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Next step towards EU capital markets union brings changes concerning capital markets prospectuses and shareholders

07/02/2019 - Reading time: 4 minutes


Stefan Adametz

Attorney at Law

To build the capital markets union, business is stimulated by making capital markets-based funding easier for small and medium-sized enterprises (SMEs). At the same time, the position of investors is strengthened mainly by the creation of new participation rights, increased transparency and better provision of information; all this is effected by means of the directly applicable “Prospectus Regulation” (EU Regulation 2017/1129) and by the transposition of the “Second Shareholder Rights Directive” (EU Directive 2017/828).

The Prospectus Regulation

A prospectus approved by the Financial Market Authority must be published before investments, primarily securities like stocks and bonds, are offered to the public. The Prospectus Regulation, which shall apply in its entirety as from 21 July 2019, harmonises the provisions concerning prospectuses for securities and brings about key changes. Above all, the increase – to EUR 1 million – of the threshold for the obligation to publish a prospectus for securities is a key feature; if the total amount of securities offered to the public by an issuer – i.e., the entity issuing the instrument – remains below that amount over the course of a year, no prospectus needs to be drawn up. This makes access to capital easier for enterprises as no prospectus costs arise and, consequently, even small enterprises wishing to issue a low amount of securities (e.g. a bond for funding an investment) can make use of the capital markets. Secondary issuances are also facilitated: Enterprises already listed on a public market and seeking to issue additional stocks or bonds may issue a simplified prospectus. Generally, also the prospectus approval process is made easier and faster.

The Regulation also provides investors with easier access to information: Above all, it lays down the length of the prospectus and gives a more detailed definition of the required information, which means that, in future, prospectuses may be shorter and clearer – and will thus be easier to understand for the investors. At the same time, the prospectus summary is adjusted; it should consist of no more than seven easy-to-read pages and be written in a comprehensible style. In future, all prospectuses will be provided for interested investors free of charge by the European Securities and Markets Authority, online in a searchable format. Generally, prospectuses will in future usually be made available in electronic form (with paper copies to be delivered only upon an investor’s request). This not only results in a reduction of administrative burdens but is also likely to impact the increasingly strict liability imposed on advisors as investors will probably no longer be able to succeed with pleading to have been unaware of the prospectus; at least, this consequence must follow if the prospectus is to fulfil its purpose of informing the investors and based on the fact that it can now be accessed and understood by every investor.

The Second Shareholder Rights Directive

Shareholders are also faced with key changes, brought about by the “Second Shareholder Rights Directive”. This Directive aims at strengthening the position of shareholders and facilitating the exercise of shareholder rights across Europe. This shall be achieved mainly by means of special requirements regarding the identification of the shareholders: The introduction of a “know your shareholder” principle should enable companies to communicate directly with their shareholders; for this purpose, an obligation to communicate the (contact) details of their shareholders to the companies is imposed on the so-called “intermediaries” (i.e., mainly custodians and investment firms). Furthermore, a requirement for institutional investors (such as insurance companies or pension funds), asset managers and proxy advisors to provide for increased transparency (“comply or explain”) should be introduced: The former should develop a policy on shareholder engagement and publicly disclose how they integrate shareholders in their investment strategy and how the engagement policy was implemented. In future, proxy advisors (i.e., enterprises/persons helping shareholders exercise their voting right and representing them at general meetings, if necessary) shall publicly disclose reference to a code of conduct which they apply, inform their clients about any (actual or potential) conflicts of interests and disclose how they arrive at their recommendations. Furthermore, the general meeting should be granted participation rights regarding the remuneration of the members of the management and supervisory boards (a “say on pay”) and in the context of transactions with persons or enterprises related to the company (“related party transactions”).

The Shareholder Rights Directive is not directly applicable; it had to be transposed into national law by 10 June 2019. In Austria, it is going to be implemented (most likely in July 2019) by way of amendments to the Stock Exchange Act and Stock Corporation Act. Judging by the bill of law, the Austrian legislator is going to make use of the transposition scope granted and transpose the Directive with restraint. Enterprises shall be permitted to obtain only the identity of shareholders that hold at least 0.5% of the stock and are thus of certain significance for the company. Consequently, the rule would not apply to small and very small shareholders; this restrained approach would not only assure small shareholders that their data will not be disclosed but also simplify administration for banks and investment firms. On the other hand, it would complicate the communication of listed companies with their small shareholders. However, to make it easier for shareholders to take part in votes, the companies and the intermediaries as “middle men” should be obligated to provide to the shareholders, in a standardised manner, all the materials required by them to exercise their rights (e.g. information about the general meeting). In short: It should become much easier for shareholders to exercise their voting right and obtain the information required for this.

According to the Directive, it would be possible to let the shareholders decide upon the remuneration of the management; judging by the bill of law, however, the Austrian legislator will opt for letting the supervisory board decide on the remuneration policy (the remuneration system). Both the vote of the general meeting on the remuneration policy submitted to it and the vote on the remuneration report shall be advisory – i.e., non-binding – votes; the binding nature of the remuneration policy shall not depend on the shareholders’ consent. Nevertheless, this arrangement is not expected to be a toothless tool: to avoid liability risks, supervisory board members should take appropriate account of the “advice” given to them.

Likewise, the supervisory board is intended to decide upon the relevant related party transactions, with the approval requirement (and also the disclosure obligation) applying only as from a transaction value amounting to at least 10% of the balance sheet total. Given the high level of this threshold, this provision will be of little practical relevance, though.


Stefan Adametz

Attorney at Law