The Prospectus Rules Flashcards
When do the prospectus rules apply?
The prospectus rules require the issue of a prospectus whenever there is either:
1) An offer of transferable securities to the public in the UK, or
2) A request for the admission to trading of transferable securities on a regulated market in the UK
Unless exemption applies
The prospectus rules apply when
1) a company is seeking admission to listing
2) When a company which is already trading issues new securities which will be listed or offered to the public
When would a prospects not be required?
A prospectus would not be required for admission to AIM or the NEX Exchange Growth Market, unless it is a public offer (rasing more than £8m from 150 or more non qualified investors in any EU member state), with an admission document being produced instead.
While an admission document is not a prospectus, it will normally be a financial promotion
When a company is seeking admission to AIM but does not market its shares widely it can take advantage of the private placement exemption
What is the purpose of a prospectus?
The purpose of a prospectus it to give potential investors a complete, accurate and up to date understanding of the issuer, including its history, management structure, finances, operations and prospects. The rules set out the form, contents and approve requirements for prospectus
What exemptions exist for prospectuses?
A prospectus may not be required in certain circumstances ( Exemptions) including:
1) When an offer is made only to Qualified Investors, or to fewer than 150person per EU member state, excluding qualified investors, this is referred to as the private placement exemption.
- Qualified investors are professional clients and ECPs
2) for offers for securities within the UK for a total consideration of less than £8m, calculated over a 12-month period
3) For units or shares issued by an open-ended investment company (OEIC)
4) For a bonus or capitalisation issue
5) For non-equity securities issues by EEA government authorities and central banks (e.g. gilts or treasury stocks)
6) For issues of non-transferable securities
7) For issues of money market instruments with maturities of less than 12 months
8) For the exercise of conversion rights or warrants, when this represents less than 20% of the issued share capital in any 12 month period
9) For shares issued in place of shares already listed, so long as the total nominal value does not increase as a result, e.g. a split share or consolidation
10) With small issues or already-listed securities, which will not increase the class of securities in issue by 20% or more over a year
11) With issues of wholesale securities, ie, if the minimum subscription or denomination of the securities is 100,000 euros, this will only really apply to corporate bond issues
12) Small issues of less than £1m over a period of 12 months throughout the EEA
13) For securities already admitted to trading on one regulated market, which will not require a prospectus to seek admission to trading on additional markets providing that they have a minimum trading history of more than 18 months
Who is responsible for the prospectus directive?
The prospective directive is now the responsibility of the FCA. The directive applies to all companies when issuing transferable securities within the EU
What are the advantages to producing a prospectus?
The advantages to producing a prospectus are:
1) A prospectus approved by the FCA may be distributed widely without restriction in the UK
2) A prospectus approved by the FCA may be passport to allow it to be used in one mr more EU member states
If a company has decided that its share offering doesn’t require a prospectus, what else must it consider?
A company must consider whether it still has any obligations under the financial promotions regime. This is because a share offering constitutes a financial promotion unless it is done through a prospectus or under one of the exemptions in the financial promotion rules
What relevant exemption for prospectuses be found in the Financial Promotion Order (FPO) S.70. ?
The relevant exemption for prospectuses that is found in the Financial Promotion Order (FPO) S.70. states that
The financial promotions restriction does not apply to any non-real time communication which is included in a prospectus or supplementary prospectus approved in accordance with the Prospectus Rules, or any other document required or permitted to be published by the Listing Rules or Prospectus Rules.
While issuing a prospectus provides an exemption under the FPO, as the requirements for a prospectus are greater than for a financial promotion, it is not an exemption that reduces investor protection.
What relevant exemption for prospectuses be found in the Financial Promotion Order (FPO) S.19. ?
The relevant exemption for prospectuses found in the Financial Promotion Order (FPO) S.19. states that:
A communication which is only made to investment professionals, high net worth individuals and sophisticated investors is outside the scope of the regime.
Who has the primary responsibility for the contents of a prospectus?
The primary responsibility for the contents of a prospectus lies with the directors of the issuer.
They are required to make a statement in the prospectus acknowledging their responsibility.
They must also confirm to the FCA, by signed letter, that the prospectus contains all relevant information that they know or should have been aware of
How is a prospectus approved?
A prospectus must bot be published, advertised or circulated until it has been approved by the competent authority (The FCA). Th e FCA is also the UK’s competent authority for the purpose of the Prospectus Directive.
To obtain approval, the sponsor (for premium listings) or other advisors (for standard listings) must provide the FCA with certain stipulated information for at least ten clear business days before the approval is granted (20 days for new issuers or in complicated cases. This information is known as the day document.
The sponsor or financial advisor must provide the FCA with the information listed above in final form, including the final version of the prospectus, together with the relevant fee and form A (Application for Approval of a Prospectus)
What information is included in the ten-day document?
The ten day document includes:
1) Draft prospectus and cover, and copies of all documents referred to within them
2) request for authorisation to omit information normally required under the rules
3) Application forms to acquire or subscribe for shares
4) Copies of documents containing the information to be incorporated by reference in the prospectus
5) Checklists cross-referencing the draft prospectus contents to the prospects requirements
6) Copies of the board resolution allowing the securities, or confirmation it will be provided within 3 days of approval
7) The sponsor’s declaration on an application for listing (for a premium listing only)
What are the three parts to a prospectus?
The three parts to a prospectus are:
1) Summary - containing a breakdown of key information, including the risk factors
2) Registration document, containing general information about the issue and issuer
3) Securities note - containing detailed information about the equity or non equity securities being offered
The full contents of the registration document and securities note are specified in detail in the prospectus rules, and vary according to the type of securities being issued (e.g. debt or equity), and the nature of the issuing company
What information should be included the summary?
The summary should include the following in order
1) Introduction and warnings
2) Information on the issuer (and any guarantor)
3) Information on the securities
4) Key Risks
5) Information on the offer
The summary should not exceed 7% of the prospectus, or 15 pages
When would a supplementary prospectus be required?
IF there is a significant change in the company’s state of affairs subsequent to the approval of a prospectus, a supplementary prospectus should be published giving details of the change. This should be submitted to the FCA for approval as soon as is practical
