In the United Kingdom, they employ a mix of public and private enforcement strategies are employed to underpin the regulatory framework governing public issuance of securities and the admission of securities to trading in an organized market.113
The European Securities and Markets Authority (ESMA), Prospectus Directive, Prospectus Regulation, Companies Act 2006, and the Financial Services and Markets Act 2000 (FSMA) regulate mandatory disclosure. Together they provide rules guiding companies when disclosing information in the securities market. The disclosure regime proposed by the Prospectus Directive and the Prospectus Regulation is considered a forum for maximum harmonisation.114
The aim of harmonising these rules is for the standardisation of prospectus information, with the objective of developing standard information that should be contained in a prospectus, thus making it easier for investors to compare and evaluate strengths and weakness of different investment opportunities.115
The implication of harmonisation is that national authorities cannot adopt general rules requiring a prospectus to contain items of
111 ibid, 77 (1) 112 ibid, 78 (1) ( a )
113 E. Ferran and L. C. Ho, Principles of Corporate Finance Law, (2nd Edition, Oxford University Press 2014) 388
114 ibid, 378 115 ibid, 380
information that are not included in relevant schedules and building blocks contained in the Prospectus Regulation 2017 (EU/2017/1129).116
The standardisation objective is applied in the ESMA, which maintains recommendations for consistent implementation of prospectus requirements and it provides that those responsible for drawing up a prospectus must take into account the ESMA recommendations as part of determining the approval process.117
The Financial Conduct Authority (FCA) approves prospectus.
In the United Kingdom a mandatory prospectus for securities may be drawn up in a single or tripartite document.118
A single mandatory prospectus contains all the relevant information in one concise document. A tripartite prospectus comprises of three documents, a registration document containing information relating to the issuer, a securities note that contains details of the securities to be offered or admitted, and a summary note. A summary note is compulsory regardless of whether the prospectus is drafted as a single or tripartite document.119
It is a key source of information for retail investors that should be drafted in a concise and non-technical language with an appropriate structure that conveys key information relevant to securities contained in the prospectus and when read with the rest of the prospectus should aid prospective investors in making the decision to invest or not.120
The Prospectus Regulation 2017 prescribes detailed information that should be incorporated in a prospectus and how they are presented.121
A prospectus is to contain necessary information that will enable an investor make an informed assessment of:122
116 ibid
117 ESMA, Update of the CESR recommendations on the consistent implementation of commission regulation (EC) No 809/2004 implementing the prospectus directive (ESMA/2013/319)
118 E. Ferran and L. C. Ho (n 113) 376
119 Financial Services and Markets Act 2000 (FSMA), s87a (5)
120 FSMA, s87a (6), (9) and (10); Prospectus Regulation 2017, Article 10 (1) 121 Prospectus Regulation 2017, Article 6 (1)
a) The assets and liabilities, financial position, profit and losses and prospects of the issuer of the transferrable securities of any guarantor and
b) The rights attached to the transferrable securities.123
The general obligation to disclose is not restricted to information known by persons responsible for the prospectus. It extends to information obtainable when the necessary enquiries are made.124
Information contained in one or more previously or simultaneously published documents that have been filed with the competent authority or which have been provided to that authority in accordance with regulatory requirements can be referenced.125
Information that is usually referenced includes, annual accounts and reports.126
The contents of the prospectus are linked with the nature of issuer and the securities to be offered and the prospectus regulation draws a distinction between wholesale and retail investors with the former benefitting from a less onerous disclosure regime.127 Furthermore, there is the requirement for on-going disclosure,
which requires particular types of information to be publicised whenever they occur.128
This ensures that the markets are updated with new developments and ensures efficient price formation as well as limits the possibility of insider trading because new developments become public knowledge thus limiting the opportunity for insiders to use private information for their own benefit. However, issuers can delay the public disclosure of inside information so as not to prejudice its legitimate
122 Commission Regulation (EC) 809/2004 of April 29 2004, which implemented Directive (EC) 2003/71 of the European Parliament and of the Council as regards information contained in prospectuses as well as the format.
123 FSMA s.87A (2) 124 ibid, s. 80 (3) (b)
125 Prospectus Regulation 2017, Article 19 126 ibid
127 I. G. MacNeil, An introduction to the law on financial investment, (2nd Edition, Hart Publishing 2012) 296
interest. For this to be viable, the issuer has to ensure that such omission will not mislead the public as well as ensure that the information be kept confidential.129
The ESMA maintains a questions and answers document on prospectuses.130
This document is regularly updated to answer questions posed by the public and competent authorities in relation to the practical application of the prospectus directive. Its purpose is to promote supervisory approaches and practices.131
This section is important because financial information is technical and complex and it seldom inspires investors because of information contained therein.132
Furthermore, businesses are becoming more complex with several entities, making it difficult to describe what they do in writing. In view of this it is imperative that the necessary information be presented in a format that is comprehensible and easy to analyse.133
Furthermore, the Prospectus Directive proposes that the language used in prospectus must be one accepted by its home state regulator as well as be made available in languages that are acceptable to the competent authorities in each of the host states or at the issuers choice of language that is customary in the sphere of international finance.134
A prospectus that does not include the final offer price or the amount of transferrable securities must be filed with the FCA as soon as practicable.135
Additionally, after the approval of a prospectus and prior to the closure of the offer or admission to trading, if a new significant factor or a material mistake or inaccuracy arises, there is a directive-derived requirement for a supplementary prospectus.136
129 MAD 2014, article 17 (5)
130 ESMA/2013/1537 (October 2013 update) 131 E. Ferran and L. C. Ho (n 113) 380
132 S. Brown-Hruska and S. Satwah, (n 41) 136 133 FSMA s.87A (3)
134 Prospectus Regulation 2017, Article 27 (2) 135 FSMA, s87Q
Significant factor in this instance includes any factor considered to be important in making an informed assessment of the kind mentioned in the general duty of disclosure.137
A supplementary prospectus provides sufficient information to correct any mistake or inaccuracy that gave rise to the need for it.138
It should be noted that where the relevant transaction involves both an offer and admission to trading in a regulated market, the relevant period that a supplementary prospectus may be required ends with the later on the closure of the offer when trading of the securities on a regulated market begins.139
These documents are submitted to the Financial Conduct Authority when listing in the capital market and they are valid for twelve months. This system aids in making the process of issuance more efficient and the first major United Kingdom securities offering to adopt this model was the flotation of Standard Life plc in July 2006.140
A prospectus is approved by a competent authority of the issuer’s home state and then made available to the public before an offer of securities to the public or a request for admission of securities to trading on a regulated market.141 An approved
prospectus is deemed to have a community scope, which entails that it is valid for public offers or the admission of securities to trading on a regulated market in any number of states within the EU.142
A prospectus is considered available to the public when presented in electronic form either on the corporation’s website, website of financial intermediaries or on the website of the market where they are to trade.143
Where a prospectus is published by one of the electronic methods, a paper copy must
137 FSMA, s87G (4) 138 ibid s87G (6) 139 ibid s87G (3A)
140 E. Ferran, ‘Cross border offers of securities in the EU: The standard life flotation’ (2007) 4 European Company and Financial Law Review, 2006
141 Prospectus Regulation 2017, Article 20 (1); FSMA, s85 142 ibid Article 24 (1)
be delivered free of charge to those investors who request it.144
Published prospectus shall be available in electronic form for at least 10 years after publication in the websites listed above.145