Bundesanstalt für Finanzdienstleistungsaufsicht. BaFin. The securities prospectus opening the door to the German and European capital markets

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1 Bundesanstalt für Finanzdienstleistungsaufsicht BaFin The securities prospectus opening the door to the German and European capital markets

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3 Anyone wishing to offer securities to the public or to have them admitted to trading on an organised market in the European Economic Area (EEA) for example, by way of an initial public offering (IPO) must draw up and publish a securities prospectus. Any such prospectus, which contains important information on the issuer and on the securities to be offered, has to be approved by a governmental authority. In the Federal Republic of Germany the authority responsible for this is the Federal Financial Supervisory Authority (BaFin). The aim of this brochure is to provide you with information on the obligation to publish a securities prospectus. This includes the contents of the prospectus, the BaFin approval procedure, how a securities prospectus approved by BaFin may be used in the EEA and related topics. The brochure offers a first general overview for companies that are planning to issue securities in the Federal Republic of Germany or any other EEA state.

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5 Content What are the aims of prospectus legislation? 5 What are the legal framework conditions? 5 When must a prospectus be drawn up and published? 7 What information must a prospectus contain? 9 Where do relaxations apply? 11 Can existing documents be used? 11 What advantages does the BaFin approval procedure offer? 12 What documents must be filed for the examination of a prospectus? 14 How much does an approval procedure cost? 15 What language does the prospectus have to be drawn up in? 16 When must a prospectus be updated? 17 Can a German prospectus be used in another EEA state? 18 Who is responsible for the admission of the securities to trading on an exchange? 18 What obligations apply after admission to trading has been approved? 20 Do you have any more questions? 21

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7 What are the aims of prospectus legislation? Anyone wishing to offer securities to the public e.g. in connection with a capital increase in the case of a stock corporation or the issue of debt securities is obliged to put together in a prospectus and publish all material information on the issuer and on the securities being offered. The primary purpose of this is investor protection. The prospectus is meant to enable investors to obtain an accurate picture of the offer and to make their investment decision on the basis of this. But at the same time the prospectus is also a liability document. If material information is represented incorrectly or incompletely, investors may under certain conditions claim damages from those responsible for the prospectus or on whose authority the prospectus was issued. Possible claims must be asserted before the civil courts. What are the legal framework conditions? The basis for the drawing up, approval and validity of securities prospectuses in Germany is the Securities Prospectus Act (Wertpapierprospektgesetz WpPG), which transposed EU Prospectus Directive 2003/71/ EC into national law with effect from 1 July The latest amendments to the Prospectus Directive will be transposed into German law by 1 July The content and format of prospectuses are set out in detail in EU Prospectus Regulation No. (EC) 809/2004 (currently being revised) which, unlike a Directive, does 5

8 not have to be transposed into German law but, rather, applies directly Europe-wide. In order for the Prospectus Regulation to be interpreted as uniformly as possible across Europe, the European Securities and Markets Authority (ESMA, formerly: Committee of European Securities Regulators CESR) has set up a working group which draws up and publishes common viewpoints. The guidelines and recommendations of this working group are not legally binding on national regulatory authorities, but are in practice regularly followed by them. Both the Prospectus Directive and the Prospectus Regulation may be downloaded in different languages on the Internet at The WpPG can be downloaded from the BaFin website ( legislation). ESMA s guidelines and recommendations, which are in English, are published on the ESMA website at Investment and Reporting» Corporate Finance» Prospectus. 6

9 When must a prospectus be drawn up and published? Principle For securities that are to be offered to the public or admitted to trading on an organised market in the Federal Republic of Germany the offeror or the applicant for admission (Zulassungsantragsteller) must as a basic principle publish a securities prospectus. Offerors or applicants for admission need not necessarily also be issuers of the securities, but this is usually the case. Securities within the meaning of the WpPG are investment instruments which may be traded on a market (marketability) and are interchangeable (fungibility). Money market instruments with a maturity of less than twelve months are not deemed to be securities. The main instruments that are to be classified as securities are shares, bearer bonds, (e.g. certificates), bearer mortgage bonds (Pfandbriefe), warrants and depository receipts. Also normally to be categorised as securities are instruments issued by foreign companies that are equivalent to shares (as defined under German law), such as e.g. the shares of a Swiss joint stock company or the stock of a US corporation. Depending on their specific structure, participation certificates (Genussscheine) are also to be treated as securities, while participation rights (Genussrechte), on the other hand, are to be treated as non-securities investments. As a basic principle, for non-securities investments being offered for sale a prospectus has to be drawn up in accordance with the terms of the separate Prospectus Act (Verkaufsprospektgesetz VerkProspG). As a basic principle, what is to be understood by a public offer is any notice given to the public in any form and in any manner that contains sufficient information 7

10 about the terms of the offer and the securities to be offered to enable an investor to decide whether to acquire or subscribe to the securities. This may take the form of, for example, an advertisement in a newspaper or even a reference on the Internet. Exceptions The WpPG does, however, also provide for exceptions from the obligation to draw up and publish a prospectus. Exemptions from the obligation to draw up a prospectus currently include, for example, offers of securities addressed solely to qualified investors or to fewer than 100 non qualified investors. But also exempt, as a general principle, are offers in which investors may acquire only securities for a total consideration of at least 50,000 per investor (section 3 WpPG). Another case in which a prospectus need not be drawn up is employee share-ownership schemes where they involve securities of the same class that are already admitted to trading on the same organised market within the EEA. In the case of some exceptions the offeror does, however, have to draw up a document that contains information on the securities and the details of the offer. There are also provisions for exceptions for the admission of securities to trading (section 4 WpPG). If, despite the present obligation to draw up a prospectus, no prospectus or no approved prospectus has been published, BaFin prohibits the public offer. Any such action would also as a rule constitute an administrative offence and BaFin would have to impose a fine. 8

11 What information must a prospectus contain? The securities prospectus must contain all the information required for the investor to reach an investment decision regarding the issuer and the securities in question. The information relating to the issuer is to be found in what is known as the Registration Document and the information relating to the securities in what is known as the Securities Note. The Prospectus Regulation and the Annexes thereto prescribe a whole list of minimum disclosure requirements. The details to be published vary depending on the securities to be offered or admitted to trading and on the type of issuer. A prospectus for shares, for example, must contain the following details (among others): 9

12 On the issuer General information on the company, e.g. legal form, date of incorporation, objects, shareholders, subsidiary undertakings, employees General information on the management and supervisory bodies, e.g. members of those bodies, remuneration, conflicts of interest, corporate governance The issuer s business A description and discussion of historical financial information, also known as Management discussion and analysis, Operating and financial review Past, current and future investments Material contracts Past, pending and threatened legal proceedings Working capital and business prospects Capitalisation and indebtedness Audited historical financial information for the last three financial years and, if available, interim financial information. On the securities General information on the shares, e.g. ISIN/WKN, currency, restrictions on transferability, dividend rights Reasons for the offer Use of the issue proceeds and expenses of the issue Terms and conditions of the offer Dilution Lock-up agreements. 10

13 In addition, there must always be a separate section giving an account of risk factors that are material for the issuer and for the securities to be offered/admitted to trading. Qualifying those risks by, for example, at the same time also giving an account of opportunities, is not permitted. Finally, the prospectus must be preceded by a summary which is placed immediately after the obligatory table of contents. Where do relaxations apply? There are relaxations regarding the drawing up of prospectuses in connection with employee share-ownership schemes for issuers to which the respective statutory exemption from the obligation to draw up a prospectus does not apply (e.g. US companies) and whose shares are already traded on a market. With regard to these cases BaFin has decided in accordance with the relevant ESMA recommendation that a number of particular details which would otherwise be required under the Prospectus Regulation need not be disclosed. Can existing documents be used? Information can also be incorporated in a securities prospectus by reference to another document. This can reduce the size of the prospectus. Reference can, however, be made only to previously or simultaneously published documents that have been approved or filed under the German Exchange Act (Börsengesetz BörsG), the WpPG or the equivalent national legislation 11

14 of other EEA states. This might be e.g. the issuer s financial information which has already been included in a previous prospectus. If an issuer has already drawn up a prospectus for an offer or admission to trading of securities in a country outside the EEA (e.g. in the USA), it can, in principle, also use this prospectus within the EEA. In these cases BaFin merely requires that specific information required by the Prospectus Regulation or the WpPG that is missing from the existing prospectus be added to it in a wrapper. What advantages does the BaFin approval procedure offer? The WpPG sets tight deadlines for BaFin to examine securities prospectuses. BaFin must come to a decision on approval within ten working days of submission of the prospectus. The deadline is extended to 20 working days if the public offer involves securities issued by an issuer who does not have any securities admitted to trading on an organised market in the EEA and who has not previously offered securities to the public. To the benefit of the applicant, for the purposes of calculating the deadline Saturday is also counted as a working day. If BaFin criticizes deficiencies in the prospectus in a written hearing or on the telephone, the deadline starts to run again from the time the revised prospectus is submitted. 12

15 Because the examination teams are very experienced, BaFin will not as a rule leave things to the end of the statutory deadlines, especially in the case of an IPO. In a typical prospectus examination procedure for an IPO, BaFin generally needs only around 13 business days for the examination of the first draft of the prospectus, around ten business days for the examination of the second draft and around two to five business days for the examination of the third draft and approval of the prospectus. The timetable also depends on the draft version with which any information that was still missing (e.g. interim financial information) is submitted. BaFin recommends contacting sections PRO 1 and PRO 2, who are responsible for the examination of prospectuses, in good time ahead of a public offer in order to agree the timetable for the examination procedure and to clarify possible unresolved issues regarding the information that the prospectus must contain. The prior consultation regularly covers the financial information that has to be included in the prospectus, especially if the issuer has a complex financial history or the question of the inclusion of pro forma financial information arises. Since for prospectus purposes his- 13

16 torical financial information has, as a basic principle, to be drawn up in accordance with International Financial Reporting Standards (IFRS), in some cases it may have to be decided whether national General Accepted Accounting Principles (GAAP) are admissible. In other cases the question might be whether the issuer should be classified as a specialist issuer (e.g. as a property, shipping or mineral company), which would involve additional requirements for the content of the prospectus. BaFin examines prospectuses for completeness, including consistency and comprehensibility of the information given. A prospectus is deemed to be complete when it contains the additional statutory elements (e.g. particular warnings in the summary) in addition to the minimum disclosures required by the Prospectus Regulation. BaFin s examination does not extend to a further examination of a prospectus s content. BaFin makes available on its website the prospectuses that it has approved ( What documents must be filed for the examination of a prospectus? For a prospectus to be examined, the following documents (paper version) must be filed with BaFin at its Frankfurt am Main office: Securities prospectus A single copy of the securities prospectus signed in the original must be filed. This prospectus must be identical to the securities prospectus that is to be published. 14

17 Covering letter A concise covering letter should be attached to the prospectus, clearly stating that it is an application for approval. The letter should also contain the address, telephone number and fax number of a contact and the recipient of the fee notice. Cross-reference list If the prospectus is not structured in the order of the relevant Annexes to the Prospectus Regulation, a cross-reference list should always be submitted. The cross-reference list should state where in the prospectus the disclosures required by the Annexes to the Prospectus Regulation are to be found. Power of attorney If the prospectus is filed with BaFin by a third party (e.g. a lawyer), the filing of the prospectus should be accompanied by a corresponding power of attorney in the original. It is possible to file securities prospectuses electronically via a special platform (the Reporting and Publishing Platform Melde- und Veröffentlichungsplattform, MVP). But in this case the paper versions of the prospectus and the other documents must still be filed as soon as possible afterwards. How much does an approval procedure cost? The fees for approving a securities prospectus for a public offer and for the admission of shares to trading currently amount to 6,500. Details may be found in the Securities Prospectus Fees Regulation (Wertpapierprospektgebührenverordnung 15

18 WpPGebV), which can be downloaded in German from the BaFin website ( What language does the prospectus have to be drawn up in? As a general principle, the securities prospectus is drawn up in German, but can in many cases also be drawn up in English. It is permissible for the prospectus to be drawn up in English especially if the securities are to also be offered to the public or admitted to trading outside the Federal Republic of Germany (but within the EEA). If the securities prospectus is drawn up in English, it must as a basic principle contain a German translation of the summary. If the prospectus is drawn up in German even though an English-language version would also have been permitted, the historical financial information may nevertheless be included in English. This eases the administrative burden for the offeror if the originals of 16

19 the financial information were prepared in English. In these cases the financial information does not have to be translated into German. When must a prospectus be updated? As a basic principle, a securities prospectus is valid for up to twelve months from its publication, provided it is updated by what are referred to as supplements. A supplement to the prospectus must be drawn up at any time up to the final closing of the offer to the public or, as the case may be, the time when the quotation of the shares commences or trading of the shares begins, in respect of any significant new factor or any material inaccuracy relating to the information contained in the prospectus. Such information might include, for example, new financial information or a new pricing under an IPO. The supplement must also be approved by BaFin and then published. In the case of an IPO the obligation to draw up a supplement generally ends with the beginning of trading of the shares i.e. depending on the subscription period, as a rule within a reasonable period after publication of the prospectus. There is no updating requirement beyond that. 17

20 Can a German prospectus be used in another EEA state? The Prospectus Directive also introduced the European passport for securities prospectuses. This means that a securities prospectus approved in one EEA state is recognised in all other EEA states without further examination. An issuer can therefore use the prospectus approved in Germany for an offer in one or more other EEA states with hardly any further formalities. All that is required is for BaFin to notify the competent authorities of the other EEA states and to send them a copy of the approved prospectus. This is done at the request of the offeror. In some cases the offeror may be required to provide a translation of the summary of the prospectus in accordance with the language requirements of the member state(s) in question. Who is responsible for the admission of the securities to trading on an exchange? In the Federal Republic of Germany there are stock exchanges in Berlin, Düsseldorf, Frankfurt am Main, Hamburg/Hanover, Munich and Stuttgart. The admission of securities to the regulated market is the responsibility of the management of the exchange in question. The issuer, together with an applicant for admission (e.g. a credit institution), must submit the corresponding application for admission to trading to them. If no exemption applies, a prospectus approved in accordance 18

21 with the provisions of the Securities Prospectus Act is a prerequisite for admission to trading. Further information on admission to trading and on the individual market segments may be found on the websites of the German exchanges. The Berlin Stock Exchange The Düsseldorf Stock Exchange The Frankfurt Stock Exchange The Hamburg-Hanover Stock Exchanges The Munich Stock Exchange The Stuttgart Stock Exchange 19

22 What obligations apply after admission to trading has been approved? The application and the admission of the securities to trading on the regulated market entail various additional obligations once admission to trading has been approved. The issuer, its management and supervisory bodies, investors and others must observe these obligations. These include, for example: The requirement to issue / publish notices relating to voting rights The requirement to publish inside information (ad hoc disclosure) The prohibition of insider trading and market manipulation The requirement to maintain insider lists The requirement to report and publish transactions by persons discharging managerial responsibilities (directors dealings) The financial reporting requirement (annual and semi-annual financial reports, interim statements) The requirement to publish an Annual Document. Further information on this may be found on (among other places) BaFin s website and in the Issuer Guideline, which can also be downloaded on the BaFin website ( 20

23 Do you have any more questions? If you have any questions on the content of this brochure or on the prospectus examination procedure, please contact sections PRO 1 or PRO 2 in Frankfurt am Main: Phone: +49(0) Fax: +49(0) poststelle-ffm@bafin.de. 21

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28 Imprint Bundesanstalt für Finanzdienstleistungsaufsicht Press and Public Relations Graurheindorfer Str. 108, Bonn Marie-Curie-Straße 24-28, Frankfurt am Main Phone: +49(0) Fax: +49(0) Internet: Bonn and Frankfurt am Main l October 2011 Photographs photothek (Ute Grabowsky) pages bleutées Martine A Eisenlohr, flaggen wolff, Bulle und Bär-2 PetrusB / fotolia.de