Harmonization of Primary Market Practices on Euronext Markets

Transcription

1 Harmonization of Primary Market Practices on Euronext Markets Introduction This consultation paper proposes measures for harmonising the functioning of primary markets where financial instruments are offered to the public or admitted to trading on a regulated market in one or more of the four Euronext countries. It is envisaged that the measures would apply both to cross-border transactions and purely domestic transactions. The proposals concern all types of financial instruments, except where it is explicitly stated that they regard only equity instruments. 1. Summary of a prospectus a. Present regulation in the Euronext zone In Belgium, the BFC recommends the use of a summary for all types of operation. A summary in the two national languages is mandatory for IPOs and follow-on public offers by foreign issuers who have been authorized by the BFC to publish their prospectus in English. In the Netherlands, Euronext Amsterdam recommends the use of a summary, but according to the Listing & Issuing Rules, there is no obligation to use a summary of a prospectus. A summary is required in case of a public offer of non-listed securities. In France, the use of a summary is neither required nor prohibited for French language prospectuses. It is common practice however for issuers in the case of IPOs to publish a summary of the prospectus in a national financial newspaper, in addition to making the entire prospectus available, free of charge, to the public. A summary in French language is only required from foreign issuers, under the mutual recognition regime, who do not establish their prospectus in French language. The content of this summary is set forth by a COB instruction. In Portugal, there is no requirement to publish a summary of the prospectus, nor is such a summary allowed by the law. Portuguese law requires however a public announcement of the offer, stating its basic features.

2 b. Proposals It is proposed : - that, if a prospectus is required, the use of a summary will be mandatory unless the prospectus relates to the admission to trading on a regulated market of nonequity securities having a denomination of at least EUR [50.000] 1 ; - to allow the summary to circulate separately from the prospectus, provided that the cover of the summary mentions that This document is only a summary of the full prospectus which will be made available without delay upon request. The investor should read the full prospectus before making any investment decision ; Moreover, it would be mandatory to include not only the summary but also the complete prospectus on those websites where information regarding the public offer is posted. - that the translation of the summary into a language accepted by the host competent authority may be required by the host competent authority where the securities are to be offered to the public or admitted to trading on a regulated market in the relevant host state. As regards the content of the summary, it is proposed that the summary contains the necessary information regarding the terms of the offer, the organisation, the financial situation and the prospects of the issuer and that the details of such content be determined along the lines of the attached outline (Annex 1) 2. c. Consequences for the four countries The BFC would be able to enforce the new rule at an initial stage via a change in its Circular on the operation of the primary market but the new obligations should be provided for in a law as soon as possible. In the Netherlands, Euronext Amsterdam would have to adopt this proposal in the Listing & Issuing Rules. The COB would be able to implement this proposal by amending its regulations relating to the information to be published in connection with a listing (including on the New Market) or with a public offering of securities, so as to, with respect to French language prospectuses, require the use of a summary, perhaps to be published in the newspapers. The content/outline of the summary would have to be set forth by the COB. In Portugal, there would have to be an amendment to the Securities Code. The CMVM has no regulatory powers to impose this duty. 1 See article 5, 2. of the amended proposal for a Directive of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/ 34/EC. 2 WP2 is currently examining the specific difficulties which arise in connection with shelf registration procedures, in particular programs for the issue of covered warrants

3 2. Equal and fair treatment of retail investors 2.1. Closing of the retail and institutional tranches a. Present regulation in the Euronext zone The Belgian rule explicitly states that an offer must be closed simultaneously for all investors. However, during the review of Euronext s IPO prospectus, it was agreed that the institutional tranche could be closed before the retail one, but not vice versa. In the Netherlands there is no regulation concerning the simultaneous closing of an offer for the different groups of investors. In France, there is no express rule stating when the retail offering should close. The COB has taken the position that both the retail and institutional offerings should close at the same time but generally accepts that the institutional book be closed before the end of the retail offering period. However, the COB is more reluctant to let the retail offering terminate before the institutional one. As an exception, there have been cases over the past two years where retail offerings terminated a few hours or days before the institutional one, mainly for centralisation purposes. Under Portuguese law there is no explicit rule under this subject. There is, however, a general principle of equal treatment of investors (Articles 15 and 112 Securities Code), and the simultaneous closing would seem the most coherent solution under the rules on the timing of the offer. b. Proposals It is proposed that the institutional tranche can be closed before the retail one, but not vice versa. However, in exceptional cases (e.g. in case of a cross-border issue where the retail tranche is important, it could be necessary to close the retail tranche a day before the institutional tranche in order to give banks time to put their books in order), the retail tranche could be close before the institutional tranche, provided that : - the reasons for such early closing are precisely stated in the prospectus, - the retail tranche is not closed more than one business/trading day before the institutional tranche. The foregoing is without prejudice to the rules described below in items 6.1. and 6.2. regarding the minimum length of the subscription period and the extension of the offering period where a new material event occurs, respectively. Application of this rule will be assessed over time in order to verify that the exception is not becoming the rule

4 c. Consequences for the four countries Belgium would have to bring some changes to its Circular on the operation of the primary market in order to introduce the possibility to grant exemptions. In the Netherlands, with regard to a public offer of non listed securities, this proposal would have to be adopted in the rules laid down by or pursuant to The Act on the Supervision of Securities Trade Euronext Amsterdam would have to adopt this proposal in the Listing & Issuing Rules. In France, the conditions under which the exemptions could be granted could be set forth in a COB instruction, a general recommendation or a public statement. In Portugal, an amendment of the Securities Code would seem to be the best way to deal with the cases under which derogation should be granted Minimum retail access to public offerings a. Present regulation in the Euronext zone In Belgium, the proportion attributed to retail investors should be sufficient to allow the offer to be considered public ; the part of the offer reserved for retail investors can only be reduced in the case of a much larger percentage of oversubscription in the institutional tranche. In France, in the case of a public offering (appel public à l épargne), a minimum of 10% of the overall transaction amount (without taking into account the greenshoe option) must be reserved to retail investors. In the Netherlands, Dutch laws and regulations do not require a specific amount to be attributed to retail investors. However, at the time of an IPO, at least 10% of the shares admitted to listing (without taking into account the greenshoe option) must be offered to the public. In Portugal, an offer is considered as public if addressed to undetermined persons or to more than 200 identified retail investors (Articles 109 and 110 Securities Code). Therefore, a public offering must be at least partially aimed at retail investors although no percentage is determined to refer to the part necessarily reserved to non-institutional investors. b. Proposals It is proposed that for any public offering which is not limited to a specific group of investors (e.g. the customers of the members of the banking syndicate or an offer aimed at the employees of a company) and which is carried out in the context of an IPO or a follow-on offering, a minimum tranche of 10% of the shares offered should be reserved for the retail tranche. This principle should also be applied in case of other public offerings of securities

5 c. Consequences for the four countries In Belgium, the Circular on the operation of the primary market would have to be amended in order to take into account the proposals. In France, the CMF rule on the subject would remain unchanged. In the Netherlands, with regard to a public offer of non listed securities, this proposal would have to be adopted in the rules laid down by or pursuant to The Act on the Supervision of Secur ities Trade Euronext Amsterdam would have to adopt this proposal in the Listing & Issuing Rules. In Portugal, the reference to the 10% requirement, as above proposed, would have to be included in the Securities Code as applicable to public offers Allotment process for public offerings of shares a. Present regulation in the Euronext zone In Belgium : i. in order to limit over-subscription, the offer should be closed as soon as it has been fully subscribed, even on the first day of the offer period ; ii. the prospectus should clearly announce the rules which will be used; in particular, the prospectus should clearly state what proportion of the shares is to be distributed to retail investors and what proportion to institutional investors ; iii. in case of over-subscription, the very allotment rules which are defined in the prospectus should be applied; investors belonging to the same categories should be treated in an equal manner, meaning that the same methods and criteria are required to be applied equitably, without prejudice to the possibility of acting otherwise for orders remitted to members of the placing syndicate and to other intermediaries, provided such possibility has been announced in the prospectus. There should be no free retention of any part of the shares, nor any measure benefiting the employees of the financial intermediaries and the result of the offering and the allotment should be published in full detail. Moreover, financial intermediaries may not favour their own staff by means of such securities allotment as would depart from the rules applicable to the public. Intermediaries who are members of the placing syndicate may in no case, either directly or indirectly, subscribe to the offer and thus allot securities to themselves when the offer has been fully subscribed or over-subscribed (except of course for the securities they hold as a consequence of the application of a performance guarantee or underwriting). In France, Article 7 of Decision of the CMF relating to the implementation of rules of conduct in connection with an initial listing stipulates that in allotting the securities, the lead manager, in co-operation with the company concerned, ensures that the different categories of investors ( ) are treated equitably. Where several procedures designed for investors who are natural persons apply concurrently, the lead manager ensures that the allotment rates resulting therefrom are substantially equivalent

6 The lead manager shall employ its best efforts to meaningfully satisfy applications from natural persons. This requirement is deemed satisfied where there is a procedure, centralised by the market undertaking and characterised by an allotment proportional to the applications submitted, and where, pursuant to this procedure accessible to individual investors, at least 10% of the overall transaction amount is put on the market. The lead manager shall endeavour to avoid an obvious imbalance, to the detriment of individual investors, between the allotment for such investors and the allotment for institutional investors. Where a placement procedure for institutional investors coexists with one or more procedures for individual investors, the lead manager shall endeavour to provide for a transfer mechanism to avoid such imbalance. In the Netherlands, the Listing and Issuing Rules require the allotment to be made in systematic manner, and the result of the allotment to be publicly disclosed. For IPOs, the time when an investor subscribes will not affect the number of shares allocated to that investor. According to the Further Regulations on the Supervision of Securities Trade 1999, in the case of a public offer of non listed securities, a securities institution shall ensure that procedures are set up and complied with regarding [ ] the method(s) of subscription and allotment to clients by the underwriting group. In Portugal, allotment methods that are not according to the proportionality rule are subject to the Commission s approval. The principle of equal treatment remains as a fundamental reference in this area and the allotment process is always centralised. There are also many disclosure prescriptions regarding the allotment method chosen both in the prospectus and in the offer s public announcement

7 b. Proposals Pre-allotment disclosure It is proposed that the principles governing the different allotment methods should be specified in the prospectus according to the proposals put forward in the CESR paper on Stabilisation and Allotment 1. Post- allotment disclosure It is proposed that, in addition to the rules laid down in CESR s paper on Stabilisation and Allotment 2, disclosure would be required of the demand situation whereby a distinction is to be made between private and institutional investors. The issuer would promptly disclose the number of shares applied for by each category of investors via a neutrally worded communiqué. This requirement is intended to ensure that such information is disseminated by an identifiable source to all investors on an equal footing, and that market authorities are able to verify that it is not misleading. In addition, it is proposed that mention would be required of the percentage of the offer directly and/or indirectly subscribed to by companies affiliated to the issuer and by intermediaries who are members of the syndicate for their own account. 1 Regarding pre -allotment disclosure the CESR paper stipulates that The following information must be included in the Prospectus in one clearly identified section. Where the Prospectus is not available on a sufficiently timely basis to allow investors to review the information before the start of subscription, it must also be made available in another adequate manner. - The division into tranches of the offer including the institutional, retail and issuer s employee tranches and any other tranches ; - the conditions under which the claw-back may be used, the maximum size of such claw back and any applicable minimum percentages for individual tranches ; - the Allotment method or methods to be used for the retail and issuer s employee tranche in the event of an over-subscription of these tranches ; - a description of any pre-determined preferential treatment to be accorded to certain classes of investors or certain affinity groups (including friends and family programmes) in the Allotment, the percentage of the offer reserved for such preferential treatment and the criteria for inclusion in such classes or groups ; - whether the treatment of subscriptions or bids to subscribe in the Allotment may be determined on the basis of which firm they are made through or by ; - a target minimum individual Allotment if any within the retail tranche ; - the conditions for the closing of the offering as well as the date on which the offering may be closed at the earliest ; - whether or not multiple subscriptions are admitted, and where they are not, how any multiple subscriptions will be handled ; and - other aspects of Allotment which could be material to an investor s decision to subscribe for a purchase the Relevant Securities. 2 Regarding post-allotment disclosure, the CESR paper indicates that The Allotment Manager must ensure that the final size of the offer and the result of the Allotment together with the allocation between the various tranches such as institutional, retail, issuer s employee and any other tranche and the use of the Overallotment Facility and the claw back are made public in an adequate manner after the Allotment. The percentage of the offer used for preferential treatment and free retention programmes should also be disclosed. Where public disclosure about the demand situation is made, such disclosure may not be misleading including by omission. Any such disclosure must allow an adequate analysis of the information provided. If the level of subscription is indicated, this should include only demand at or above the offer price

8 c. Consequences for the four countries In Belgium, the Circular on the operation of the primary market would have to be amended. In France, both the CMF Decision and the COB disclosure rules would have to be amended. In the Netherlands, this proposal would have to be adopted in the rules laid down by or pursuant to The Act on the Supervision of Securities Trade The Listing & Issuing Rules of Euronext Amsterdam would have to be completed by the disclosure requirements regarding allotment. In Portugal, the Securities Code would have to be adapted and new disclosure requirements would have to be included in CMVM s Regulation 10/ Green shoe and adaptation of the number of shares offered 3.1. Green shoe a. Present regulation in the Euronext zone In Belgium, in the case of an offer without preferred rights, an option ( green shoe ) may be offered to the lead manager : - the number of shares concerned should be limited to a reasonable number ; - the option should be exclusively used on the primary market ; - full information should be given about the mechanism in the prospectus ; - full information should be given to the market as to how the option has been used. In France, the green shoe is used to cover short positions resulting from an oversubscription of the institutional offering. Disclosure of the size, conditions and purpose of the green shoe option is required to be made in the prospectus. The maximum additional number of shares is 15% of the offering. In the Netherlands, green shoes can only be used in the event of an overallotment, at a price equal to the issue price. Full disclosure of the green shoe option is required to be made in the prospectus. The maximum number of shares on issue must be published no later than the moment the subscription procedure begins. After the expiration of the exercise period specified for the green shoe, the syndicate leader must publish details of any use made of the green shoe, including when this was done and the number of shares involved. In Portugal, green shoe options can be used in public offers for distribution in primary and secondary markets and for every type of securities. The option can be exercised up to a predetermined amount foreseen in the public offer s documents that must not exceed 15% of the offer, and up to 30 days after the close of the offering. The Securities Commission and the stock exchange have to be informed by the financial intermediary of the intention to exercise green shoe option. The exercise of the option, its date and the securities involved have then to be disclosed to the market

9 b. Proposals As CESR s paper on Stabilisation and Allotment indicates, the green shoe may only be exercised in connection with an over-allotment of ( ) securities and to the extent of the over-allotment. In other words, the green shoe cannot be used to cover short sales of securities on the secondary market. As regards disclosure, the above-mentioned paper states that the prospectus must give proper disclosure of the existence and the size of ( ) the green shoe, the exercise period of the green shoe and any conditions for the ( ) exercise of the green shoe. Moreover, the exercise of the green shoe must be disclosed to the public promptly and in suitable detail, including the date of exercise and the number and nature of ( ) securities involved. It is also proposed that as a standard in the Euronext zone, the green shoe should never exceed 15% of the issue. c. Consequences for the four countries In Belgium, the Circular on the operation of the primary market would have to be amended in such a way as to introduce a reference to the 15% figure indicated above. In France, the rules regarding disclosure in prospectuses would not need be amended but the Euronext rules requiring publication of the results of an offering, including details on exercise of the green shoe, may have to be completed or the COB may issue a general recommendation or public statement on the content of such a release. In the Netherlands, the Listing & Issuing Rules would have to be amended in such a way as to introduce a reference to the 15% figure indicated above. Portuguese law already complies with CESR standards. Therefore, no further regulatory amendments seem to be necessary in Portugal Adaptation of the number of shares offered a. Present regulation in the Euronext zone In Belgium, the possibility of an increase or reduction must be indicated in the prospectus. Where an adaptation is made, it must remain within a narrow margin. If the adaptation is not indicated in the prospectus, it must be communicated to the public, and the public should have enough time to alter their subscriptions. In France, an increase is possible (in addition to the green shoe) for an amount representing 15% (for a dilutive operation) or 25% (for a non-dilutive operation, i.e. an operation that respect preemptive-rights). A 25% reduction of the announced volume for issues with preferred rights is permitted by company law, provided that such possibility has been approved by the general meeting of shareholders. In all cases, the COB accepts a reduction within the same limit, provided that : - the possibility of such a reduction has been approved by the general meeting of shareholders ; - 9 -

10 - the reduction does not result in a substantial change in the aims of the issue. In the Netherlands, with regard to a public offer of listed and non listed securities, there is an obligation to publish all relevant facts (including the adaptation of the number of shares offered) that arise or are noted between the date on which a prospectus is adopted and the date on which the relevant offer of securities ends. Moreover, for an IPO, the maximum number of shares to be placed may be changed during the subscription period, provided that : - such possibility is indicated in the prospectus or the technical advertisement ; - a publication of the change is made at least 3 hours before the time at which the subscription will close according to the technical advertisement ; - there is at least one more subscription day ; - investors should be able to withdraw their subscriptions throughout the entire subscription period (including any extensions of this period). In Portugal, besides the green shoe, there is no general possibility of adapting the number of securities offered. This results from the principle of the stability of the offer. However, two important exceptions should be noted :i) in case of a material change of the circumstances upon which the offer was presented, the offeror may modify the offer (including the number of securities offered), if authorised by the CMVM; ii) it is possible to present a public offer up to a certain amount of securities, in which case the precise number of securities offered would depend upon the number of subscriptions. b. Proposals It is proposed that the possibility of an adaptation (increase or reduction) must be indicated in the prospectus. Where an adaptation is made, in order to preserve the stability of the offer, it must remain within a narrow margin in such a manner that the increase or reduction of the shares offered does not result in a substantial change in the terms and purposes of the issue. The adaptation can be done by fixing a maximum number of shares which can later be reduced depending on the market conditions. Where the adaptation goes beyond the indications given in the prospectus, it must be communicated to the public, and the public should have at least one business day to alter their subscriptions. It is also proposed to adopt the French thresholds with the possibility to grant exemptions on the basis of motivated applications. The issuer should be obliged to describe in the prospectus the impact on the company resulting from the different levels of subscription. c. Consequences for the four countries In Belgium, the Circular on the operation of the primary market would have to be completed by the proposals indicated above. In France and in Portugal, the regulations would remain unchanged. In the Netherlands, for follow-on public offerings and a public offer of non listed securities, the Listing & Issuing Rules and rules laid down by or pursuant to

11 The Act on the Supervision of Securities Trade 1995 would have to be completed with this proposal. For IPOs the Listing & Issuing Rules would have to be amended in such a way as to introduce a reference to the 15% and 25% figures indicated above. 4. Justification of the issue price in the case of an IPO a. Present regulation in the Euronext zone In Belgium, in the case of an IPO (subject to the exception described in item 5. a.), the issue price must be established by reference to usual valuation methods (multicriteria approach: net asset value, comparable transactions, etc.), and these methods must be disclosed in the prospectus. Moreover, if the issue price is different from the price as based on the usual valuation methods, an additional justification must be disclosed in the prospectus. This type of justification is not systematically required in France where issuers need only disclose certain appropriate ratios which can be adapted to the relevant type of company, such as asset value/share, net income/share, or PER. In the Netherlands, according to the Listing & Issuing Rules of Euronext Amsterdam, there is no rule requiring a justification of the issue price in case of an IPO (or follow-on offering), in the prospectus. However, in case of a public offer of non listed securities, the rules laid down by or pursuant to The Act on the Supervision of Securities Trade 1995 requires The reasons for the issue or sale price. This requirement is not further elaborated in the law or by the AFM. In Portugal, there are no special rules on justification of prices in IPOs. Nevertheless, an entrepreneurial study (feasibility report) is required for companies carrying on business for less than 2 years. This study would focus on the financial and economical conditions of the issuer and the assumptions on which it is based must be certified by an auditor. These prescriptions would cover some, but not all IPOs. b. Proposal Without prejudice to the other information required in the case of an IPO (see below in item 5), it is proposed to systematically demand the disclosure of ratios adapted to the relevant type of company 1. c. Consequences for the four countries In Belgium, the Circular on the operation of the primary market would have to be amended in such a way as to specify that the rule regarding the justification of the price is only valid for domestic issues, and to make provisions as regards the ratios mentioned above. In France, the regulations would remain unchanged. 1 Belgium, however, wishes to maintain the possibility to apply its current rules for purely domestic public transactions

12 In the Netherlands, Euronext Amsterdam would have to adopt this proposal in the Listing & Issuing Rules and, for a public offer of non-listed securities, the rules laid down by or pursuant to The Act on the Supervision of Securities Trade 1995 would have to be completed by the proposals indicated above. In Portugal, the Regulation 10/2000 of the CMVM would have to be amended in order to enhance disclosure requirements in case of an IPO. 5. Particulars of the prospectus in the case of an IPO a. Present regulation in the Euronext zone In Belgium, in the absence of a justification of the issue price by reference to the usual valuation methods as indicated in item 4. a, the issuer, in the case of an IPO, must include the following elements in the prospectus : - a chapter at the beginning of the prospectus mentioning those major features of the issuer and of its business sector which are likely to influence the issuer s results ( assessment of risk factors according to their current importance ) and a clear description of the company s strategy ; - a description of the method of price formation (i.e. bookbuilding) ; - a chapter in which the issuer s management provides thorough presentation and analysis of the financial position and past results (this corresponds to what is usually referred to as Management s Discussion and Analysis or MD&A) ; - a detailed description of the activities of the issuer and of the sector in which it operates, and more particularly of the competition ; - a summary, not in figures, of the expected results for the current financial period ; - the results for the latest completed quarter. In France, with the exception of the statements made by the financial intermediaries and included in prospectuses for IPOs on the New Market, the content of an IPO prospectus does not differ from another prospectus and is similar to that of an IPO prospectus in the Netherlands or Belgium. In November 2000, Euronext Amsterdam issued a new rule requiring the following additional items in an IPO prospectus : - curriculum vitae for each of the directors and supervisory board members ; - antecedents (relevant background, i.e. personal and business bankruptcies, convictions, etc.) of each director and supervisory board member ; - transactions by insiders involving an interest in the issuer ; - transactions with insiders ; - options on shares ; - current and potential conflicts of interest ; - information about the founders ; - system of corporate governance ; - MD&A section ; - risk section ;

13 - account of lock-up rules ; - statement of interests held by persons subject to lock-up rules ; - holders of substantial interests ; - green shoe ; - potential conflict of interests between issuer and the syndicate members ; - dispensations granted. Detail regarding the content of each of these items is developed in the document attached as Annex 2 to this note. In Portugal, apart from the entrepreneurial study which is disclosed in the prospectus (see answer above) and the disclosure of the bylaws of the company, there are no direct prescriptions aimed at IPOs. General prescriptions already cover much of the relevant information. Special rules on the New Market prospectus also include important aspects (e.g. information on the business plan, investment projects and foreseen financing of future activities related to the development or expansion of the business: see CMVM s Regulation 34/2000). b. Proposals It is proposed to agree with the Dutch list for disclosure purposes and to add to it the following elements, taken from the Belgian and French regulations: description of the method of price formation, detailed description of the activities of the issuer and of the sector in which it operates, a summary, not in figures, of the expected results for the year in progress, and a financial update for the latest completed quarter. Regarding the latter item, it is proposed that the financial update must in any case contain the net turnover and an explanatory statement including all significant information on the company s activities. Net results should also be provided. Where the latter information is not available, the company would have to explain why its reporting system cannot produce this information. c. Consequences for the four countries In Belgium, the Circular on the operation of the primary market would have to be completed in order to add those items from the Dutch list which are in fact normally requested in the course of reviewing the files but are actually not explicitly indicated in the circular. In France, certain items of the Dutch list would also have to be explicitly included in the COB instruction setting forth the content of prospectuses, such as the MD&A and quarterly turnover disclosure requirements. In the Netherlands, the Listing & Issuing Rules would have to be completed in order to add those items from the Belgian and French regulations, many of which are in fact normally requested in the course of reviewing the files but are actually not explicitly indicated in the rules. With regard to a public offer of non listed securities, the rules laid down by or pursuant to The Act on the Supervision of Securities Trade 1995 would have to be completed in order to include those items from the Belgian and French regulations and Euronext Amsterdam. In Portugal, CMVM s Regulation 10/2000 would have to be amended

14 6. Subscription period for shares 6.1. Minimum subscription period for the retail tranche a. Present regulation in the Euronext zone In the Netherlands (in case of an IPO) and in France, though the subscription period can be shortened in exceptional cases, it must last a minimum of three trading days (6 days in all in the Netherlands if the reading period is included) but in Belgium, in order to limit oversubscription, the offer should be closed immediately if it has been fully subscribed, even if it means closing it on the first day of the offer period. With regard to a public offer of non listed securities in the Netherlands, there is no regulation with regard to the minimum subscription period. Under Portuguese law, because of the rules on the withdrawal of subscriptions, no offer can last less than 5 days in practice, but an exception is allowed in the case of a testing the waters period (recolha de intenções de investimento) preceding the public offer. No early closing is allowed, again under the general principle of stability of the offer. Only in case of a material change of the circumstances upon which the offer was presented, the offeror may modify the offer (including the timing of the offer). b. Proposals It is proposed to recommend the French rule regarding the availability of the prospectus and that this rule state inter alia that the subscription period cannot be shorter than 3 trading days. However, in the case of IPOs, the prospectus should be available for at least 6 trading days, including such minimum subscription period. It is also proposed that, without prejudice to the minimum 3-day subscription period, where the possibility of closing the subscription for retail investors at a time earlier than the time indicated in the prospectus is envisaged, this possibility must be indicated clearly in the prospectus, and when it is used, a press release announcing this event must be made public at least 24 hours before the actual closing of the subscription to retail investors. c. Consequences for the four countries In Belgium, it would be necessary to modify the Royal decrees regarding the prospectuses in order to prolong the availability period and the subscription period as indicated above. Some minor changes in the Circular on the operation of the primary market would also be necessary. In the Netherlands, for IPOs no changes regarding the minimum subscription period and the advance notice of early closing of the retail offering would be required. But it would be necessary to amend the Listing and Issuing Rules (for follow-on public offerings) and the rules laid down by or pursuant to The Act on the Supervision of Securities Trade 1995 (public offer of non listed securities), regarding the minimum subscription period and the advance notice of early closing of the retail offering

15 In France, the COB could modify its jurisprudence regarding notice of early closing of the retail tranche by issuing a public statement. In Portugal, no regulatory amendments are necessary concerning the minimum subscription period, except for the case of an IPO. Regarding early closing of the offer, legislative action may be necessary Extension of the offering period where a new material event occurs a. Present regulation in the Euronext zone Even where the issuer has decided that subscriptions introduced during the offer period are irrevocable, if a new material change occurs before the closing date for instance a change in the price of the securities offered or the financial situation of the issuer investors can always withdraw their orders under Belgian 1, French and Dutch (listed securities) laws and/or regulations. There is no regulation in the Netherlands with regard to a public offer of non listed securities concerning the extension of the offering period where a new material event occurs; subscriptions for IPOs in the Netherlands, however, are always revocable. In Portugal, the decision to accept an offer can be withdrawn until 5 days before the end of the subscription period or later if so stated in the offering documents. The revocability of orders is therefore limited. However, if a material change occurs in the terms of the offer, the timing of the offer must be prolonged in order to allow investors to withdraw their orders. b. Proposals It is proposed that it should be up to the issuer to decide whether, during the offer, subscriptions are revocable or not, and that the prospectus must clearly indicate this. Regardless of whether the subscriptions are revocable or not, if a new material event occurs before the closing date of the offering period, it being understoord that closing date shall refer to the last closing date incase of an offering with tranches having different closing dates (as is described in section 2.1. b) above), the latter should remain open for a minimum period of time to be determined on a case by-case basis by the competent authority. During this period, it should always be possible for investors to withdraw their orders or to introduce new ones. c. Consequences for the four countries In Belgium, it would be useful to make explicit mention of the rules proposed above, even though these principles are already applied in practice. In France, the COB Instruction setting forth the content of prospectuses would have to be amended in order to provide for an obligation to mention that investors may withdraw their orders should a new material event occur. 1 Without prejudice to the possibility for an investor to withdraw his order in case a new material event occurs, it is worth noting that it results from Belgian company law that the subscriptions introduced during an offer are irrevocable. It is up to the issuer to decide the contrary

16 In the Netherlands, for IPOs, no changes regarding the possibility to withdraw subscriptions would be required. For follow-on public offerings and public offers of non listed securities, respectively the Listing & Issuing Rules and the Decree would have to be completed. In Portugal, changes in the Securities Code would be required in order to allow the offeror to make orders irrevocable at all times. 7. Protection of existing shareholders in the event of the issuing of new shares It would be difficult to harmonise these rules among the four countries, as they are part of company law. Consequently, it is only proposed that the issuer of shares and securities giving access to the capital be required to disclose in the prospectus (in a special paragraph concerning this item) the relevant national regulations, in particular those concerning preferential subscription rights and minimum offer price. 8. Advertising a. Present regulation in the Euronext zone In Belgium, any advertisement about an offering of securities to the public should be submitted to the BFC before publication, in order to allow prior approval. Advertising relating to an offer is only permitted once a prospectus has been approved by the BFC. All advertisements must mention the existence of a prospectus approved by the BFC and how the prospectus may be obtained. In France, except under limited exceptions, advertising relating to an offer is only permitted once a prospectus has been approved by the COB. All advertisements must mention the existence of a prospectus approved by the COB, how the prospectus may be obtained and, where applicable, the fact that a caveat has been imposed by the COB. Advertisements must be communicated to the COB for clearance prior to their public release. The COB does not approve the advertisement, but only ensures that the information contained in the advertisement is consistent with that of the prospectus and, more generally, complies with its regulations relating to disclosure. In The Netherlands the issuer is obliged to give prior notice to Euronext Amsterdam of all announcements which are given in any form whatsoever by or for account of the issuer in respect to the admission to listing. Euronext Amsterdam decides whether or not these announcements are to be verified prior to publication. With regard to IPOs, no publicity activities of any sort may be conducted following the publication of the advertisement announcing the general availability of the (provisional) prospectus. This is a so-called Quiet Period. Any publicity statement must make clear that the investor should base his/her investment decision exclusively on the (provisional) prospectus and should give as soon as possible an indication of when, where and how the investor can obtain a copy of the prospectus

17 In Portugal, all advertising on a public offering is subject to prior approval by the CMVM. Such advertisement must indicate that a prospectus is available for consultation and where it can be obtained. The remaining advertisements are subject to a posteriori supervision. The Commission has the power to suspend any advertising campaign being conducted against applicable rules (which are the Securities Code and the general regime on advertising), to order the rectification and to apply sanctions. b. Proposals It is proposed that : 1. any advertisement about an offering of securities to the public (i.e. regarding listed and non listed companies) should be communicated to the competent authority before publication, in order to allow prior review, including the possibility of prior approval, depending upon the applicable national law ; 2. any advertisement should contribute to the proper information of investors, should not be excessive or misleading, should mention the existence of the prospectus and how it can be obtained, should invite potential investors to read the entire prospectus and should indicate if the prospectus contains a highlight or caveat ; 2. if any advertisement does not comply with the applicable rules, the competent authority may require a rectification (and possibly extend the offer period), or take other disciplinary sanctions (if the advertisement has not been communicated to the competent authority). c. Consequences for the four countries In Belgium, the Circular on the operation of the Primary market would have to be amended in such a way as to introduce the elements mentioned in item 2 and 3 of the propositions. A forthcoming law provides for the possibility to impose disciplinary sanctions. In France, the COB regulations should remain unchanged. In The Netherlands, the Quiet Period for IPOs has to be removed from the regulations. The Listing & Issuing Rules and the Act on Supervision of Securities Trade 1995 (article 47) would have to be complemented with the proposed principles. In Portugal, securities legislation complies with the proposed approach on advertising, except with respect to indicating the existence of highlights/caveats if contained in the prospectus. This particular duty will have to be introduced in regulation 10/

18 9. Caveats a. Present regulation in the Euronext zone In Belgium, caveats are used only on an exceptional basis. They are put on the front page of the prospectus and in any press advertisement, not directly by the BFC, but by the issuer itself (because the issuer must assume responsibility for all information in the prospectus and the BFC is prohibited by law from making any assessment of the merits of any securities). The caveats aim to emphasize certain aspects of the proposed transaction in order to draw attention to the risks incurred by investors. In France, caveats are more usually used. They are put on the front page of the prospectus by the COB itself and the issuer is required to mention the existence of the caveat in any press advertisement. The caveats aim to emphasize certain aspects of the proposed transaction, in order to draw attention not only to information included in the chapter on risk factors, but also to any other information in the prospectus which is considered to be particularly important for the investor to know. In the Netherlands, with regard to Initial Public Offerings (Announcement ), the issuer has to implement a Risk Section somewhere in the prospectus. The concept of these warnings is different from the warnings as proposed below. They are not printed on the front page of prospectus. Also every publicity statement, i.e. in advertisements, must contain the following warning : Any investment is subject to risk. The value of the securities offered may go down as well as up. Past performance is no guarantee of future returns. Potential investors are advised to seek expert financial advice before making any investment decision. In Portugal, according to CMVM s Regulation 10/2000, the prospectus must contain, in a separate section (chapter 0, the first one of the prospectus), the main characteristics of the offer, and its risk factors. The Commission is particularly aware of the importance of this chapter and it is usual to order the inclusion of additional risk information. There is no specific wording for the risk information contained in the prospectus. b. Proposals It is proposed that where an issuer, an offering or a financial instrument presents specific characteristics, the knowledge of which is essential for an informed investment decision, the issuer must draw the attention of potential investors to these specificities by highlighting them on the cover page of the prospectus, or on the first page of the prospectus, in a paragraph separate from the general summary concerning the offering. This highlight or caveat would be introduced by : Although investors should read the entire prospectus before making any investment decision, the issuer recommends paying particular attention to the following :. Where a summary of the prospectus may be distributed separately from the prospectus, the entire highlight/caveat must be reproduced at the beginning of the summary

19 Cases where such a highlight/caveat may be required are, for example, the following : o issuers specificities : unusual characteristics of a domestic issuer (legal form, etc.), certain provisions of the company law applicable to a foreign issuer, short track-record, negative earnings, major legal claims outstanding, unusual dividend distribution policy (e.g. no intention to distribute in the near future), reserves or observations of the Auditors, dependence of turnover upon a small number of clients ; o matters regarding the offering or the instrument of which the investor is probably not aware : new type of offering or instrument, application of a new rule by the regulator, exchange or tax administration ; o highly risky instruments : covered warrants, reverse convertibles ; o unusual practices: e.g. deeply discounted price of stock options allocated before the IPO in comparison with the IPO price ; o potentially misleading information : e.g. potential confusion between the company name of an issuer and its actual activity. c. Consequences for the four countries In Belgium, the Circular on the Operation of the Primary Market would have to be amended in such a way as to introduce the provisions described in the proposals. In France, the COB regulations n 98-01, n and n would have to be amended to provide that the caveat is included by the issuer, not the COB. In The Netherlands the Listing & Issuing rules and the rules laid down by or pursuant to The Act on the Supervision of Securities Trade 1995 should be amended to comply with the proposal. In Portugal, Regulation 10/2000 should be amended to comply with the proposal. -o0o

20 Annex 1 Outline regarding the prospectus summary Case 1 : ISSUANCE AND/OR LISTING OF EQUITY SECURITIES (FINANCIAL INSTRUMENTS REPRESENTING CAPITAL ON A REGULATED MARKET) Responsibility for the prospectus - Approval number and/or date accompanied by, when applicable, a notice to prospective investors (caveat) - Indication of the legal representatives assuming liability for the summary (i.e. these persons are the same as those assuming liability for the prospectus) - Where the prospectus and summary may be obtained - General warning on the nature of the summary A - TERMS AND CONDITIONS OF THE TRANSACTION 1. Information concerning the listing of financial instruments on a regulated market 2. Information concerning the issuance of financial instruments 3. General information concerning the financial instruments for which listing is requested 4. Other markets B - ORGANIZATION AND BUSINESS DESCRIPTION OF THE ISSUER 1. General information about the issuer and its management 2. General information concerning the capital of the issuer 3. Information concerning the issuer's business, risk factors, recent trends and prospects C - FINANCIAL SITUATION OF THE ISSUER 1. Indication of the authoritative accounting standards applied 2. Audited financial statements for the last three years 3. When applicable, comments and qualified or adverse opinions of the statutory auditors