Select Committee on European Scrutiny Twenty-Eighth Report





COM(01) 280

Draft Directive on the prospectus to be published when securities are offered to the public or admitted to trading.


Legal base:

Articles 44 and 95 EC; co-decision; QMV


Documents originated:

30 May 2001

Deposited in Parliament:

20 June 2001


HM Treasury

Basis of consideration:

Minister's letter of 26 April 2002

Previous Committee Report:

HC 152-ix (2001-02), paragraph 2 (5 December 2001)

Discussed in Council:

4 June 2001

Committee's assessment:

Legally and politically important

Committee's decision:

Cleared, but request to be kept informed.




  11.1  On 5 December, we left uncleared two documents relating to the regulation of the European securities markets, pending receipt of further information. The first document covered new public issues of securities to be issued throughout the EU on the basis of a single prospectus instead of prospectuses being produced to satisfy up to 15 different sets of regulations; the second document covered EU common standards against market abuse. The documents were especially important because they were the first pieces of draft legislation from the Commission to follow the streamlined process for approving by the end of 2003 legislation on financial regulation as recommended by the Lamfalussy Committee.[19] We cleared the second document in our report of the 20 March after receiving additional information.[20]

  11.2  When we left uncleared the document on new public issues, we said that as drafted the directive on a "single passport" prospectus could deter companies, typically small-medium enterprises (SMEs) that make only occasional use of capital markets, from using capital markets and added that the proposal could also have the unintended effect of encouraging the eurobond market to move "offshore" to countries offering a less burdensome regulatory regime. We requested further information on the Government's concerns over the relationship between the draft Directive and other existing Directives, a detailed account of the discussions in ECOFIN and how negotiations had been proceeding.

The Minister's letter

  11.3  In her letter of 26 April 2002, the Economic Secretary to the Treasury (Ruth Kelly) provides the information we requested.

  11.4  As regards the relationship on existing Directives, the Minister says that generally the existing directives (Public Offers Directive and Listing Particulars Directive) work well, although the provision of a passport for issuers does not. As a result, the cost of raising capital in the pan-European capital market is more expensive than in comparable markets. The Minister says that although the Government supports the original objectives for the directive (a passport arrangement that works in practice and results in a lower cost of accessing capital for issuers), it is concerned that certain aspects of the directive, as proposed by the Commission, could fragment the EU's wholesale financial markets, reduce its liquidity and lead to increased costs on second tier equity markets that currently fall outside of the scope of the Listing Particulars Directive. The Minister adds:

"Some of the areas requiring particular attention include: the definitions of home state, public offer, and qualified investor; shelf registration; special models of disclosure for professional securities (such as Eurobonds); the cost implications for SMEs; the scope of the exemptions provided for; and the scope for private/institutional placements."

  11.5  The Minister says that the Government is concerned that the key concept of 'regulated market', which determines much of the scope of the directive is not explicitly defined in the text. A further concern is that the requirement that issuers regularly update their registration document, suggests an overlap between the Prospectus Directive (which is meant to cover initial information disclosure) and the forthcoming Regular Reporting Directive (which is meant to cover ongoing information disclosure).

  11.6  The Minister provides a short update on the progress of negotiations and the amendments to the text that were agreed during its First Reading in the European Parliament. The Minister points out that although the text has improved under the Spanish Presidency, the Government continues to pursue solutions to the outstanding problems (such as the definition of home state). However, it recognises that on a number of issues the UK is in a relatively small minority.

  11.7  The Minister outlines the arguments that the Government has put forward during meetings of ECOFIN. Finally, the Minister adds that the UK's position in the Council working group has been strengthened by the European Parliament's 14th March plenary vote to support the report on the Prospectus Directive of its Economic and Monetary Affairs Committee. The Minister says that the report proposes a large number of amendments that are generally supportive of the Government's approach, including: choice of home-state for issuers of securities; voluntary use of shelf registration and annual updating; exemption from prospectus requirements for high denomination securities (the Government would prefer a special lighter model of disclosure for such securities, rather than an exemption); and an improved definition of qualified investor.


  11.8  The Minister has replied with the information we requested in December. We thank the Minister and are content to clear the document accordingly. However, we would like the Minister to keep us informed of developments, especially on the response to the text from financial institutions and other organisations.


19   A description of the legislative structure recommended by the Lamfalussy report was published in our Report of 5 December 2001: (22467) 9674/01, (22473) 9763/01; see HC 152-ix (2001-02), paragraph 2. The Lamfalussy report was published in February 2001 and was cleared by us on 18 July 2001: (22154) 6554/01; see HC 152-i (2001-02), paragraph 24. Back

20   (22473) 9763/01; HC 152-xxii (2001-02), paragraph 16 (20 March 2002). Back

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