Part III Prospectus Liability and Litigation, 23 Spain

This chapter considers the prospectus in Spain. Historically, and unlike other European Union jurisdictions, before the enactment of Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (the ‘Prospectus Directive’), Spain lacked any explicit regulation on the civil liability arising from the defective content of prospectuses for securities offerings and listings in regulated markets. Nevertheless, legal authors having researched on the matter had expressed the view that liability attached to prospectuses on the basis of the general principles of tort liability. The legal regime of prospectus liability enshrined by the Securities Market Act and Royal Decree 1310/2005 is not fully comprehensive, however. In addition, it is completed with the general principles of civil liability contained in the Spanish Civil Code as construed by case law stemming from the Spanish Supreme Court.

Part III Prospectus Liability and Litigation, 22 Italy

This chapter focuses on Italian law. Italian securities law refers to ‘prospectus’ as the document that has to be published when there is an offer to the public of transferable securities and units issued by collective investment undertakings of the closed-end type, an offer of any other type of financial product or, finally, a request for admission to trading on a regulated market. The prospectus is the document that is drafted in accordance with the EU Prospectus Regulation. The scope of Italian prospectus regulation is moreover wider than the scope of the EU Prospectus Regulation. Prospectus liability in Italy is today governed by specific rules that incorporate many of the issues that were debated by scholars and courts before the enactment of those specific statutory rules. Currently, the main issue seems to be whether those statutory rules express principles to be applied to all forms of material misstatements or omissions to the market, or are just a part of the general framework concerning liability to the market.

Part II The New EU Prospectus Rules, 12 The Summary and Risk Factors

This chapter addresses the prospectus summary and risk factors. Based on the aim of the new Prospectus Regulation to further harmonize prospectuses across Member States, the new format for the summary is highly prescriptive and standardized, with a strong focus on accessibility. The summary format includes the entitlement of the sub-sections in the form of questions. A separate Commission delegated regulation contains regulatory technical standards to specify the content and format of presentation of the key financial information to be included in the summary. From an issuer's perspective, when drawing up the prospectus, there may be a tension between on the one hand the (new) requirement that the summary shall be ‘accurate, fair and not misleading’, and on the other that the summary needs to be ‘concise’ and is bound to a maximum length. In addition, the new Prospectus Regulation applies an overall cap of 15 for the number of risk factors that may be included in the summary. In view of the maximum length requirement and the capped number of risk factors, issuers and their advisers will need to make choices as to what to include or not include in the summary, which may bring concerns about ensuing liability.

Part II The New EU Prospectus Rules, 9 The Contents of the Prospectus: Non-Financial Information and Materiality

This chapter addresses the non-financial information to be included in a prospectus, alongside an analysis of the fundamental concept of materiality. It examines some issues relating to non-financial information to be included in a prospectus under the new EU prospectus regime. A level playing field in terms of uniform investor protection within the EU accordingly has regrettably not been achieved. This chapter argues that the Prospectus Regulation could have achieved more by requiring Member States to impose certain uniform tort law requirements in their national prospectus liability regimes. Another topic addressed in this chapter relates to the possibility for offerors of securities to obtain liability protection by including exoneration clauses in prospectuses. The Prospectus Regulation does not regulate this topic, but the analysis in this chapter shows that the possibilities appear to be severely limited; practice in any event shows that exoneration is seldom (if ever) stipulated. The chapter concludes that all this appears to be relatively good news in terms of investor protection generally, but the lack of harmonisation stands in the way of a unified EU capital markets union.

Part I General Aspects, 5 The Disclosure Paradigm: Conventional Understandings and Modern Divergences

This chapter focuses on the United States' (US) disclosure paradigm. It explains that the disclosure paradigm contemplates a unique regulatory role for the Securities and Exchange Commission (SEC). Here, the fulfilment of its core mission is essential not only to investor protection and market efficiency, but to a wide variety of transparency-dependent corporate governance mechanisms. Financial innovation is contributing to a ‘too complex to depict’ problem that brings into question the sufficiency of the core approach to information that the SEC has used since its creation. Moreover, particular financial innovations pose product-specific challenges to the fulfilment of the SEC's mission. Additionally, changing conceptions of the ends to be achieved by public disclosure, within the SEC disclosure system itself and pursuant to a new disclosure system driven by regulators with far different mindsets, raise new issues. It is now demonstrable that the new modes of information and the alternative data made possible by technological innovation can help address some of the disclosure challenges posed by financial innovation. At the same time, these new modes and alternative data introduce regulatory complexities. The chapter thus concludes that modern divergences are making life interesting for regulators, practitioners, and academics alike.

Part I General Aspects, 2 The IPO Process, IPO Disclosure, and the Prospectus Regulation

This chapter offers insight into a typical initial public offering (IPO) process, highlighting key practical and legal considerations around disclosure, through the IPO prospectus and otherwise. The prospectus plays a key role in the preparations for, and execution of, an IPO. As an IPO prospectus typically constitutes a company's first public dissemination of financial and business information, the company and other parties involved in the IPO process must carefully consider the right balance between, on the one hand, drafting the IPO prospectus as a marketing document introducing the company and its business to potential investors, whilst, on the other hand, being able to use the prospectus as a disclosure document that protects the company against liability arising from claims from investors or others after the IPO. Here, the chapter summarizes the different phases in an IPO process and the most important documents and parties involved, focusing on the central role of the IPO prospectus. In addition, a number of changes resulting from the enactment of the Prospectus Regulation are likely to be of particular relevance to IPO processes. The expected impact of these changes is therefore also discussed.

Part III Prospectus Liability and Litigation, 24 The Netherlands

This chapter discusses Dutch law. The history of the present statutory rules on prospectus liability in the Netherlands dates back to 1928, the year in which Dutch corporate law was codified. Like the annual report which companies had to publish on a yearly basis, the Dutch legislator considered the prospectus as a corporate document and therefore was of the opinion that a statutory rule on prospectus liability should be issued together with the Companies Act. Codification of prospectus liability was effectuated by formulating it as a special category of tort in the Dutch Civil Code (DCC). The act of 1928 provided that managing and supervisory directors of the issuer would be jointly and severally liable with the issuer itself for misleading statements in the prospectus. This had to do with the view of the legislator — that the decision of investors to invest in a company was to a large extent based on the reputation of management. As a result of this joint and several liability of directors, the first Dutch legislation on prospectus liability can be considered as being particularly investor friendly.

Part III Prospectus Liability and Litigation, 21 France

This chapter sets out the French law. Financial operations triggering the obligation to draw up a prospectus are common in France. By contrast, the chapter shows that there is no judicial decision holding people accountable for infringing the prospectus legislation. However, this does not mean that there are no decisions concerning prospectuses or, more generally, financial information. The chapter asserts that these decisions to in fact exist. However, in these decisions, either provisions other than provisions of the prospectus legislation are applied to prospectuses, or the document of information is other than the prospectus. More often than not, the decisions are about people who are accused of having spread false or misleading information. From this point of view, these decisions are relevant regardless of the context and the document used in order to disseminate such information. The solutions resulting from these decisions are applicable to difficulties concerning information included in a prospectus.

Part III Prospectus Liability and Litigation, 19 Prospectus Liability: Competent Courts of Jurisdiction and Applicable Law

This chapter addresses the European legal framework for cross-border disputes arising from alleged violations of prospectus rules. It deals with the identification of both jurisdiction and applicable law in cases where litigation involves transnational elements, so that a conflict may occur about who is the judge having jurisdiction and what law is this judge bound to apply. Crucial in both respects are, in the first place, the connecting factors to which EU law refers to and, in the second place, the rules concerning issuers' and investors' ability to deviate from such rules. The chapter asserts that the importance of these rules can hardly be overestimated. However, not all courts are equal, and neither are national laws, and the chapter shows these differences affect the topic at hand.

Part II The New EU Prospectus Rules, 17 The Prospectus Regime and Brexit

This chapter discusses the third country regime against the backdrop of Brexit. It explains that, post-Brexit, it will no longer be possible to use a UK prospectus for distribution of securities in the EU. However, since the majorities of securities offered on the UK markets are in fact sold to UK or international (non-EU) investors, it is difficult to know whether the consequence of this will be an increase in EU prospectus offerings or a decrease. The chapter notes that in reality the point is that there is a relatively well-established prospectus orthodoxy in the international securities markets, and as long as the EU regime remains closely aligned with that international orthodoxy, it is likely that the incremental cost of adding an EU limb to a global offering will remain acceptable. However if EU disclosure standards diverge from international standards, the issue will become more acute, and issuers may find themselves having to choose between a domestic EU offering and an international offering.