Select Committee on European Scrutiny Thirty-Eighth Report





COM(02) 460

Draft Directive on the prospectus to be published when securities are offered to the public or admitted to trading.

Legal base:

Articles 44 and 95 EC; co-decision; QMV


Document originated:

9 August 2002

Deposited in Parliament:

17 September 2002


HM Treasury

Basis of consideration:

EM of 26 September 2002

Previous Committee Report:


To be discussed in Council:

4 November 2002

Committee's assessment:

Legally and politically important

Committee's decision:



    1. On 7 May 2002 we cleared an earlier version of this draft Directive.[47] The Financial Secretary, HM Treasury (Ruth Kelly) told us then that the Government was continuing to pursue improvements to the draft.
    2. The document

    3. The draft Directive deals with the content of prospectuses, and the intention is to provide for an effective passport for issuers of prospectuses, so that once vetted and approved in one Member State a prospectus is accepted in any other Member State. The key features of the new system for the issue of prospectuses would be based on the following:

"—  The possibility to publicly offer securities, or admit securities to trading on a regulated market, in other Member States, on the basis of a simple notification of the prospectus approved by the home competent authority;

    • The introduction of disclosure standards for the public offer of securities and admission to trading on a regulated market that are in line with international standards; and

    • Use of the comitology process [to determine detailed rules], following the Stockholm European Council's endorsement of the Lamfalussy Report".[48]

The Government's view

    1. The Minister tells us the Government believes this document to be a significant improvement over the previous text. She says the most important changes include:

"—  Differentiated models of disclosure for wholesale markets. The directive now explicitly differentiates between the disclosure requirements of securities sold to retail investors and wholesale market investors;

    • Definition of home state. For the purposes of prospectus approval, issuers of high denomination debt securities may choose the competent authority from amongst those Member States where it is incorporated, making a public offer, or admitting to trading on a regulated market.

    • Shelf registration and mandatory annual updates. Issuers of high denomination debt securities would not be obliged to update their registration document annually. SME issuers would face a lighter updating requirement.

    • Risk capital. Issuers that raise less than _2.5 million (c. 1.5 million) from offers of securities would have the benefit of the passport but would be exempted from the requirement to produce a prospectus.

    • Definition of qualified investor. The definition of qualified investors has been broadened to include natural persons who have knowledge and experience of capital markets.

    • Effectiveness of the passport. The text now specifies that issuers can only be held liable for a local language summary that is misleading when read together with the full prospectus. The original text had given rise to concerns that liability issues would either result in large (and therefore potentially costly) local language summaries, or simply discourage issuers from raising capital on a pan-European basis.

    • Private and institutional placements. The text now better accommodates market practices in respect of private and institutional placements.

    • A guiding framework for comitology. The directive's recitals set out a number of principles to guide the activities of those persons responsible for establishing detailed rules through comitology."

    1. The Minister also says:
    2. "However, there are a number of issues where further work is required. Examples include the need for competent authorities to have some flexibility in the implementation of models of disclosure, and for the annual updating regime to be made lighter.

      "A number of commentators have expressed concerns that the Prospectus Directive has negative implications for the UK's corporate governance regime. However, disclosure in respect of share-dealings by directors in their own companies (the Model Code), shareholder notification or votes regarding major transactions ("Class tests"), and disclosure of compliance with corporate governance codes is currently made in order to comply with the ongoing disclosure requirements of the UK's listing regime. The future of listing (and the ability of the UK to pursue corporate governance goals through listing rules) is not dependent upon the Prospectus Directive per se, but rather on what happens to that part of the CARD [Consolidated Directive on the admission of securities to official stock exchange history and on the information to be published on these securities] that is derived from the Admission to Listing Directive (ALD)."

    3. The Minister attaches a Regulatory Impact Assessment to her Explanatory Memorandum. This assessment concludes that the draft Directive will make an important contribution to the implementation of the Financial Services Action Plan and the completion of the single European market for capital. The Directive should reduce issuers' costs with the European passport, but there will be some additional costs in other areas. The extent of these additional costs will largely depend on the comitology process finally included in the Directive.
    4. Conclusion

    5. We are pleased to see significant improvement in the latest draft of this Directive and are content to clear the document. But we ask the Minister to keep us informed of the progress of the draft.


47  (22467) 9674/01 HC 152-xxviii (2001-02), paragraph 11. Back

48  We cleared the Lamfalussy Report on 18 July 2001 - see (22154) 6554/01: HC 152-i (2001-02), paragraph 24 (18 July 2001). Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 11 November 2002