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FCA announces consultation on changes to the Prospectus Rules

Print publication

04/04/2017

The new Prospectus Regulation (Regulation) which replaces the Prospectus Directive is due to come into force in May or June this year. The Regulation is directly applicable and so will not require UK legislation to implement it in this country. Most aspects of the Regulation will only apply 24 months after it comes into force. There are certain provisions, however, that will apply immediately and it is in relation to those measures that the FCA has launched its consultation.

The measures relate to the exemptions available to issuers in relation to the obligation to publish a prospectus when their securities are to be admitted to trading on a regulated market, commonly known as the ‘10% exemption’ and the ‘conversion or exchange exemption’.

10% exemption

Under the current Prospectus Directive, an issuer does not need to publish a prospectus for an admission of shares to a regulated market if the shares represent, over a period of 12 months, less than 10% of the number of shares of the same class already admitted to trading on the same regulated market. This provision is implemented in the UK by PR1.2.3R(1). Under the Regulation, the 10% threshold is increased to 20% and the exemption applies not just to shares but to all securities.

Conversion or exchange exemption

Currently, an issuer does not need to publish a prospectus for an admission of shares to a regulated market for shares resulting from conversion or exchange of other transferable securities if the shares are of the same class as the shares already admitted to trading on the same regulated market. This provision of the Prospectus Directive is implemented in the UK by PR1.2.3R(7).

Under the Regulation, this exemption is limited to an increase of less than 20% of the number of shares of the same class already admitted to trading on the same regulated market over a period of 12 months. This measure is more restrictive than is currently in place but will not apply in the following situations:

  • a prospectus has already been drawn up for the securities ‘giving access to’ the shares to be admitted to trading
  • the securities ‘giving access to’ the shares to be admitted to trading were in issue before the Regulation comes into force.

FCA Proposals

The FCA is proposing to amend the existing Prospectus Rules by removing the existing exemptions and to refer instead to the exemptions contained in the Regulation. Although described as a consultation paper, issuers should expect these proposed changes to take effect as soon as the Regulation comes into force.

WM comment

We will provide an update when the implementation date of the Regulation is announced. Since it may only be a couple of months away, if you would like to discuss any aspect of the Regulation, please do not hesitate to contact the writer.

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