Answers of
Komisja Nadzoru Finansowego - KNF
(Polish Financial Supervision Authority - PFSA)
to the
Background Document
Review of 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
(Prospectus Directive)
GENERAL ASSESSMENT OF THE PROSPECTUS DIRECTIVE
Do you agree with the Commission services' preliminary assessment of thefunctioning of the Prospectus Directive?
PFSA agrees in general with the preliminary assessment made by the Commission services. However in the PFSA’s opinion the majority of inconsistencies in implementation and supervisory application of the Prospectus Directive arise from legislative ambiguity. Therefore, PFSA attaches to this document its proposal of few additional amendments to the directive that should decrease the ambiguity of its wording.
CHANGES PROPOSED
Article 2(1)(e) – Definition of qualified investors
Do you agree with this analysis? Do you agree with the change proposed in Article 2.1(e) of the Prospectus Directive?
PFSA agrees with the amendment to the Article 2(1)(e) of the Prospectus Directive extending the scope of subjects to be treated as qualified investors by subjects which are treated as professional clients in accordance with MIFID.
Article 3(2) – Exempt offers
Do you agree with this analysis? Do you agree with the change proposed in Article3.2 of the Prospectus Directive?
PFSA agrees with the Commission’s analysishowever the deletion of the last indent in Art. 3 (2) PD, as proposed by the European Commission, does not resolve the problem. Poland is not directly “touched” with the ambiguity of the wording of the second paragraph of Article 3(2) as the selling through the retail cascade offers is not common in Poland. However PFSA understands that there are several issues concerning cascade offers that are not solved by the current wording of Article 3(2). These issues could be presented in two main points:
1)when (if at all) a prospectus is required in case of cascade offers and who should be responsible for it (especially for its updating) and
2)should Article 3(2) be interpreted as a requirementof publication of a prospectus if no exemption is available at the last stage of the cascade, taking into account all the placements made by the different intermediaries on every level of the retail cascade, even if at each preliminary stage of the cascade an exemption was available (the best example of that is the case of a cascade offer with less than 100 addressee at each stage giving in total much more than 100 persons touched with these offers).
PFSA suggest to use the CESR opinion reflected in the Questions & Answers that the key principle is the distinction between intermediaries who are acting in association with the issuer and those that are not.
Therefore, as to the first point above, where there is an offer consisting of other sub-offers from intermediaries to the end-investor, the intermediaries should be able to rely on the prospectus drawn up by the issuer without having to draw up a separate prospectus, in particular where the issuer has consented to this.In other words, where the intermediaries are acting in association with the issuer, an additional prospectus should not be required. On the other hand, where the intermediary is not acting in association with the issuer but selling the securities on its account, then a separate prospectus would be required.
As to the second point, PFSA support the interpretation of Article 3(2) as a requirementof publication of a prospectus if no exemption is available at the last stage of the cascade, taking into account all the placements made by the different intermediaries on every level of the retail cascade, even if at each preliminary stage of the cascade an exemption was available.
Therefore the changes of Article 3(2) should clearly indicate the above rules.
Article 4 — Exemptions for Employee Shares Schemes
Do you agree with this analysis? Do you agree with the change proposed in Article 4(1)(e) of the Prospectus Directive?
PFSA fully agrees with the Commission’s analysis and change proposed. The basis of the exemption set up in Article 4(1)(e) is the fact that employees of the issuer are in general aware of its situation and do not require a prospectus even though the issuer is not a company with securities listed on a regulated market.
Article 10 — Information
Do you agree with this analysis? Do you agree with the removal of Article 10 of theProspectus Directive?
PFSA fully agree with the Commission’s analysis and change proposed.
Article 16 — Supplement to the prospectus
Do you agree with this analysis? Do you agree with the change proposed in Article 16.2 of the Prospectus Directive?
PFSA agrees with the Commission’s analysis that some more, apart from the issue covered by the Commission’s proposal of amendment, requires further analysis and perhaps clarification at the CESR level in order to ensure legal certainty.
PFSA also agreeswith the Commission’s analysis and change proposed concerning the time frame for the exercise of the investors’ right to withdraw their acceptance when a supplement to the prospectus is published. A common periodof at least two days should be a positive element of cross border offers.
Modification of thresholds
Do you agree with this analysis? Do you agree with the change proposed in Article 2(1)(m)(ii) of the Prospectus Directive?
PFSA fully agrees with the Commission’s analysis and change proposed as the characteristics of and the risks associated with debtsecurities (like with all other securities) do not depend on their denomination per unit.
OTHER ISSUES IDENTIFIED
Disclosure obligations: the prospectus and its summary
Do you agree with this analysis? Do you have any suggestion in this regard?
PFSA agreeswith the Commission’s analysis. It is hard to establish the correct balance between theprovision of all necessary information for investors to make an informed decisionand, at the same time, ensuring that the prospectus is comprehensible and "userfriendly". It is true that due to the length andcomplexity of prospectuses, the primary aim of informing the investor may notactually be achieved. It is also Polish experience that unlikequalified investors, retail investors do not (on the whole) make use of prospectusesfor their investment decisions. From the other hand, issuers (especially small and medium-sizedcompanies) are often subject to excessive costs and burdens that are not justified bythe aim of effective investor protection.
PFSA proposes to go further in “exploring” the opportunities that gives Article 7(2) of the Prospectus Directive in order to diversify the scope of information in the prospectuses in accordance with different criteria (like the addressee of the offer or the length of being an issuer listed on a regulated market). PFSA encloses to that document a proposal concerning public offers addressed to the issuer’s shareholders.
Disclosure obligations for small quoted companies
Do you agree with this analysis? Do you support any of the two alternative solutionsmentioned? Do you have any other suggestion?
PFSA agreeswith the Commission’s analysis. In the PFSA opinion the increasing or decreasing of the threshold is not a good idea as it would be always a very subjective criterion (what is a small offer in one Member State can be a medium offer in another), especially bearing in mind the currency rates. That is why PFSA would rather suggest not to change the threshold but to try to propose an offering document with the scope of information common for all Member States. According to the Polish legislation in the case of the 2,5 million € offer the issuer has to publish a document, previously approved by the competent authority, with the scope of information much more “lighter” than a prospectus.
Disclosure requirements and Government Guarantee Schemes
Do you agree with this analysis?
PFSA agreeswith the general conclusion of the Commission’s analysis that Member States should be treated differently from corporate guarantors. However, we should not forget that for example during the current financial crisis there are Member States having serious financial problems (i.e. Island). These countries, acting as guarantors of corporate debt securities, do not give investors a real certainty as to the securities guarantee. Consistently, the prospectus should not be devoid of information concerning the financial situation of the MemberState and especially the influence of the MemberState financial situation on the guarantee. Investors should not be forced to looking for the said information on their own initiative.
Rights issues
Do you agree with this analysis? Do you have any other suggestion?
PFSA fully agrees with the opinion that offer of rights could be exempted in Article 4 of the Prospectus Directive from the obligation to publish a prospectus, provided that a document isavailable containing information on the reasons for and details of the offer. PFSA has also enclosed to that material a proposal of the amendment of Article 4 of the Prospectus Directive.
Article 2(1)(d) — Definition of offer of securities to the public
Do you agree with this analysis?
PFSA agrees with the opinion that the breadth and generality of the definition, especially in combination with exemptions in Article 3(2), renderit susceptible to varying interpretation in accordance with the specificities of nationallaw. At the current stage of the process of amending the Prospectus Directive PFSA proposes (as enclosed to that material) to slightly modify the definition of public offer in order to introduce a clear distinction private-public offers.
Liability
Do you agree with this analysis?
PFSA agrees with the opinion that harmonisation of liability regimes is an issue deeply embedded in nationalcivil law traditions and that it cannot simply be tackled in an isolated mannerin the Prospectus Directive.
Equal treatment of shareholders
Do you agree with this analysis?
PFSA fully agrees with the Commission’s opinion that thequestion of equal treatment of shareholders should bekept outside the scope of the Prospectus Directive.
PFSA’S PROPOSAL OF AMENDMENTS TO THE PROSPECTUS DIRECTIVE
1.Article 2(1)(d) is replaced by the following:
“(d) ‘offer of securities to the public’ means a communication to at least 100 natural or legal persons per Member Stateor to an unspecified addressee in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities. This definition shall also be applicable to the placing of securities through financial intermediaries;”
Justification of the proposal
a)The current wording of the definition of the offer of securities to the public, especially in combination with the wording of the Article 3(2), means de facto that all offers are treated as public offers, however there are some offers when a prospectus is not required. This idea is incompatible with the fact that at all capital market as well as in the Prospectus Regulation (809/2004) the notion “private placement” is applied. Moreover an offer of securities to the public suggests that it is addressed to a large number of persons or to an unspecified addressee. If the offer is addressed solely to few persons it should not have the attribute of being publicly made.
b)The above proposal would set up a clear distinction between public offers and private placements which should be the primary (systemic) level of division of the market of offers of securities. The second level of division concerns public offers when a prospectus is required and these when it is not required – Article 1(2), Article 3(2) and Article 4(1) of the prospectus Directive.
c)As all offers according to the Prospectus Directive are public offers, the competent authority should be responsible for their supervision. That is not only impossible from the practical point of view but also absolutely unnecessary.
d)The current wording of the Article 3(2) is not entirely clear as the notion “offer” is not specified with word “public” or “to the public“. Due to the above, as well as taking into consideration the natural division into public and private offers, the offers described in Article 3(2), and especially in the point (b), are recognized across the EU as not being public offers.
2.Article 3(2)(b) is deleted
Justification of the proposal
a)Deleting of that Article 3(2)(b) is the consequence of the proposed change in Article 2(1)(d).
b)The criterion described in that rule is of special meaning – it set up de facto the “private” nature of the offer when a prospectus is not required. That is why this criterion is not consistent with the criteria described in point (a), (c), (d) and (e) of Article 3(2) as they indicate offers that are unique due to their value (total or per unit) or addressees.
3.Article 4(1)(d) is replaced by the following:
“(d) shares offered, allotted or to be allotted to existing shareholders, and dividends paid out in the form ofshares of the same class as the shares in respect of whichsuch dividends are paid, provided that a document is madeavailable containing information on the number and natureof the shares and the reasons for and details of the offer;if the shares areoffered or allotted to existing shareholdersby the way of a rights issue and could be offered or allotted also to persons other than existing shareholders, these shares should represent, over a period of 12 months, less than 25 per cent of all shares of the same class already issued;”
Justification of the proposal
a)An offer of securities free of charge does not constitute an offer to the public because according to the Article 2(1)(d) “offer of securities to the public means a communication (…) so as to enable an investor to decide to purchase or subscribe to these securities”. In other words this definition requires an obligation for investors to pay for the securities offered, otherwise there is no risk for them. They simply obtain securities.
b)More over, the offers of securities free of charge are already covered by Article 3(2)(e) of the prospectus Directive – a prospectus is not required in case of offers of securities with a total consideration of less than EUR 100000.
c)In general, allshare offerings to existing shareholders by the way of a rights issueshould be exempt from the prospectus requirement: these investors do not need the specialprotection provided for by a prospectus as they should be familiar with and confident in thecompany in which they are already invested. In such cases, the rationale of the exemptions shouldapply: companies are required to report to their shareholders, and a traded companydiscloses information to the market on a continuing basis, so that the public andshareholders know the essential and fundamental information regarding the new shares.
d)As soon as non-shareholders are able to acquire such new shares (for example viathe purchase of rights or a secondary market transaction), an exemption parallel to that inArticle 4(2)(a) should be available for public offerings. In this respect, the 10% threshold should be set at a higher level and its increasing to 25% seems to be a appropriate level (a fixed financial threshold would not be appropriate because across the EU there is a significant differential between the companies value and consistently the value of their new issue of shares).
4.Article 4(2)(a) is replaced by the following:
“(a)shares provided that the said shares are of the same class as the shares already admitted to trading on the same regulated market and that a document is made available containing information on the number and nature of the shares and the reasons for and details of the offer;”
Justification of the proposal
a)According to the recital (10) of the Prospectus Directive the aim of this Directive and its implementing measures is to ensure investor protection and market efficiency, in accordance with high regulatory standards adopted in the relevant international fora. The requirement of drawing up, approving and publishing a prospectus in case of admission to trading on a regulated market of shares of a company that is already listed at this market does not accomplish the said aim for the following reasons.
b)In such cases, the rationale of the exemptions should apply: a traded companydiscloses information to the market on a continuing basis, so that the public know the essential and fundamental information regarding the issuer.
c)The only new information would be that concerning the shares: how they were created and what were the reasons of their issue. This information would be disclosed in the document containing information on the number and natureof the shares and the reasons for and details of the offer. This document would not be approved by the competent authority.
5.Article 4(2)(b), (e) and (g) is deleted.
Justification of the proposal
The cases regulated through Article 4(2)(b), (e) and (g) would be covered by the Article 4(2)(a).
6.Article 8(1)(a)is replaced by the following:
“(a) in the case of price, the maximum price, is disclosed in the prospectus;or”
Justification of the proposal
a)According to the recital (10) of the Prospectus Directive the aim of this Directive and its implementing measures is to ensure investor protection and market efficiency, in accordance with high regulatory standards adopted in the relevant international fora. The said requirement being in the same time the possibility to omit in the prospectus the information concerning the price/number of securities offered does not ensure investor protection for the following reasons.
b)The said rule is unclear, especially in combination with item 5.3.1 of Annex III to the Prospectus Regulation – there are divergent opinion of the competent authorities in CESR how should they be understood and practically required.
c)In order to give investors a really accurate information on the potential final price/amount of securities offered, when there is no final or maximum price in the prospectus, “the criteria, and/or the conditions in accordance with which the above elements will be determined” should cover the whole procedure how the issuer will calculate the price/amount. And investors would have the possibility to fill that algorithm with appropriate figures that are not known at the time of the approval or publication of the prospectus. From other hand, if the issuer tells only that the final price/amount of securities will be set up according to the bookbuilding process, investors will know only the procedure but this says nothing about the price/amount range.
d)As the competent authorities, despite several discussion, are not able to acquire a common position on the understanding and compatibility of Article 8(1)(a) and item 5.3.1 of Annex III to the Prospectus Regulation, it seems to be useful to leave only one of these rules – that in the items 5.1.2 and 5.3.1 of Annex III to the Prospectus Regulation. However that means that the lack of final or maximum price or of the final amount of securities offered give investors the right of withdrawal their acceptances of the purchase or subscription of securities, according to the Article 8(1)(b) of The Prospectus Directive.