Opinion of the Economic and Social Committee on the "Proposal for a Directive of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading"
Date: 2002-01-17
Institutions: European Economic and Social Committee
Subjects: approximation of laws, consumer information, investment, official market, securities

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Official Journal of the European Communities

3.4.2002

Opinion of the Economic and Social Committee on the ‘Proposal for a Directive of the European
Parliament and of the Council on the prospectus to be published when securities are offered to
the public or admitted to trading’

(2002/C 80/13)

On 2 July 2001 the Council decided to consult the Economic and Social Committee, under Article 262
of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 5 December
2001. The rapporteur was Mr Levitt.

At its 387th plenary session (meeting of 17 January 2002), the Economic and Social Committee adopted
the following opinion by 92 votes to one with three abstentions.

1.

Introduction

— harmonisation of essential definitions in order to avoid
loopholes and different national approaches, to ensure a
level playing field throughout the EU;

1.1.
for a
The Commission has presented a proposal
Directive intended to introduce a new ‘single passport for
issuers’ so that once a prospectus has been approved by the
home country authority of the issuer, it would have to be
accepted throughout the EU for public offer and/or admission
to trading on regulated markets. A prospectus is a disclosure
document by issuers given to investors by issuers when they
want to raise capital and/or when they want their securities
admitted to trading. The proposed Directive is intended to
make the system of prospectuses much simpler in order to
make it easier and cheaper to raise capital throughout the EU.
The initiative is an important element of the Financial Services
Action Plan and the drive to create an integrated financial
services market. The Commission has stressed that it is one of
the first two proposals for Directives under the new ‘Lamfalus-
sy’
format endorsed at the Stockholm European Council,
distinguishing framework principles from implementing tech-
nical details. The Commission intends to adopt technical
measures to complement the framework principles established
by the Directive after consulting the Member States’ representa-
tives in the (new) Securities Committee by a comitology
process.

1.2.
The proposed Directive seeks to ensure that adequate
and equivalent disclosure standards are in place in all Member
States when securities are made available for European inves-
tors whether through a public offer procedure or because they
are admitted to trading. The proposed Directive includes in its
scope all types of securities normally traded in the market and
it introduces a standard definition of a ‘public offer’.

The key features of the proposed Directive as outlined
1.3.
in the Commission’s Press Release and Explanatory Memor-
andum are:

— definition of conditions for offering securities to the

public and admission to trading;

— introduction of enhanced disclosure standards in line
with international (IOSCO) standards for public offers of
securities and admission to trading (to facilitate the
offering of securities by EU issuers in non-EU countries
such as the USA);

— the introduction of a registration document system for
issuers whose securities are admitted to trading on
regulated markets in order to ensure a yearly update of
the key information concerning the issuer;

— concentration of the responsibilities in the home coun-

try’s administrative competent authority;

— a single passport — in other words, the ability to offer or
admit securities to trading on the basis of a simple
notification of the prospectus approved by the home
competent authority.

1.4.
The Commission states that the proposed Directive
follows the approach suggested by the Committee of Wise
Men chaired by Alexandre Lamfalussy and endorsed in a
Resolution of the Stockholm European Council in March 2001.
This approach involves consultation with market practitioners
prior to adopting legislation/regulation and distinguishing
between framework principles and implementing measures.
For the proposed Prospectuses Directive, the Commission says
this means that all the key rules, basic concepts and principles
are laid down in the Directive while the Commission intends
to adopt technical guidance and implementing measures in

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specific areas after consulting Member States’ representatives
in a Securities Committee. These technical/implementing
measures involve:

The proposed Directive deals with an important area

2.2.
where there is a clear need to achieve:

— adaptation and updating of definitions and exemptions;

— definition of specific disclosure standards of prospectuses
in accordance with international disclosure standards
established by IOSCO for cross-border offerings and
initial listings;

— detailed technical rules and guidance on issues such as
publication of prospectuses, advertising, approval of
prospectuses, recognition of prospectuses submitted by
third country issuers.

Under current EU rules the host country authority, in
1.5.
the case of recognition of prospectuses,
is authorised to
require additional information related to the domestic market,
regulations and practices vary widely among the Member
States. As a result EU capital markets are fragmented and it is
rarely possible to use a prospectus to raise capital across
frontiers. Although the current Listing Particulars Directive
(80/390/EEC) provides for mutual recognition this is only
granted to prospectuses meeting the information requirements
in that Directive and there is no European recognition system
for securities falling beyond the scope of that Directive.

2. General comments

It is most disappointing that the Commission failed to
2.1.
consult market practitioners fully prior to adopting the
proposed Directive. The proposed Directive rightly stresses the
need for improved and common disclosure standards for
securities issued to the general public. Professional investors,
issuers and financial intermediaries all acknowledge the need
for retail
investor protection including proper disclosure
— but they also stress that in wholesale markets a lighter
regime is appropriate. In a number of places, as explained in
this Opinion, the Directive does not demonstrate adequate
acknowledgement of existing satisfactory legal and market
practices.
it differs in material ways from the
FESCO paper on disclosure on which practitioners were
consulted). The Committee also stresses the need for the
reference to information about employees in Annex I of the
Directive to include information about employee consultation
procedures.

(Moreover,

— greater convergence on the exemptions from prospectus
and related requirements, in particular to facilitate insti-
tutional and private placements of securities (of particular
in relation to cross-border wholesale market
benefit
activity);

— greater mutual recognition of prospectuses, in particular
to reduce the need to produce translations of full offering
documents where offerings are being made in more than
one state (of particular benefit in relation to cross-border
retail offerings of securities).

Achieving progress on these issues would make a real contri-
bution to the development of the single pan-European market.
However, there are a number of concerns as to the approach
taken by the draft Directive towards addressing these issues.

2.3.
The very welcome worthwhile aims of the Directive as
set out in the Explanatory Memorandum and Press Release,
which are broadly summarised in the preceding paragraphs of
this Opinion, are not always consistent with the detailed text
of the Draft Directive. The paragraphs subsequent to this
discuss the following important topics:

— prospectus requirements appropriate for institutional and

private placements and for retail investors;

— the right of the issuer to choose where to make issues,

(the ‘Home State’ principle);

— the implications for international debt markets in the EU,
with particular effects on the Eurobond and multi-issuer
Medium Term Note (MTN) markets;

— annual updating of documentation for companies also if

they make no further new issues;

— the relationships between the proposed Directive and

existing Directives;

— the effects on foreign issuers and on competition between

regulated markets;

— other topics including the power of competent authorities
to impose their requirements extra-territorially, jurisdic-
tional responsibilities concerning advertising, and the
relationship with the E-Commerce Directive.

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3.

Institutional and private placements

not be able to create barriers to institutional or private
placements by imposing requirements of this kind.

3.1.
At present, a key obstacle to the development of
Europe’s wholesale capital markets is the differing approaches
taken by Member States as to when offerings of securities
should be treated as exempt from prospectus requirements. In
particular, firms seeking to conduct cross-border institutional
or private placements of securities must cope with the fact that
individual Member States apply their prospectus requirements
in very different ways. In one Member State, an offering to
certain categories of professional investors may be exempt
from prospectus requirements while in others minimum
investment or other conditions may be met before any
exemption is available.

3.2.
One of the principal benefits potentially offered by the
proposed Directive is the harmonisation of these exemptions
in a manner which genuinely facilitates institutional and
private placements, particularly for cross-border capital raising.
However, the proposed Directive falls short of achieving this
desired objective.

‘qualified investor’

the draft Directive adopts a very
3.2.1.
In particular,
to
the types of
narrow definition of
whom securities can be offered without
triggering the
requirement to register a prospectus. In particular, the draft
Directive (Article 2.1.c) excludes even the largest and
most sophisticated corporations and many other types of
institutional
investor (such as investment trusts and other
closed-ended funds) from its definition of ‘qualified investor’.
(Of course it is necessary to take into account the different
characteristics of different
funds in order to
determine whether or not they are ‘qualified’). The question
of the distinction between professional and inexpert retail
investors is being considered in the current Commission
consultation on the Investment Services Directive (ISD). It is
possible that large corporations and experienced individuals
(natural persons) will be categorised as ‘professional’. The
proposed Directive should refer to the ISD review in this
regard. As noted above (§ 2.1) retail
investor protection
is essential but
the proposed Directive would impose
disproportionate regulation on the mainly inter-professional
markets, particularly the international debt capital markets
where some 95 % of investors are professionals.

investment

3.2.3.
The draft Directive does not address the common
case where a public offer is being made in one Member State
(or a third country) while an institutional or private placement
is being made in another Member State. Firms conducting the
offer should not be required to go through the mutual
recognition process (which may require the translation of at
least part of the prospectus) in order to make an institutional
or private placement in one Member State merely because a
public offer is being made elsewhere. Although Article 3.2
provides exemptions from prospectus requirements for certain
types of investor or issues above a certain scale, the prospectus
requirements are always triggered if the securities are admitted
to trading (i.e. are listed). Because many professional investors
are only allowed to invest in listed securities (whether because
of national regulations or their own internal articles of
agreement) the existing exemptions are insufficient to prevent
triggering prospectus requirements in debt capital markets.
Therefore a further exemption should be applied to debt issues
with denominations of EUR 40 000 and above. (This threshold
exists in other legislation e.g. the Public Offer Directive; it
would not damage disclosure to small retail investors).

The draft Directive (Article 3.3) inappropriately limits
3.2.4.
the scope of the exemptions in a number of other respects e.g.
by excluding rights offerings and offerings of employee share
options.

In this respect,

3.3.
the draft Directive appears to be
significantly more restrictive than the original proposals made
by the Forum of European Securities Commissions (FESCO) in
its paper ‘A single passport for issuers’. This is of particular
concern because the draft Directive would seem to prevent
Member States from taking a more liberal approach to the
question of when prospectus requirements apply: in effect
requiring Member States to restrict or abolish more generous
existing private placement and other similar exemptions even
though those exist today in conformity with the existing
directives.

4. Home state principle

3.2.2.
The draft Directive does not actually prevent Member
States imposing pre-notification, filing or other requirements
on offers of securities to qualified investors or other offers
which are not treated as public offers. Member States should

4.1.
The draft Directive (Article 2.1.g) treats an issuer’s
country of incorporation as its ‘home state’. An issuer must
always submit a prospectus (or a securities note and summary
document) for pre-vetting and approval to the competent

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authorities in its country of incorporation (Article 4) regardless
of where the issuer proposes to conduct a public offer or to
arrange for the listing or trading of its securities. Under the
current Directives, an issuer that proposes to make a public
offer (or to arrange listing of its securities) in another Member
State can choose to have its prospectus pre-vetted in that
Member State and, indeed, can use that prospectus to make a
public offer in a third Member State under the existing mutual
recognition procedure. The only exception to this is where the
issuer is also making a public offer (or seeking a listing) in its
country of incorporation.

in order to make the offer in Germany (Article 16). However,
as a practical marketing matter (particularly if the offer is
targeted at German retail investors), the issuer may need to
prepare a German language version of the whole prospectus
(presented in a manner which is customary in Germany).
Under the current Directives, the issuer could choose to have
its prospectus pre-vetted and approved in Germany and would
the
thus only have to prepare one language version of
prospectus.

It

is true that

There does not seem to be any compelling reason to
4.2.
prevent an issuer choosing to have its prospectus pre-vetted
and approved in a Member State in which it proposes to make
a public offer or in which it proposes to seek a listing or
trading facility for its securities (as an alternative to using its
it may be more
home state authorities).
convenient, in some cases, for an issuer’s home state authorities
to check facts concerning the issuer. However, listing auth-
orities have for many years pre-vetted and approved prospec-
tuses of issuers from other Member States or third countries
without any notable difficulty (and indeed have sought to
encourage foreign issuers to apply for cross-border listing).
Fears of ‘regulatory arbitrage’ or ‘a race to the bottom’ are
exaggerated. The most successful securities markets in the
world are characterised by the most rigorous disclosure
standards and a culture of transparency and compliance, giving
confidence to investors and issuers alike.

4.3.3.
Since the issuer is applying for listing of its shares in
Germany, it will still have to apply to the competent authorities
in Germany to establish compliance with the criteria for
admission to listing (Article 15). In addition, it will still have
to deal with the competent authorities with respect to the
continuing obligations that fall on issuers of securities (such as
is
ad hoc disclosure requirements). Furthermore, since it
marketing its securities in Germany, it will have to cope with
a number of other German legal requirements as regards the
manner in which its securities are offered to the public (e.g.
Article 15.3). Under the current Directives, the issuer would
(in this example) only have to address itself to German legal
requirements as regards the management of the offering (and
on an ongoing basis would only have to deal with a single
regulator, namely the German regulator, as regards the con-
tinuing obligations that flow from listing). Under the draft
Directive, the issuer would have to deal with the authorities in
both Germany and France, both initially as regards the launch
of the offer, and on an ongoing basis.

4.3.
In addition, removing the issuer’s freedom to choose
another Member State in this way would seem to cause a
number of problems.

Consider the case, for example, where a French issuer
4.3.1.
wishes to raise capital
in Germany by means of a public
offering in Germany and to arrange for the listing of its shares
in Germany. The issuer does not wish to make a public offering
in France. Nevertheless, the issuer would, under the draft
Directive, be required to have its prospectus pre-vetted and
approved by the French authorities.

4.3.3.1.
Clearly, the need for translation (see § 3.2.3, 4.3.2
and 4.3.3 above) due to the approval required by the authority
in the country of incorporation as opposed to the country
where the issue is to be made or listed, as well as the need for
legal compliance in both countries (see § 4.3.3 above), are
costly. The issuer may well thus decide that the burdens of
making a cross-border offer and seeking a cross-border listing
are excessive because of these additional requirements.
It
would be simpler for the issuer if it sought a listing in its home
state and restricted the offer to investors in its home state.
Thus, the draft Directive may in fact operate as a deterrent to
cross-border offerings and listings and restrict competition
between exchanges seeking to attract issuers to their markets.

4.3.2.
Under the draft Directive the French authorities
would be entitled to require that the prospectus be prepared
in the French language (and be presented in the manner
customary in France) (Article 7) and the German authorities
could only require the issuer to prepare a translation of the
summary section of the prospectus into the German language

4.3.3.2.
Similarly, the proposals will affect issuers listed in
one country who currently choose to obtain a London,
Luxembourg or other non-domestic listing for their inter-
national debt securities. For example, a Spanish company
whose shares are listed in Spain and traded on a Spanish
exchange may, at present, seek a UK listing for its eurobonds.

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In connection with that listing application, it will prepare a
disclosure document (listing particulars) in English for review
by the UK authorities and the eurobonds will be sold to
investors under private placement or similar exemptions.
Typically, trading in the eurobonds will take place over-the-
counter under the rules of the International Securities Market
Association rather than on the London Stock Exchange. There
is no need to involve the Spanish authorities in relation to the
issue.

4.3.4. Medium term note (MTN) programmes are facilities
under which an issuer or group of issuers may establish
something equivalent to a ‘shelf registration’ facility under
which they may from time to time issue debt securities
intended to be listed on one or more stock exchanges. For
example, a group of companies may wish to be able to arrange
issues of debt securities, on short notice, by the parent
company and various subsidiary companies, some of which
may be incorporated in a Member State other than the parent
company’s country of
incorporation (or third countries).
Typically, the securities would be sold to institutional investors
in a number of countries under private placement or similar
exemptions.

4.3.3.3.
Under the draft Directive, the issuer would be
required to prepare a securities note and a summary note in
relation to the offering and these would need to be scrutinised
and approved by the Spanish authorities. However,
if the
Spanish authorities require those documents (and the base
registration document) to be in the Spanish language and
prepared in a format customary in Spain, the issuer may still,
in practice, have to prepare an English language document in
a format suitable for international investors (even if the UK
authorities do not require a translation of the summary note
into English). In addition, the issuer will still have to liaise with
the UK authorities in connection with the application for
listing and will need to comply with UK rules with respect to
the continuing obligations applicable to listed issuers. Thus,
the implementation of the Directive in its current form seems
likely to involve at the very least an increase in costs for issuers
seeking cross-border listing of their debt securities and will
provide incentives for issuers to seek a domestic listing for
their securities (at least if that is acceptable to international
investors).

4.3.3.4.
In addition, the draft Directive results in the loss of
the efficiencies that issuers currently obtain as a result of the
effective centralisation in Luxembourg and the UK of the
review of listing and offering documents for large numbers of
international issues of debt securities. By requiring that these
matters always be dealt with in the issuer’s country of
incorporation, the draft Directive fragments what is currently a
relatively efficient working system for the review of euromarket
documentation. It is doubtful that the comitology procedure
can achieve such a high degree of convergence in the method
of dealing with individual cases. In the light of the above
reasoning, Article 2.1.g (see paragraph 4.1 above) should be
amended to define the ‘Home Member State’ as the State where
the issuer chooses to list or offer securities.

4.3.3.5.
bonds, for which the market is professional, is appropriate.

Clearly a lighter disclosure requirement for euro-

4.3.4.1.
At present, the issuers may apply for the listing of
the programme on a single stock exchange and the competent
authorities in the country of that stock exchange will pre-vet
and approve a single disclosure document (a prospectus or
listing particulars) which covers all issues of securities under
the programme by all the issuers involved. There is no need
for those issuers to seek the approval
for the disclosure
document from the authorities in their home Member States.

the Netherlands and the US,

4.3.4.2.
Under the draft Directive, if a German company
wished to list an MTN programme on the Luxembourg Stock
Exchange covering the issue of debt securities by it, and its
subsidiaries in France,
the
prospectus would have to be approved by the competent
authorities in Germany, France, the Netherlands and (because
of the US issuer) Luxembourg. Thus, four competent auth-
orities would have to pre-vet and approve the prospectus (and
might impose their own language and other form and content
requirements consistent with the Directive) even though it
relates to a single programme for the issue of debt securities.
in this example, the
Currently,
Luxembourg authorities approved the programme documenta-
tion.

it would be sufficient

if,

4.3.4.3.
The requirements for pre-vetting and approval of a
full securities note and summary document for all issues of
securities would seem to result in considerable extra burdens
for MTN programmes. Typically, under those programmes the
issue of a tranche of securities under the programme only
requires the filing of a pricing supplement (without the need
for approval of that document). It is not uncommon for MTNs
to be issued at present within 15-20 minutes, when the market
opportunity arises. The Directive should be amended to enable
offers or admission to trading on the basis of approval of a
single prospectus for an entire programme without need for a
separate prospectus for individual subsequent offers under that
programme.

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4.3.5.
The fact that issuers are tied to their home country
(in perpetuity) may affect the choice of country of incorpor-
ation for newly established companies as this will affect
subsequent capital raising by that company. This could distort
competition in the single market. Those setting up new
companies may seek to avoid incorporating in countries which
are perceived to have competent authorities that are unduly
bureaucratic or inflexible in their procedures for review of
prospectuses. It may be difficult at a later stage in the corporate
lifecycle to restructure a group to change the location of the
parent company (tax issues may well make this difficult). Thus,
it will be critically important for new companies to select the
‘right’ country of incorporation — even though they may not
know at this stage where they are likely to seek to raise capital
or to seek a listing for their securities.

National competent authorities (or exchanges) will
4.3.6.
have fewer incentives to seek to raise disclosure standards
above the minimum standards set by the Directive (assuming
that the draft Directive in fact allows this). Any enhanced
disclosure standard will only apply to their domestic issuers
and will not apply to issuers from other Member States that
choose to list on their markets.

they offer to companies seeking approval

4.3.7.
Similarly, national competent authorities will not be
under competitive pressure to improve the standard of service
for their
that
prospectuses. Domestic companies will have no option but to
deal with their domestic competent authority and issuers from
other Member States will not have to have their prospectuses
approved by the relevant competent authority even if they are
making a public offer or listing their securities in its territory.

However,

4.3.8.
if notwithstanding this, a particular
national competent authority chooses to impose disclosure
requirements that exceed the minimum requirements imposed
by the Directive (assuming that the draft Directive in fact
allows this), then this also adversely affects issuers incorporated
in that country as compared with the current situation.
Currently, those issuers can chose to list their securities in
another Member State. Under the draft Directive, those issuers
would nevertheless have to meet all the disclosure standards
imposed by their home state regulator even if they do not wish
to raise capital or list their securities in their home state.

4.3.9.
Under the current directives, there is flexibility for
the competent authority to grant derogations from disclosure

requirements on a case-by-case basis (e.g. where the infor-
mation is of minor importance only). Nevertheless, the pros-
in principle, have
pectus or listing particulars can still,
the benefit of mutual recognition, albeit subject to certain
conditions. Under the draft Directive, there is no flexibility for
case-by-case derogations.

4.4.
Again, the current proposals are significantly more
restrictive than the proposals set out in the earlier FESCO
paper on this subject. That paper would have allowed issuers
at least to choose between their country of incorporation and
the country in which they maintain their primary listing. It is
also inconsistent with the treatment of non-EU issuers whose
securities are not yet traded on an EU exchange. These issuers
do have some right to choose their ‘home state’ so long as they
are able to control where their securities are first admitted to
trading (but see below for the case where they are not).

Article 11.4 of the proposal for directive reads as

4.5
follows:

‘If the competent authority of the home Member State fails
to give a decision within the time limit laid down in
paragraphs 2 and 3, this shall be deemed to be a rejection
of the application, such rejection shall give right to apply
to the courts.’

The Committee finds this unacceptable and urges for this text
to be deleted. Instead, it should be substituted by:

‘If the competent authority fails to give a decision within
the time limit laid down in paragraphs 2 and 3, this shall
be deemed acceptance whereas any rejection shall give
right to apply to the courts. If the competent authority
needs more time to reach a decision, it should write to the
issuer to say so.’

5. Compulsory shelf registration system

The draft Directive proposes a system under which
5.1.
every issuer whose securities are admitted to trading on an EU
regulated market must update its ‘registration document’ every
year (Article 9). The ‘registration document’ is the part of a
prospectus that provides information concerning the issuer’s
financial position and business. Under the draft directive, the
registration document is supplemented (when the issuer plans

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a specific issue of securities) by a ‘securities note’
(giving
additional information on the particular securities being issued
and details concerning the offer) and a ‘summary note’ (which
provides a summary of key information in the securities
note and registration document)
(Article 15). These three
documents together form the prospectus. An outline of the
proposed minimum contents of the registration document are
set out in Annex II to the draft Directive but the Commission
can, through the ‘comitology’ procedure, develop more specific
rules. The annual update of the registration document must be
filed with and scrutinised by the competent authority in the
issuer’s home state.

5.2.
It seems that one of the primary reasons for this
structure is to facilitate subsequent issues of securities by an
issuer. An issuer would only be required, on a subsequent issue
of securities, to prepare a securities note and summary note
(unless there has been a material change or recent development
since the last update of its registration document). The idea is
that an issuer would then be able to issue securities on a ‘fast
track’ without the need to prepare a full prospectus on each
occasion.

5.3.
However, the requirement for an annual update of the
registration document would also significantly increase the
extent of ongoing disclosure by all issuers whose securities are
admitted to trading on EU regulated markets. Effectively, every
such issuer will be required annually to prepare the business
and financial sections of a full prospectus and to have this
scrutinised by its home state authorities. This is to be the case
whether or not the issuer in fact plans a subsequent issue of
securities. This will particularly affect small and medium-sized
enterprises which only once raise new capital at the time of
their initial admission to trading on a stock exchange.

5.4.
The proposed regime may also create difficulties for
issuers who are, at the time of the annual update, engaged in
negotiations on a material transaction (e.g. an acquisition)
which have not yet reached the stage where an ad hoc
disclosure is required. It is unclear whether such an issuer
would be able to ensure that the updated registration document
fairly presents the required information without disclosure of
the ongoing negotiations.

5.5.
The proposed regime is also more burdensome than
the regime originally proposed by FESCO in its earlier paper.
That only suggested that ‘shelf registration’ should be an
option available to issuers.

6. Relationship with other Directives

The

draft Directive would

6.1.
repeal Directives
80/390/EEC and 89/298/EEC. Those directives deal with the
listing particulars to be published on the admission of securities
to official listing and the prospectus to be published on the
occasion of a public offer. The draft Directive does not
distinguish between listed and unlisted securities that are
it
admitted to trading on a regulated market. Moreover,
provides no definition of a ‘regulated market’ although this
question is being considered in the ISD review, to which
reference should be made.

However, the draft Directive leaves untouched the
6.2.
provisions of Directive 79/279/EEC which co-ordinates the
conditions under which securities are admitted to listing
(including continuing obligations imposed on listed issuers). It
also does not affect the provisions of Directive 82/121/EEC on
the publication of half-yearly accounts by listed issuers.
Thus, the draft Directive would continue to leave significant
responsibilities with the competent authorities of the state in
which admission to listing is sought. It also therefore does not
affect the distinction between listed and unlisted segments of
regulated markets. These directives are also likely to be the
subject of a separate review by the Commission.

6.3.
It is unclear whether the Commission intends, as part
of that review, to propose the abolition of ‘listing’ as a concept.
However, there are a number of reasons why it is likely to
continue to be important to distinguish ‘listed’ securities as a
class. In particular, many existing investment restrictions in
investment management or similar agreements or instruments
(both within the EU and in third countries) effectively restrict
investment by the institution concerned to securities that are
‘listed’ on a stock exchange. It is unclear what the effects might
be if the EU chose to abolish ‘listed’ status altogether. At worst,
it might result in many institutional investors being unable to
invest in securities traded on EU markets.

6.4.
It is also unclear whether the Commission intends to
propose the transfer of some of the functions under those
other Directives (which are currently allocated, under those
other Directives, to the country of listing) to an issuer’s
‘home state’. Indeed, many of the issues raised by the current
draft Directive interrelate with the issues that arise under
those Directives. Most obviously, the imposition of compul-
sory updating requirements on issuers leads to an overlap
between the requirements imposed by the draft Directive
and the continuing obligations that are imposed on issuers

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C 80/59

under those other Directives (which also interrelate with the
requirements for ad hoc disclosure imposed by the market
abuse directive).

responsible for continuously verifying whether an issuer has
complied with its obligations to update the prospectus (see
Article 4). This seems to confuse the requirements with respect
to the regulation of exchanges and trading platforms with the
requirements regarding the regulation of issuers. As a result, it
may in fact restrict competition between trading platforms.

6.5.
The draft Directive would clearly result in radical
changes to the allocation of responsibilities between competent
authorities. However,
it is difficult to consider the conse-
quences of these proposals without seeing the proposals for
reform of those other Directives.

9. Extraterritoriality

7. Non-EU issuer

The draft Directive could have adverse effects on
7.1.
foreign issuers. For example, a Danish regulated market may
choose to admit the securities of a US issuer to trading on its
market (without the consent of the US issuer — relying on the
publication of a prospectus in the United States). As a result,
Denmark would become the ‘home state’ for the US issuer if it
ever wishes to raise capital in the EU by a public offer or
arrange for the admission of its securities to trading on another
regulated market. This would be the case even though the US
issuer did not wish to make a public offer of its securities in
Denmark or seek admission of its other securities to trading
on a Danish exchange.

7.2.
The draft Directive also does not address the case
where a non-EU issuer is making a public offer in two or more
Member States (without admission of any securities to trading
on a regulated market). It would appear to prohibit one of
those Member States giving mutual recognition to the offer
document approved by the other.

8. Market competition

8.1.
There is a risk that the draft Directive could have
adverse effects on the ability of regulated markets to admit
securities to trading on their markets without the consent of
the issuer. For example, at present, regulated markets can
compete in the provision of trading services by admitting
securities to trading on their markets whether or not the issuer
has applied for that admission. The regulated market would
normally only be able to do this where it is satisfied that
sufficient public information exists to enable a proper market
in the securities (e.g. because the securities are listed elsewhere).
However, the structure of the draft Directive would make it
significantly more difficult for regulated markets to do this.
For example, it appears that a regulated market would be

9.1.
The provisions of the draft Directive appear to assume
that the competent authorities can impose their requirements
extraterritorially on an issuer merely because a domestic
regulated market chooses to admit that issuer’s securities to
trading — whether or not the issuer has in fact sought (or
consented to) that admission. For example, it is unclear how
the provisions of Articles 15 and 21 would apply where the
issuer has not consented to the admission of its securities to
trading in another jurisdiction.

10. Advertising

Article 13 introduces pre-vetting of all advertising
10.1.
and notices by the Home Member State. This is inappropriate
and disproportionate in the case of notifications of proposed
new issues to professional investors (e.g. via the electronic
financial news services) and the Directive should exclude all
notices to professional investors. The article sets no deadline
for the authorities to provide a decision and this is unaccept-
able. In addition, it is far from clear who is supposed to comply
with the requirements contained in those provisions.

11. E-Commerce

11.1.
The draft Directive does not address the question of
when an offer is to be regarded as made ‘in’ the territory of
another Member State. In particular, it does not address the
question of the interrelationship between this Directive and
the country of origin rules in the E-commerce Directive.

12. Book building

12.1.
At present it is possible to issue new securities up to
10 % of the outstanding issue by value without the need for a
prospectus. The proposed Directive should be amended to
exempt a prospectus requirement for new issues or admission
to trading of securities of a given existing type by up to 10 %.

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3.4.2002

13. Conclusions

It is most disappointing that the Commission failed
13.1.
to consult market practitioners prior to adopting the proposed
Directive. In a number of places, as explained in this Opinion,
it does not demonstrate adequate acknowledgement of existing
satisfactory legal and market practices.

13.2.
The very welcome worthwhile aims of the Directive
as set out in the Explanatory Memorandum and Press Release,
which are broadly summarised in the preceding paragraphs of
this Opinion, are not wholly consistent with the detailed text
of the Draft Directive and a number of concerns arise:

— inadequate differentiation of prospectus requirements
appropriate for institutional and private placements;

— which, unless amended, would impose burdensome,
unnecessary requirements on institutional and private
placements;

— the withdrawal of the right of the issuer to choose where

to make issues, (the ‘Home State’ principle);

— this gives rise to difficulties facing issuers hoping to raise
funds in other national markets within the EU and
international debt markets, with particular adverse effects
on the Eurobond and multi-issuer Medium Term Note
(MTN) markets;

Brussels, 17 January 2002.

— the costly requirement for translation when making cross-
border issues resulting from the removal of freedom of
choice of the competent authority.

— the effects of which could be to make raising of capital
outside a company’s own country less attractive but
which creates the need for the Directive to incorporate
some derogations to impose a less heavy-handed regime
on the Eurobond and MTN markets which are primarily
professional;

— the costs of annual updating of documentation for
companies even if they make no further new issues;

— the ambiguity concerning the relationships between the

proposed Directive and existing Directives;

— the potential adverse effects on foreign issuers and on

competition between regulated markets.

13.3.
There are ambiguities concerning the power of com-
petent authorities to impose their requirements extraterri-
torially, jurisdictional responsibilities concerning advertising,
and the relationship with the E-Commerce Directive.

13.4.
Consequently, the detailed drafting of the Directive
needs to be tightened up to remove ambiguities and it needs
to display greater recognition of the needs of professional debt
markets, while protecting the legitimate interests of retail
investors, by incorporating derogations from the rather oner-
ous prescriptive regime which is too heavy-handed for the
inter-professional wholesale markets. Without such changes
the Directive would impede market integration.

The President

of the Economic and Social Committee

Göke FRERICHS