Convergence of Securities Laws? The European Prospectus and Transparency Directives in Comparative Perspective Dorothee Fischer-Appelt American Bar Association Section of International Law Fall meeting in Brussels 27 October 2005

Scope of Prospective Directive  Public offer definition  How to avoid an “offer to the public”  Offer to institutions  Offer to less than 100 persons per Member State  Offer in units of Euro 50K  Resales

Periodic and Current Disclosure  Prospectus Directive: Annual information update  Transparency Directive: Periodic financial reporting  Market Abuse Directive: Ad hoc disclosure of inside information  Compare to U.S. system

Shelf Registration and Incorporation by Reference  New EU system of shelf registration and incorporation by reference  Similar to U.S. shelf?  Two pitfalls:  Separate regulatory approval  No true EU system of integrated disclosure yet  Compare to new flexibility of U.S. shelf for WKSIs…  For debt: base prospectus and final terms (versus supplement)

Disclosure Obligations under Prospectus Regulation  EU schedules and building-block approach versus U.S. framework regulation  Convergence of rules based on IOSCO standards with remaining divergence in the detail  CESR level 3 guidance  See EU vs. U.S. MD&A requirements  Role of convergence by way of private conduct

Equivalence  Equivalence of prospectuses  Case-by-case review in Member States  But the future may bring level 2 measures…  Similar approach under Transparency Directive  Compare to U.S. requirements for foreign issuers  GAAP equivalence versus reconciliation?  CESR’s advice to Commission: GAAP equivalence, subject to a number of specified qualifications requiring “remedies”…  CESR recommends that remedies are audited

Equivalence (cont’d) – CESR’s Advice on U.S., Canadian and Japanese GAAP: Remedies  Additional disclosures  Disclosure A (narrative and/or quantitative)  Explanation of transactions and method for accounting  Assumptions, valuation methods or hypothesis used  Disclosure of fair value of assets if not already included  Disclosure B  Quantitative impact of transaction had it been accounted for under IFRS  Include gross effect of difference on profit and loss or shareholders’ equity, and effect next of tax  Supplementary statements  Significant differences, or specific statement missing  Pro formas based on third country GAAP, including limited restatement  Other remedies in “exceptional" situations  Industry-specific or unusual accounting outcome

Disclosure System and Corporate Governance  “The disclosure requirements of the present Directive do not prevent a Member State… to impose other particular requirements in the context of admission to trading of securities on a regulated market (notably regarding corporate governance).”  Binding and non-binding EU measures on corporate governance  Does securities law harmonisation entail some degree of harmonisation of corporate governance rules?

Liability  Is true convergence of EU standards possible without uniform liability rules?  Prospectus and Transparency Directives make a first step in harmonising certain aspects:  Responsibility statements  Limited liability for summary  Race to the bottom?

Regulators  The big question: Does Europe need a single regulator?  Contrasting the European approach

Convergence of Securities Laws ? The European Prospectus and Transparency Directives in Comparative Perspective Dorothee Fischer-Appelt American Bar Association Section of International Law Fall meeting in Brussels 27 October 2005