10 March 2009
EUROPEAN COMMISSION CONSULTATION ON THE REVIEW OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC)
Reply of NASDAQ OMX
NASDAQ OMX welcomes the initiative to review the Prospectus Directive with the view to simplify the directive and reduce the administrative burden of issuers. Below NASDAQ OMX gives its view on the general assessment of the functioning of the Prospective Directive, the concrete proposals and on the other issues that are brought up by the Commission in the Background Document.
GENERAL ASSESSMENT OF THE PROSPECTUS DIRECTIVE
Generally, NASDAQ OMX agrees the Prospectus Directive is a step in the right direction in achieving a single European market. The home/host regime seems to be functioning quite well since passporting of prospectuses is done frequently. This is worth noting as a relatively good example of handling cross-border activities, especially as closer cross-border supervisory cooperation is highly debated at the moment due to the crisis in the financial markets. One thing that has not yet proven to function as efficiently as necessary however is the third country prospectuses regime. It is understood CESR is currently undertaking work on setting up a mechanism for handling third country prospectuses but this work has yet to show results. Also, generally, there is still room for further harmonisation of the rules under the Prospectus Directive as well as of the supervisory practices of the competent authorities. When rules become more harmonised, divergent practices in the application of these rules still causes costs for market participants. It is necessary that the Commission as well as CESR continue working towards further convergence of not only rules but also practices.
NASDAQ OMX supports most of the proposed changes, for the reasons presented by the Commission. Below we respond to the proposals with which we disagree or where we see a need for comments.
Article 2(1)(e) – Definition of qualified investor
NASDAQ OMX believes the alignment of the definitions should reduce the costs for raising capital. However, we furthermore believe the Commission should take the opportunity to conduct a review of the definition of qualified investor as a whole and specifically of the register regime. There are divergent implementations of the directive provision on a register of qualified investors; some Member States have opted out. Especially small and medium sized issuers would benefit from the opportunity to raise capital at a lower cost among the investors in the register. The internal market would benefit from further harmonisation as regards the register of qualified investors.
Article 3 – Exempt offers
Although the described uncertainties have not caused problems in NASDAQ OMX markets, it seems sensible to us to address the problems at European level in order to further harmonise practices in Europe. Initiatives with the purpose of achieving clarity are welcome. We however do not see that the Commission’s proposed changes to the legislative text will necessarily achieve the intended harmonisation . It may be more relevant to refer the issue to CESR, or possibly for the Commission to issue guidance in other forms than changes to legislative texts.
Article 16 – Supplement to the prospectus
NASDAQ OMX agrees that the withdrawal period is an area where there is room for further harmonisation in the directive and believes a time period of two days should always be accepted. However, the proposed change to the directive may need to be clarified. If the purpose is to achieve not a minimum harmonisation but instead full harmonisation, it seems the words “at least” should be deleted. If the purpose is to also allow issuers to set a longer withdrawal period for a specific offer, this should also be made clear in the wording of article 16(2).
OTHER ISSUES IDENTIFIED BY THE COMMISSION
Disclosure obligations: the prospectus and its summary
NASDAQ OMX believes the prospectus summary should not be shortened. The summary is already very condensed. Further shortening of the summary is not likely to result in a reduction of costs for issuers and it seems issuers are not generally demanding shortening the summary. On the contrary, there appear to be cases where issuers are inclined to draw up a longer rather than a shorter summary. Since the quality of the summary is more important than the length or structure and since the issuer needs some flexibility in drawing up the summary, it appears better to keep the current length to allow it to include the most important elements of the prospectus. Also, in many passporting situations, the summary may be the only part of the prospectus that is translated. Although an investor should of course read the whole prospectus, shortening the summary risks lowering the level of investor protection in an appropriate way.
Disclosure obligations for small quoted companies
NASDAQ OMX prefers raising the threshold instead of introducing a “mini” prospectus. Introducing a mini prospectus would mean introducing another layer of rules, which would not serve the purposes of simplifying the prospectus regime and reducing the administrative burden. It would instead complicate the regulatory environment for issuers while the costs for drawing up a document, although possibly shorter, still remain.
When raising the threshold it however seems relevant to review not only article 1(2)(h) but also article 3(2)(e). The implementation of this article has in for instance Sweden resulted in a threshold of 1 million €. Raising the threshold in article 1(2)(h) will not necessarily have any effect unless the threshold in article 3(2)(e) is also raised.
Disclosure requirements and Government Guarantee Schemes
Although NASDAQ OMX agrees issuers should not be required to provide information on Member States as guarantors and supports changes to the directive in this regard, we also note that by the time such changes have been implemented in national legislation, the issuances targeted by the proposal will already be closed. In the meantime a possible fast track would be for CESR to agree on, and make public, practices as regards information on Member States as guarantors.
NASDAQ OMX supports addressing the topic of rights issues and exempting such issues from obligation to draw up a prospectus. The reason is that for issuers whose shares are already admitted to trading on a regulated market, information relevant for investors has already been disclosed by the issuer in accordance with the Market Abuse and Transparency Directives. For issuers whose shares are admitted to trading on an MTF, there has also been enough information made available to investors in accordance with the rules applicable at the MTF. It should also be noted that the proposed exemption for “rights” should not be limited to rights issues only in situations of capital raise but also situations where for instance redemption rights are issued. Further clarification of the intended scope and a definition of “rights” seem necessary.
OTHER ISSUES IDENTIFIED BY NASDAQ OMX
NASDAQ OMX wishes to draw the attention of the Commission to another situation which possibly could also benefit from an exemption from the obligation to draw up a prospectus.
It concerns the situation when an issuer whose shares are admitted to trading on a regulated market has negotiated a deal with a third party to acquire property from the third party (often, but not always, real estate). The issuer will pay remuneration in new shares which are to be admitted to trading. If the value of the new shares to be issued as remuneration exceeds ten per cent of the number of shares of the same class already admitted to trading on the same regulated market, the issuer can not benefit from the exemption in article 4(2)(a). This is the consequence, despite the fact that the new shares will be acquired by only one new shareholder and despite the fact that this new shareholder has actually negotiated the deal with the issuer, and thus has already made the decision to become a shareholder. It can be argued that all necessary information about the new share issue and also about the underlying acquisition of property can be disclosed to the public in accordance with the Market Abuse and Transparency Directives, and that a full prospectus does not serve an investor protection purpose in this case. The cost for producing the prospectus in this situation may be considered an unnecessary burden for the issuer. The Commission should consider whether this situation should also be exempt from the obligation to draw up a prospectus, possibly under article 4 of the Prospectus Directive