Prospectus Regulation is it a Misleading Tool for Investors Essay

Prospectus Regulation is it a Misleading Tool for Investors - Essay Example H) RECOMMENDATION BY ESME REPORT 2. I) FUTURE CHANGES 4. CONCLUSION 5. REFERENCES 1) INTRODUCTION 1) A. PROSPECTUS REGULATION -2005 Prospectus regulation1 came into effect from 1st July 2005 based on Section 2(2) of European Communities Act 1972 in relation to issuing of prospectus offering transferable securities to public through listing of securities / shares in the respective stock exchanges of the home country (Legislative.gov.uk, 2005). Only an approved prospectus can be offered to the public. The Prospectus Directive (PD) is required to be reviewed every 5 years by the European Commission (Lannoo, 2007). On 25th January 2011, the PD was reviewed and amendments were submitted which was approved. This is the first review that has taken place since the Prospectus Regulation came into effect since 2011. 1) B. EXEMPTIONS AND CRITERIA FOR APPROVAL Securities are exempted from offer to public if – The offer is made to Qualified Investors only The offer is made to less than 100 investors other that the qualified investors Minimum consideration per investor should be at least 50,000 Euros. The transferable securities are denominated in amounts of 50,000 Euros The total consideration should not exceed 100,000 Euros. The prospectus shall be approved only if the following criteria is strictly met by the companies which includes- UK will be the home state where the transferable securities are to be listed The prospectus contains all information related to assets and liabilities, financial statements, the rights of transferable securities. The prospectus needs to be submitted in comprehensible format, non-technical language and also includes a summary, and risk factors. 1) C. SUPPLEMENTORY PROSPECTUS Supplementary prospectus is one which includes significant new factors, corrections due to material mistakes or omissions relating to information included in the prospectus approved by the authority. 1) D. PASSPORTING A prospectus which is approved by another state outside UK where the company is going for issue of transferable securities after getting necessary approval from competent authority. Here the competent authority has to provide with the following documents for approval – certificate of approval, copy of prospectus and translation of summary of specified prospectus. 1. A prospectus can be published only with some types of securities that are either offered to the public or are requested for admission on a regulated market (Legislative.gov.uk, 2005) 1) E. SUSPENSION OF TRADING AND OFFER TO PUBLIC If the competent authority feels that a particular provision has been infringed then it has the power to suspend issue of securities / advertisement of offer for a period not exceeding 10 working days. The aforesaid authority also has the power to require the offeror to with draw the offer of issue to public in case of breach of regulations. Similarly, after listing of shares on respective bourses, if the competent authority finds in fringement of provision, then it can inform the market operator to suspend trading in the stock for 10 working days or even in that matter prohibit public from trading in the securities till further notice. 1) F. INVESTOR RIGHTS An investor who has agreed to subscribe for shares in circumstances where the final offer price is not mentioned in the prospectus, then the investor can withdraw his acceptance before the withdrawal period which begins at investors acceptance and ends the second day after the competent aut