Implementation in Spain of the Prospectus Directive

José Luis Vázquez.

2005 Butterworths Journal of International Banking and Financial Law, n.º 11

On 11 March this year, the Spanish government enacted Royal Decree Law 5/2005 (the ‘Decree’) and implemented, by restating Title III of Law 24/1988, of 28 July, on the Securities Market (the ‘SML’), Directive 2003/71/EC of the European Parliament and the Council of 4 November 2003, regarding the prospectus to be published when securities are offered to the public or admitted to trading (the ‘Directive’).

Although the Decree does not substantially deviate from the Directive, its full implementation in Spain will require the enactment of additional secondary regulations in the near future (since certain significant aspects of the Directive have not been implemented).[1]

No Prior Authorisation

Before the enactment of the Decree, no prior administrative authorisation was generally required for the issuance of securities. The Decree aims to improve the flexibility and efficiency of the Spanish securities market and so goes further, removing the limited existing exceptions to that general principle.

Likewise, no prior administrative authorisation is required for the admission to trading of securities in a Spanish secondary market.

Registration Requirements

Although not strictly stemming from the Directive, but in line with its guidelines, the Decree simplifies the registration requirements for the admission of securities to trading in Spanish secondary markets and for the public offering of securities.

In particular, it is worth noting that from now on no prior notice need be filed with the Spanish Securities Exchange Commission (Comisión Nacional del Mercado de Valores) (the ‘CNMV’) in order to make a public offer of securities in Spain.

Filing the Prospectus

Public offers of securities

As a general rule, no public offer of securities may be carried out in Spain without filing a prospectus with the CNMV. However, following the Directive, the obligation to publish a prospectus shall not apply to the following types of offer of securities:

(i)       those addressed solely to qualified investors;

(ii)      those addressed to less than 100 natural or legal persons per member state, other than qualified investors;

(iii)     those addressed to investors who acquire securities for a total consideration of at least €50,000 per investor, for each separate offer; and/or

(iv)      those with a total consideration of less than €2,500,000 which limit shall be calculated over a 12 month roll-over period.

The Decree fails to define ‘qualified investors’ and it is therefore expected that further secondary regulations will include a definition in line with that set out in the Directive.

Additional exemptions from the obligation to file and publish a prospectus set out in the Directive have not been implemented in Spain. However, the Decree expressly provides that further exemptions, on the basis of the nature of the issuer or the securities, the nature or number of the addressed investors or the amount of the offer, will be set out in secondary regulations.

Admission to trading in Spanish secondary markets

From a general standpoint, the admission of securities to trading in secondary markets in Spain requires the filing of a prospectus with the CNMV and its subsequent publication.

Although the SML, as amended by the Decree, expressly provides that the government may exempt the admission to trading of certain securities (taking into account the nature of the securities, the nature of the issuer, the amount of the admission or the number or nature of the addressed investors) from the fulfilment of all, or part of, the filing requirements (including the prospectus), it only expressly exempts ‘non equity securities’ -a new concept in the Spanish legal framework stemming directly from the Directive- issued by the Spanish State, the Autonomous Regions and local authorities.

Further exemptions expressly set out in the Directive have not been implemented by the Decree and should be therefore expected in future regulations.

Cross border Validity of the Prospectus

Pursuant to the SML, as amended by the Decree, a prospectus approved by the CNMV, together with any supplements, shall be valid for the public offer or admission to trading in any number of host member states, provided that the CNMV so notifies the competent authorities of each relevant host member state.

Likewise, the SML provides for the validity for the public offer or the admission to trading in Spain, of any prospectus, together with its supplements, approved by the competent authority of the home member state, provided that such authority notifies the CNMV accordingly. In this case, the CNMV will refrain from approving or conducting any administrative procedure in connection with such prospectus.

Notwithstanding the above, the Decree, sticking to the Directive, implements the precautionary measures set out in the Directive allowing the CNMV to (a) inform the competent authorities of the relevant home member state of any irregularities committed or of any breach by the issuer of its obligations within the scope of the admission to trading of the securities; and (b) in case the measures taken by the competent authority of the home member state are, or where such measures prove to be, inadequate, take all appropriate measures to protect investors.

Competent EU Filing Authority

The Decree fails to implement the provisions of the Directive dealing with the competent EU authority with which to file the relevant prospectus and to assume the leading role in monitoring the whole process. It is worth noting that the Directive allows, basically where there are several EU jurisdictions involved (and in view of the nature of the securities, the issuer, the offeror, or the person asking for admission) to choose the competent EU authority mainly among the authorities of the member state where the issuer has its registered office or where the securities were, or are to be, admitted to trading or where the securities are offered to the public.

In the meantime, until the above mentioned provisions are implemented in Spain, from a practical standpoint (bearing in mind the cross border validity of the prospectus), we understand that the Spanish issuers (regardless of the nature of the relevant securities) may choose the competent EU authority for the filing of their prospectus among those which legislation so permits.

Contents of the Prospectus

As per the Directive, the Decree sets out that the prospectus shall contain all information which, according to the nature of the issuer and the securities, is necessary to enable investors to make an informed assessment of, broadly speaking, the financial position and prospects of the issuer, the guarantor, if any, and the rights inherent to the securities.

Likewise, the obligation to include a summary in the prospectus (up to now only required in Spain in certain specific cases) has been implemented by the Decree, together with most of the provisions of the Directive dealing with the content and warnings that must be included in such summary.

The possibility, in certain scenarios, of drawing up the prospectus in a language that is customary in the sphere of international finance, as well as the possibility of incorporating documents in the prospectus by reference, are not expressly set out in the Decree. As regards the first issue, it is worth noting that the CNMV, regardless the lack of specific regulations, has recently announced that registration of prospectuses drafted in English may take place. As regards the second issue, the Decree entitles the Ministry of Economy or, with its approval, the CNMV to regulate, together with the forms and contents of the different types of prospectuses, when and what kind of information can be incorporated by reference.

Meanwhile, pursuant to the transitory rules of the Decree, the CNMV may approve and register prospectuses drafted in accordance with the provisions of either the existing Spanish regulations on prospectuses forms (Royal Decree 291/1992 and its secondary implementing regulations); or the Commission Regulation (EC) No 809/2004 (the ‘Regulation’). However, the CNMV has gone further and has expressed that in order for prospectuses registered within this interim period, and drawn up pursuant to Royal Decree 291/1992 to remain effective after the entry into force of the new regulations on the content and form of the prospectuses, they must be completed with an up-dated supplement conforming to the form set out in the Regulation.

Liability for the Prospectus

The Decree has implemented the provisions of the Directive dealing with the liability that may arise from the content or inaccuracies within the prospectus. It is the first time that specific provisions dealing with such liability have been enacted in Spain and, although a positive step, it also warrants certain criticism as once again, it is not regulated in detail but attends upon further secondary regulations not enacted yet. Further, the Decree provides for a three year term liability limitation counted as from the date when the claimant could have become aware of the inaccuracies of the prospectus. A more ascertainable date to start counting the liability limitation term would have been desirable in our opinion even if linked to longer liability periods. Also, certain legal aspects remain unresolved (eg the possibility for the investor to rescind the subscription or purchase agreement).

1 The term for the implementation of the Directive expired last June 30, 2005.