ESMA update: Q&A version 18, supplementary prospectuses, mineral company recommendations and third country prospectuses

ESMA published version 18 of its "Prospectuses: Questions and Answers" (ESMA/2012/855) on 19 December 2012.

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• Code Committee implements changes regarding pension scheme trustee issues
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• ESMA update: Q&A version 18, supplementary prospectuses, mineral company recommendations and third country prospectuses
• Show me the money - new European disclosure requirements announced for companies in extractive industries
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• Directors' remuneration reports - the new regime
• Reform of the UK competition regime
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The European Securities and Markets Authority ("ESMA") has published a number of updates in relation to its recommendations relating to prospectuses produced in accordance with the Prospectus Directive (Directive 2003/71/EC, the "PD"), mineral companies and third country prospectuses. ESMA has also published a consultation paper on supplementary prospectuses. The most significant changes and proposals are set out in this article.

Prospectuses: Questions and Answers - version 18

ESMA published version 18 of its "Prospectuses: Questions and Answers" (ESMA/2012/855) on 19 December 2012. The main changes since publication of the last version include:

• a general update to reflect the Amending Directive (Directive 2010/73/EU, the "Amending Directive") and the Commission Delegated Regulations ((EU) 486/2012 and 862/2012, the "Commission Delegated Regulations");
• an amendment to question 5 (Share option schemes) to clarify that national competent authorities, such as the UK Listing Authority, reserve the right to treat options as an offer of shares in order to overcome a circumvention of the prospectus requirement;
• the deletion of a number of questions (including question 26(a) relating to the previous 2.5 million euro exemption, and question 30(a) relating to the merger exemption); and
• an amendment to question 49 (Use of the term "prospectus") to clarify that the term "prospectus" can only be used where the document has been approved by a competent authority, or where a statement is included saying that the document has not been approved in accordance with the PD. In addition, where a PD-compliant prospectus is not required, an advertisement should now include a statement to that effect.

ESMA subsequently published a version 19 of this document in May 2013, which includes new questions relating to the definition of profit estimate in Article 2(11) of the Prospectus Regulation, and to information about expenses charged by a financial intermediary in a retail cascade.

Supplementary prospectuses

On 15 March 2013, ESMA published a consultation paper (ESMA/2013/316) concerning the draft regulatory technical standards on situations which, if they arise, require the publication of a supplementary prospectus. The aim is to ensure that any new matter liable to influence the assessment of the investment, arising after the approval of the prospectus but before the closing of the offer or the start of trading on a regulated market, could be properly evaluated by investors.

The proposed standard sets out the following situations in which there will be a requirement for an issuer to publish a supplementary prospectus:

• publication of new annual financial information;
• publication of a profit forecast or estimate;
• a change of control;
• a new public takeover bid;
• a change in the validity of the working capital statement;
• admission is sought or a public offer is conducted by the issuer in another EU member state;
• a new financial commitment is undertaken by the issuer which is likely to result in a significant gross change;
• a development in any governmental, legal or arbitration proceedings which were disclosed in the prospectus; and
• an increase in the aggregate nominal value of the programme.

The proposed standard also specifies the minimum content requirements of a supplementary prospectus in each of the above circumstances. Responses must be submitted to ESMA by 14 June 2013.

Update of ESMA Recommendations regarding mineral companies

ESMA published a consultation paper (ESMA/2012/607) on 1 October 2012 setting out proposed amendments to paragraphs 131 to 133 of the CESR Recommendations for the consistent implementation of the Prospectus Regulation regarding mineral companies (the "Recommendations"). On 20 March 2013 and 22 March 2013, ESMA published feedback statements (ESMA/2012/318) which included the following updates of the Recommendations:

The materiality concept

The ESMA update seeks to clarify the materiality concept when determining whether or not an issuer has "material mineral projects". Paragraph 131 of the Recommendations provides that mineral projects will be material where "an evaluation of the resources" (and, where applicable, the reserves and/or exploration results) is "necessary to enable investors to make an informed assessment of the prospects of the issuer". ESMA provides examples of when an evaluation of mineral projects is presumed to be necessary:

• where the project seeks to extract materials for sale as commodities (if there is also uncertainty regarding the quantities of economically recoverable resources or the technical feasibility of their recovery); or
• where the project seeks to extract materials to supply an input into an industrial production process (if there is also uncertainty regarding the existence of the resources in the quantities required or the technical feasibility of their recovery).

The general provision, that the materiality of an issuer’s mineral projects should be assessed relative to the whole of its group, remains unchanged in paragraph 131(c) of the Recommendations.

Exemptions from the need for a prospectus to include a competent person's report ("CPR")

The ESMA update to paragraph 133(ii) of the Recommendations includes:

• an exemption from the requirement to include a CPR within a prospectus relating to the issue of non-equity securities (other than depositary receipts over shares); and
• the removal of the requirement to include a CPR in situations where an issuer, which is admitted to trading on a regulated market or an equivalent third country market, has already published a suitable CPR.

In addition, the ESMA update to paragraph 133(ii) of the Recommendations includes the following situations where an issuer can avoid the requirement to include a CPR in a prospectus:

• an issuer (admitted to trading on a regulated market or equivalent third country market) must show annual reporting of reserves and resources for the last three years (or for the period since admission to trading, if shorter), rather than for every year since admission; and
• an issuer (admitted to trading on a multilateral trading facility, such as the AIM Market) must show that it published (in connection with its admission) a CPR by a suitably qualified and experienced independent expert, and that it has reported and published annually details of its mineral resources (and reserves, if relevant) and exploration results in accordance with one of the ESMA Appendix I reporting standards for each annual reporting period since the first admission to trading.

The model content of CPRs

Paragraph 133(i)(d) of the Recommendations now provides that the CPR should contain information prepared "having regard" to the model content in Appendices II and III of the Recommendations (and which are therefore no longer compulsory).

The inclusion of the NAEN Code as an acceptable mineral standard

ESMA has now included the Russian NAEN Code of the Russian professional geologists’ association OERN within the list of Acceptable Internationally Recognised Mineral Standards as regards mining reporting, which is set out in Appendix I of the Recommendations.

Update to ESMA's framework on third country prospectuses

On 20 March 2013, ESMA published an update to its opinion on the framework for the assessment of third country prospectuses under Article 20 of the PD (ESMA/2013/317). The framework sets out how a prospectus, which has been drafted in accordance with a third country's legislation, can meet the PD requirements for an offer to the public or for admission to trading on a regulated market.

The framework seeks to identify the information that can be added to the third country prospectus as an equivalence ‘wrap’ so that the resulting document meets the requirements of the PD. The following key changes to the framework reflect the implementation of the Amending Directive and the Commission Delegated Regulations:

• the inclusion of ESMA's categorisation of the items that appear in Annexes XXII to XXV and XXX of the Prospectus Regulation (809/2004) (as implemented in the United Kingdom into the Annexes of the Prospectus Rules published by the Financial Conduct Authority) as either Category A or Category B; and
• a requirement that the summary of the prospectus must be in the form set out in Annex XXII of the Prospectus Regulation (Category A). Where the third country regime does not require a prospectus summary in the form prescribed in Annex XXII of the Prospectus Regulation, the summary should be included in the 'wrap' to the third country prospectus. 

Rashed Hasan is a Solicitor in the Corporate Group of Field Fisher Waterhouse LLP in London.