Compensation & Benefits: Prospectus Directive
Further changes published by the Council on 4 and 18 November and 11 December 2009
Story so far
In September 2009, the EU Commission proposed amendments to the current Prospectus Directive which would have extended the current exemption under the Directive to cover employee share schemes of all companies, including those not admitted to trading on an European Economic Area (EEA) “regulated market”.
This proposed extension would have assisted private companies and companies not listed on a regulated market (whether in the EEA or outside of it), such that a prospectus would not have been required for all offers of securities to current and former employees and directors.
EU Council’s first revision to Commission’s proposals – listed companies in certain non-EEA markets
The existing employee share schemes exemption under the Directive applies to companies with securities listed on an EEA regulated market.
The Council’s first revised version of the Commission’s original proposals limited the proposed extension of the existing exemption to companies with securities listed on a market in a third country, outside the EEA, which were deemed to have equivalent standards to those applicable to regulated markets.
Under the proposal, the equivalent standards were to be determined by the Commission and were then to be applied by the relevant competent authorities in the various EEA states.
EU Council’s further revisions to Commission’s proposals – listed companies in certain non-EEA markets (as determined by the Commission)
On 4 November 2009, the Council published a further revision to the amending directive. The proposed amendment to extend the existing exemption only to offers made by companies with securities listed on a market in a third country outside the EEA, where those markets have the necessary equivalent standards, as set out in the initial revision, remained.
However, rather than the relevant standards being applied by individual competent authorities in the appropriate EEA country, as detailed in the first revision, this revision provided for the Commission itself to determine the equivalence standards of third country markets on an EEA-wide basis.
Third revision to Commission’s proposals
Neither of the first two revisions would have been of assistance to private companies or those not listed on a regulated market (for example, neither would have exempted AIM companies).
However, on 18 November 2009, a further version of the proposed Directive was published.
As well as proposing to extend the current exemption to companies with securities listed on a market in a third country outside the EEA with equivalent standards (as set out in the earlier revisions), the revision extends the exemption to companies with securities listed on a “multilateral trading facility” (MTF) (see Resources below for an explanation), which includes, for example, the AIM market in the UK.
This revision still provides for the Commission itself to have the power to determine the equivalence standards of third county markets. However, in a further amendment, it is proposed that the competent authority should make a submission to the Commission, setting out why it considers that the equivalence standards have been met.
For companies listed on markets outside the EEA which meet the equivalence criteria, the latest revision also includes a further obligation for an information document to be provided to employees in a “language customary in the sphere of international finance”.
EU Council’s latest (fourth!) revision to Commission’s proposals
On 11 December 2009, the latest version of the proposed Directive was published. This extends the proposed exemption to companies listed on a multilateral trading facility (MTF) provided such MTF is subject to “appropriate ongoing disclosure requirements, covering price sensitive information and publication of annual reports” and the trade in securities on such MTF is subject to market abuse rules.
For companies listed on markets outside the EEA which meet the equivalence criteria, the latest revision provides that, in addition to an information document, “adequate information” in a “language customary in the sphere of international finance” must also be provided to employees. “Adequate information” goes further than merely the information document required of companies listed on markets which meet equivalence standards, it includes price sensitive information and annual reports or summaries thereof.
The preamble to the most recent proposal sets out that the Directive “contains a number of obligations for companies, some of which seem burdensome...These obligations need to be reviewed in order to reduce the burdens weighing on companies within the Community to the necessary minimum without compromising the protection of investors and the proper functioning of the securities markets in the Community.”
While the very latest revision will allow AIM listed companies to take advantage of the proposed exemption (as AIM is an MTF which meets the required conditions) unfortunately, the revisions still do not go far enough to assist private companies and those which are not listed on a MTF or other exchange. This is particularly disappointing in light of the Commission’s stated objective to review the legislative obligations “to reduce the burdens weighing on companies” and the Council’s agreement that “administrative burdens on companies should be reduced by 25% by the year 2012 in order to enhance the competitiveness of companies in the Community”.
This area is clearly still subject to debate so it is far from clear as to whether any further revisions will be forthcoming in the near future.
The Financial Services Authority Handbook glossary defines a “multilateral trading facility” as
“a multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments - in the system and in accordance with non-discretionary rules - in a way that results in a contract in accordance with the provisions of Title II of MiFID.
[Note: article 4(1)(15) of MiFID]”.
MiFID is the Markets in Financial Instruments Directive.