Raising funds for your company through the sale of financial securities requires a great deal of compliance effort. In Europe, ESMA is the body that regulates the financial markets, notably through the Prospectus Directive. Focus on some of its specificities.
What is the Prospectus Directive?
ESMA first published the Prospectus Directive in 2003. ESMA stands for European Securities and Market Authority. It is an authority that constitutes the European system of financial supervision.
Since July 21, 2019, the European Regulation (EU) 2017/1129 (Prospectus 3) and the two associated delegated regulations (EU) 2019/979 and (EU) 2019/980 have been applicable. They concern the regulation of public offers of financial securities issued by companies that are part of a European Union member country. Certain public offerings require the issuer to prepare a prospectus before offering the securities to the public.
These are legal documents intended for potential investors and take the form of a Universal Registration Document (URD).
The complete list of exemption cases can be found in Chapter 1 Article 1 of the European Regulation (EU)2017/1129 whose link has been provided above (on page 14 of the PDF). This list being long, we are not going to detail it here, but here are the 3 cases of exemption which seem to us the most important:
- If the amount raised over a period of 12 months is less than 8 million euros maximum (depending on the country);
- If the issuer addresses less than 150 investors;
- If the issuer addresses only qualified investors.
If the maximum amount is set at 8 million euros in order to benefit from a prospectus exemption, it varies by country. ESMA lists in this document the amounts below which issuers are not required to provide a prospectus as well as the laws that apply locally, below this threshold.
Another point that seems important to us is the so-called “passportable” nature of the prospectus. If an issuer raises funds (which is not exempt from a prospectus), it may decide to open it up to other investors in the European Union. It will not have to provide any additional documents.
How does the Prospectus Directive apply in France, and what is the DIS?
In France, the amount of 8 million euros has been chosen to benefit from the prospectus exemption. In this case, the issuer must provide a DIS (Document d’Information Synthétique : Synthetic Information Document).
It should be noted that in the case of an IPO for a security listed on Euronext, the prospectus remains indispensable even below this amount, as specified in the AMF table.
It should also be noted that participatory investment, crowdfunding, still benefits from special regulations specified in the 2014-12 doctrine.
Regarding unlisted securities whose amount does not exceed the imposed threshold, here are the details of the information to be published on a DIS. These terms are specified in the doctrine 2018-07, appendix 2, to be sent by e-mail to investors and to the AMF before any subscription:
- The activity of the issuer and the project
- Capital stock
- Securities offered for subscription :
- Rights attached to the securities offered for subscription
- Conditions relating to the subsequent sale of the securities offered for subscription
- Risks attached to the securities offered for subscription
- Change in the composition of the issuer’s capital related to the offer
- Relationship with the registrar of the company
- The interposition of the company(ies) between the issuer and the project
- Terms and conditions of subscription
What happens if you tokenize your titles?
At Talium Assets, we offer to issue your financial securities (unlisted) on a shared register (e.g. blockchain). This is called tokenization.
If you choose this format, you will be subject to the same rules mentioned above:
- Having to provide a prospectus if the amount raised (in a public offering) is more than 8 million euros ;
- Must provide a DIS for the other cases (refer to the other cases of exemptions provided for in Chapter 1 Article 1 of the DOC 2017-1129 whose link can be found at the beginning of the article).
The main advantage is that it simplifies and reduces the costs related to the maintenance of the securities movement register and the issuance of securities. In addition, Talium Assets uses a technology that makes it possible to verify the compliance of each transaction. This allows you to be as compliant as with the traditional system, but much faster and less expensive.
Further reading and sources :
ESMA’s Prospectus Exemption Document
Order n° 2009-80 of January 22, 2009 relating to the public offering of securities and laying down various provisions in financial matters
AMF regulations applicable to prospectuses
ESMA Q&A on the Prospectus Directive
Overview of the new texts applicable by the AMF
Order no. 2019-1067 of October 21, 2019 amending the provisions relating to public offerings of securities
Procedures for Filing and Publication of Prospectuses (DOC 2019-21)