A directive to amend the Prospectus Directive was published in the Official Journal of the European Union on 11 December. Sounds like dry stuff indeed, but there are a number of changes within this directive which indicate a fundamental change in approach by the European Commission (EC).
When the original Prospectus Directive was enacted, EC officials could be heard repeating the mantra that all quoted companies were the same and should be treated in the same way. They were all publicly accountable and therefore investors needed to be protected from these nasty entities.
Five years later we are starting to hear a different, less mournful, more upbeat tune. Commissioners and their officials are saying that small and medium-sized entities “significantly contribute to economic growth, employment, innovation and social integration” in the recently published MiFID consultation. So the Prospectus Directive gives us a view on how this change of heart is to be realised. Instead of the “one size fits all” approach, the directive will allow companies on regulated markets with a capitalisation below €100m and all SMEs to produce a proportionate prospectus which will be less onerous. This proportionate approach will also be permitted for all companies of any size who are raising money through a rights issue.
And to make matters even better, the Quoted Companies Alliance, together with the London Stock Exchange and others, lobbied for and succeeded in getting a doubling of the threshold above which a prospectus needs to be produced from €2.5m to €5m. In addition, the number of people to whom securities can be offered before a prospectus is required will increase from 100 to 150 people.
All of this needs to be enacted in the UK before companies can take advantage of these improvements. We were delighted to see that the government announced as part of its response to its green paper Financing the Private Sector Recovery that it will consult early in the New Year to introduce these beneficial measures as soon as possible.
So watch out for the word proportionate. My forecast for 2011 is that you will be hearing it more and more – a proportionate approach for IFRS is coming (one day!). The European Commission will be looking to promote specialised SME markets in the MiFID consultation which will have requirements – to use their words – “that are proportionate and adapted to SME markets and SME issuers while continuing to provide appropriate protection for users of these markets, and investors in SMEs.”
So I should like to end 2010 by wishing you all a happy Christmas and a very proportionate New Year.
Tim Ward is chief executive of the Quoted Companies Alliance, the membership organisation of the small and mid-cap quoted sector. His past roles have included head of issuer services and head of marketing at the London Stock Exchange and finance director at FTSE, the index company.
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