A change in the requirement for the final terms of a prospectus could restrict innovation in structured products, say market participants.
Another possible consequence of the amendment is that base prospectuses will need to have more optionality so that issuers can define all the various options upfront and avoid the expense and timing consequences of having to amend or supplement the base prospectus.
One concern about such increased optionality is that it will lead to base prospectuses becoming longer and more complicated and that the amount of information provided could end up baffling investors rather than making the investment process easier to understand.
A relatively important change within the Amending Directive is the requirement to have issue-specific summaries, which will run alongside the requirement to produce a key investor document (Kid) under the EC’s Packaged Retail Investment Products (Prips) regulation, the final draft of which was released on July 3. “It’s difficult to see why we would have to do both, which will be quite onerous,” says Velarde.
“If the authorities are right about investors needing something short and sweet and not reading prospectuses why are we turning the industry upside down by requiring so much more detail to go in base prospectuses rather than final terms?” says Velarde.
Another amendment to the Prospectus Directive relates to an exemption whereby a prospectus is not required for offers made to a restricted circle of investors. The exemption now applies if the number of investors per member state, other than qualified investors, is fewer than 150, increased from 100.
Offers where the total consideration is at least €100,000 ($122,000) per investor for each offer are exempt from the prospectus provision, an increase from the previous figure of €50,000.
The required length of the summary document has been changed from a maximum of 2,500 words to either 7% of the total length of the prospectus or 15 pages, whichever is longer.
A grandfathering provision has also been added to the Prospectus Directive, meaning that final terms and summaries which have been approved by the relevant competent authority before July 1, 2012 can stay as they are until the beginning of July 2013.
This article was first published on Risk