The Prospectus Regulation. The long and winding road

S. Alvaro, R. Lener, P. Lucantoni; in collaboration with V. Adriani, F. Ciotti, A. Parziale; introduced by Carsten Gerner-Beuerle

Quaderno giuridico (Legal Research Paper) No. 22 - October 2020 [PDF]

Abstract
This study focuses on three main topics: it firstly goes through the purposes of mandatory disclosure, it then develops an analysis on prospectuses and supplements ap-proved in seven EU countries, and it finally sets out the new regulatory framework.
The first part highlights the twofold importance of prospectuses, as a means of re-ducing informational asymmetry and helping investors make informed investment decisions. This chapter compares all the pros and cons of mandatory disclosure and some of the main scholars' viewpoints on this topic. There is plenty of literature supporting the idea that information overload is counterproductive while others maintain that it is crucial to well-functioning markets. Above all, empirical research shows that market efficiency is also un-dermined by behavioural biases, which is typical of both retail and sophisticated investors. For all these reasons, policymakers have gradually addressed these problems introducing a simplified prospectus with Directive 2001/107/EEC (UCITS III), the Key Investor Information Document (KIID) with Directive 2009/65/EU (UCITS IV), the prospectus summary with Pro-spectus Regulation 1129/2017. Therefore, it is certainly true that standardization - while preserving the content of disclosed information - is a core challenge that policymakers are currently facing.
Since the two main objectives of Prospectus Regulation 1129/2017 are market effi-ciency and investor protection, the second part presents an overall assessment of whether and to what extent it has achieved its original purposes. Market efficiency was measured through prospectus activity while investor protection was assessed by looking at the number of pages and the dimensions of prospectuses and supplements. Data was compared from seven EU countries. Overall, the total number of approved prospectuses in the years 2006-2018 fell dramatically and the number of prospectuses passported in and out of the coun-tries analysed presents substantial differences. The research also reveals substantial discrep-ancies in the average number of pages of the documents approved in each country. Above all, the macroscopic divergencies highlight the different levels of complexity in the opera-tions underlying the placement of securities, and consequently the need for an alternative market disclosure.
The third part concerns the new regulatory framework and it deals with all the main innovations brought about by the latest Prospectus Regulation 1129/2017 such as: the new prospectus summary, the new rules on risk factors, the simplifying disclosure regime for SMEs and SMEs growth market and the Universal Registration Document. Despite its primary intent of achieving harmonization in the prospectus regime, the Regulation does not deter-mine a common set of rules in terms of liability. This means that securities litigation and liability regimes related to securities issuances are largely based on national law, thus result-ing in a highly fragmented framework. Especially with regard to civil liability regimes related to national supervisory authorities, the national legislations of the countries analysed seem to follow divergent paths. This work analyzes and compares those differences, and then offers some final tips for avoiding liability fragmentation within the EU countries, which is finally recognized as one of the main obstacles to achieving regulatory harmonization while at the same time granting market efficiency and investor protection.

Authors
Simone Alvaro - Head of Administrative Sanctions Office, CONSOB (s.alvaro@consob.it)
Raffaele Lener - Full professor of Financial Market Law, University of Rome Tor Vergata (raffaele.lener@freshfields.com)
Paola Lucantoni - Associate professor of Financial Market Law, University of Rome Tor Vergata (paola.lucantoni@uniroma2.it)
Veronica Adriani - Graduated in Economics and Finance, LUISS Guido Carli University
Flavio Ciotti - Ph.D. candidate, University of Rome Tor Vergata Law School (fciotti@cgsh.com)
Alfonso Parziale - Ph.D., University of Rome Tor Vergata Law School (alfonso.parziale@gmail.com)

Any mistake remains, of course, our sole responsibility. Opinions expressed in this paper are exclusively the authors' and do not necessarily reflect those of Consob.

ISSN 2281-5236 [online]