Response to Commission s draft proposal for the Prospectus and Transparency Directive

Transcription

1 DEUTSCHES AKTIENINSTITUT Response to Commission s draft proposal for the Prospectus and Transparency Directive 10 March 2009 Introduction Deutsches Aktieninstitut e.v. (ID Ref: ) is the association of German exchange-listed stock corporations and other companies and institutions which are engaged in the capital markets development. Its most important tasks include supporting the relevant institutional and legal framework of the German capital market and the development of a harmonised European capital market, enhancing corporate financing in Germany and promoting the acceptance of equity among investors and companies. The BDI is the umbrella organisation of German industry and industry-related service providers (ID Ref: ). It represents 35 industrial sector federations and has 15 regional offices in the German Länder. BDI speaks for more than 100,000 private enterprises employing around 8 million people. A. General Comments The Prospectus regime (Prospectus Directive, 2003/71/EG, and Prospectus Regulation, (EC) 809/2004) has been an important step on the way to an integrated European financial market. There has been the need for a unification of the regulatory conditions for the raising of capital by European companies in order to increase transparency in the European capital market. Such a harmonisation, combined with the introduction of a genuine European passport for securities issuers in terms of notification processes, has represented a fundamental step towards an integrated European capital market. DAI and BDI welcome this opportunity to further improve and simplify this piece of legislation. In general, we notice that there is an increasing use of the exemption for offers of securities with a denomination above EUR 50,000 (Article 3 (2)) that leads to a limited availability of retail bonds in Germany and also the UK. As to a statistic of the Börse Stuttgart, in % of the bonds listed there had a denomination of EUR 50,000 while in 2005 it was 8 %. If this development proceeds, retail investors as the ones to be protected by the Prospectus regime will be excluded from the bond market. The reasons for issuers to prevent their offers to be under the scope of the Prospectus regime is not their desire to exclude retail investors but are legal uncertainties, administrative burdens, and the concern about the right for investors to withdraw in Article Deutsches Aktieninstitut e.v. Niedenau Frankfurt am Main Telefon 0 69 / Telefax 0 69 / dai@dai.de Internet

2 Directive Seite 2/14 16 (2). So one can state that the range of investment opportunities for private investors has decreased as a result of the Prospectus Directive. DAI and BDI therefore welcome the intention of the Commission to reduce unjustified administrative burdens that have especially come up with the additional requirements as a result of the entry into force of other directives of the Financial Services Action Plan, namely the Transparency Directive and the Market Abuse Directive. In line with the target set by the Commission to reduce administrative costs by 25% by 2012, we suggest amendments to the regime of the Prospectus Directive that go far beyond the working document of the Commission without affecting the high standard of investor protection. Therefore we would like to perpetuate the Commission s approach made with Article 10 of the Prospectus Directive. The Commission has stated that Article 10 was intended only as an interim requirement that would be superseded (and repealed) by the Transparency Directive, which provides for a comprehensive regime for the disclosure of periodic and ongoing information about issuers with listed securities. Its provisions made the requirement of Article 10 redundant, generating a duplication of the same requirement for issuers. The rules of the Transparency Directive require issuers to publish, disclose and keep all information on the internet for a period of five years. It has shown that the ongoing disclosure requirements lead to extensive transparency of issuers listed on a regulated market. These, or similar, reasons are given by the Commission for the exemption to include information on a state guarantor in a prospectus: important amounts of information are already public so that there is no added value for the inclusion of such information in a prospectus. DAI and BDI therefore suggest to consider that where securities are listed on a regulated market there is a general exemption from the obligation to draw up a prospectus for issuers when issuing the same securities in a new offer, e.g. rights issues, capital increases, offers to employees. B. Details Question 2: Do you agree with the Commission services preliminary assessment of the functioning of the Prospectus Directive? We welcome the Commission s intention to assess whether the regime is really working on the ground, and in particular whether it is contributing to the development of the single market for securities. Also, we appreciate the efforts for deregulation where regulation is not necessary. There are indeed many issues that in our view have to be addressed if examining the Prospectus regime and its application.

3 Directive Seite 3/14 Especially differing interpretations among competent authorities or requirements additionally to the provisions of the Prospectus regime do not help to fulfil the European market efficiency. Inconsistent application of the Prospectus Directive by the 27 Member States is a problem for companies wanting to make use of the European passport or to operate their employee share plans effectively across Europe. As an example the Belgian competent authority, Commission Bancaire, Financiere et des Assurances (CBFA), requires as a host Member State authority the passporting issuer to file the final terms also with the CBFA although Article 5 (4) obliges only a filing with the home competent authority. It also requires as a host Member State authority the passporting issuer to file any type of advertisements relating to an offer made in Belgium for review with the CBFA in due time prior to the beginning of the offer. This is not in line with the Directive. Article 17 of the Prospectus Directive does not allow any additional approval requirements. So, only the competent authority of the home Member State is permitted to control advertising activity. According to the idea of a European Passport for prospectuses, a prospectus that has been approved and published in the home Member State is valid for public offers or the admission to trading in any number of host Member State provided the notification procedure is followed. As we regard the Prospectus Directive as a directive of maximum harmonisation, additional requirements are in our view an infringement of the Prospectus Directive. We suggest to make clear that it is not intended for Member States to set up additional requirements. Question 3.1: Do you agree with this analysis? Do you agree with the change proposed in Article 2.1 (e) of the Prospectus Directive? We agree with the Commission s proposal to align the Prospectus Directive with MiFID, as suggested in the Report of the ESME group. In case of a placement of securities by an intermediary some questions have to be raised. The new Article 2 (1) (e) (ii) of the Prospectus Directive allows investment firms or credit institution to categorise professional clients or eligible counterparties in accordance with Directive 2004/39/EC that can differ from the qualified investors set out in para. (i). It is not clear whether Article 2 (1) (e) (ii) covers both placements of intermediaries in association with the issuer and placements without the consent of the issuer. In the first case the definition of qualified investors can diverge for the issuer and the intermediary as it is not clear if the issuer can refer to the category of qualified investors the intermediary has defined. So, if placing securities with the help of intermediaries the issuer will have to rely on the stricter concept of qualified investors set out in para. (i) due to this legal uncertainty.

4 Directive Seite 4/14 If the new regulation of para. (ii) is applicable in any case that an intermediary is involved in a placement the contracts between the issuer and the intermediary would have to be adjusted. It would have to be clarified that the issuer can rely on the qualification of qualified investors made by the intermediary. The liability in cases of wrong classifications would have to be contractually defined. As further steps have to follow the new regulation the described legal uncertainty about the application of Article 2 (1) (e) (ii) should be abolished (maybe in a recital to the Prospectus Directive). Following the new definition of credit institution referring to Directive 2006/48/EC in para. (ii) there should be either an adjustment in Article 2 (1) (g) still referring to 2000/12/EC or a clarification that the relation to Directive 2006/48/EC is only valid for Article 2 (1) (e) (ii) of the Prospectus Directive. Question 3.2 Do you agree with this analysis? Do you agree with the change proposed in Article 3.2 of the Prospectus Directive? We appreciate the proposed deletion of the final sentence of Article 3, par. 2 of the Prospectus Directive. We believe, however, that the proposed amendments are not sufficient. The proposal of the commission solves the problem of the retail cascade rather for intermediaries but not for issuers. The so called retail cascade can cause problems, not so much for equity issues, but for debt issues. As to an issue of securities according to Article 3 (2), especially lit. (c), it should be at least clarified that the further resale of the securities to retail investors through intermediaries following the initial issue does not qualify as a public offer of the initial issuer as it is beyond its control ( retail cascade ). This is the only possible interpretation of the exemptions of Article 3 (2) that lives up to the expectations of the Prospectus. If a secondary offer by a third party triggered the requirement of a prospectus of the initial issuer, none of the exemptions of Article 3 (2) of the Prospectus Directive apart from lit. (d) could be made use of in a legally secure way. This cannot be the intention of the Prospectus Directive. We doubt, though, that by the deletion of the last sentence of Article 3, par. 2, the pursued objective of clarifying the responsibilities of drafting a prospectus can be achieved. Still, there would remain legal uncertainty about which regime would be applicable in case of subsequent resale, as it could still be regarded as an offer of securities to the public. It should be considered, that if a prospectus has once been drawn up and published in accordance with the Prospectus Directive, for any secondary offer of the same securities there is an exemption from the requirement to publish a prospectus.

5 Directive Seite 5/14 In any amendment of Article 3, it should be made clear, though, that the original issuer is only responsible for its offer. So, if the prospectus expires the responsibility for the initial offer ends and no supplements have to be made with regard to some secondary offer through intermediaries. Question 3.3: Do you agree with this analysis? Do you agree with the change proposed in Article 4 (1) (e) of the Prospectus Directive? We fully support the extension of the exemption to draw up a prospectus in Article 4 (1) (e) to all employee share schemes. Deutsches Aktieninstitut and BDI see the need to remove obstacles for developing the financial participation of employees in Europe. It is important to foster this tool in order to analyse and to reduce obstacles that block the implementation of financial participation across Europe by companies established in several countries. The EU Commission has already adopted a communication in July 2002 with the intention to promote greater use of employee financial participation systems. Thereafter a European Commission experts group chaired by Jean-Baptiste de Foucault elaborated a report and submitted it in July Financial participation of employees in Europe is an important factor in group motivation and cohesion. It helps to increase a feeling of affiliation towards the company regardless of the country where employees carry out their activity. It has to be considered that employee share plans are a factor of wealth accumulation for employees. The current regime is not helping to motivate employees to perform better or achieving the company s objectives by promoting the interests of employees with those of their employer. Obstacles concerning employee financial participation systems are not only a concern for international global corporate groups and it should also be looked at how obstacles could further be removed at EU level. These obstacles are not only caused by the diversity of the legal, fiscal and social framework in force in the various countries but also by EU legislation, like the Prospectus Directive. Companies with more than 100 employees, whose shares are not listed on a regulated market, can offer securities to employees under a programme of financial participation only when drawing up a prospectus. As this is burdensome and generates considerable costs, this prerequisite might deter not only small and mid caps that are not trading shares on a regulated market from offering such programmes. According to an EU survey conducted by Linklaters in August 2006, some companies reported Directive-related costs on the advice and the resulting changes in a company s behaviour, e.g. producing a prospectus) of up to US$ 1,000,000 EU employees working for companies not listed on a regulated EU market should not be penalized in comparison to EU employees of companies listed on an EU regulated market. DAI and BDI therefore fully agree with the proposed amendment. The obligation for companies to provide a prospectus for employee offer programmes is disproportionate. The unintended conse-

6 Directive Seite 6/14 quences of the prospectus regime for employee share schemes are not only to the detriment of employees, but also to the business and competitiveness in the EU. As already recognized by the report of the ESME Group, a restrictive view of the scope of Article 4(1) (e) and the absence of any other exemption means that, in practice, many non-eu companies cannot offer their share schemes to their employees (see Annex to the ESME report). The inability of such issuers to take advantage of the exemption is in effect deterring multinationals from setting up employee share schemes or from continuing schemes that were in existence long before the Directive was implemented. DAI and BDI believe the current prospectus regime on employee offer programmes does not add much to the overall goal of investor disclosure. Broadening the exemption will not violate the protection of the investors and the proper functioning of the securities markets in the EU, as employees are not comparable to outside investors in terms of their information needs. Their level of understanding of the company is likely to be very different. Employees or directors have other possibilities to obtain sufficient information on the company to make informed investment decisions. In fact, they have already access to company information via other channels of information than outside investors, like the Intranet, internal communications, direct mailings, messages from the CEO and management, etc. In addition, listed companies are required to report to their shareholders and disclose information to the market and to the regulators on a continuing basis, so that the public and shareholders know the essential and fundamental information regarding the shares. Therefore, to remove an obstacle under EU legislative would be an improvement to the Prospectus Directive. It should release companies from the duty of having to draw up a prospectus and enable them to offer an information document. DAI and BDI call on the EU Commission to revise the relevant provisions as soon as possible, so that companies can reap the benefits of the global markets, especially in difficult economic times. In the meantime we support the work already undertaken by CESR to allow for a short form disclosure regime until the proposed amendment has been finally implemented. We welcome the fact that CESR has already started to assess the equivalence of prospectuses from non-eu jurisdictions, especially from the United States. Deletion of the requirement for a document containing information on the number and nature of the securities The Prospectus Directive allows a derogation from the obligation to publish a prospectus concerning securities offered to employees by their employer who has securities already admitted to trading on a regulated market or by an affiliated undertaking provided that a document is made available containing

7 Directive Seite 7/14 information on the number and nature of the securities and the reasons for and details of the offer. After the Transparency and Market Abuse Directive have been implemented across Europe the requirement to make available such document containing information on the number and nature of the securities should be reconsidered. With the disclosure regime having come into force there is no need for a regulation of such a document by the Prospectus Directive, anymore. Question 3.4: Do you agree with this analysis? Do you agree with the removal of Article 10 of the Prospectus Directive? We fully agree with the deletion of Article 10. The value of the annual document has been minimized by the Transparency Directive (2001/34/EC). The Transparency Directive which was to be implemented in national law by 20 January 2007 invented a Europe-wide disclosure and storage regime of regulated information. In each Member State at least one officially appointed mechanism (OAM) for the central storage of regulated information has to be set up giving investors or whomever interested easy access to the documents. The Transparency Directive also aims at the creation of a single electronic network, or a platform of electronic networks across Member States so that the investor has one single access to the information. Thus, the same (overlapping) information is stored in the different OAMs and the website of the issuers. Also, the annual document contains information of a certain period of time. Investors visiting the website of an issuer will generally be interested in current information on the issuer, not historic information referring to a certain period of time in the past. And such information is already provided by the issuer on a voluntary basis. For offering historic information, the OAM has been invented by the Transparency Directive. Additionally, if an issuer has more than one home Member State (Article 2 (1)(m)(ii)) it has to file the annual document in all home Member States with differing interpretations among competent authorities about e.g. the period of reference ( annually ). This even controverts the scope of the annual document confusing investors. This problem is also solved by a deletion of Article 10. DAI and BDI call on the EU Commission to revise the relevant provision as soon as possible with immediate effect and without any transitional provisions. Question 3.5: Do you agree with this analysis? Do you agree with the change proposed in Article 16.2 of the Prospectus Directive? We support the Commission s proposal to establish a common period of two working days after the publication of the supplement for investors to with-

8 Directive Seite 8/14 draw their acceptances in Article 16.2 Prospectus Directive. In any case the words at least should be deleted, so that a full harmonisation of the period for the right to withdraw can be achieved. (Please see below the proposal of further restrictions) The regime of Article 16 should be reconsidered, though: Relation to Market Abuse Directive As to supplements it is not clear what the requirement to disclose every significant new factor means. Especially the relation of this obligation and the obligation in the Market Abuse Directive (2003/6/EC) concerning the disclosure of inside information should be clarified. In order to bring more legal security for issuers, we propose that this provision is interpreted in a way that in any case no supplements are necessary if an Ad-Hoc-disclosure of inside information is not either. So, the disclosure of inside information can function as a minimum threshold. On the other hand, there should be no synchronism in a way that any ad hoc publication triggers a supplement because not every ad hoc is relevant for the assessment of (debt) securities. There also is a difference between the relevance of facts for equity securities and debt securities. While a change in the management of the issuer can affect the stock price, the assessment of debt securities is dependent on other factors. For them, the company-related risk factors that have to be taken into account for the investment decision will rather be the probability of punctual interest payments and re-payment of the principal, thus the issuer's insolvency risk. So, factors that are not relevant for equity securities are a fortiori not relevant for debt securities. Definition of every significant new factor Firstly, some aspects need to be clarified. As to supplements it is not clear what the requirement to disclose every significant new factor means. Especially the relation of this obligation and the obligation in the Market Abuse Direc-tive (2003/6/EC) concerning the disclosure of inside information should be clarified. It should be clarified that supplements are only required if the significant new factors can negatively affect the assessment of the securities. No approval by competent authority The approval by the competent authority in a maximum of seven working days should be deleted. The competent authority only checks the formal coherency and comprehensibility of the supplement. The need for and benefit from an approval of the supplement in order for the assessment of the investment to be evaluated by investors (Recital 34 of the Prospectus Directive) is not visible to us. This bureaucratic procedure leads to a loss of time which

9 Directive Seite 9/14 is an important factor not only for issuers when offering securities. The delay of the disclosure of the new information is even a contradiction to investor protection which is especially obvious in cases where the new factors are at the same time inside information in the sense of the Market Abuse Directive. The interest in new (material!) information will always prevail any interest of competent authorities in (formal!) examination. The lawmaker might have seen this problem when drawing up the Prospectus Directive and in order to compensate the loss of time has invented the right for investors to withdraw from their agreement to purchase or subscribe for the securities within two days after the publication of the supplement. The background might be the prevention of competent authorities from any claims for damages caused by the delay as the right to withdraw is designed independently from the concrete results caused by the publication. This, of course, is at the very expense and risk of the issuers and dealers and leads to the possibility of abuse by investors. In the case that an inside information has been published investors can subscribe in this period of time knowing about the new factors and can withdraw when the correspondent supplement is published seven days after, at no risk. Therefore, the Prospectus Directive should be amended and the obligation of the competent authority to approve the supplements to the prospectus should be deleted. If the obligation of the competent authority to approve supplements is not deleted at least an approval of supplements within one working day should be aspired. Supplements to registration documents Supplements to registration documents should be possible. Article 12 allows prospectuses that consist of separate documents, comprising a registration document, securities note and summary note. The issuer can only update an already approved registration document by including the relevant information in the securities note even if this information would normally be provided in the registration document, i.e. new information relating to the issuer, Article 5(3), 12(2). In our view, it would be more comprehensible to investors finding new information relating to the issuer in the registration document. So, a shelf registration regime like in the USA could be considered. The shelf registration regime allows a single registration document to be filed with the U.S. Securities and Exchange Commission that permits the issuance of multiple securities. Any filing with the SEC of a 20F (Annual Report / consolidated financial statements) or of a 6 K (interim financial statements or ad hoc/insider pub-lications) is directly and automatically valid as a disclosure both for the issuer s equity listing and the debt listing/registration. Right to withdraw

10 Directive Seite 10/14 The right to withdraw should be reconsidered. The Prospectus Directive has invented a very unbalanced regulation that opens the door to abuse as mentioned before. Investors who have already agreed to purchase or subscribe for securities before the supplement are granted the right to withdraw their acceptances even if the new factors had indeed no negative effect or were known to them already. Issuers issuing debt securities (most of our members are at the same time debt issuers) will stop launching the offer immediately when a new factor occurs due to the additional risks provided in Article 16. Thus, the possible consequences of Article 16 may deter issuers from taking advantage of good nearterm market conditions. The delays provided in Article 16 increase the risk of a stop of the offer in general which is neither in the issuer s nor in the investor s interest. So, the right to withdraw should be restricted in an amendment of the Prospectus Directive: At least in cases that securities have not (i) been acquired on the basis of the prospectus, (ii) the new factors have not had any negative effect on the investment or (iii) the investor knew or in case of the dissemination of inside information according to the Transparency Directive (2004/109/EC) could have known about the new factors when acquiring the securities, a right to withdraw should be excluded. In our view, investors do not need the right to withdraw, anyway, if the supplements do not have to be approved, as stated above. Then, supplements can be published at once without the described loss of time. So, the right to withdraw and the requirement of approval should be deleted. Settlement of the Transaction It should also be clarified that the withdrawal right exists only prior to the settlement of a transaction, i.e. transfer of cash and securities. This is what the German implementation act governs in Sec. 16 (3) WpPG. If there is an IPO with an offering period of two weeks or so, the right to withdraw in the rather unlikely event of the publication of a supplement within this period of time is in balance, i.e. balance of investor protection and the interests of the issuer. However, there are offers without a set offering period, though. As the ESME group has already stated for certain types of securities the final closing of the offer could be the maturity of the security. It is not even clear whether the start of trading on regulated markets terminates the requirement to produce a supplement under Article 16(1), even if the offer has not finally closed. So, if there is an ongoing offer over several month it would be possible to buy e.g. debt securities in January and withdraw after a supplement published

11 Directive Seite 11/14 in June. In these cases the relation between the investors an the issuer s interests is unbalanced and enables abuse. So the settlement has to be regarded as the investor s personal final closing of the offer because when he subscribed, the prospectus has been correct, a put option is not to be granted. Question 3.6 Do you agree with this analysis? Do you agree with the change proposed in Article 2(1) (m) (ii) of the Prospectus Directive? DAI and BDI fully support the intention of the Commission. In Article 2 (1) (m) (ii) the reference on the threshold ( whose denomination per unit amounts to at least EUR 1000 ) is deleted in the Commission s draft while in the second half of the paragraph reference is taken to it: The same regime shall be applicable to non-equity securities in a currency other than euro, provided that the value of such minimum denomination is nearly equivalent to EUR We suggest that the last sentence of para (ii) is deleted to achieve the free determination of the Home Member State for the issuers. Question 4.1: Do you agree with this analysis? Do you have any suggestions in this regard? The requirements of the Prospectus Regulation should be reduced. It should be assessed if due to market practice every information required is really needed for information reasons. As to the summary, no change is needed in our view as we expect no improvement from an amendment of the existing rules. Question 4.3: Do you agree with this analysis? Do you support any of the two alternative solutions mentioned? Do you have any other suggestion? There is a fund raising limit of EUR 2.5 million per annum above which a prospectus document must be issued. This threshold is too low and should be considerably increased, we propose to EUR 10 million. The relation between the cost of raising capital on one side and the amount of money raised on the other side has to be reasonable and appropriate. If a smaller company needs e.g. an amount of 3 or 5 or perhaps EUR 10 million and has to be aware of costs of some EUR 100,000 or as stated before, due to the survey conducted by Linklaters up to 1 million US$ for a prospectus these costs are not appropriate. In order to make it possible for smaller issuers to raise capital it is necessary to raise the threshold from EUR 2.5 million. A possible threshold could be EUR 10 million. It would ensure an appropriate relation between costs and capital raised and at the same time do no harm to investors due to the rather small investment sum. In our view, the EU

12 Directive Seite 12/14 must ensure that smaller companies have access to capital at an appropriate cost. Question 4.5: Do you agree with this analysis? Do you have any other suggestion? Where a company already listed on a regulated market is raising money from its existing shareholders, there should be no requirement for a prospectus or a securities note at all as already stated in our general comment. In our view this should also apply if the offer is made to others than the existing shareholders, as investors can get all the information needed because of the periodic and ongoing information and/or registration document. For any subsequent sale of securities on the secondary market there is no additional information available either. Also, offers to existing shareholders only (i.e. if there is no public trading of subscription rights) could generally be exempt from the definition of a public offer. At least, DAI and BDI suggest to reflect and consider an exemption from the publication of the prospectus or a securities note for rights issues for issuers already admitted to trading, when a company is addressing only existing shareholders. Question 4.6: Do you agree with this analysis? A very important subject for issuers is the definition of the public offer. It should be clarified by an agreed interpretation of CESR what a public offer is and when it ends. Question 4.7: Do you agree with this analysis? Differing member state standards for prospectus liability are almost an obstacle for cross-border offers of securities. Issuers and other transaction parties are exposed to inconsistent liability regimes in other countries, e.g. the liablility for the summary. We cannot follow the Commission s suggestion that the use of the passporting possibilities show that issuers can cope with a non-harmonized liability regime. In reality issuers do not have a choiceif they do not want to stop raising capital in others than their Home Member State. We understand that the liability regimes are deeply embedded in national civil law traditions. However, where the Prospectus Directive sets up requirements for the content of prospectuses, at least no Member State should set up a liability regime that allows liability for prospectuses even if they are in compliance with the Prospectus Directive. This could be the case if Member States set up additional requirements in prospectuses.

13 Directive Seite 13/14 Question 4.8: Do you agree with this analysis? We agree with the Commission, that the subject of the equal treatment of shareholders is being dealt with by other directives. C. Other issues for the Commission s attention Also DAI and BDI would like to express their considerations about other topics, as asked by the Commission in the background document (p. 1). Article 3 Debt securities issuers who want to address above all institutional investors have the option to offer their securities to investors who acquire securities for a total consideration (Article 3 (2)(c)) or at a denomination of at least EUR 50,000 (Article 3 (2)(d)), as mentioned before. The latter is less attractive for issuers because the market demands also for other, flexible, units (EUR 51,000, 52,000 etc.). In the Prospectus Regulation a differentiated content of prospectuses is invented for debt and derivative securities aimed at those investors who purchase debt or derivative securities with a denomination per unit of at least EUR 50,000. According to Recital 14 of the Regulation the reason is that wholesale investors should be able to make their investment decision on other elements than those taken into consideration by retail investors. The exemption from the obligation to draw up a prospectus in Article 3 (2)(c) was inserted in the Prospectus Directive on the same grounds. So, this exemption should be applied everywhere in the Prospectus Regulation where the exemption of Article 3 (2)(d) is allowed for, e.g. Article 7 of the Regulation. Article 5 In order to reflect the need for market efficiency and flexibility which is addressed in Recitals 10 and 24 of the Prospectus Directive a base prospectus can be drawn up. It is not clear what information can be included in final terms and when a supplement is required. It should be at least clarified that "final terms of the offer" do not refer only to the items set forth in no. 5 of Annex XII under the heading "terms and conditions of the offer" which would be only the amount, time period of offer, method of payment for the securities, pricing, names and addresses. A broader understanding of final terms providing for market efficiency and flexibility is supported by Article 22 (2) and (4) of the Prospectus Regulation where it is referred to as "information items from the securities note schedules which are not known at the time of approval of the base prospectus and can

14 Directive Seite 14/14 only be determined at the time the public offer takes place" and where the additional words "of the offer" do not appear. Article 11 It should be clarified that financial statements may be incorporated by reference as Article 28 of the Prospectus Regulation expresses explicitly. There should not be any restricting implementation or interpretation in Member States. Article 18 Furthermore a tacit confirmation in the notification procedure should be introduced. If an issuer wants to make use of the European Passport it has to request the Home Member State authority to provide the Host Member State authority with a certificate of approval attesting that the prospectus has been drawn up in accordance with the Prospectus Directive. The notification period is three working days. Some Home Member State and Host member state authorities do not come up with any confirmation of the notification. Therefore, it would be very helpful to clarify that after the expiry of this period the issuer can start to offer the securities in the Host Member State.