respect to Annex I of the implementing Regulation. We believe a similar flexible approach should be adopted within the European Union.
· Disclosure requirements and Government Guarantee Schemes
Article 5.1 of the Prospectus Directive sets out that the prospectus has to include information about the issuer, the securities and the guarantor of the offer. In the case that the guarantor is a Member State and the issuer has opted for a Prospectus Directive compliant prospectus despite of the exemption available under Article 1.2(d), the information to be provided in the prospectus in relation to the guarantor is contained in Annex XVI of the Prospectus Regulation. The Commission points out that there is no added value in requiring the issuer to include information about the State required by Annex XVI in the prospectus because such information is publicly available.
As a result, the Commission proposes to exempt issuers from providing information on the guarantor in cases where it is a Member State.
We agree with the Commission's analysis and proposal to include such an exemption although in our view, this change is not essential. Indeed, in our experience, most of the Member States have strictly implemented Article 1.2(d) of the Prospectus Directive and have consequently exempted Member States guaranteed issuances of any prospectus. Accordingly, in most of the EU jurisdictions, it is not necessary to establish a Prospectus Directive compliant prospectus for such issues, even in case of multinational offer in order to benefit from the passport mechanism. In practice, issuers in that situation only establish an information memorandum comprising a short description of the guarantee (but not of the guarantor Member State). This is fully acknowledged by investors' community, and we are not sure that this situation is really problematic.
· Rights issues
It has been suggested that the offer of rights could be exempted from the obligation to publish a prospectus under Article 4 of the Prospectus Directive.
We are of the opinion that this question should be treated differently where the issue of rights constitutes an offer to the public or not. Indeed, for rights offer which do not constitute an offer to the public, the requirements of the Prospectus Directive do not apply, and accordingly, no prospectus is needed. However, any rights offer constituting an offer to the public could benefit from such an exemption provided that the content of the related document describing the reasons for and details of the offer is defined in the Prospectus Directive or in the implementing Regulation.
· Article 2(1)(d) — Definition of offer of securities to the public
We agree with the Commission's analysis.
· Liability
We agree with the Commission's analysis.
· Equal treatment of shareholders
We agree with the Commission's analysis, including on the fact that it is indeed a strategic aspect to be urgently dealt with.
[1] Guide d'élaboration du document de référence à l'attention des valeurs moyennes et petites dated 25 February 2008.