New EU Prospectus Regulation 2017/1129 Entered into Force, European Capital Markets Update

On 20 July 2017, the new EU Prospectus Regulation (Regulation (EU) 2017/1129) of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC ("Regulation") entered into force. The Regulation replaces the EU Prospectus Directive (Directive 2003/71/EC as amended) entirely and lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market situated or operating within a EU Member State. As an EU Regulation, the new rules do not have to be implemented but are directly applicable in the EU Member States.

While most of the provisions of the Regulation will apply to prospectuses from 21 July 2019, some provisions have been applicable since 20 July 2017, and some provisions will be applicable from 21 July 2018. The following outline is limited to certain key changes to the prospectus regime under the repealed EU Prospectus Directive. 

Key Changes Already in Force Since 20 July 2017

No prospectus is required for the admission to trading on a regulated market of any of the following (i.e., these exemptions do not apply to public offers): 

• Securities of the same class of securities that are already admitted to trading on the same regulated market, provided that they represent, over a period of 12 months, less than 20 percent of the number of securities already admitted to trading on the same regulated market.
  
  Note: Under the EU Prospectus Directive, no prospectus was required for the admission to trading of less than 10 percent of the number of shares of the same class already admitted to trading on the same regulated market. The increase of the threshold to 20 percent will support the placing of shares with a subsequent listing of the shares on a regulated market. In practice, however, very few German listed companies have authorized capital available for such placings in excess of 10 percent since German stock corporation law limits the exclusion of preemptive rights for capital increases in cash.
• Shares resulting from the conversion or exchange of other securities or from the exercise of the rights conferred by other securities, where the resulting shares are of the same class as the shares already admitted to trading on the same regulated market. This is applicable if the resulting shares represent, over a period of 12 months, less than 20 percent of the number of shares of the same class already admitted to trading on the same regulated market (subject to certain exceptions for some scenarios such as grandfathering, for example).
  
  Note: The EU Prospectus Directive did not contain a limit of up to 20 percent of the shares already admitted to trading on the same regulated market for the admission to trading of shares resulting from the conversion of shares e.g. by means of convertible bonds. 

Key Changes that Will Enter into Force on 21 July 2018

No prospectus shall be required for a public offer of securities with a total consideration of less than €1 million. (Note: under the EU Prospectus Directive, no such general exemption existed.) Moreover, EU Member States may decide to exempt public offers from the prospectus requirement if the total consideration of each such offer in the EU does not exceed €8 million over a 12-months period. (Note: under the EU Prospectus Directive, EU Member States could provide for an exemption for public offers with a total consideration of up to €5 million.) 

Key Changes that Will Enter into Force on 21 July 2019

• Prospectus Summary: to be drawn up as a short document written in a concise manner consisting of four sections (introduction including prescribed warnings, key information on the issuer, key information on the securities, key information on the offer / the admission to trading), with a maximum length of seven A4 pages and with a maximum number of 15 risk factors.
  
  Note: Currently the prospectus summary may not exceed 7 percent of the length of a prospectus or 15 pages—whichever is the longer (pursuant to the Commission Regulation (EC) No. 809/2004 implementing the EU Prospectus Directive).
• Risk factors: shall be presented in a limited number of categories depending on their nature. In each category, the most material risk factors must be mentioned first according to the issuer's assessment of the materiality of the risk factors (which may be disclosed by using a qualitative scale of low, medium or high).
• Incorporation by reference: further incorporations into a prospectus by reference to other documents that are published electronically will be permitted, such as, among others, to annual and interim financial information, audit reports and financial statements or corporate governance documents. 

Further changes that apply as from 21 July 2019 that are worth mentioning relate to the scope of wholesale issues, universal registration documents (i.e. annual registration documents in particular for frequent issuers) and prospectus supplements (with a shorter turnaround time for the approval of supplements of maximum five working days).