Disclosure System (II): Prospectus Regulation and its Foundations

Prospectus Regulation (2017/1129 - PR)

prof. Paola Lucantoni LUISSProspectus Regulation (2017/1129 - PR)

• The aims of this regulation can be inferred by considerandum 3 and 7:
  • Recital 3 PR: "Disclosure of information [ ... ] is vital to protect investors by removing asymmetries of information between them and issuers"
  • Recital 7 PR: "The aim of this Regulation is to ensure investor protection and market efficiency, while enhancing the internal capital market. The provision of information [ ... ] ensures, together with rules on the conduct of business, the protection of investors. Moreover, such information provides an effective means(mezzo) of increasing confidence in securities and thus of contributing to the proper functioning and development of securities markets"
• Securities are credence goods: the investor must rely(fare affidamento) upon the promised quality of the securities
• PR is primarily intended to enable (consentire) retail investors to make informed decision LUheprospectus is not only a legal prerequisite, but also a sales documentFoundations
• The obligation to publish a prospectus was introduced in 1979 by European legistrature . Publication requirement: Securities can only be offered to the public after the publication of a prospectus
  • Admission prospectus: Required for trading on regulated markets, with identical content to an offering prospectus
• Exceptions: A prospectus is not required when information asymmetries are balanced by other means
• Approval process: authority The prospectus is subject to ex-ante control by the supervisory
• The disclosure obligations of the PR concern the primary market . Secondary market obligations: Market Abuse Regulation requires timely disclosure of inside information; Transparency Directive mandates annual and half-yearly financial reports and disclosure of changes in major holdings in issuer

Legal Sources

LUISSLegal sources BEFORE 2017 We had the PD at level 1, supplemented by a number of further Level 2 acts (like the Prospectus Regulation) and Level 3 measures (issued by ESMA).

Reform - New Prospectus Regulation 2017/1129

Reform - new Prospectus Regulation 2017/1129 (into force july 2019) The PD has been substituted directly by the Prospectus Regulation (so we don't have PD and PR- at level 2 anymore but we have only one document which is a new PR at Level 1) LUISS Prospectus Directive (2003/71/EC) Amended (2010/73/EU) (summary) Prospectus Regulation (809/2004) Level 2 acts delegated acts Level 3 measures Q&A documentsScope of Application is thus defined through the terms (art. 3 PR) :- admission of securities to a regulated market"- "offer of securities to the public

Scope of Application

• Scope of Application: . Applies to public offers of securities and to admission to regulated markets
• Covers all transferable securities, except money market instruments under 12 months
• MiFID II definitions apply, including dividend-paying and debt securities
• Offer of Securities to the Public:
• Defined as any form of communication providing sufficient details for investors . An offer does not require a legally binding intent, even an invitation to submit an offer qualifies · Admission to MTFs does not require a prospectus under EU law . Exemptions The PR does not apply to certain constellations. · Qualified investors (banks, investment firms, insurance companies) are exempt · Offers to fewer than 150 persons per Member State do not require a prospectus · Securities with a high minimum denomination assume investors can bear risks (assumersi rischi)
• Certain types of securities already admitted to another regulated market are exempt
• Securities issued in corporate actions (mergers, conversions, exchanges) may also be LUISexcludedProspectus: content, format and structure

Prospectus: Content, Format and Structure

The prospectus must contain all information concerning the issuer and the securities to be offered to the public or to be admitted to trading on a regulated market. Such information should be provided in a form that is easy to analyze and comprehend. Format The PD provides the possibility for the issuer to draw up the prospectus as a single document or separate documents

Base Prospectus and Standalone Prospectus

Base prospectus Stand alone prospectus Final terms Separate documents must divide the required information into a (1) registration document, a (2) securities note and a (3) summary note. Registration document (issuer info) is especially suited to the needs of issuers that regularly place offers for the acquisition of securities to the public, such as banks. Securities note Summary note (concise, non technical language) LUISSSingle document Single document, as opposed to the previous one, appears more suited to the issuance of shares. BASE PROSPECTUS FCABANK FCA BANK S.P.A. (incorporatil with limited linhulity in the Republic of Naby) wcting through FCA BANK S.p.A., IRISH BRANCH Ears Medium Term Note Programme Đốc thức €12,000,000,000 Taan Medium Term Note Programase (the Programme), ICA: Husk % p.A., unng Đường ăn Trình branch (The loser or FCA Bunch ), may đoen tive to true love maes (the Notes/ donomissed I my currency agreed betwoco the lower wód the relevant Deslet las desbed Inlese) "The Notes muy he wound on a corsmsung huis in ane one more if the Ehealers upaciful under "Chumare af towe Dealer ant iprint the Dealers), which appointsomt may be im a spusthe man in im an imgoing haus References in this too prospechis (the Base Prospectus) on the relevent Dealer dall, in the case of an soout of The Base Prospedin Dus been approved on a Base pringestes by the Central Bank of Ireland) (tve C'estred Bank), os congietent auchstity ander Regaleiem (EL) 2007/1529, as amondat (the Prospectun Regulativei The Central. Bank cely approves this Hine Prospectes an morting the standards of completmees, wweprobessihilty and considercy lapesed by Be Paspodas Riebtim, Sok approval should not be Prpogrictus: Tvwordvers should pikni their pun wwwvangst as to the waitsbitiy uf investing in the Notre."" Earsmest Dublin Regulator Markuti về thu lith Stock Exchange prie trading an Eurmeest Dublin (Euronent bản thể đầu xử the late Pringochus in he uxbustund từ thu sificial hat (the Official Lint) and trường in the references) shall wees tut, unless ofpraise specified in the appliodle Fiul Tomu, De Notes have been The Programstve provides that the Notes mey be Estol on such other or father work enchargetaj an may he: agood betnem, the Time mal the rolevan Thuier The louer may alu ties ustioni Nous The musimim aggrghi boersal ariosit of all Notes frves time to time outandeg under the Progrirme will aor exceed Fan 12,000,000,000 (or ila njaimlint in stort merciés, sulgot so inchoise in provided hereit) Thìn Haut Prospectos ( supplemented an at the relevant tims, if applicable) is valid for 32 musdas from It date in rotation to Notes which are in be minimal in trading on a regulated market in the European Erunemsie Arva (the KE.A) The nhligation in supplement this Base Prospectan in the event of a significant Where a prospectus is drawn up as a single document, it shall be composed of the following elements, in the following order: a) a table of contents; b) a summary, where required by Article 7 of the Prospectus Regulation; c) the risk factors referred to in Article 16 of the Prospectus Regulation;

Summary

LUISSSummary provides the key information that investors need in order to understand the nature and the risks of the issuer. aid investors when considering whether to invest in such securities The Prospectus Regulation sets out a new regulatory framework for summaries According to the new regime, the length of the summary is limited to 7 sides of A4; the summary must contain no more than 15 of the most material risk factors, and it must be laid out/written in a way that is "easy to read", "in language which is clear, nontechnical, concise and comprehensible" with content that is "accurate, fair, clear and not misleading". The new summary will be made up of four sections, containing an introduction, key information on the issuer, key information on the securities and key information on the offer

Risk Factors

LUISSRisk factors The Prospectus Regulation requires risk factors to be included in the prospectus to ensure that investors are aware (consapevoli) of and can assess the relevant risks related to their investment and can therefore make informed investment decisions in full knowledge of the facts The risk factors, included in a distinct section of the prospectus, are split into two types:

• risk factors relating to the issuer of the securities (and any guarantor) and
• risk factors relating to the securities themselves Registration document (issuer info) Securities note

New Regime for Risk Factors

LUISSRisk factors According to the new regime, disclosure must be limited to risk factors "which are specific to the issuer and/or to the securities", categorized, and ordered by materiality ("The risk factors are presented in a limited number of categories depending on their nature. In each category the most material risk factors are mentioned first [ ... ]") The specificity requirement clearly aims to avoid the inclusion of general or boilerplate (standard) risk factors. si riferisce a fattori di rischio generici o ricorrenti, LUISS Boilerplate A section of standard text, especially a contract clause, inserted into legal documents, or instead increasingly (Thank you internet)Base prospectus

Base Prospectus Example

CLICK HERE for an example (base does not mean short!) LUISS For non-equity securities, including warrants in any form, the prospectus may, at the choice of the issuer, offeror or person asking for the admission to trading on a regulated market, consist of a base prospectus (Art. 8 PR) containing the necessary information concerning the issuer and the securities offered to the public or to be admitted to trading on a regulated market Therefore, the issuer can decide timing and features of the issuance after the approval of the prospectusBase prospectus and Standalone prospectus

Base Prospectus Information

A base prospectus shall include the following information: (a) a template, entitled 'form of the final terms', to be filled out for each individual issue and indicating the available options with regard to the information to be determined in the final terms of the offer (b) the address of the website where the final terms will be published. Instead, a standalone prospectus is the document specifically prepared for a single issuance LUISS