Easier Access to Investors in the Capital Market

The European Commission recently published a Proposal for a Regulation on the prospectus that must be published during a public offering of securities or when listing for trading.

This regulation is expected to bring significant changes to the capital market, specifically regarding the issuance of securities. The Croatian Financial Services Supervisory Agency (Hanfa) has published a call on its website for interested parties to provide their comments on the proposed regulation, aiming to gather the views of stakeholders to better support the Ministry of Finance in the upcoming process of adopting this regulation in the Council of the European Union.

– The proposed regulation changes the thresholds for the amounts of securities offerings for which there is an obligation to publish a prospectus. Specifically, for offerings with a total consideration below 500,000 euros, it will no longer be necessary to publish a prospectus, as the threshold has been raised from the current 100,000 euros to 500,000. Below the half-million euro threshold, member states do not have the discretion to prescribe the preparation of a prospectus in national laws, but such discretion is left for offerings with a total consideration above the mentioned threshold up to 10 million euros, but only for offerings conducted in the territory of that member state. This expands the financing options for entrepreneurs through the capital market by issuing securities without prior publication of a prospectus – explains Hanfa.

They note that there is currently the possibility for each member state to prescribe the obligation to publish a prospectus for securities offerings with a total consideration ranging from 100,000 euros to five million, but Croatia has not utilized this option. Thus, the state has not prescribed the obligation to publish a prospectus for so-called small offerings in national legislation.

The new regulation also changes the threshold that defines the market capitalization of a company.

– It is proposed to raise it from the current 100,000 euros to 200,000 euros, which should represent their average market capitalization over the last three years, thereby expanding the circle of small and medium-sized companies that can use more flexible prospectus preparation rules, including the possibility of preparing a prospectus on a ‘do-it-yourself’ basis without engaging legal advisors and agents – emphasizes Hanfa.

Previous prospectuses that investors, both small and large, had the opportunity to read on the Zagreb Stock Exchange contained several hundred pages with extremely detailed information about the company, the market in which it operates, and all possible risks that could potentially affect its business. However, this amount of information should be reduced, drastically, while the quality should increase.

– According to the proposed regulation on the prospectus, the summary of the prospectus should include only key information about the issuer and the securities and should not exceed six A4 pages. In the risk section of the prospectus, the issuer should only list those risks that it assesses as specific to it and the securities and critical for making an investment decision. A simplified prospectus preparation regime is also introduced for so-called secondary offerings of securities conducted by issuers whose securities are traded on a regulated market. Here, it is based on the fact that these issuers are generally well-known to the investment public, given that they have an obligation to continuously publish information according to European and national regulations on transparency and market abuse, and it is not justified to require the same amount of information in their prospectuses as in the prospectuses published by unlisted issuers – explains the capital market regulator.

A new concept of a ‘frequent issuer’ is also introduced, whose securities are traded on a regulated market or on a multilateral trading platform, and which has the ability to prepare a universal registration document on an annual basis with the convenience that its prospectus, at the moment it decides to issue securities, is approved within five working days, instead of ten working days that apply to other cases.

– Generally, by revising the existing prospectus regime according to Directive 2003/71/EC as one of the most important measures of the Investment Plan for the EU, the aim is to expand sources and financing options for companies, especially for small and medium-sized ones, while creating an encouraging and secure investment and regulatory environment. In short, as emphasized by the European Commissioner for Financial Stability, Financial Services, and the Capital Markets Union, Jonathan Hill, in his address to the public regarding the published proposal for the regulation, the goal of the new prospectus regime is to achieve a balance by relieving issuers and offerors from preparing, in most cases, an unjustifiably extensive and costly prospectus on one hand, while simultaneously providing a quality and understandable document for investors on the other hand – concludes Hanfa.