In the European Union, the legal framework surrounding the offering of securities to the public and the admission of securities to trading on a regulated market are set by the Prospectus Regulation (EU) 2017/1129 (“the Regulation”) which came into force since 20/07/2017 and repeals and replaces the Prospective Directive 2003/71/EC (“the Directive). Its provisions will come into full effect on 21/07/2019. Even though the Regulation’s provisions are directly applicable in Member States, in order to implement the changes brought with it, Cyprus made amendments to its national law, the Prospectus Law.
Article 1(3) of the Regulation determines that the Regulation does not apply to an offer of securities to the public with a total consideration in the Union of less than EUR 1.000.000, which shall be calculated over a period of 12 months. This means that the obligation to publish a prospectus does not apply to offers below this threshold. Article 2(d) of the Regulation defines ‘an offer of securities to the public’ as a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities, the term includes the collection of money from the public for the participation in any kind of investment in securities
Prospectus Regulation determines that the securities definition is the same as the term of transferrable securities set by Directive 2014/65/EU (“MiFID II”) other than money market instruments as defined by the same Directive having a maturity of less than 12 months. Therefore, in the European Union to determine whether a Security Token Offering falls within the security definition of the Prospectus Regulation must look up the following definition:
“‘transferable securities’ means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as:
(a) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares;
(b) bonds or other forms of securitised debt, including depositary receipts in respect of such securities;
(c) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures;”
Furthermore, the Article 3(2) of the Regulation provides to Member States the option to exempt offers of securities to the public where the total consideration of each offer in the Union is less than EUR 8.000.000 calculated over a period of 12 months and provided that such offers are not subject to a passport notification pursuant to Article 25 of the Regulation. Passporting refers to the harmonized disclosure regime established by Article 24 of the Regulation, enabling the admission in the other Member States of cross-border offers of securities or admissions to trading on a regulated market where the prospectus has gained the prior approval of the home Member State.
According to Article 3 of the Regulation, Member States must notify the Commission and ESMA whether and how they decide to apply the above-mentioned exemption, including the monetary amount below which the exemption offers in the Member State, applies and for any subsequent changes to that monetary amount. It is also noted that while Member States are expressly prohibited by the Regulation to impose prospectus requirements for offers lesser than EUR 1.000.000, they may introduce other disclosure requirements given that they are not disproportionate. In practice, cross-border issuers falling below the threshold set by their home Member State or the Regulation may still need to comply with disclosure requirements set by the other Member States.
In Cyprus, Article 4 of the Prospectus Law prohibits the making of a public offer of securities in the Republic without prior publication of a prospectus which has been approved by the Cyprus Securities and Exchange Commission (“CySec”). CySec shall approve the prospectus if its content complies with the provisions of the Prospectus Law and the regulatory acts issued pursuant to it. On 19/04/2019 Cyprus amended the law to raise the threshold below which a prospectus is not required to EUR 5.000.000 in accordance with Article 3(2) of the Prospectus Regulation, before that date the threshold was EUR 1.000.000 stemming from Article 1(3) of the Prospectus Regulation.
Therefore, Article 4(3) of the Prospectus Law was amended as follows:
“The obligation to publish a prospectus shall not apply to the following types of offer:
(a) an offer of securities addressed solely to qualified investors
(b) an offer of securities addressed to fewer than 150 natural or legal persons per member state, which are not qualified investors
(c) an offer of securities for the acquisition of a deposit of a total consideration of €100.000 per investor is required, for each separate offer
(d) an offer of securities whose denomination whose denomination per unit amounts to at least €100.000
(e) an offer of securities to the public with a total consideration in the Union of less than €5.000.000, which shall be calculated over a period of 12 months, whereas it is not subject to the notification procedure pursuant to Article 25 of the Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated marker, and repealing Directive 2003/71/EC.”
The rest of the types of offers which are exempted are deriving from Article 1(4) of the Prospectus Regulation and the provisions in its predecessor, the Prospectus Directive. It is stated in the preamble of the Regulation that the obligation to publish a prospectus should be able to be combined for an offer of securities to the public and/or admission to trading on a regulated market, where those exemptions are fulfilled at the same time.