The EU Prospectus Directive and Medium Term Note Programmes.

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1 The EU Prospectus Directive and Medium Term Note Programmes. 1. Introduction The EU Prospectus Directive (the PD ) will be implemented in the United Kingdom on 1 July Other EU states may implement earlier; some may do so later. In any event, over the next few months the regime for obtaining a listing on EU regulated markets of securities issued under Euro Medium Term Note Programmes is going to be subject to extensive changes. Arrangers, dealers and, most importantly, issuers need to start preparing for life under the new regime. This memorandum looks at some of the more important implications of the forthcoming changes. Usually a listing authority s approval of a programme will expire twelve months after the date of the previous update or its establishment (in the case of the first year of a programme). As a result, an issuer who wishes to continue to use its programme for listed issues updates the programme annually. This memorandum focuses on the issues relevant to how and when to update a programme under the new regime. Contents 1. Introduction 1 2. Wholesale versus retail 2 3. Decisions to be made by MTN issuers 7 4. What will the new prospectus look like? Programmes with options to issue more complex securities Choice of competent authority 16 Appendix Background For background detail on the new regime please refer to our publication Issuer alert. EU regime change or click here Guaranteed Programmes A prospectus for a programme which is guaranteed will require disclosure to be included on the guarantor as if it were the issuer of the securities which are the subject of the guarantee. References in this memorandum to the disclosure required by an issuer should be read in this context Special issuers The PD contains special rules which apply to sovereign issuers. There are also extra disclosure requirements for certain types of issuer such as property companies, mineral companies, investment companies, 23 March

2 scientific research based companies, companies with less than three years of existence and shipping companies. For the sake of simplicity, this memorandum has been written on the basis that the issuer (or guarantor) is not one of these entities Which countries are relevant? The PD applies to all European Economic Area member states. These are all EU member states and Iceland, Liechtenstein and Norway. References to an EU regulated market in this memorandum should be interpreted as references to EEA-regulated markets. By way of reminder, the following are the relevant countries: Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta The Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom Iceland Lichtenstein Norway 2. Wholesale versus retail In order to understand how the new regime may affect a programme it is important to appreciate that both the PD and the Transparency Obligations Directive (the TOD ) make a clear distinction between wholesale and retail securities for the purpose of (i) prospectus content requirements and (ii) on-going disclosure requirements. For the purpose of the PD a wholesale security is: a debt security which has a denomination of at least 50,000 (or its equivalent in another currency); or a derivative which has a denomination of at least 50,000 (or its equivalent in another currency) or which can only be acquired on issue for at least 50,000 (or its equivalent in another currency) per security. Retail securities are securities which are not wholesale securities. It does not matter to whom the security is either (i) intended to be or (ii) is actually offered or sold for the purpose of the wholesale/retail distinction. In many respects therefore this is a major change from the previous regime Are 50,000 denominations a problem? There has already been an increased market focus on the denominations of securities. In some markets (such as Italy) we have seen regulators require securities to be sold in high denominations as a way to restrict the 2 23 March 2005

3 possibility of sales to retail investors. Some concern has been expressed that high denominations limit the general marketability of issues even absent these regulatory considerations. This concern arises from the fact that an issue sells better if it can be sold and traded in amounts other than just multiples of 50,000 rather than that it needs to be sold in minimum amounts of less than 50,000. There is no problem in a registered issue to fix a minimum denomination of 50,000 and integral multiples of 1,000 thereafter. In a bearer issue the solution seems to be to have denominations of 50,000 and provide that while the issue is in permanent global form it can trade in lots of 50,000 plus integral multiples of 1,000. The clearing systems will implement this and this should ensure that an issue can be treated as wholesale under the PD and the TOD. Some additional wording may be added to the prospectus to ensure that investors are on notice that there may be practical consequences of holding an amount other than 50,000 or a multiple of 50,000 in the unlikely event that definitive notes were ever required Wholesale regime what are the relevant changes? The principal changes for the disclosure required for wholesale debt are: Risk factors will need to be included both in respect of (i) the issuer s ability to fulfil its obligations under the securities and (ii) any factors that are material to an assessment of the market risk associated with the type of securities being issued. The risk factors must be given prominent disclosure and a separate heading. Financial information (including notes) covering the latest two financial years (plus audit reports) must be included in the prospectus. We envisage that, for the most part, this information will be incorporated by reference. Where the financial information is not prepared in accordance with IFRS (or equivalent) then a prominent statement to this effect must be included in the prospectus, accompanied by a statement to the effect that there may have been material differences in the financial information if IFRS had been applied. The prospectus must also contain a narrative description of the differences between IFRS and the accounting principles adopted by the issuer in preparing its annual financial statements. In addition, minimum content requirements are prescribed where IFRS has not been applied. If the audit report does not comply with international standards on auditing, a prominent statement to this effect must be made, with a description of how the auditing standards used depart from international standards on auditing. The EU Prospectus Directive and Medium Term Note Programmes. 3

4 Recent events particular to the issuer and which are to a material extent relevant to the evaluation of the issuer s solvency must be included. Material contracts entered into outside the ordinary course of the issuer s business, which could result in any member of the group being under an obligation or entitlement that is material to the issuer s ability to meet its obligations under the securities, must be disclosed. Any conflicts of interest between the private interests of the issuer s management and those of the issuer must be listed, or if none, a negative statement made. In addition any interests of persons involved in the offer of securities which may be material to the offer must be included in the final terms. Details of management, administrative and supervisory bodies must be provided, including names, business addresses and functions of the members of those bodies. A description of the issuer s group and the extent to which the issuer is dependent upon entities within the group must be provided. In addition, the issuer must state if it is aware that it is directly or indirectly controlled or owned by another entity, and the nature and extent of such control. Any arrangements, the operation of which might, at a future date, result in a change of control, must be disclosed. An estimate of the total expenses relating to the admission of the securities to trading must be disclosed (although there is no longer a requirement to state the net proceeds of the issue). An indication of the yield of the securities must be provided. Any credit ratings assigned to the issuer or its debt securities (where the issuer has been involved in the rating process) must be disclosed By way of contrast there will be no requirement going forward for a capitalisation and indebtedness table to be included in the prospectus Retail regime what are the additional relevant changes? In addition to the items set out above, the level of additional disclosure for the new retail regime is even greater and issuers will need to consider the following: The responsibility statement may need to be made by the directors of the issuer, rather than a corporate responsibility statement by the issuer. The PD allows each member state the discretion to decide by whom the responsibility statement will need 4 23 March 2005

5 to be made. Luxembourg have indicated that they will continue to allow a corporate responsibility statement. It is possible that London will also permit corporate responsibility for debt securities (as is currently the case for eurobonds). A summary of the programme must be included in the base prospectus. This summary should not normally exceed 2,500 words and must be written in non-technical language. This summary may need to be translated into the language of each EU member state in which the securities are either offered to the public or listed. The annual list obligation this is the requirement to provide the competent authority with a list of all the information which the issuer has been obliged to publish or make available to the public over the preceding 12 months pursuant to securities laws in other any jurisdiction worldwide. Financial information on the issuer must be prepared in accordance with IFRS or equivalent. Interim financials must, if published since the date of the last annual accounts, be included in the prospectus, also in accordance with IFRS. In addition, the prospectus must contain summary or selected financial information for the relevant financial periods. A description of the issuer s principal investments made since the date of the last published financial statements is required, as well as a description of future principal investments that the issuer has committed to. Sources of funding for such investments must be identified. It is anticipated that this will involve a discussion of any capital expenditure or other large investments. A description of the industry and markets in which the issuer competes is required, as well as the basis for any statements made regarding its competitive position. In addition to this, information on any known trends, uncertainties or events must be included if it is likely to have a material effect on the issuer s prospects for at least the current financial year. Any profit forecast which is included in the prospectus must be accompanied by an auditors report which states that the forecast was properly compiled on the basis stated and that the accounting basis used for the forecast is consistent with the accounting policies of the issuer. Details of the issuer s audit committee (i.e. its members and its terms of operation) must be given. A statement must be included as to compliance with the corporate governance regime in force in the issuer s jurisdiction. In addition to this, the prospectus must include a description of the issuer s objects and purposes and a The EU Prospectus Directive and Medium Term Note Programmes. 5

6 statement as to where they can be found in the issuer s constitutive documents. Detailed information relating to the share capital of the issuer must also be provided. As regards the securities being issued, disclosure on the following additional items will be required: (i) (ii) (iii) (iv) (v) a plan of distribution as to the various categories of potential investors to whom the securities are to be offered and whether they are being offered simultaneously in different markets; details of placing and underwriting arrangements and the overall amount of underwriting/placing commissions to be paid; as well as an indication of yield, a description of how that yield is calculated; the reasons for the offer (if different from hedging or making a profit); and as well as a reference to the credit rating, an explanation of that rating Retail regime the on-going extras In addition to its disclosure obligations in the prospectus, an issuer also needs to consider its on-going obligations, which will last for as long as it has securities admitted to an EU regulated market. These are set out in the TOD which must be implemented into the national law of each EU member state by 20 January These include requirements to provide annual and semi-annual financial reports, prepared using IFRS or an equivalent standard. Wholesale debt securities are exempt from the financial reporting requirements of the TOD. Retail debt securities will be caught by TOD. This means that an issuer will be required to file with the competent authority annual and semi-annual reports, including management reports detailing important events that have occurred within the relevant period. These reports are designed to help investors take investment decisions and relevant officers of the issuer will have to take responsibility for them. As publication of the reports will be EUwide, there is potential multi-jurisdiction liability should the reports omit or misrepresent important information March 2005

7 3. Decisions to be made by MTN issuers The matters summarised above will affect different MTN issuers in different ways. The issuer s choices can be summarised as follows: Does the issuer have EU listed shares? Yes No Is the issuer able/willing to keep its retail disclosure up to date? date? Is the issuer able/willing to comply with the TOD? Yes 0 No Yes No Consider possibility of a retail debt programme Is the issuer willing to keep retail disclosure up to date in prospectus? Restrict programme to denominations of at least 50,000 OR move to an Exchange Regulated Market or a non-eu market No Yes Restrict programme to denominations of at least 50,000 Consider possibility of a retail programme An EU incorporated issuer which already has its shares admitted to an EU regulated market is going to have to comply with the TOD reporting requirements in any event. If it is a frequent issuer of shares, it may have a recent equity prospectus that complies with the toughest disclosure regime under the PD so that producing a prospectus for a retail debt issue may be a relatively easy matter. At the other end of the spectrum there is the non-eu issuer, that has no securities listed in the EU and does not prepare its financial statements to IFRS or equivalent standards. For such an issuer, it is likely to be important to ensure that the wholesale regime is available or that the programme is listed on a market that is not an EU regulated market and to which the PD and the TOD will not apply. The EU Prospectus Directive and Medium Term Note Programmes. 7

8 Due to the difficulties that the EU regime creates for some issuers (most notably, the need for IFRS financial statements or equivalent financial statements), the London Stock Exchange, the Luxembourg Stock Exchange and the Irish Stock Exchange are each intending to establish a market platform or segment that is not a regulated market for the purposes of the EU regime. Each of these are referred to in this memorandum as an Exchange Regulated Market. Each Exchange Regulated Market will be subject to regulation by the relevant competent authority and will enable the securities to be admitted to the Official List under the Combined Admissions Directive and as such, to be treated as listed securities. Alternatively, issuers may wish to list on a market outside the EEA such as Switzerland, Singapore or Hong Kong. Further information on Exchange Regulated Markets and other alternatives can be found in the Appendix to this memorandum. Between these two extremes will fall a whole range of issuers. These may include EU issuers who could comply with the retail requirements of the PD and the TOD but prefer not to because the burden of initial and continuing disclosure will be too expensive in terms of financial cost and management time. Issuers will need to weigh any marketing advantages (presumably as a result of pricing and access to a wider investor base) for their securities against the extra liability, time and cost implications that will come from exposing themselves to the retail regime Timing Time is running short. Arrangers need to advise their issuer clients and issuers need to decide what action they want to take. At present the whole market is trying to work out the best and most cost-effective course of action. For many issuers the wait and see until the dust settles approach is the one that may work best if they do not have immediate funding needs which require them to use their programme (and if they are prepared to risk being unable to seize any particularly favourable funding opportunity thrown up by the market, because they have no current listing for their programme through 1 July 2005) March 2005

9 The position pre 1 July 2005: The following diagram sets out the various options: Is the issuer s programme listing due to expire prior to 1 July 2005? YES NO Does the issuer require the flexibility to do a listed issue prior to 1 July YES NO Delay until new rules are clarified, then update prospectus in accordance with PD requirements on or in advance of 1 July 2005 Having considered the issues in Section 3 above, transfer the programme to an Exchange Regulated Market post 1 July 2005 Having considered the issues in Section 3 above, de-list programme from EU regulated market and list on a non-eea exchange Do an update under current rules and reupdate on 1 July 2005 or move to an Exchange Regulated Market post 1 July 2005 (London listed issues only) Do a dual compliant prospectus. This prospectus will need to be reapproved by the FSA on 1 July 2005 and may need further update as new rules develop (Lux listed issues only) Do not update prospectus and issue notes off the stale prospectus until new rules are clear, then update under PD for 1 July 2005 De-list programme from EU regulated market and list on a non-eea exchange Delay update until new rules are clarified, then update prospectus in accordance with PD requirement s on or in advance of 1 July 2005 For any programme which expires before 1 July 2005 an issuer can continue to issue up to the expiry date with no change. Issues settled and listed pre 1 July 2005 will not be subject to the PD requirements. The new regime only applies in respect of issues made after 1 July Unlisted issues can continue unaffected pre and post 1 July However when considering an update now which an issuer wishes to enable it to issue listed securities up to 1 July 2005 and beyond then dual reading and re-approval after 1 July may be the best approach. The EU Prospectus Directive and Medium Term Note Programmes. 9

10 3.2. Dual reading The listing authorities in the various jurisdictions are focussing on the problems that will arise if large numbers of issuers attempt to update their programmes in the weeks leading up to and immediately following 1 July. The queue would be enormous and the market would grind to a halt. Fortunately, some listing authorities are prepared to give approval in principle in advance of 1 July Essentially, this involves reading the update documentation against both the existing regime and the new PD regime. This is being referred to as dual reading Dual reading by London The FSA wrote to issuers on 31 December 2004 informing them that it would be in a position to dual read documents from January Although the FSA can only approve a document for compliance with the disclosure requirements that are in force at any given time, its intention is that it will be able to be give an informal indication as to whether or not a document is likely to meet the requirements of the PD when a document is approved under the current rules. Once the PD is in force, the same document will then need to be re-dated and submitted for final approval under the PD requirements. If a significant change has occurred between the document being approved under the current rules and the PD requirements then this new information will need to be included in the PD approved document Reading against what? In order for a programme to be dual read the new rules must have been published. To date the PD, as well as the more detailed regulations, have been published. However we do not yet have the final UK implementing rules. There are still certain important unresolved issues relating to the UK s proposed implementation. These should ideally be resolved before a programme is updated on a dual reading basis otherwise there is a risk that there will have to be a further update as and when the new rules become clear Luxembourg Transitional arrangements The position in Luxembourg is slightly different. Luxembourg has said that the relevant bill dealing with implementation is likely to be adopted by early May with a transitional period running through 1 July During the transitional period, issuers may opt for the old or the new system Derogation from requirement to update Where an issuer s programme listing is due to expire between now and 1 July 2005, the Luxembourg Stock Exchange is prepared to allow the March 2005

11 issuer to continue to issue listed trades up until 30 June 2005 without the need to do a new update. An issuer may send a letter to the Luxembourg Stock Exchange requesting a derogation from the requirement to update its Programme. We have prepared a pro-forma letter for this purpose. The Luxembourg Stock Exchange will usually give its approval within three to four business days of the derogation letter being received. Once the derogation has been granted, listed trades can be made in the usual manner. Issuers ought to bear in mind, however, their general obligations in relation to disclosure of all material information in the offering circular in the context of any particular trade and be prepared to file supplemental disclosure where required Bunching Even if a document is dual read ahead of time, the approval by the competent authority for PD purposes will not be effective until 1 July This means that there will be an annual bottleneck, every July, with all issuers trying to update at the same time. It would be sensible for competent authorities to encourage issuers to stagger their updates - say, by updating after 8 or 9 months during the first year of the new regime - and issuers would be well advised to discuss this possibility with their competent authority. This will be particularly important for issuers whose year end is not close to 1 July (because it is always easier to update the business and financial disclosure in the months following the publication of the year end figures) Fees Listing fees should also be discussed with the competent authority. If there is an annual fee payable on updating or establishing a Programme now, the fee should logically be reduced - because the Programme will only be valid for a few months until 1 July 2005, when further action will need to be taken to revise the document for the listing to continue. The London authorities have addressed this point and have stated that they will operate a policy whereby dual read documents will be charged the normal vetting and application fee for the first time the document is approved under the current Listing Rules. When the document is then resubmitted for approval under the PD requirements, if the programme expires on its original expiry date i.e. one year from the date it was first approved under the existing Listing Rules, then no new fee will be charged for the approval under the PD requirements. If the issuer changes the document expiry date to July 2006 on resubmission for approval under the PD requirements then a vetting fee and an application fee will be charged. The EU Prospectus Directive and Medium Term Note Programmes. 11

12 Luxembourg has not yet stated how it will deal with any apportionment of fees. 4. What will the new prospectus look like? A PD compliant prospectus may look a little different from the documents that we have been used to in the MTN market. The PD contemplates programme type arrangements allowing for the preparation of a base prospectus which will be approved by the competent authority on establishment of the programme. On each drawdown final terms are issued, which will not require approval by the home competent authority (see further section 4.2 below). The concept of base prospectus plus final terms is broadly the same as the current practice of using a programme offering circular plus a pricing supplement. A base prospectus prepared to comply with the PD wholesale regime needs to contain the information required by the appropriate: registration document; and securities note. A base prospectus prepared to comply with the PD retail regime needs to contain the information required by the appropriate: registration document; and securities note, and also a summary. The contents requirements for the registration document and the securities note are set out in the relevant annexes to the PD Regulation March 2005

13 The following chart assists in determining which annexes are applicable: At least 50,000 (or equivalent) denomination OR (for derivatives) 50,000 (or equivalent) minimum consideration? Yes No 100% payback? 100% payback? Yes No Yes No Annexes 9 & 13 Annexes 9 & 12 Annexes 4 & 5 Annexes 4 & 12 In addition to the content requirements set out above, the PD requires the base prospectus to contain the following parts in the following order: (i) a clear and detailed table of contents; (ii) (iii) (iv) an indication of the information that will be included in the final terms ; the method of publication of the final terms ; and a general description of the offering programme. The PD allows for incorporation by reference only of documents previously filed with the relevant competent authority. Therefore, it will no longer be possible to incorporate future documents by reference under the Luxembourg rules for the EU regulated market (although the Luxembourg Stock Exchange have said that this will be possible on their Exchange Regulated Market). Instead, it will be necessary, where there is a material change, for a supplemental prospectus incorporating such information by reference to be prepared and approved Checklists Where the order of the disclosure in the prospectus does not coincide with the order for the information set out in the relevant parts of the annexes to the PD Regulation, the competent authority may ask the The EU Prospectus Directive and Medium Term Note Programmes. 13

14 issuer to provide a cross reference list identifying the pages where each item can be found in the prospectus. This list is likely to be similar to the checklists currently required by the UKLA when submitting a document for approval referencing the relevant rule and the page of the document where compliance with that rule can be found. In addition, as with the current regime, the new rules may also require that, regardless of whether the order of information follows that set out the relevant parts of the annexes to the PD Regulation, the prospectus must be annotated in the margin to indicate compliance with all applicable requirements. We believe that, going forward, the market generally will prefer to maintain the current format of prospectuses and annotate them to show compliance rather than reorganise to conform to the order set out in the annexes to the PD Regulation. The extract below shows how this would work in relation to one of the requirements of the PD Regulation on a wholesale debt programme. The responsibility statement is set out, and to the right of it is a reference to those parts of the PD Regulation that require the statement i.e. Registration Document, Annex 9, articles 1.1 and 1.2. The Issuer accepts responsibility for the information contained in this document. To the best of the knowledge of the Issuer (which has taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. RDA9-1.1 RDA Final terms What are final terms? Once a base prospectus has been approved the document needed for each issue can be prepared as final terms. The final terms are neither part of the prospectus nor a supplement to it. The final terms will be similar in format to the pricing supplement which is currently prepared and will not require approval by the home competent authority. This route is therefore similar to the current practice of using a programme offering circular plus a pricing supplement. Each competent authority is likely, however, to tighten up on its interpretation of exactly what constitutes final terms. The PD provides that the final terms may consist only of the final terms of the offer and information items required to be included in the securities note which were not known at the date of the base prospectus. It is our view that this means that the final terms can continue to be used, in the same way as a pricing supplement at present, as a menu picker specifying which of the terms in the base prospectus apply to March 2005

15 the relevant issue. It will also be possible to fill in pricing and other details, such as identities of the agents appointed for the relevant issue. If, however, significant new terms have to be introduced through the final terms (for example, a complex new redemption provision) this may then turn the final terms into a supplemental prospectus, which will have to be approved by the competent authority (see below) What if not final terms? If the information which needs to be included for the drawdown cannot pass the test for final terms then there are two consequences: (i) (ii) the information must be included in a supplemental prospectus which will have to be approved by the competent authority with time and cost implications; and if a supplemental prospectus is published, any investors who have already bought securities have at least two working days to withdraw their acceptance of the offer of securities. There are a number of ways to avoid the uncertainty caused by this provision. For example, it may be possible to delay selling the securities until the supplemental prospectus is approved. Also, it may be possible to abandon the base prospectus format and use instead a two part document approach consisting of a shelf registration document, with a securities note to document each drawdown. As the securities note is not a supplemental prospectus, it does not trigger the investor withdrawal right set out in (ii) above. However the securities note will require approval by the competent authority. It may be that the timetable for obtaining approval could be shortened by asking the relevant authority to bless in advance the terms that will be common to all issues intended to be done using the same form of securities note (a pro forma securities note) so that the relevant authority does not have to trawl through the terms of each securities note used for each drawdown. We are currently discussing the feasibility of this approach with various listing authorities. 5. Programmes with options to issue more complex securities Many programmes provide for the issue of securities other than fixed or floating rate debt. These will require careful consideration because the provisions may take the programme into the PD regime for derivative instruments as well as that applying to debt. The EU Prospectus Directive and Medium Term Note Programmes. 15

16 Redemption at less than 100% The derivative requirements will apply if the programme provides for the issue of securities that may not repay the investor 100% of the nominal value of the security. The additional derivative disclosure requirements include: risk warning to the effect that investors may lose all or part of their investment; explanation of how value is affected by underlying (unless the denomination is at least 50,000); and information on any underlying security. In order to avoid any of this additional disclosure, issuers who have made no or infrequent use of these extra options contained in their programmes may wish to delete them. In addition, some issuers, particularly in the financial sector, who may make frequent use of these options may consider having more than one programme, with the wholesale and retail and derivative components split out, to ensure that their disclosure obligations are limited with respect to the particular type of security being issued. 6. Choice of competent authority If the programme provides for denominations of less than 1,000 (or its equivalent), the base prospectus for the programme must be approved by the competent authority in the state of registration of the issuer (if it is EU incorporated). For non-eu issuers, approval has to come from the issuer s home member state. This is the EU member state where the issuer did its first public offer or listing of securities after 31 December There is some uncertainty as to how this rule will work in practice. If, however, the programme limits the issue of notes to denominations of 1,000 (or its equivalent) and above, the issuer can freely choose its competent authority for the programme from among the states in which it is proposing to list or make public offers of its securities. It would therefore be prudent, wherever possible, to limit denominations under the programme to a minimum of 1,000 (or its equivalent), thus preserving freedom of choice of the approving authority March 2005

17 Exchange Regulated Markets Appendix The PD and the TOD apply to issuers who have securities admitted to an EU regulated market. An EU regulated market is a market for securities which appears in the list of regulated markets drawn up by the relevant EU Member State in which the market is situated or operates. Regulated markets will include the major EU stock exchanges. The various "markets" currently operated by the London Stock Exchange (except for AIM) are regulated markets for this purpose. Each of the London Stock Exchange, the Luxembourg Stock Exchange and the Irish Stock Exchange intends to establish a market platform or segment that is not a regulated market for the purposes of the EU regime. This market will instead be subject to regulation by the relevant investment exchange and will enable the securities to be admitted to the Official List under the Combined Admissions Directive and as such, to be treated as listed securities. For a non-eu issuer, a listing on an Exchange Regulated Market avoids the risk of home state election for the purposes of the PD and TOD which would otherwise be triggered by an application for listing on an EU regulated market of equity securities, convertible securities or non-equity securities with a denomination of 1,000 or less. It is intended that each Exchange Regulated Market will run in parallel with the regulated markets in the relevant jurisdiction and will offer an alternative for issuers of debt and equity-linked securities who do not wish to offer their securities to the public and for whom the requirements under the EU regime established by these directives are inappropriate or unduly burdensome. London s Exchange Regulated Market The FSA has published a consultation paper setting out the proposed details of its Exchange Regulated Market for specialist securities. Issuers of such specialist securities will be required to: (a) (b) prepare listing particulars containing disclosure in line with the wholesale debt requirements of the PD (e.g. IFRS not required), regardless of the denomination of the securities being issued; and comply with certain continuing obligations broadly equivalent to those currently applicable to issuers of eurobonds under the current Listing Rules. The FSA has said that issuers of specialist securities will not be required to report historical financial information in accordance with IFRS or an equivalent GAAP either in listing particulars or as a continuing obligation The EU Prospectus Directive and Medium Term Note Programmes. 17

18 requirement. The FSA expects to continue to follow this approach following implementation of the TOD. Luxembourg s Exchange Regulated Market The Luxembourg Stock Exchange issued a press release in February regarding its Exchange Regulated Market in which it stated that the operating rules for the Exchange Regulated Market would be almost identical with those which currently apply to listing of eurobonds. Ireland s Exchange Regulated Market We expect the Irish Stock Exchange to make an announcement regarding its Exchange Regulated Market in the near future. Markets outside the EEA Another option for issuers for whom the new EU regime is inappropriate is to list securities on a market outside the EEA. Linklaters (with Homburger in Switzerland, and Allen & Gledhill in Singapore) has been working closely with the Swiss, Singapore and Hong Kong Stock Exchanges, each of which is developing processes to enable issuers with securities admitted to trading on one or more EU regulated markets to transfer those securities and their listings onto the Swiss, Singapore and Hong Kong markets, respectively. One advantage of admitting securities to a non-eu regulated market (as opposed to an Exchange Regulated Market) is that they will not be subject to any future EU legislation, which is always a possibility in the case of any market within the jurisdiction of the EU. For further information on the listing requirements of these exchanges and in respect of options generally please refer to our memorandum dated 10 January 2005 entitled Issuing debt in the EU Available options for non-eu issuers or click here. For further information on the issues discussed in this memorandum please contact your usual Linklaters contact. This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts at Linklaters, or contact the editors. Linklaters. All Rights reserved 2005 Please refer to for important information on the regulatory position of the firm. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com March 2005