On 30 June 2017 Regulation (EU) 2017/1129 (“the Regulation”) was published in the Official Journal of the European Union. It deals with the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repeals Directive 2003/71/EC (“the Prospective Directive”) to which it is similar in general scope.
The Regulation is aimed mainly at simplifying the rules for companies wishing to issue shares or debt on EU regulated markets and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the EU, whilst enabling investors to make informed investment decisions.
Although the Regulation came into force on 20 July 2017, the majority of its provisions will not come into effect until two years after its publication. It is at this point that the Prospectus Directive will be repealed in its entirety. The main exemptions from the requirement to publish a prospectus which were previously contained in the Prospectus Directive have been maintained in the Regulation.
The Euro MTF market of the Luxembourg Stock Exchange
Whilst the Regulation is of direct application to issuers who have listed or wish to list securities on a regulated market in the EU, it has also prompted the Luxembourg Stock Exchange to review its Rules and Regulations which are applicable to issuers listed or intending to list on its Euro MTF market, which is not an EU regulated market.
Of particular importance is the change to provisions in the Rules and Regulations of the Luxembourg Stock Exchange surrounding exemptions from the publication of full prospectuses and supplemental prospectuses where an issuer already holding a listing on the Euro MTF market of the Luxembourg Stock Exchange wishes to list additional shares of the same class. The Rules and Regulations of the Luxembourg Stock Exchange currently state that, among others, “[a]n exemption from the obligation to publish a prospectus shall be granted […] where the financial instruments for which admission to trading is applied for are shares of which either the number or the estimated market value or the nominal value or, in the absence of a nominal value, the accounting par value, amounts to less than 10% of the number or of the corresponding value of the shares of the same class already listed at the Luxembourg Stock Exchange […]”.
This particular exemption was inserted in the Rules and Regulations of the Luxembourg Stock Exchange to reflect a similar exemption contained in the Prospectus Directive.
The good news
The Regulation makes provision for an exemption from publishing a prospectus for the purposes of the admission to trading on a regulated market of “securities fungible with securities already admitted to trading on the same regulated market, provided that they represent, over a period of 12 months, less than 20% of the number of securities already admitted to trading on the same regulated market”. Such exemption came into effect on 20 July 2017 and, in response, the Luxembourg Stock Exchange has decided to increase the threshold contained in its abovementioned exemption from 10% to 20% for its Euro MTF market. This brings the exemption applicable to the Euro MTF market in line with what is reflected in the Regulation for the purposes of securities listed on regulated markets in the EU.
Prior to the increase in threshold, issuers were required to publish a full prospectus in the event that a full prospectus had not been published in the preceding 12 months and the shares to be issued and listed constituted more than 10% of the issuer’s issued and listed share capital. Where an issuer had published a full prospectus within the 12 months prior to the issuance and listing of additional shares constituting more than 10% of its issued and listed shares, such an issuer would need to publish a supplemental prospectus. Such supplemental prospectus essentially updates the full prospectus last published and the full prospectus is annexed to such supplemental prospectus.
In summary, the effect of this increase in threshold is that issuers listed on the Euro MTF market of the Luxembourg Stock Exchange wishing to list new shares:
- more than one year after the approval by the Luxembourg Stock Exchange of a full prospectus, and constituting more than 20% of their existing issued and listed share capital, will still be required to prepare a full prospectus;
- less than one year after the approval by the Luxembourg Stock Exchange of a full prospectus, and constituting more than 20% of their existing issued and listed share capital, will still be required to prepare a supplemental prospectus; and
- whether less or more than one year after the approval by the Luxembourg Stock Exchange of a full prospectus, but constituting less than 20% of their existing issued and listed share capital, will not be required to prepare a prospectus, but will only be required to file a short, listing application letter along with the relevant required documentation with the Luxembourg Stock Exchange.
Despite the fact that, as mentioned above, the majority of articles contained in the Regulation will only become effective two years after its publication in the Official Journal of the EU, the Luxembourg Stock Exchange has noted that its Rules and Regulations relating to listings on the Euro MTF market will not remain more stringent than what is contained in the Regulation. The increase in exemption threshold from 10% to 20% as stated above will reduce the cost and constraints of listing additional shares which have previously been the cause of many a frustration for capital-hungry issuers. There is no doubt that issuers who embark on periodic capital raises by means of issuing and listing additional shares will consider the above increase in threshold to be a welcome change to the current Rules and Regulations of the Luxembourg Stock Exchange.
Henco van der Meulen is an associate at M-Partners, a member of the Maitland network of law firms.
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