Insights

The European Securities and Markets Authority (“ESMA”) recently updated its Questions and Answers on the Prospectus Regulation (the “Q&As”) in order to provide clarification on the following aspects:

• The status of transferable securities;
• The application of the exemption in Article 1(5)(b) of the Prospectus Regulation in a situation concerning non-transferable securities which are converted into shares;
• The application of the Prospectus Regulation where shares can be exchanged for global depositary receipts (and vice-versa); and
• The dissemination of amended advertisements.

Transferable Securities

The Q&As make reference to a response provided directly by the European Commission regarding the precise nature of securities subject to contractual restrictions on transferability (for instance, in the event of selling restrictions or lock-up agreements between the issuer and the existing shareholders), and whether any such securities would fall outside of the definition of “transferable securities” found under Article 2(a) of the Prospectus Regulation. The Q&As clarify that these securities would largely remain “transferable securities” for the purposes of the Prospectus Regulation, however, in so far as broad restrictions are put in place, the securities in question may indeed fall outside of the scope of the Prospectus Regulation. Hence, national competent authorities are encouraged to assess the issue of ‘transferability’ (or otherwise) on a case-by-case basis.

Application of the exemption in Article 1(5)(b) of the Prospectus Regulation in a situation concerning non-transferable securities

As already alluded to above, the Q&As clarify that in accordance with the definition found in Article 2(a) of the Prospectus Regulation, the latter solely applies to “transferable securities” – thus meaning that ‘non-transferable’ securities fall outside of the scope of the Prospectus Regulation in its entirety. Consequently, the exemption found in Article 1(5)(b) of the Prospectus Regulation would not apply to non-transferable securities which are converted into shares.

Application of the Prospectus Regulation where shares can be exchanged for global depositary receipts (“GDRs”)

The Q&As provide further clarity on how the Prospectus Regulation should be applied in the case of admissions to trading of GDRs where the number of GDRs in issue fluctuates as a result of investors exchanging shares for GDRs (and vice-versa) on a continuous basis. In this respect, ESMA advocates for the adoption of a pragmatic approach; noting that it would be acceptable for a person applying for the admission of GDRs to trading to produce a prospectus covering the admission of ‘up to’ a specified number of GDRs. This would allow new shareholders (i.e. the holders of shares issued after the date of the establishment of the ‘up to’ facility) to exchange their shares for GDRs, as long as the number of GDRs in issue does not exceed the designated threshold throughout the period for which the prospectus is valid.

Dissemination of amended advertisements

In so far as the amendment of advertisements “through at least the same means as the previous advertisement” (i.e. Article 15(3) of the Prospectus Regulation) is concerned, the Q&As clarify that, in the context of a roadshow, the issuer should disseminate an amended version of the information provided in the roadshow through the means which it considers most suitable to reach the participants of said roadshow – such as, for instance, by way of a press release, or by publication on the issuer’s website.