Primary Market Bulletin 34

Welcome to the 34th edition of the Primary Market Bulletin (PMB). This special edition consults on changes we propose to make to our Knowledge Base in relation to the prospectus regime.

Changes to the Knowledge Base

We intend to:

• Create a new Technical Note, Primary Market/TN/619.1, to adapt, as FCA Guidance, the European Securities and Markets Authority’s (ESMA) Guidelines on disclosure requirements under the Prospectus Regulation. We will augment this with the measures on specialist issuers in the ESMA update of the CESR recommendations (CESR Recommendations) on our Handbook site.
• Incorporate certain explanations in the PD Q&As, on our Handbook site, into Technical Notes.

We would no longer refer to the CESR Recommendations and the PD Q&As on our Handbook site. The relevant substantive content will be consolidated into the FCA’s Technical Notes. This is a more appropriate place for such content in the context of the UK’s regulatory regime. 

We intend to consult in the September 2021 Quarterly Consultation Paper (QCP) on removing them from our FCA Handbook site and on consequential amendments to the Prospectus Regulation Rules (PRR). In particular, PRR 1.1.5 G and PRR 1.1.7 G. and PRR App 1.1 Relevant definitions, which refer to them.

We also take the opportunity to update a Procedural Note and several other Technical Notes.

Disclosure requirements, and specialist issuers

Primary Market/TN/619.1 – Guidelines on disclosure requirements under the Prospectus Regulation and Guidance on specialist issuers (New)

The Prospectus Regulation (PR) repealed and replaced the Prospectus Directive (PD) in July 2019. This created the need for new Guidelines to replace the PD-based CESR Recommendations.

When the UK was still part of the EU, ESMA published its Consultation paper (ESMA Consultation Paper) on Draft Guidelines in July 2019. ESMA then published its Final Report a year later, in July 2020. The FCA was involved in ESMA’s work on this consultation and final report, until exit day, 31 January 2020.

After the expiry of the EU withdrawal transitional period on implementation period completion day (IPCD), 11pm on 31 December 2020, ESMA published its Guidelines on disclosure requirements under the Prospectus Regulation (ESMA Guidelines) in all EU official languages on 4 March 2021 and they applied in the EU from 4 May 2021. As this is after IPCD the Guidelines will not apply in the UK.

However, we propose to adapt the Guidelines as FCA guidance. We are doing this because the Guidelines are essentially an updating of the CESR Recommendations, and we participated in the work in drawing up the Guidelines. We are making 2 minor modifications to the Guidelines, which we explain below:

• pro forma financial information
• working capital – closed ended investment funds

We also explain below that we are transferring the specialist issuers measures in the CESR Recommendations to form part of our new Technical Note on the Guidelines.

A cost benefit analysis is not included in this consultation.

We note that ESMA undertook a cost benefit analysis in its consultation on the draft Guidelines. Our consultation focuses on the areas where we are diverging from the Guidelines. However, we are also interested in whether there are other areas of the Guidelines that would cause concern should they be adopted in the UK.

Pro forma financial information

In Guideline 18, the ESMA Guidelines introduced a policy change to the pro forma financial information requirements in instances where an issuer has completed/committed to complete a number of transactions. So in future more pro forma information will be required in these cases, compared to previous guidance and practice.

We do not propose to adopt this approach in our guidance on this point. We instead propose to continue with the approach to pro forma financial information requirements currently applied to these scenarios, and set out in PD Q&A 52 on the FCA Handbook site.

Background

The ESMA Guidelines on pro forma financial information combine the CESR Recommendations text with the further explanatory texts in PD Q&As 50-55. The respective Q&As will no longer apply.

While the Guidelines on pro forma financial information generally replicate the substance of the previous guidance in the CESR Recommendations and PD Q&As, the new ESMA Guidelines introduced 2 key departures from previous guidance on which transactions require pro forma financial information to be included in the prospectus.

Key changes to the guidance on pro forma financial information in the ESMA Guidelines

The key changes relate to situations where several transactions have taken place, which have not yet been fully reflected in the issuer’s latest financial information (full year or interim, as applicable). These were discussed in PD Q&A 52 a) and b).

The Q&A stated that where there are several transactions and only one of them is significant, then generally, the pro forma financial information should cover only the significant transaction, and therefore, there would be no need to aggregate. However, it also noted that the situation should be assessed on a case by case basis to ensure that the information provided is not misleading.

Similarly, where an issuer undergoes several transactions none of which individually qualifies as significant, but which when taken together could be considered to qualify as significant, in general, Q&A 52 states that pro forma information should not necessarily be required. As above, the situation should be assessed on a case by case basis to ensure that the information provided is not misleading.

In Guideline 18, however, there is a change in approach. Where an issuer undertakes or commits to undertake several transactions which individually do not constitute more than a 25% variation but which collectively constitute a more than 25% variation, the persons responsible for the prospectus should now include pro forma financial information for all of these transactions, unless it is disproportionately burdensome to produce such pro forma financial information.

Equally, if an issuer undertakes or commits to undertake several transactions, and only one of them constitutes more than a 25% variation, the persons responsible for the prospectus should include pro forma financial information covering all the transactions unless it is disproportionately burdensome to produce such information.

ESMA’s reasoning for this change in approach is that pro forma information should be provided when the issuer’s size has changed by at least 25%, regardless of whether this change took place in one or several transactions, as the purpose of the pro forma information is to assist investors by providing them with an additional aspect of the issuer’s business which might otherwise be difficult for them to understand (see the ESMA Consultation Paper).

Stakeholder feedback to the ESMA consultation

Respondents to the ESMA Consultation Paper raised a number of concerns about the change in approach in the new Guidelines.

Key concerns were the cost to issuers, both in terms of financial costs and the time involved, and the difficulty issuers may encounter in preparing the information, for example where issuer and target use different accounting frameworks.

Some stakeholders noted that such information may be of little benefit. There was also concern around how the ‘disproportionately burdensome’ test would be applied.

FCA view

It is our view that the additional pro forma financial information requirement set out in Guideline 18 would, in many cases, not be helpful to investors and including it, or having to apply for dispensation from the FCA to not include it, would impose a disproportionate burden on issuers.

Adopting an aggregation approach, i.e. where pro forma financial information is required in all cases where the aggregation of transactions results in a variation of 25% or greater as the base case, will likely impose significant additional costs on issuers compared to the current guidance set out in PD Q&A 52.

We may consider that such additional costs are acceptable where there is a clear and significant benefit to investors. However, an issuer may have completed or committed to complete a number of smaller transactions at different time periods within the relevant period, with some partially reflected in existing historical financial information. It is not clear that the inclusion of several tables of pro forma financial information on transactions that of themselves constitute only a small variation to the business will significantly help investors in their understanding of the business as a whole. In some cases, it may confuse rather than clarify.

The proposed ESMA Guidelines have sought to address the concerns regarding cost via the ‘disproportionately burdensome’ test. This allows the competent authority to grant a dispensation from producing pro forma financial information where the issuer can show that the production of the pro forma financial information would be disproportionately burdensome.

Considering the cost of producing the additional pro forma information in comparison to the benefit to investors of this information, we expect that we would generally be sympathetic to representations by issuers that the inclusion of pro forma financial information for small transactions would be disproportionately burdensome.

However, costs do not only arise when producing the pro forma information itself, but also when preparing a case to demonstrate that producing additional pro forma information presents a disproportionate burden to the issuer. Given our view as outlined previously, the value of incurring these initial costs and processes is likely limited.

In summary, we are concerned that the application of the aggregation approach imposes a disproportionate burden on issuers up front, with limited additional benefit to investors, compared to the approach to the inclusion of pro forma financial information in the current guidance set out in PD Q&A 52. So we propose that our guidance keeps the approach set out in PD Q&A 52.

Proposed differences in our guidance compared to the ESMA Guidelines text

We therefore propose to not include this change from current practice in our guidance. Instead we reflect the existing guidance in PD Q&A 52 in paragraph 91 of draft Technical Note Guidelines, on disclosure under the Prospectus Regulation, and Guidance, on specialist issuers. To avoid the term ‘misleading’ being interpreted in too narrow a way we have added further drafting clarifying that the issuer should consider its obligations in relation to necessary information in a prospectus under Article 6 of the Prospectus Regulation.

Paragraph 92 of the ESMA Guidelines has been deleted, as it doesn’t apply with respect to the revised paragraph 91 guidance.

Working capital - closed ended investment funds

We are proposing to make an addition to ESMA’s Guideline 33 (Rules for calculation of working capital) in our guidance to reflect an existing UK market practice of relying on minimum net proceeds for the calculation of working capital in 1 specific and limited case, for new issuers that are closed-ended investment funds.

Rules for calculation of working capital – net proceeds

Guideline 33 states that an issuer should only count the proceeds of an offering to calculate its working capital if the offering is underwritten on a firm commitment basis or if irrevocable undertakings have been given.

Further, proceeds should not be counted when calculating working capital if investors will be exposed to the risk that the issuer continues with an offer after the underwriting agreement has been cancelled or the irrevocable undertakings are withdrawn.

We agree with this principle (see our Technical Note UKLA/TN/320.1 (Working Capital statements – Basis of preparation)), but note that the Guideline in its current form does not allow for the use of minimum net proceeds which are not underwritten in the working capital calculation.

The minimum net proceeds approach to calculating working capital

It is well established practice in the UK for new issuers from the closed-ended investment funds sector to be allowed to include minimum net proceeds yet to be raised in their working capital calculation.

In these instances, proceeds are not underwritten. Where this occurs, the use of this approach has been subject to certain conditions. These are:

• it is an explicit condition of the offer that the minimum net proceeds are raised, and
• if the minimum net proceeds condition is not met, the offer will lapse, admission will not take place and the proceeds will be returned to investors

The effect of these conditions is that at the point the offer completes and admission takes place, the amount of net proceeds required for the issuer to operate with sufficient working capital for at least the next 12 months is available and effectively ‘guaranteed’. This is because the offer will not proceed if the minimum net proceeds are not available at that point. So, while the net proceeds under this approach are not underwritten on a firm commitment basis, investors will not be exposed to the risk that the issuer continues with an offer if the amount of proceeds being relied on for the working capital statement are not received.

This is an approach that works well in the specific circumstances of the funds sector, and we do not believe it would be appropriate to prevent closed-ended investment funds from using this approach in the future.

We would not expect commercial companies to use this approach, given their more complex working capital requirements. For these types of issuers we would expect that a qualified working capital statement is provided where the proceeds of an offer are not underwritten on a firm commitment basis, or not covered by irrevocable undertakings, as set out in paragraphs 146-151 of the Guidelines.

In line with the above, we propose to add a new paragraph, 151A, to Guideline 33 to allow for the use of minimum net proceeds by new issuers from the closed-ended investment fund sector.

Specialist issuers

The CESR recommendations have been carried into the ESMA Guidelines.  However, the Recommendations relating to specialist issuers were not carried over into the ESMA Guidelines. They address property companies, mineral companies, scientific research companies, start-up companies and shipping companies. We are therefore adding them into our new Technical Note, TN 619.1 Guidelines on disclosure requirements under the Prospectus Regulation and Guidance on specialist issuers. We intend to consult in our September QCP on removing the ESMA update of the CESR Recommendations from our FCA Handbook Level 3 Materials site.

Alongside the proposals on Guidelines on prospectus disclosure outlined above, we are also proposing to make consequential changes to one Procedural Note and a number of Technical Notes as set out below. Where applicable we have also made changes to reflect: (i) changes arising from the Prospectus Regulation which fully applied in the EU, including the UK, from 21 July 2019, when it repealed and replaced the Prospectus Directive (PD), and (ii) changes made as a result of the UK withdrawal from the EU.

UKLA/PN/904.3 – Public offer prospectus – Drafting and approval (Amendment)

We are updating this Procedural Note to accommodate, in particular:

• Article 23a of the PR Regulation, which following IPCD, sets out acceptable reporting standards for historical financial information
• working capital statements – we make a similar point to that in the update to TN 320 that, prompted by ESMA addressing net proceeds in the Guidelines, we have set out our long-standing approach to restrict it to closed-ended investment entities
• the PR Regulation restricting capitalisation and indebtedness statements to a date no earlier than 90 days prior to the date of the prospectus.

UKLA/TN/320.1 – Working capital statement – Basis of preparation (Amendment)

The amendments to this Technical Note assimilate the new Guidelines on working capital statements replacing those in the CESR Recommendations. In particular, as the CESR Recommendations did not address use of proceeds and the Guidelines now do so, we clarify that the long-standing approach to using the minimum proceeds approach to working capital statements in certain limited circumstances can continue to be used by closed-ended investment entities only.

UKLA/TN/321.1 – Working capital statements and risk factors (Amendment)

We amend this Technical Note to assimilate the Guidelines on working capital statements replacing those in the CESR Recommendations and link to the Guidelines on risk factors under the Prospectus Regulation on the FCA Handbook site. 

FCA/TN/340.2 – Profit forecasts and estimates (Amendment)

We amend this note to reflect the changes in the Guidelines to the text about the basis on which profit forecasts are prepared by including drafting reflecting Guideline 11. We are also suggesting amendments to reflect the assimilation of the PD Q&A as further explained below.

The current definition of profit forecast in the Listing Rules is not the same as that in the PR Regulation. We may consult on aligning the Listing Rule definition to that in the PR Regulation in a future consultation. In the meantime, issuers should contact the FCA if this discrepancy causes difficulty.

UKLA/TN 633.1 - Pro forma financial information (Amendment)

We update this Technical Note to reflect the Guidelines’ measures on pro forma which assimilate PD Q&A 50 to 55 and our approach to those Guidelines, as explained in the section above Guidelines on prospectus disclosure.

Introduction

Q&A on the Prospectus Directive

Before IPCD we published our general approach to EU non-legislative materials, which includes our approach to pre-IPCD ESMA Questions and Answers. We said that we would continue to have regard to it where and if relevant, taking into account Brexit and ongoing domestic legislation, and that firms, market participants and stakeholders should also take that approach.

In this consultation we propose incorporating elements of the Level 3 Questions and Answers, Prospectuses (PD Q&As) on our Handbook site into FCA guidance. This guidance will be contained in Technical Notes and a Procedural Note. The new guidance will supersede the PD Q&As.

We may in due course consult on removing the PD Q&As and the CESR Recommendations from our FCA Handbook site and consult on consequential amendments to the Prospectus Regulation Rules (PRR), in particular, PRR 1.1.5 G and PRR 1.1.7 G. and PRR App 1.1 Relevant definitions.

We believe it will be beneficial for companies and their advisers if we consolidate the PD Q&As into the existing, and new, procedural and technical notes. It will reduce some of the need for users to consult multiple sources of information. In adopting the PD Q&As into procedural and technical notes we are also updating that guidance to reflect: (i) changes arising from the Prospectus Regulation which fully applied in the EU, including the UK, from 21 July 2019, when it repealed and replaced the Prospectus Directive (PD), (ii) changes made as a result of the UK withdrawal from the EU and (iii) measures in the Guidelines.

We are also making some amendments to the Technical Notes that reflect current practice and changes to underlying legislation and rules that have been made since the notes were last updated.

We address the changes below by referring, in sequence, to the PD Q&As and explaining how they are assimilated into the technical notes.

Q&A on the Prospectus Regulation

Other Level 3 materials which we onshored at IPCD include the ESMA Questions and Answers Prospectus (PR Q&As).

In the future we will consider replacing the PR Q&As with FCA guidance contained in Technical Notes. We are not taking this forward at this stage because it will need to fit in with any changes arising from the recommendations relating to the prospectus regime made in Lord Hill’s UK Listing Review report of 3 March 2021.

The PR Q&As remain relevant to the UK prospectus regime, so far as they were adopted by ESMA before the end of the EU withdrawal transitional period. We will continue to have regard to them in light of the general approach to non-legislative EU materials we set out before IPCD.

Summary of proposals for the PD Q&A

We propose to carry forward as guidance to be contained in new or amended Technical Notes the following PD Q&A: 9, 16, 17, 26d, 34, 38, 40, 67, 72, 77, 84, 96 and 99. 

PD Q&A 50-55 (which relate to pro forma financial information) are superseded by the ESMA Guidelines as explained in the section above on Guidelines on prospectus disclosure, which also explains how we are modifying them slightly.

In general, we are not proposing to carry forward into Technical Notes any PD Q&A that ESMA has announced, on 30 September 2020, it would not be carrying forward or which have been superseded by the PR Q&As before IPCD. Where relevant we comment below on our reasons for this approach.

We are also not carrying forward the following PD Q&A: 26a, b, c, e and f, 29, 58, 74, 76a and 98. This is because we consider that specific guidance is not necessary because the position is clear from the legislation. PD Q&As 32 and 73 are already reflected in TN 602 and TN 623, respectively.

The following PD Q&A are no longer relevant following UK withdrawal from the EU and are therefore not carried forward: 39b, 46b, 103 and 104.

This table shows how we are treating the various PD Q&As into our Technical Notes:

Further explanation is set out below. Any PD Q&A not mentioned is not proposed to be carried forward.

Detailed explanation of the changes

PD Q&A 9: Order of information in the prospectus (Primary Market/TN/636.1- New)

We are incorporating PD Q&A 9 into a new Technical Note, Primary Market/TN/636.1: Order of information in the prospectus. Existing market practice is to include cover pages to the prospectus which primarily contain brief information about the transaction and certain regulatory disclosures and disclaimers. It is not permissible to include additional information such as marketing type material in these cover pages. We do not propose any change in our approach to this well understood market practice. 

In addition, we are clarifying in the note that it is not permissible to add cover pages to a prospectus after approval. This applies whether or not the additional information is extracted from the prospectus. In relation to electronic access to prospectuses, we clarify that this is not intended to prevent issuers requesting confirmations regarding the jurisdiction of the recipient before allowing access to the document, where these confirmations are required to comply with overseas securities laws.

PD Q&A 16 and 17: Historical financial information of issuers that have been operating for less than 3 years (UKLA/TN/627.1 - Amendment)

We are assimilating PD Q&A 16 and 17 via new guidance incorporated into the existing Technical Note, UKLA/TN/627.1: Prospectus content – financial information. This includes guidance on the historical financial information that must be included in a prospectus where an issuer has been operating for a short period and as a result has less than 1 year’s audited information. We have not made any change of substance compared to the PD Q&A.

We have added new guidance about the position where a new holding company (newco) is inserted over an existing group. In this circumstance, financial information on the short period that newco has been in operation is required by item 18.1.1 of Annex 1, as well as financial information on the group because of the rules on complex financial history (Article 18 of the PR Regulation, PRR 2.3.1 UK). We have clarified the circumstances when we would consider a waiver of the need for separate audited financial information of newco to be included in the document. This reflects our current practice.

PD Q&A 26, 29, 32, 38 and 40: Prospectus exemptions (Primary Market/TN/602.3 - Amendment)

We are amending Technical Note Primary Market/TN/602.3 (exemptions from the requirement to produce a prospectus) to reflect PD Q&A 26d, 38 and 40.

We are proposing not to include the following PD Q&A in the new FCA guidance: Q&A 26a, b, c, e and f and 29. In most cases this is because we consider guidance is not needed because the position is clear from the legislation. This is explained in more detail below.

We propose to delete the guidance in the Technical Note Primary Market /TN/602.3 relating to Employee share schemes and the quantification of the €8m threshold. This is because the guidance is no longer relevant. As a result of the UK’s withdrawal from the EU, section 86(1)(e) of the Financial Services and Markets Act 2000 (FSMA) has been amended to provide that the €8m threshold applies to offers in the UK only.

The €8m and €100,000 exemptions

PD Q&A 40 relates to the exemptions for offers where the total consideration cannot exceed €8m (section 86(1)(e) FSMA) and where the total consideration per investor is at least €100,000 (Article 1(4)(d) Prospectus Regulation). The Q&A confirms that, when calculating the consideration for the issue of warrants and other derivatives, only the consideration for the issue of the warrants and not the strike price should be counted. We are carrying forward this guidance in our Technical Note.

PD Q&A 26, a, b, c, relate to the exemption for offers where the total consideration cannot exceed €8m (section 86(1)(e) FSMA). We consider that guidance on these questions is not necessary, as the position is clear from the legislation. In particular:

• Q&A 26 a explains whether the limit is calculated per type of security. Section 86(4) FSMA makes it clear that securities of the same class offered during the previous 12 months should be taken into account.
• Q&A 26 b explains whether offers during the 12-month period where other exemptions are applicable (for example offers to qualified investors) should be included for the calculation of the limit. Section 86(4) FSMA states that securities offered during the previous 12 months should be taken into account where those securities were within the €8m exemption. It is therefore clear that offers where other exemptions are applicable should not be included.
• Q&A 26 c explains whether offers where a prospectus has been approved should be included when calculating the limit. Section 86(4) FSMA states that securities should be taken into account where those securities had previously satisfied the €8m exemption. It is therefore clear that securities included in a prospectus should not be counted.

Issues of non-equity securities by credit institutions - the €75m exemption

PD Q&A 26, d, e and f and Q&A 38 relate to the exemptions for non-equity securities issued in a continuous or repeated manner by a credit institution, where the total aggregated consideration for the securities offered is less than €75,000,000 per credit institution (Article 1(4)(j) and 1(5)(i) Prospectus Regulation).

We are carrying forward:

• Q&A 26 d. This clarifies that, in applying the exemptions, all types of non-equity securities that fall within the exemption should be added together
• Q&A 38. The exemptions do not apply if the non-equity securities are linked to a derivative instrument. The guidance clarifies that redeemable debt securities may be within scope of the exemptions even where the issuer has entered into a derivative contract to cover its risk

We are not carrying forward PD Q&A 26 e and f. We consider that guidance on these questions is not necessary. It is clear from the legislation that the following should not be counted when calculating whether offers are within the limit:

• offers where other exemptions are applicable (for example offers to qualified investors) (Q&A 26 e)
• offers where a prospectus has been approved (Q&A 26 f)

The convertibles exemption

We are not carrying forward PD Q&A 29. This confirms that the exemption in Article 1(5)(b) of the Prospectus Regulation (exemption for shares resulting from the conversion of other securities) does not apply where non-transferable securities are converted into shares. This is clear from the legislation because ‘securities’ are defined in the Prospectus Regulation as transferable securities.

The 20% exemption (Primary Market /TN/602.3)

A prospectus is not required for the admission to trading on a regulated market of further securities of the same class, subject to a 20% limit over 12 months. PD Q&A 32 is already reflected in substance in our Primary Market /TN/602.3. This confirms that in calculating the 20% we will not count any securities that have benefited from another exemption.

Takeover documents (Primary Market/TN/602.3 – Amendment)

We note that Article 1(7) of the Prospectus Regulation empowers the Treasury to make regulations specifying the minimum contents of the exemption document that must be published for the exemptions relating to takeovers, mergers and divisions. We are amending Technical Note TN/602.3 to make clear that until such regulations are available, when approving exemption documents, we will have regard to relevant published EU regulations on the content of exemption documents under the EU version of the Prospectus Regulation. Currently this is Commission Delegated Regulation (EU) 2021/528 of 16 December 2020.

PD Q&A 34: Supplementary prospectuses (new offers) (Primary Market TN/605.3 - Amendment)

We are carrying forward PD Q&A 34 by amendments to existing Technical Note Primary Market/TN/605.3 on Supplementary prospectuses. This explains that a supplementary prospectus cannot be used to add a new class of securities or make a new offer. Where a new prospectus is required issuers can incorporate by reference information from the existing prospectus.

We are not proposing to include this as guidance in the Technical Note, but note that, as an alternative to preparing a new single prospectus, a tri-partite prospectus can be used to facilitate the issue of additional securities or the making of a new offer during a 12-month period. In particular issuers of equity (who cannot use the base prospectus regime available for debt securities) may wish to consider whether a tri-partite prospectus can be used.

The Technical Note is also amended to remove references to a passporting, which is no longer relevant as a result of the UK withdrawal from the EU.

PD Q&A 58: Price range prospectuses

We note that ESMA has not carried forward PD Q&A 58. This relates to the position for offers where the final price and/or amount of securities is not included in the prospectus (Article 8.1 of the Prospectus Directive and item 5.3.1 of Annex III of the Prospectus Directive Regulation (now reflected in Article 17 of the Prospectus Regulation and item 5.3 of Annex 11 of the PR Regulation)). We also propose not to carry forward this Q&A but want to highlight that in our view the withdrawal of PD Q&A 58 does not indicate any change of approach. The substance of the guidance in Q&A 58 is now confirmed by:

• Article 17 of the Prospectus Regulation and item 5.3.1 of Annex 11 to the PR Regulation, which make it clear that where the final offer price or amount of securities cannot be included in the prospectus either the investors must have rights of withdrawal or the prospectus must include the maximum price or amount of securities or the valuation methods and criteria, and/or conditions, in line with which the final offer price is to be determined and an explanation of the valuation methods used
• Recital 55 of the Prospectus Regulation which states that where a maximum price is not included the ‘valuation methods and criteria should be precise enough to make the price predictable and ensure a level of investor protection that is similar to the disclosure of the maximum price of the offer. In that respect, a mere reference to the book building method would not be acceptable as valuation method or criteria where no maximum price is included in the prospectus.’

PD Q&A 67: Transferable securities (Primary Market/TN/601.2 - Amendment)

We are carrying forward PD Q&A 67 in Technical Note Primary Market/TN/601.2 (Public Offers). This explains that securities may still be transferable securities, and within scope of the Prospectus Regulation, where restrictions are imposed on the free transferability of the shares. This applies for example to selling restrictions applicable in a specific country or as part of a lock up agreement between the company and existing shareholders.

PD Q&A 72: Documents available for inspection (Primary Market/TN/623.1 - Amendment)

We are carrying forward PD Q&A 72 which is already reflected in Technical Note Primary Market/TN/623.1 (documents available for inspection). This clarifies that, under item 21.1 of Annex 1, valuations and statements are required to be available for inspection only if they have been prepared by an expert at the issuer’s request.

Primary Market/TN/623.1 also currently incorporates PD Q&A 73. This explains that material contracts that have been summarised in the document under item 20.1 of Annex 1 do not have to be made available for inspection. We note that ESMA has said that it is not carrying forward PD Q&A 73. We believe this still provides useful guidance and propose to keep this guidance in the Technical Note.

The note is also being updated to reflect the Prospectus Regulation.

PD Q&A 74: Definition of public offer

We are not carrying forward PD Q&A 74. This Q&A explains that the publication of secondary market prices is not considered to be an offer to the public. We consider that this is clear from the legislation and guidance is not needed. Recital 14 to the Prospectus Regulation states that “The mere admission of securities to trading on a MTF or the publication of bid and offer prices is not to be regarded in itself as an offer of securities to the public and is therefore not subject to the obligation to draw up a prospectus under this Regulation. A prospectus should only be required where those situations are accompanied by a communication constituting an ‘offer of securities to the public’ as defined in this Regulation.”

PD Q&A 76a: References to credit ratings in prospectuses

This Q&A clarifies that information on credit ratings required by Article 4(1) of the CRA Regulation (EC 1060/2009) should be included in a prospectus where relevant. The CRA Regulation continues to apply in the UK after EU withdrawal, as amended by the Credit Rating Agencies (EU Exit) Regulations 2019. We are not carrying forward this Q&A because we consider that the position is clear from the CRA Regulation and that guidance is not needed.

PD Q&A 77: GDRs (Primary Market/TN/ 607.1 - New)

We propose to carry forward PD Q&A 77 in a new Technical Note, Primary Market/TN/ 607.1. This confirms the established market practice of the inclusion in a GDR prospectus of the facility for the admission to trading on a regulated market of a maximum number of GDRs up to an amount equivalent to the issuer’s issued share capital at the date of the prospectus. This is to allow the exchange of GDRs for shares and vice versa on a continuing basis without the need for a new prospectus provided that the ‘up to’ amount is not exceeded.

PD Q&A 84: Profits estimates (FCA/TN/340.2 - Amendment)

PD Q&A 84 is carried forward in FCA/TN/340.2 (Profit forecasts and estimates). This clarifies that preliminary results will be a profit estimate because they are released before publication of the full financial statements containing the auditors’ report. The technical note is also updated to assimilate material in the Guidelines on profit forecasts and estimates, as noted above.

We are also amending the Technical Note to clarify that public statements by issuers that refer to analysts’ or consensus forecasts may be viewed as a profit forecast if the issuer is explicitly or implicitly endorsing the third-party statement.

We note that the current definition of profit forecast in the Listing Rules is not the same as that in the PR Regulation. We may consult on aligning the Listing Rule definition to that in the PR Regulation in a future consultation. In the meantime, issuers should contact the FCA if this discrepancy causes difficulty.

PD Q&A 96 - Level of disclosure for securities subject to conversion or write down powers (Primary Market/TN/637.1 - New)

We are carrying forward PD Q&A 96 in a new Technical Note Primary Market/TN/637.1. This explains that where a prospectus relates to securities which may be subject to write-down or conversion powers derived from the Bank Resolution and Recovery Directive (Directive 2014/59/EU), issuers should consider whether additional disclosure regarding the possibility of conversion or write-down by a regulator (‘bail-in’) should be included in the prospectus.

PD Q&A 98 - Offers going beyond the validity of a base prospectus

This Q&A relates to whether it is possible for an offer to continue beyond the period of validity of a base prospectus. The position is now addressed in Article 8(11) of the Prospectus Regulation. ESMA is not carrying forward this Q&A and we agree that the Q&A is no longer required.

PD Q&A 99: Dissemination of amended advertisements - roadshows (UKLA/TN/604.1 - Amendment)

We are carrying forward PD Q&A 99. The Q&A clarifies that there is no requirement to hold a new roadshow in order to comply with the obligation to disseminate an amended advertisement. However, issuers should disseminate an amended version of the information originally provided in the roadshow through the means which they consider most suitable to reach the participants of that roadshow. This guidance is now contained in UKLA/TN/604.1 (Advertisement regime), which is also updated to reflect the changes to the advertisement regime made by the Prospectus Regulation.

In addition, we have updated this Technical Note to reflect the COBS rules about the availability of information in the UK equity IPO process. Our intention in changing the COBS rules was that an FCA-approved price range prospectus or an FCA-approved securities note and summary would be published in advance of the management roadshow and book-building (see CP17/5 and PS17/23).

In particular, we are emphasising that where issuers choose to publish an FCA approved registration document ahead of the release of any connected research, we expect them to then publish either an FCA-approved price range prospectus or an FCA-approved securities note and summary, as opposed to using an unapproved pathfinder document for marketing purposes.

We consider that the proposal has regard to the 5 LRRA principles, that regulatory activities should be carried out in a way which is: 

• transparent 
• accountable 
• proportionate 
• consistent  
• targeted only at cases in which action is needed 

We have had regard to the Regulators’ Code, particularly the requirement for proportionate and targeted regulatory activity. The aim of the amendment to the Knowledge Base in this PMB is to update guidance to issuers and primary market practitioners.

We are confident that our proposal does not give rise to equality and diversity implications, but we welcome comments should you have any concerns. 

To access the guidance referred to in this edition of the PMB, see our website: PMB No. 34 Guidance Consultation.

New Technical Note TN/619.1 is marked to show changes from the source text. For ease, amended Technical Notes are presented with changes marked, except where significant amendments have been made.