Issuing and listing bonds

Question 1

Offering doc?

Answer 1

• In conjunction with the issuer, the lead manager’s lawyers will prepare an offering document to assist in marketing the bonds. This will describe the issuer, explain the offer terms, contain historical financial statements in respect of the issuer and certain other information that would help an investor decide if the investment is suitable. This may be referred to as an offering or placement memorandum or an offering circular. In the past, market expectation was that the content of the offering circular of an unlisted issue would still generally follow the requirements of the (then in force) listing rules.
• In certain circumstances (including in particular where the bond issue is to be listed), there are specific requirements for the type of offering document (e.g. Listing Particulars or a Prospectus) and its contents.

Question 2

• Offering document – which type?

Answer 2

• Sections 85(1) and (2) FSMA require that an approved prospectus must be prepared in relation to any offer to the public or admission to trading on a regulated market (see below for discussion of regulated market) of transferable securities in the UK – i.e. in those two cases, the offering document must take the form of a prospectus.
• Even where a bond is unlisted and does not constitute an offer to the public (because it falls into an exemption), an offering document will usually be prepared for marketing purposes. This document will be known an offering circular or information memorandum. Where bonds are listed on an unregulated market (such as the ISM discussed below) an offering document known as admission particulars will be prepared
• The key difference between the different types of offering documents is the degree of disclosure that is required. A prospectus requires a higher degree of disclosure than listing particulars or an offering circular.

Question 3

• Exempt offers to the public

Answer 3

• Even if the bond is offered to the public, section 86(1) FSMA sets out exemptions from the requirement to provide a prospectus under s. 85(1), provided the bond is not admitted to trading on a regulated market (i.e. the bonds are admitted to trading on the PSM or the ISM). These exemptions are set out Article 1(4) of the UK Prospectus Regulation and are referred to in the Prospectus Regulation Rules (‘PRR’) namely PRR 1.2.3. These exemptions include offers addressed to either qualified investors only or to fewer than 150 non-qualified investors per EEA state (amended to refer only to the UK following Brexit).
• ‘Qualified investors’ is defined in the UK Prospectus Regulation and includes governments, central banks and other entities authorised to operate in the financial markets.
• Sections 85(5) and (6) FSMA provide additional exceptions for the requirement for a prospectus. These exceptions (none of which is likely to apply to bonds) are found in PRR 1.2.2.

Question 4

• Admission to trading on a regulated market

Answer 4

• The Main Market of the London Stock Exchange (‘LSE’) is a regulated market for the purposes of s 85(2) FSMA. A bond that is to be listed (i.e., admitted to trading) on the Main Market will therefore require a prospectus.
• As well as the regulated markets established by the LSE for bond trading, there are two alternative trading platforms which, as mentioned above, do not constitute a regulated market, namely the PSM and the ISM. These are available for the trading of specialist securities.
• Specialist securities are defined as securities normally bought and traded by a limited number of investors who are particularly knowledgeable in investment matters. Such securities include bonds.
• If bonds are admitted to trading on the PSM or the ISM and the offer does not constitute an ‘offer to the public’ (i.e. it falls within an exemption such as an offer to qualified investors only as discussed above), a prospectus will not be required. Instead, ‘listing particulars’ will be prepared for the PSM in accordance with FCA rules and ‘admission particulars’ will be required for the ISM in accordance with the LSE’s own rules for admission to trading on the ISM.

Question 5

• Listing a bond
• Although the term ‘listing’ is generally used, there are technically two separate stages involved:

Answer 5

· ‘admission to listing’ of the bonds on the ‘Official List’ held by the Financial Conduct Authority (‘FCA’); and
· ‘admission to trading’ of the bonds on the London Stock Exchange (‘LSE’).

Question 6

• Mandate?

Answer 6

• In a situation where a large company wishes to raise money by issuing a bond, the company will be known as the ‘issuer’. As a first step, the issuer will appoint a bank to act as lead manager under the terms of a ‘mandate letter’. The basic terms and conditions of the bond (such as how it will be priced) will be included in the mandate letter (although the actual pricing will not occur until signing). The lead manager is responsible for arranging the whole transaction, including marketing the issue and putting together a syndicate of banks (known as the co-managers) which will initially subscribe for the bonds to sell on to investors.

Question 7

• Due Diligence?

Answer 7

• The lead manager or their lawyers will conduct due diligence in respect of the issuer and, based on this information, prepare the offering document. This is a fact-finding exercise to verify the information provided by the issuer and to ascertain what further information is needed. For a listed bond, the due diligence process will be driven by the need to comply with disclosure requirements for listed bond prospectuses. The aim is to protect the lead manager from potential liability under FSMA and the Prospectus Regulation Rules.

Question 8

Launch?

Answer 8

• The launch of a bond issue is effectively a formal announcement of the planned issue of the bonds. The lead manager will send out the Initial Syndicate Communication to the co-managers (there will have been informal discussions prior to this date to ascertain which financial institutions are interested in subscribing for the bonds) who then have 24 hours to respond to this invitation to participate in the syndicate. This document contains summary information about the bond issue and its basic terms and conditions.
• Once the lead manager has received a response from the co-managers that they wish to form a part of the syndicate it will send out a confirmation of allotment (a Confirmation to Managers) to the co-managers which sets out the basis of the manager’s commitment (subject to the signing of a subscription agreement). The Confirmation to Managers, together with any annexed term sheet and the Initial Syndicate Communication should contain the material terms of the issue and such other information as will allow the managers to confirm their participation in the issue/transaction. Such information will include, as a minimum, names of the managers in the syndicate, respective underwriting commitments and allotment information, the commercial terms of the issue/transaction, and documentation considerations (e.g. whether the bonds are being issued on a standalone basis or as part of a programme).

Question 9

• Signing?

Answer 9

• This relates to the signing of the ‘subscription agreement’ and the ‘agreement among managers’. The subscription agreement deals with the arrangements for the issue and subscription of the bonds with the managers agreeing to subscribe for the bonds on a joint and several basis, so that the issuer has certainty that all the bonds will be bought. The agreement among managers covers the arrangements between the managers and governs their liability and obligations in relation to each other. It also confirms that the managers subscribe for the bonds on a joint and several basis and specifies the proportion of the bond issue each manager will subscribe for. It is an International Capital Market Association (the ‘ICMA’) requirement that all managers receive the final draft of the subscription agreement and of the agreement among managers at least two working days before the signing date. The obligation to subscribe for the bonds does not take effect until closing (see below), and only then after a number of pre-determined conditions precedent are satisfied. Therefore, there is no transfer of funds or bonds at this point.

Question 10

• The following takes place on signing:

Answer 10

· pricing of bonds (although ‘plain vanilla’ bonds can be priced at launch);
· delivery of the issuer’s auditor’s first comfort letter (confirming no material change since the last set of audited accounts);
· finalising and issuing the offering document; and
· signing of the subscription agreement and the agreement among managers. The lead manager and other managers are legally bound at this point.
* It is standard practice for signing to take place virtually i.e. using e-mail and scanned copies of the relevant documents.

Question 11

• Closing?

Answer 11

• Closing is the transfer of the bonds to the managers and the funds to the issuer. This is all done through the clearing systems. The intervening days between signing and closing are used by the parties to finalise the outstanding documents (legal opinions, issuer’s auditor’s second comfort letter (confirming no deterioration in the issuer’s financial condition since the date of the first comfort letter), trust deed or fiscal agency agreement, paying agency agreement and closing certificates) and to co-ordinate the payment procedure between the lead and co-managers, the clearing systems (in particular the common depositary) and the issuer. At closing the parties will check that all conditions precedent have been satisfied. In addition to this, the main documents which must be provided and/or signed
• • If the issue is to be listed, the issuer will need confirmation from the FCA that it has approved the offering document.
• Some documents may be signed earlier than the closing date and held in escrow (effectively held on trust) by the lead manager’s solicitors. There will be a number of other ancillary documents to provide such as incorporation certificates, board minutes or regulatory approval, depending on the type of issuer and the type of bond involved.
• In terms of the mechanics of payment, the system which is most commonly used to ensure that cash and bonds change hands simultaneously is known as ‘payment against delivery’. Under what is known as the ‘classic global note structure’ payment for the bonds is co-ordinated by the lead manager (on behalf of the syndicate) through the clearing systems. Prior to closing, the co-managers will instruct the clearing systems to transfer, on closing and subject to receipt of the bonds, cash from their respective cash accounts to the lead manager’s account. On closing, the lead manager will instruct the clearing systems to transfer the total amount due to the issuer to the depositary. The depositary acts as a go-between. On closing, as soon as the depositary receives the bond (often constructively - it will be given the go ahead on the phone from the issuer and the lead managers once the bond is authenticated), the depositary will instruct the clearing systems to credit the managers’ securities account with the bonds and will transfer the funds it holds for the managers to the issuer. In this way no one gets either the bonds or the funds before the other party has delivered what it should have delivered (bonds or funds).

Question 12

main documents which must be provided and/or signed at closing are

Answer 12

· final form legal opinions - one from the lead manager’s solicitors confirming the binding nature of the bond documentation and one from the issuer’s solicitors confirming among other things the due incorporation of the issuer;
· issuer’s closing certificate. This is a certificate signed by the issuer stating that: (1) the representations made by the issuer in the subscription agreement remain true and accurate as at the date of closing; (2) there has been no material adverse change in the issuer’s financial condition since the execution of the subscription agreement; and (3) the issuer has performed all its obligations under the subscription agreement on or before the closing date;
· trust deed/fiscal agency agreement;
· paying agency agreement (if required);
· auditor’s bring-down comfort letter. This is a short letter confirming that the contents of the first comfort letter delivered to the managers on signing remain correct;
· global bond (generally in temporary form), which will be authenticated (signed) by the fiscal agent or paying agent;
· cross-receipt letters from the issuer and the lead manager are signed and exchanged recording that the bond issue has closed. These state, respectively, that the managers have received the bonds and that the issuer has received the funds; and
· payment instructions from the lead manager to the common depositary.

Question 13

• The time it takes to complete a bond issue will vary from a few days to several months depending on a number of factors such as:

Answer 13

· Seasoned issuer (i.e. regular player on capital markets) or first time issuer: A seasoned issuer will be able to update an existing disclosure document rather than start from the beginning thereby shortening the process at the due diligence stage. Also frequent issuers will usually set up and issue bonds on a regular basis under an Euro Medium Term Note Programme. This enables frequent issuers to raise money at short notice on the basis of master documentation which is updated on an annual basis or supplemented if necessary on an issue by issue basis. Conversely, a new issuer will have to spend more time on due diligence to put the offering document together. More effort may need to go into investor roadshows for new issuers to generate more interest in the bonds in the market before the issue is launched.
· Type of bond (i.e. plain vanilla or with special features): If the bonds are to be issued with special features such as convertible or exchangeable bonds, more complex provisions will need to be built into the documentation which will impact on the timetable due to the additional disclosure, drafting and negotiation involved.
· Credit rating of issuer: If the credit rating is below investment grade, more time and effort will need to go into investor roadshows to generate investor interest in the pre-launch stage.

Question 14

• Advantages of listing:

Answer 14

· Because bonds are generally bought by, and sold to sophisticated investors, listing is sought for other reasons than accessing the public market place. Most trading will happen on the over-the-counter (‘OTC’) market rather than on stock exchanges. The OTC market is simply trading via the telephone or computer screens between investment professionals. In this context, a key advantage of listing is that it makes a bond more marketable (and, as the bond is easier to sell, the interest paid by the issuer can be lower) for a number of reasons:
· because investors know that the listing requirements have been complied with, it makes them more confident in the quality of the information they are being given;
· it gives the issuer access to institutional investors (they are the biggest buyers of bonds), which are generally required to hold their investments in listed securities so that they can be readily sold; and
· Investors can benefit from the quoted eurobond exemption. This means issuers can pay interest free of withholding tax. Whilst there is an exemption from the basic rule that payments of interest are subject to withholding tax for interest payments made to banks, because bonds have a much wider range of investors than just banks, this exemption does not really help, hence the importance of the quoted eurobond exemption. As well as securities admitted to trading on the Main Market, securities admitted to the PSM and ISM will also fall within this exemption.

Question 15

• Disadvantages of listing:

Answer 15

· The three main disadvantages for the issuer are:
· cost: the FCA and the LSE each charge a fee and legal fees will be considerably higher because of the additional time involved in listing a bond (especially for a first time issuer);
· timing: the listing process is more time-consuming. This is particularly the case for a new issuer where due diligence and drafting of the prospectus will have to be undertaken from scratch. The specific requirements for listing will vary depending on the exchange on which the issuer is listing the bonds; and
· disclosure: the listing process requires public disclosure of a great deal of information regarding the issuer and its business which, for business reasons, the issuer may wish to keep confidential.

Question 16

• Where are bonds listed?

Answer 16

• London is, at present, one of the principal markets in Europe on which to list debt securities. Other principal European markets include Luxembourg (the Luxembourg regulated market or the Euro MTF) and Ireland (Main Securities Market or the Global Exchange Market (‘GEM’)). This workstream focuses on a London listing (though note that as practitioners you will also become familiar with overseas listing processes).
• As mentioned, obtaining a listing for bonds in London involves two processes (a) admission to the ‘Official List’ held by the FCA; and (b) admission to trading on one of two markets, one of which is ‘regulated’ and the other is ‘unregulated’
• The London Stock Exchange’s Main Market is a ‘regulated market’ for the purposes of all the regulations applying to bonds.
• Bonds may also be admitted to trading on the International Securities Market (‘ISM’) where the disclosure rules are created by the London Stock Exchange rather than the FCA and are designed to offer issuers greater flexibility than the Main Market.

Question 17

• Bond listing requirements

Answer 17

• Basic requirements
• The LR set out the requirements for listing bonds, which include:
  · admission to trading on a regulated market for listed securities operated by a ‘regulated investment exchange’ (which includes the Main market of the London Stock Exchange); and
  · publication of an approved prospectus.
• As already mentioned, this means that three separate processes need to be successfully completed: (1) approval of the prospectus; (2) application for listing; and (3) application for admission to trading. These processes run in parallel with the underlying procedure for issuing the bonds.
• Approval process for prospectus
  · The documents listed in PRR 3.1.1 (and specifically under Article 42) must be submitted to the FCA at least 10 working days before the intended approval date of the prospectus (20 working days if the issuer does not already have securities admitted to trading) - PRR 3.1.6. All drafts of the prospectus must be submitted in searchable electronic format via electronic means.
  · In terms of timing, there is a legal and a practical requirement: under s. 85(2) FSMA, it is unlawful to request the admission of securities to trading unless an approved prospectus has first been made available. Since, as we will see shortly, the application for the admission of the bonds to trading will be made soon after signing, the prospectus needs to have been approved by then.
  · At a practical level, the prospectus will need to have been finalised and approved in advance of signing, since it will need to be given to each of the co-managers as part of the signing process. The latest date for submission of the prospectus for approval is therefore 10 (or 20, if it is a first-time issuer) working days before signing. However, the FCA may want to review and comment on more than one draft of the prospectus before they approve the final version, so it may (and often will) take longer than 10 days. It takes approximately 3 days to review each draft of the prospectus.
• Obtaining a listing
  · The issuer must comply with the procedure set out in LR 3.4. This includes requirements to provide a completed application for admission to the Official List and an approved prospectus at least two business days before listing is to be effective (i.e. before closing) and various other documents (including a written confirmation of the number of securities to be issued pursuant to a board resolution authorising the issue) on the day of listing.
  · Any documents that have been amended in response to comments from the FCA must be resubmitted once amended.
  · In timing terms, the listing must usually be effective at closing and so the application for listing will be submitted a few days before closing. Depending on the proposed timing for issue of the bonds, this may mean immediately after signing.
• Admission to trading
  · The issuer must comply with the procedure set out in LR 3. In practice, the application for admission to trading is submitted to the LSE at the same time as the application for listing is submitted to the FCA.

Question 18

• What happens after listing?

Answer 18

• The FCA Handbook rules apply beyond listing.
• Issuers of listed securities have continuing obligations during the life of the listing, including for example on-going disclosure obligations under the DTR.
• Such obligations include the filing of periodic financial information such as annual and interim reports (although the obligations vary depending on the nature of the securities and/or the nature of the issuer).
• The purpose of the DTR is to promote prompt and fair disclosure of relevant information to the market and to set out specific circumstances where an issuer can delay the public disclosure of inside information.

Question 19

Retail issue?

Answer 19

• A retail issue is where the securities are issued with a minimum denomination of under €100,000 (or its equivalent in another currency). For a retail issue, Annexes 6 and 14 need to be complied with. Retail issues require more information to be disclosed.

Question 20

Wholesale issue?

Answer 20

• A wholesale issue involves minimum denominations of €100,000 or more (or its equivalent in another currency). For a wholesale issue, Annexes 7 and 15 need to be complied with.

Question 21

Bond issues are either retail OR wholesale. You need to be able to identify what type of bond issue it is by looking at the lowest denomination that the bonds are being issued in. If the bond issue is wholesale:

Answer 21

• less information needs to be disclosed in the prospectus;
• a summary will not need to be prepared (PRR 2.1.3); and
• the criteria which the FCA must consider when undertaking the scrutiny of the comprehensibility of the information contained in a prospectus is reduced.

Question 22

• General statutory disclosure requirements for prospectus?

Answer 22

o The general content of the prospectus is governed by FSMA and the ‘informed assessment’ test.
o Section 87A FSMA sets out the general duty of disclosure which is the framework of what information is required to be included in the prospectus. However, the issuer must also consider the more detailed requirements of the LR and PRR as to disclosure and content of a prospectus.
o Section 87A(as amended) makes reference to the information contained in Article 6(1) of the UK Prospectus Regulation. This information is set out in PRR 2.1.1 and means that the FCA may not approve a prospectus unless it is satisfied that the prospectus contains the necessary information which is material to an investor making an informed assessment of: (a) the assets and liabilities, profits and losses, financial position and prospects of the issuer and any guarantor; (b) the rights attaching to the securities; and (c) the reasons for the issuance and its impact on the issuer.

Question 23

Documents required for prospectus

PRR 2.2.1 refers to three components of a prospectus. These are:

Answer 23

• a summary (in respect of a retail issue),
• a registration document (containing information relating to the issuer) and a
• securities note (providing details of the securities to be offered).
• Each of these components can be combined into a single prospectus or kept separate.

Question 24

Information required for prospectus?

Answer 24

 PRR 2.3 sets out the minimum information requirements for a prospectus. This information is contained in the annexes set out in the UK Prospectus Regulation. The annexes apply according to the nature of the issuer and the type of securities being issued and separate annexes are required for both the registration document and the securities note. In addition, other annexes may also apply if the securities have special features (e.g. if the issue is guaranteed).
 The UK Prospectus Regulation introduces the requirement to set out the risks that are material for the purposes of an investor taking an informed investment decision. The risk factors need to be categorised and presented in order of materiality within each category (PRR 2.3.3). The UK Prospectus Regulation has introduced a more prescriptive regime in relation to summaries, with the aim of making the summary section clearer and more concise (PRR 2.1.4 to 2.1.6). The summary must be a maximum length of seven sides of A4-sized paper and be split into four key sections, namely:
* an introduction – containing warnings;
* key information on the issuer;
* key information on the securities;
* and key information on the offer of securities to the public and/or admission to trading on a regulated market.

Question 25

o FSMA allows the FCA to authorise information to be omitted from a prospectus in the circumstances set out in PRR 2.8.1. These include that:

Answer 25

 disclosure would be contrary to the public interest,
 (b) that disclosure would be seriously detrimental to the issuer or the guarantor (and omission would be unlikely to mislead the public), or
 (c) that the information is only of minor importance and would not influence the assessment of the financial position and prospects of the issuer or guarantor.
o PRR 2.8.2 and PRR 3.1.1 (Article 42(2)(d)) set out the procedure for requesting an omission of information. Such an application should be made to the FCA with the submission of the first draft of the prospectus, pursuant to PRR 3.1.1. However, in practice an issuer is likely to approach the FCA at an even earlier stage if omission is required. It is important to note that information may only be omitted after an application has been submitted to and approved by the FCA. Also note that an issuer must identify in the relevant cross-reference list (corresponding to each annex)any information from the annexes that has not been included

Question 26

Who drafts prospectus?

Answer 26

 The lead manager’s solicitors will be primarily responsible for drafting the prospectus. The lead manager and the issuer will work together with their lawyers to ensure that the information is accurate and complete. The auditors of the issuer will be responsible for the financial information.

Question 27

Timing of

Answer 27

 The first stage will be gathering information through the due diligence process, which happens between mandate and launch. If the issuer is new to the market, the prospectus will have to be drafted from scratch. If the issuer has already issued securities and previously prepared an offering document, then solicitors and auditors will only need to update the information.
 Drafting can take several months for a first-time issuer, but, for an experienced issuer, the prospectus should generally be in close to final form within a month of the mandate. In practice, many bonds are issued under an EMTN Programme. Under such a programme, a master offering document known as the ‘base prospectus’ is issued at the outset of the programme. A further document known as ‘final terms’ is then published in relation to each separate issue of bonds under the programme. This greatly speeds up the process of making subsequent issues of bonds under the programme.

Question 28

o Before the prospectus can be used (or an application for admission to trading made – see s. 85(2)), it must be approved by the FCA. PRR 3.1 lists the various documents which must be submitted to the FCA. The lead manager’s solicitors must send to the FCA the following;

Answer 28

 the prospectus- formerly it was a requirement that an annotated version of the prospectus be submitted to the FCA, showing where all the information required by the applicable PR Regulation annexes has been included in the prospectus. However, annotation is no longer a requirement under the PRR. Instead, there is a requirement to submit relevant cross-reference lists (see below). There is a requirement that the final draft of a prospectus should not be annotated (PRR 3.1.1 (Article 44) of the PR Regulation).
 If the order of disclosure items in the prospectus does not coincide with the order set out in the relevant UK PR Regulation annex (which is typically the case with bond prospectuses), the issuer must also provide the FCA with the relevant cross-reference lists (PRR 3.1.3). These cross-reference lists correspond with the relevant UK PR Regulation annex and can be accessed from the FCA website. On the cross-reference list the issuer will indicate the specific page number in the prospectus where a particular required item of information has been disclosed.
 Separate cross-reference lists need to be completed showing information about the issuer and information about the securities. Which cross-reference list is used will depend on whether the securities are retail or wholesale.
 In addition, if the securities have the benefit of a guarantee, this will trigger the requirement to provide an additional cross-reference list containing information from the annex relevant to guarantees.
 The lead manager’s solicitors will also (if necessary or if required by the FCA) identify, within the cross-reference list, any items from the relevant UK PR Regulation annexes that have not been included in the draft prospectus because they are not applicable due to the nature or type of issuer, securities, offer or admission to trading (as set out in Article 24(5) of the PR Regulation as referenced in PRR 3.1.1 and PRR 3.1.3).
 In addition to complying with the PRR, the issuer must always make sure that, taking the prospectus as a whole, the informed assessment test in s. 87A/PRR 2.1.1 is complied with.
 Finally, if applicable, the issuer’s solicitors will also send to the FCA a request to omit information under PRR 2.8.2. Any such request must clearly outline the specific information concerned and the grounds set out in PRR 2.8.1 (Article 18(1)) as previously mentioned. No information may be omitted unless the FCA consents.

Question 29

o Persons responsible for the prospectus

Answer 29

· Section 84(1)(d) FSMA provides that the PRR are able to determine who is responsible for a prospectus. PRR 5.3.5 provides that, amongst others, the following will be responsible:
* the issuer;
* each person accepting responsibility (and stated in the prospectus as doing so) for the prospectus (e.g. auditors accepting responsibility for financial information reproduced in the prospectus);
* any guarantor in respect of information relating to it and the guarantee; and
* each person authorising the contents of the prospectus.

Question 30

o Section 90 FSMA?

Answer 30

 This states that false or misleading statements or omissions in a prospectus can give rise to both civil and criminal liability. The main section dealing with civil liability of the responsible persons is s. 90 FSMA. Schedule 10 FSMA sets out a number of defences available to potentially responsible persons.
 Section 90(1) in conjunction with s. 90(11) provides that any person responsible for a prospectus (i.e. under PRR 5.3.5) is liable to pay compensation to a person who has acquired bonds to which the prospectus applies and who has suffered loss in respect of those bonds as a result of any untrue or misleading statement in the prospectus or the omission from the prospectus of anything required to be included in it under FSMA.

Question 31

Defences so s90 FSMA?

Answer 31

· First, under paragraph 1, a person will not be liable for an incorrect statement if he reasonably believed that the statement was true and not misleading. There are a number of conditions which must be satisfied before this defence will apply, which are set out in paragraph 1(3).
· Second, under paragraph 3, a person will not be liable for an incorrect statement if he issued a correction and took reasonable steps to publish that correction. The detail of this defence is set out in paragraph 3(2). Liability under s. 90 is very broad. In particular, s. 90 can be relied on by any person who acquired the securities, including subsequent purchasers as well as the original investors who bought from the issuer. As a result, investors are more likely to rely on s. 90 rather than other heads of liability to sue a responsible person (usually the issuer).

Question 32

Civil liability for issuing bonds?

Answer 32

 negligent misstatement (Hedley Byrne v Heller): but the investor would need to show a duty of care was owed to the investor, that the duty was breached and that the investor suffered loss as a result of the breach;
 misrepresentation: can be fraudulent, negligent or innocent. To succeed the investor would need to prove some form of reliance on the misrepresentation;
 breach of contract (subscription agreement): only managers can sue the issuer for breach of the subscription agreement; and
 tort of deceit: the investor would need to show intention to deceive on the part of the issuer.
o All these courses of action will only be available to initial purchasers and as a result s. 90 FSMA is more likely to be used by investors. Any investor who has bought the securities and suffered a loss can sue under s. 90 FSMA. The investor need not have relied on the misstatement.

Question 33

Criminal liability?

Answer 33

o This includes:
 Part 7 of the Financial Services Act 2012 (ss. 89-95) sets out new criminal offences relating to financial services, such as making false or misleading statements and creating false or misleading impressions.
 Additional offences are contained in s. 19 Theft Act 1968 (False Statements by Company Directors) and ss. 2 (Fraud by False Representation) and 3 (Fraud by Failing to Disclose Information) of the Fraud Act 2006.

Question 34

The issuer is intending to issue Euro 200,000,000 bonds which are to be admitted to trading on the main market of the London Stock Exchange. The bonds will be in bearer form and sold in minimum denominations of Euro 100,000 plus one or more higher integral multiples of Euro 1,000 in excess thereof. The issuer’s parent company is giving a guarantee for the bonds.

Which one of the following best describes the requirements of the Prospectus Regulation Rules (‘PRR’) as to the content of the prospectus required for this bond issue?

The prospectus must contain the information required by Annexes 7 and 15 of the PRR

The prospectus must contain the information required by Annexes 6, 14 and 21 of the PRR.

The prospectus must contain the information required by Annexes 6 and 14 of the PRR.

The prospectus must contain the information required by Annexes 7, 15 and 21 of the PRR

Answer 34

The prospectus must contain the information required by Annexes 7, 15 and 21 of the PRR

Correct, well done! As the bonds are to be sold in minimum denominations of Euro 100,000, this is a ‘wholesale’ issue and so the information set out in Annexes 7 and 15 is required. As there is a guarantee, the information set out in Annex 21 is also required.

Question 35

The issuer, a manufacturer of weapons and military equipment, is in the process of preparing a draft prospectus for its first listed bond issue for approval by the Financial Conduct Authority (the ‘FCA’). The issuer is concerned as to the extent of disclosure required in the draft prospectus. In particular, the issuer does not wish to disclose any information about certain key government defence contracts which account for a significant proportion of the issuer’s current revenue (the ‘Information’).

Which one of the following statements is correct? The FCA may authorise omission of the Information from the prospectus if it considers that its disclosure would be…

contrary to the public interest, provided its omission would not be likely to mislead the public with regard to facts and circumstances essential for an informed assessment of the issuer and of the rights attached to the bond

seriously detrimental to the issuer, provided its omission would not influence the assessment of the financial position and prospects of the issuer.

contrary to the public interest

seriously detrimental to the issuer, provided the Information is of minor importance in relation to this specific admission to trading and would not influence the assessment of the financial position and prospects of the issuer.

Answer 35

contrary to the public interest

Correct, well done! The FCA may authorise the omission from the prospectus of certain information which must otherwise be included, where it considers that the information falls within Article 18(1)(a) - (c) of the Prospectus Regulation, as set out in PRR 2.8.1. In light of the issuer’s key defence contracts, the Information may fall within Article 18(1)(a) “disclosure …would be contrary to the public interest”.

Question 36

The issuer is intending to issue Euro 300,000,000 bonds which are to be admitted to trading on the main market of the London Stock Exchange. The bonds will be in bearer form and sold in minimum denominations of Euro 10,000.

Which one of the following best describes the requirements of the Prospectus Regulation Rules (‘PRR’) as to the general contents and format of the prospectus needed for this bond issue?

The prospectus must be composed of the following three components which must be combined into a single document: a registration document, a securities note and a summary.

The prospectus must be composed of the following three components which can either be kept separate or combined into a single document: a registration document, a securities note and a summary.

The prospectus only need be composed of a registration document and a securities note, and may also contain a summary as an optional extra should the issuer wish.

The prospectus only need be composed of a registration document and a securities note

Answer 36

The prospectus must be composed of the following three components which can either be kept separate or combined into a single document: a registration document, a securities note and a summary.

Correct, well done! As this is a ‘retail’ issue because the minimum denomination of the bonds is less than Euro 100,000, PRR 2.2.1 requires that the prospectus must be drawn up of three components, a registration document, a securities note and a summary, which can either be kept separate or combined into a single document.