The European Securities and Markets Authority (Esma) consultation on the Prospectus Directive Technical Advice which was extended on 13 December to include its proposed advice in relation to consent to use a prospectus in a retail cascade, and a review of certain provisions of the Prospectus Regulation (809/2004), will end at the end of the week before it is submitted to the European Commission.
In this consultation paper, Esma turned its focus towards some of the remaining topics on which it has been mandated by the European Commission (EC) to provide technical advice including the consent to use Prospectus in a retail cascade; the terms of subsequent offers; the responsibilities of the issuer; and the disclosure of principles regarding retail cascades.
According to Esma, a retail cascade is "a distribution mechanism where securities are offered to retail investors not directly by the issuer, but by a distribution network of financial intermediaries." However, Morrison Foerster (MoFo) partners Jeremy Jennings-Mares and Peter Green said in a recent regulatory update that from the point of view of the Prospectus Directive (PD), any offer by the intermediaries to the retail investors can constitute an offer of securities to the public, distinct from any offer made by the issuer to the financial intermediaries: "The offer by the issuer to the intermediaries would usually be exempt from the requirement to publish a PD-compliant prospectus, but the subsequent offer to retail investors would require the publication of such a prospectus unless (unusually) it fell within one of the PD exemptions," they said.
The MoFo newsletter stated that retail cascade can include more than one structure including a sale from the issuer to the financial intermediaries and a subsequent sale by the intermediaries to the retail investors, but also a placement of the issuer's securities to the retail investors by the intermediaries, without the intermediaries actually acquiring those securities at any point. In both cases, though, the financial intermediaries are acting in association with the issuer.
The latest Esma consultation also included the request to consider certain provisions of the Prospectus Regulation including the review of prospectus regulation content requirements; the information on taxes withheld at source; profits forecasts; and the use of proprietary indices.
As reported, the Joint Associations Committee (JAC) has responded to Esma's report on technical standards for the amended Prospectus Directive, in which the structured products industry was warned of the costs of adding to the existing base prospectuses in the issuance of structured products. The amended Prospectus Directive has three main objectives: increasing efficiency in the prospectus regime; reducing administrative burdens for companies when raising capital in the European securities markets; and enhancing investor protection.
However, the JAC said that a number of Esma's proposals are disproportionate as they will reduce the efficiency of investment offerings in the EU under the PD disclosure regime. The JAC believes the new requirements will substantially increase the administrative burden and have only limited benefit in terms of investor protection.
In addition, Esma has issued two consultation papers on certain aspects of the Mifid requirements for suitability and compliance which will be open until 24 February 2012.