The Prospectuses Directive - Political Agreement in the EU Council of Ministers

On 5 November 2002, the Danish EU Presidency succeeded in reaching a political agreement on an important issue in relation to the implementation of the EU's Financial Services Action Plan and the creation of an integrated European securities market in 2003. Thus, agreement was reached in the Council of Ministers of Finance and Economic Affairs (ECOFIN) on the contents of the proposed Directive on the prospectus to be published when securities are offered to the public or admitted to trading (the "Prospectuses Directive").

The proposed Directive, which was submitted in May 2001 and - after a first reading in the European Parliament - in a revised version in August 2002, is to replace the up to 20 years old current directives on prospectuses.

The purpose of the proposed Directive is to facilitate capital raising and investment throughout the EU and thus also improving the financial competitiveness of the EU. A so-called "EU passport for issuers" is introduced which implies that once an issuer has had a prospectus approved in one EU country, the issuer may directly offer its securities publicly and list them on a regulated market (such as a stock exchange) in another EU country. In the interest of the investors, the Directive provides high uniform standards in the EU for the information required in prospectuses and subsequent updates, and determines how publication thereof must take place, among others in the form of a centralised registration document system.

The difference of opinion before the 5 November agreement primarily concerned the extent to which issuers should be free to choose supervisory authority in connection with prospectus preparation and public offers of shares. It has been maintained that if the issuers have the freedom to choose, they will be "forum shopping", choosing the least demanding authorities, thereby dragging the level of information down to the lowest common denominator. In the original proposal, issuers of securities other than shares with a denomination of EUR 50,000 or above were free to choose. By the agreement, the threshold value was lowered to EUR 5,000.

The Directive only provides the main principles and basic concepts for public offers and listing of securities. Technical details and implementation measures will be specified in subsequent EU regulation.

The Directive must be implemented into Danish law no later than 30 June 2004. This will undoubtedly result in a change of the requirements to be met by Danish companies wishing to publicly offer their securities and become listed on the Copenhagen Stock Exchange. The establishment of one central competent authority - by which, among other things, the Danish Securities Council's delegation to the Copenhagen Stock Exchange of the authority to approve prospectuses must cease - was, however, postponed by the 5 November agreement and does not have to be carried out until after a 5-year transitional period.

The amended wording of the Directive must now be formally adopted by the Council of Ministers by means of a so-called "Common Position" and then through a second reading in the European Parliament. The European Parliament has 3 months to finally adopt or reject the proposal. If the European Parliament requests changes to the proposal, it will have to go through a third reading.

Written by Gitte Lansner, attorney-at-law