Reforms to Prospectus Regime

Following last year's consultation, last Friday SFC eventually released the consultation conclusions on the 21 reform proposals to the prospectus regime. This reform is indeed a big re-engineering project for the existing legislations (including CO & SFO).

I would like to discuss some of those conclusions in today's blog:

• In response to public comments, SFC agreed to apply the safe harbors under 17th Schedule of CO to all funds (including unit trusts). This is good as many practitioners are concerned that unit trusts are not entitled to the CO safe harbors and also not exempted by SFO for private placement.
• SFC would not grant a prospectus exemption for off-market offers of listed shares & debentures. This sounds too stringent. Fortunately SFC agrees that the prospectus content requirements for a secondary issue may be significantly less than those for an IPO.
• It is reasonable to differentiate plain vanilla "debenture" (for fund raising purpose and subject only to CO regime) from "structured products" (subject only to SFO investment advertisement regime).
• To avoid abuse of the "private placement" and "small scale offer" exemptions, SFC has proposed to aggregate "closely related offers" (even not by the same entity) made within a period of 12 months. This seems to be a simpler way to close the regulatory gap.
• SFC finally gave up the proposal to extend the prospectus liability to sponsors. I think this is a compromise in view of the implementation of the new sponsor guidelines.
• It is a regret SFC has decided not to extend classes of persons who may claim compensation for a mis-stated prospectus to secondary market purchasers. SFC originally quoted that UK, Australia & Singapore had no express restriction of compensation to only primary market purchasers.
• I strongly support SFC's decision to allow "incorporation by reference" as this can shorten the prospectus and support environment protection. A giant IPO like China Merchants Bank had destroyed so many trees!
• Pre-deal research by connected analysts is really a controversial issue, as the release of such information is both unfair and unreliable. SFC's final proposal (e.g. ban on forward-looking information) of amending Paragraph 16 of CoC would reduce the value of pre-deal research.