New prospectuses for SMEs: EP, Council and Commission deal 

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Prospectuses published when securities are offered to investors or admitted to trading should be simplified and made cheaper so as to help the businesses and especially SMEs to find diverse sources of capital across the EU, says a deal struck by Parliament’s negotiators on Wednesday night. The uniform rules for prospectuses and the information they disclose should protect investors while creating an efficient single market for capital, where they can put their money to work.

Prospectus requirements would cover equity securities such as shares in companies or a right to acquire them and non-equity securities such as bonds offered to investors or admitted to trading on regulated markets in the EU, except for non-equity securities issued by member states, regional or local authorities or central banks.

The new rules aim at harmonising and streamlining the prospectus approval process by competent authorities in member states. Prospectus should be available to the public when published on a website of an issuer or on a website of a financial intermediary.

Helping SMEs: EU Growth prospectus

One of the core objectives of Capital Markets Union, for which the prospectus regulation is an essential step, is to facilitate SMEs’ access to finance. Since such companies usually need to raise lower amounts than other issuers do, the cost of drawing a full prospectus could be disproportionately high for them. Negotiators agreed to establish a specific, standardised and lighter EU Growth prospectus regime available for SMEs, issuers on an SME Growth Market with a market capitalisation up to 500 000 000 euro and other small issuers who wish to raise less significant amounts of money of up to 20 million euro over 12 months period. Once approved, such prospectuses would benefit from the passporting regime and could be offered to investors across the EU.

Defined exemptions

MEPs fought and succeeded in increasing the lower exemption threshold, under which no prospectus is required, to 1million euro (compared to 500 000 euro in the Commission proposal) to provide crowd-funding platforms with more flexibility and lessen the administrative burden.

Taking into account the different sizes of financial markets across the EU, member states would also have an option to exempt from the prospectus obligation offers of securities of a larger size; negotiators agreed to set the threshold for such an exemption between1 million  and 8 million euro, over a period of 12 months.

Where the securities are offered to qualified investors or to a circle of investors restricted to 150 persons, drawing up a prospectus represents a disproportionate burden in view of the small number of people targeted and therefore it should not be required. A specific wholesale regime for professional investors for non-equity securities is also set out in order to adapt the requirements to the specific knowledge of such clients.

Protect investors: key information and warnings

The prospectus should include an accurate, clear and short summary of 7 pages (with additional 1, 2, or 3 pages when a type of a security requires further explanations) providing the key information that investors need in order to understand the risks and  to aid investors when considering whether to invest in securities. The summary should contain information on the issuer, on the securities and on the offer to the public or the admission to trading on a regulated market. This summary should be read as an introduction to the prospectus and be consistent with other parts of prospectus and it should contain a clear warning of the risks involved, such as the risk of losing part or all of the investment.

Next steps

Some technical work on the text is now under way by the services of the three institutions. Afterwards, the agreement reached by the EP negotiating team will have to be approved by a plenary vote.