On 27 May 2020, the Bulgarian Council of Ministers published the first draft of a parliamentary bill, which implements the provisions of Regulation (EU) 2017/1129 (Prospectus Regulation) by amending the Act on Public Offering of Securities.
The purpose of the Prospectus Regulation is to enhance investor protection, improve efficiency in raising equity, and improve internal EU markets for the movement of capital.
The implementation of the Prospectus Regulation is a crucial step in the completion of the Capital Markets Union, whose main aim is to encourage businesses to access more diverse sources of capital from any member state in the EU. In order to enhance growth and create jobs, the Prospectus will provide investors and savers with further investment opportunities. Overall, the Prospectus Regulation has been designed to do the following:
- Enhance investor protection and market efficiency: By disclosing more information concerning offers of public securities or the admission of securities for trading on a regulated market, asymmetries of information between investors and issuers will be removed, which is essential for investor protection. The provision of more data will further enable different classes of investors to make informed decisions and to have increased confidence in securities;
- Simplify passporting: The newly introduced harmonised framework allows for the establishment of a cross-border passport mechanism facilitating the efficient operation of the internal market in a wide variety of securities. Otherwise, divergent approaches will lead to fragmentation of the internal market for securities and disrupt its smooth functioning;
- Create legal certainty, confidence in the market transparency and less regulatory complexity: The use of a regulation, directly applicable without the requirement of a national law, generally reduces the possibility of divergent measures at a national level, guaranteeing a consistent approach and greater legal certainty. Furthermore, this atmosphere strengthens confidence by promoting market transparency across the EU, reducing regulatory complexity and decreasing search and compliance costs for companies.
Exception to the obligation to publish a prospectus
To ensure investor protection, the obligation to publish a prospectus applies to both equity and non-equity securities. Still, EU member states are able to exempt public securities offers of under EUR 8 million from the obligation to publish a prospectus. These member states are free to set out in national law a threshold of between EUR 1 million and EUR 8 million over a period of one year. In Bulgaria, this threshold has been set at EUR 3 million, which benefits small-scale offers where the cost of producing a prospectus according to the Prospectus Regulation is likely to be disproportionately high.
By repealing Directive 2003/71/EC, which established harmonised principles on publishing a prospectus when securities are offered to the public or admitted to trading on a regulated market, the Prospectus Regulation aims to ensure investor protection, improved efficiency, and more effective internal capital market. On 17 June 2020, the bill passed the first reading in the Bulgarian Parliament, but expectations are that the legislator will move swiftly to finalise the approval process by the end of July 2020.
For further information on the Regulation and its impact, call or email your regular CMS contact or our local CMS expert Ivan Gergov, CMS Sofia.