Royal Decree 1698/2012 of 21 December modifying regulations on prospectuses and transparency requirements for securities issuances by transposing Directive 2010/73/EU

OFFICIAL STATE BULLETIN
No. 314 Monday, December 31, 2012 Sec. I. Page 89612

I. GENERAL PROVISIONS
MINISTRY OF ECONOMY AND COMPETITIVENESS
15771 Royal Decree 1698/2012, of December 21, modifying the current regulations in matters of prospectuses and transparency requirements applicable to securities issuances through the transposition of Directive 2010/73/EU.

Directive 2010/73/EU of the European Parliament and of the Council, of November 24, 2010, amending Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and Directive 2004/109/EC on the harmonisation of transparency requirements relating to information about issuers whose securities are admitted to trading on a regulated market, pursues, fundamentally, two objectives. First, the reduction of administrative burdens associated with the publication of a prospectus in the case of public offers of securities and admission to trading on regulated markets within the European Union; and second, the modernization and improvement of certain aspects of the regime applicable to prospectuses for public offers and admission to trading on regulated markets.

In compliance with our obligations under European Union Law, this royal decree introduces a series of modifications to Royal Decree 1310/2005, of November 4, which partially develops Law 24/1988, of July 28, on the Securities Market, in matters of admission to trading of securities on official secondary markets, public offers for sale or subscription, and the prospectus required for such purposes, and to Royal Decree 1362/2007, of October 19, which develops Law 24/1988, of July 28, on the Securities Market, regarding transparency requirements relating to information about issuers whose securities are admitted to trading on an official secondary market or another regulated market of the European Union.

Within a first set of novelties, the modification of Royal Decree 1310/2005, of November 4, affects, first, the format and content, standardized at the European Union level, of the prospectus summary. Thus, a definition of the concept of fundamental information and the essential elements that the content of said summary must provide is included.

The cases in which civil liability can be demanded are also expanded, by adding the case where the prospectus summary does not provide, when read together with the other parts of the prospectus, all the fundamental information that allows investors to make informed investment decisions, or does not allow comparing the securities with other investment products.

On the other hand, the thresholds that determine different levels of legal requirement are updated, to adapt the regulations to the increase made in them by Directive 2010/73/EU of November 24. Specifically, in the case of non-participatory securities offerings, a limit of 100,000 euros as the unit nominal value is established to apply the exception to the obligation to publish a prospectus summary, as well as the obligation to translate it into Spanish.

Similarly, Royal Decree 1310/2005, of November 4, is adapted to the new wording given to article 30 bis of Law 24/1988, of July 28, to exempt certain types of securities offerings from the obligation to publish a prospectus. The thresholds are increased, requiring 100,000 euros as the unit nominal value to apply the exception to the obligation to publish a prospectus for securities offerings.

Furthermore, the maximum number of persons to whom the public offer of securities may be directed without having to comply with the obligation to publish a prospectus is increased to 150. This modification is motivated by the desire to adapt the figure having been confirmed in practice the increase in the recipients of offers that, due to the limited number, can be understood as excluded from the obligation. Likewise, a maximum limit of 5 million euros is established for a public securities offering to be excluded from the obligation to publish a prospectus. The total amount of this figure is constituted by the total of securities offerings made in the European Union over a twelve-month period.

Another modification of Royal Decree 1310/2005, of November 4, affects the exceptions to the obligation to publish a public offering prospectus and is justified by two reasons. The first is the need to adapt the provisions to the increase in thresholds made by Directive 2010/73/EU, of November 24. The second is the elimination of redundancy contained in the provisions, regarding the non-obligation to publish a prospectus in the case of shares offered, assigned, or to be assigned free of charge to current shareholders. This case, whose exception to the obligation to publish a prospectus was expressly included in the previous wording, must be understood as excluded from the obligation since it does not exceed in any case the minimum thresholds that, as a general rule, the regulation establishes.

Furthermore, to ensure better accessibility to information for investors, the regime for the registration and publication of the informative prospectus is modified, by including the obligation to publish the prospectus in electronic format on the issuer's website, in addition to the publication in printed format.

The changes referred to contribute to the reduction of administrative burdens associated with the publication of a prospectus in the case of public offers of securities and admission to trading on regulated markets within the European Union, since the obligation to provide additional documents in certain cases is eliminated, while the list of exceptions to the obligation to publish a prospectus is expanded.

In order to improve legal certainty, it is established in this first block of modifications that the validity of the prospectus begins with its approval, rather than with its publication. Similarly, it is clarified at what moment the obligation to publish a supplement to the prospectus ends and it is provided that the right to withdraw prior acceptance given to a securities offering exists until the delivery of the securities. Furthermore, the definition of qualified investors is clarified, aligning it with that provided in article 78 bis, paragraph 3, and 78 ter of Law 24/1988, of July 28. The obligation to communicate the document with the final terms of the offer to the authorities of the host Member States is also included.

The second block of modifications affects Royal Decree 1362/2007, of October 19. Thus, the cases in which Spain is the home Member State for the purposes of applying the aforementioned royal decree are clarified. Furthermore, the thresholds are updated to adapt the regulations to the increase made in them by Directive 2010/73/EU, of November 24, regarding the language in which the regulated information must be published. Likewise, the threshold distinguishing between retail investors and professional investors in terms of investment capacity is raised to 100,000 euros, which implies an upward adjustment of the threshold for the protection of retail clients.

Apart from the mandatory transposition of Directive 2010/73/EU, of November 24, this royal decree introduces another series of technical improvements. The first of them clarifies that promissory notes with a maturity of less than one year are not required to provide the document with the final terms of the securities issuance. The second includes the express provision that, in the case of moving a security from one Spanish regulated market to another, all admission requirements are considered fulfilled with the sole exception of what relates to the prospectus. Finally, it is provided that, in the case of the exemption from annual accounts for new companies resulting from the combination of other existing ones, the necessary information is that provided in Regulation (EC) No 211/2007, of February 27, amending Regulation (EC) No 809/2004, relating to the application of Directive 2003/71/EC of the European Parliament and of the Council, as regards the financial information that must appear in prospectuses when the issuer has a complex financial history or has acquired a significant financial commitment.

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Therefore, on the proposal of the Minister of Economy and Competitiveness, in agreement with the Council of State and after deliberation by the Council of Ministers in its meeting of December 21, 2012,

I HEREBY ORDER:

Article 1. Modification of Royal Decree 1310/2005, of November 4, which partially develops Law 24/1988, of July 28, on the Securities Market, in matters of admission to trading of securities on official secondary markets, public offers for sale or subscription, and the prospectus required for such purposes.

Royal Decree 1310/2005, of November 4, which partially develops Law 24/1988, of July 28, on the Securities Market, in matters of admission to trading of securities on official secondary markets, public offers for sale or subscription, and the prospectus required for such purposes, is modified as follows:

One. A new third paragraph is added to article 1.3, with the following wording:

"For issuances of promissory notes with a maturity of less than twelve months, the final terms referred to in article 21.2 of this royal decree shall not be required."

Two. The first paragraph of circumstance 3 of letter b) of article 2 is worded as follows:

"When it concerns securities not included in the previous paragraph 1 and the issuer is constituted in a State not a member of the European Union, if the issuer, the offeror, or the person requesting admission designates Spain as the home Member State."

Three. Letters l) and m) are added to article 4 with the following wording:

"l) Fundamental information: the essential and correctly structured information that must be provided to investors so that they can understand the nature and risks inherent to the issuer, the guarantor, and the securities offered or to be admitted to trading on a regulated market, and decide, without prejudice to article 27.3, paragraph 4, point 2 of Law 24/1988, of July 28, which securities offerings it is advisable to continue examining. Depending on the offering and the securities involved, the fundamental information will include the following elements:

i. A brief description of the essential characteristics and risks associated with the issuer and possible guarantors, including assets, liabilities, and financial situation;

ii. a brief description of the essential characteristics and risks associated with investing in the securities in question, including the rights inherent to the securities;

iii. the general conditions of the offering, including estimated costs imposed on the investor by the issuer or the offeror;

iv. information on admission to trading;

v. the reasons for the offering and the use of proceeds.

m) Small capitalization company: a company listed on a regulated market that has had an average market capitalization of less than 100,000,000 euros, based on year-end quotes for the previous three years."

Four. A new paragraph 3 is added to article 6, with the following wording:

"3. In the case of applications for admission to an official secondary market for securities already admitted to trading on another Spanish official secondary market, all requirements established in this royal decree shall be considered fulfilled for the purposes of such application, except for that provided in article 13; however, the issuer may request the application of the exception provided in article 26.1.h), and the CNMV must verify compliance with the conditions established therein. Additionally, when it concerns securities already admitted to trading on a second market and admission to the first market is requested, the issuer must demonstrate compliance with paragraphs 6 and 7 of article 9 of this royal decree."

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Five. Letter b) is eliminated and letter c) of paragraph 2 of article 12 is modified, which becomes b) and is worded as follows:

"b) That the CNMV so decides in the interest of the issuer or investors, provided it considers that investors have the necessary information to form a sound judgment on the issuer and on the securities whose admission to trading is requested. In the case of issuers with a complex financial history, it will be considered that investors have the necessary information when the informative prospectus contains that required by Regulation (EC) No 211/2007, of February 27, amending Regulation (EC) No 809/2004, relating to the application of Directive 2003/71/EC of the European Parliament and of the Council, as regards the financial information that must appear in prospectuses when the issuer has a complex financial history or has acquired a significant financial commitment."

Six. Chapter V. Annual Information is suppressed.

Seven. Paragraph 1 of article 16 is given new wording, which is worded as follows:

"1. In accordance with what is provided in article 27.1 of Law 24/1988, of July 28, the prospectus will include information relating to the issuer and to the securities to be admitted to trading on a Spanish official secondary market or a regulated market domiciled in the European Union. The prospectus will contain all information that, according to the specific nature of the issuer and the securities, is necessary for investors to have sufficient data to be able to make an evaluation of the assets and liabilities, the financial situation, profits and losses, as well as the prospects of the issuer and potentially the guarantor and the rights inherent to such securities. This information will be presented in an easily analyzable and understandable form.

By ministerial order developing article 27.4 of Law 24/1988, of July 28, exceptions to the obligation to include certain information in the prospectus will be established. In particular, when the securities are guaranteed by a Member State of the European Union, the issuer, the offeror, or the person requesting admission to trading on a regulated market will have the right to omit information about the guarantor."

Eight. Article 17 is given new wording, which is worded as follows:

"Article 17. Summary.

1. In accordance with what is provided in article 27.3 of Law 24/1988, of July 28, the prospectus will include a summary, prepared in a standardized format, concisely and in non-technical language, which will provide the fundamental information to, together with the rest of the prospectus, help investors in determining whether to invest in the securities or not. Likewise, said summary will contain a warning that:

a) It must be read as an introduction to the prospectus.

b) Any decision to invest in the securities must be based on the investor's consideration of the prospectus as a whole.

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c) Civil liability cannot be demanded against any person exclusively on the basis of the summary, including any translation thereof, unless said summary is misleading, inaccurate, or inconsistent in relation to the other parts of the prospectus, or does not provide, when read together with the other parts of the prospectus, fundamental information to help investors decide whether to invest in the securities or not.

2. It will not be mandatory to include a summary in cases where the prospectus approved by the CNMV refers to the admission to trading, on an official secondary market or another regulated market domiciled in the European Union, of non-participatory securities whose unit nominal value is at least 100,000 euros.

3. In the case of admissions to trading on a Spanish official secondary market, regardless of which competent authority approves the prospectus, the person requesting admission must translate the summary into Spanish when the prospectus is not drafted in this language. Notwithstanding the foregoing, the CNMV, taking into account the special circumstances of the admission, may exempt the person requesting it from translating the summary. In no case will such translation be necessary when it concerns non-participatory securities whose unit nominal value is at least 100,000 euros."

Nine. The second paragraph of article 19.4 is worded as follows:

"The issuer who already has a registration document approved by the CNMV will only have to prepare the note on the securities and the summary when the securities are to be admitted to trading. These documents must be approved by the CNMV. In these cases, the note on the securities will provide the information that would normally be included in the registration document if, since the last update of the registration document was approved, a change or new event has occurred that is relevant and could affect investors' assessments, unless such information is included in a supplement as provided in article 22."

Ten. Paragraph 2 of article 21 is worded as follows:

"2. The final terms of the offering are the information elements that are not known when the base prospectus is approved and that can only be determined at the time of issuance. These final terms may only contain information elements required for the note on the securities indicated in article 19.3, cannot be used to comply with article 22, and are not subject to approval by the CNMV. The final terms, when not included in the base prospectus or in a supplement, must be provided to investors and deposited with the CNMV upon each admission to trading as soon as feasible for the person requesting admission and, if possible, before the start of the public offering or admission to trading. In the event that the base prospectus has been issued to other competent authorities of the European Union, the final terms prepared to carry out public offerings or admissions to trading in other States of the European Union must be communicated by the issuer or offeror to the authorities of the host Member States.

In the case of issuances of promissory notes with a maturity of less than twelve months, the final terms referred to in this article will not be required, it being only necessary to present for these purposes the complementary certification referred to in article 6.2 of Royal Decree 116/1992, of February 14, on the representation of securities by book entry and clearing and settlement of stock market operations."

Eleven. Paragraph 2 of article 22 is worded as follows:

"2. The supplement will be approved in the same manner as the original prospectus within a maximum period of five business days from when notice of the new significant factor, inaccuracy, or error that is relevant is received, and will be published, at least, through the same means used for the publication of said prospectus. The summary and its eventual translation will be completed, if necessary, to take into account the new information included in the supplement.

Whenever the time limit established in the previous paragraph is met, a supplement to a registration document may also be published, particularly when it is incorporated by reference into a base prospectus."

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Twelve. Paragraph 4 of article 23 is modified, which is worded as follows:

"4. Prospectuses approved by the CNMV for admissions to trading on a Spanish official secondary market, or another regulated market domiciled in the European Union, of non-participatory securities whose unit nominal value is at least 100,000 euros will be drafted, at the choice of the person requesting admission, in a language accepted by the CNMV and by the competent authorities of all host Member States or in a language customary in the field of international finance. Without prejudice to the foregoing, the person requesting admission must translate the summary into the official language or languages of each host Member State, if required by their competent authorities."

Thirteen. Letter c) of article 25.2 is given new wording, which is worded as follows:

"c) In electronic format on the issuer's website or, where applicable, on the websites of the financial intermediaries placing them, including paying agents, at least during the validity period of the prospectus."

Fourteen. Paragraphs 3 and 4 of article 25 become paragraphs 4 and 5, with the addition of a new paragraph 3, which is worded as follows:

"3. When the person requesting admission to trading chooses the publication method provided for in letter a) or letter b) of the previous paragraph, it will also be mandatory to publish it by the means indicated in letter c)."

Fifteen. Letters c) and d) of article 26.1 are given new wording, which are worded as follows:

"c) Securities offered as payment in relation to a public offer for acquisition, provided that a document containing information that the CNMV considers equivalent to that of the prospectus is available, taking into account the requirements established in European Union legislation.

d) Securities offered, assigned, or to be assigned in relation to a merger or demerger, provided that a document containing information that the CNMV considers equivalent to that of the prospectus is available, taking into account the requirements established in European Union legislation."

Sixteen. Article 27 is given new wording, which is worded as follows:

"Article 27. Validity period of the informative prospectus.

1. Prospectuses will be valid for a period of twelve months from their approval to carry out public offers or admissions to trading on a Spanish official secondary market or regulated market domiciled in the European Union, provided that they are completed, where applicable, with the supplements required by article 22.

2. The base prospectus will be valid for a period of twelve months from its approval. In the case of the securities mentioned in article 21.1.b), the prospectus will be valid until such securities cease to be issued continuously or repeatedly.

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