1 Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC,  OJ L168/12 (Prospectus Regulation).
2 Italics added. Generally, with respect to this clause, see J. P. Franx, ‘Prospectusaansprakelijkheid uit onrechtmatige daad en contract’, in: B. Bierens et al. (eds), Handboek Beursgang, Onderneming en Recht, no. 68 (Deventer: Kluwer, 2017) 97 ff.
3 An exception to this general rule is given in Article 14(2), Prospectus Regulation in relation to prospectuses for secondary issuances where, subject to certain conditions, simplified rules apply. Article 14(2) specifically states that these rules apply ‘by way of derogation’ from Article 6(1), Prospectus Regulation. That language is notably not included in Article 15, which provides for the information to be included in an EU Growth Prospectus; the principle as stated in Article 6(1), Prospectus Regulation thus fully applies to that category of prospectuses.
4 See also Recital (24), Prospectus Regulation, which likewise seems to imply a measure of flexibility. The above comments apply equally to this recital.
5 Directive 2003/71/EC of the European Parliament and the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (Prospectus Directive).
6 See ‘ESMA Update of the CESR Recommendations’ dated 23 March 2011, ESMA 2011/81, to be found on the ESMA website.
7 Blue sky laws are typically defined as state law in the US (as opposed to federal law), intended to protect investors from investment fraud.
8 Typical language may read: ‘Nothing herein constitutes an offer of Securities for sale in the United States or any other jurisdiction where it is unlawful to do so.’ Often, the gist of this language will be repeated in various formulas for other specific jurisdictions, e.g. Canada, Japan, the UK, Australia, and the European Economic Area. Which jurisdictions are specifically addressed in this context seems to be a matter of market practice as much as an analysis of where the offer is likely to be taken up.
9 See, for a Dutch law analysis, V.P.G. De Serière, Effectenrecht (Deventer: Kluwer, 2018) 938 ff. (in Dutch), with further references; L.J. Hijmans van den Bergh and M.C. Schouten, ‘Grensoverschrijdende biedingen’, in: M.P. Nieuwe Weme et al. (ed.), Handboek Openbaar Bod (Deventer: Kluwer, 2008) 174 (in Dutch). It is noted that the new Prospectus Regulation regime does not require any substantive changes to selling restrictions, but any references to the ‘old’ Prospectus Directive regime must, of course, be changed for new offerings, and Brexit may also require changes to references as currently used. Representative organizations such as The International Capital Markets Association (ICMA) and The Association for Financial Markets in Europe (AFME) are active in developing new standard language for different categories of selling restrictions. See, for AFME, https://www.afme.eu/globalassets/downloads/publications/20190327-afme-ecm-selling-restrictions-for-equity-transasctions.pdf.
10 Sanctions in this context include fines and other criminal law measures that may be taken against persons responsible for a prospectus.
11 Article 20, Prospectus Regulation actually contains a sanction in the sense that the regulator may withhold its approval of a prospectus; in the context of public offerings, such denial of approval would in all likelihood be disastrous for the intended securities offering, and, of course, issuers would in practice not let matters get that far out of hand. The scrutiny and approval process under Article 20, Prospectus Regulation as further detailed in Article 36 ff., Commission Delegated Regulation (EU) 2019/980 of 14 March 2019, (CDR), however, does not require the competent authority to make an in-depth substantive determination of whether the prospectus is ‘PR compliant’, even though the requirements of Article 36 ff., CDR impose tougher rules for the national competent authorities than under the Prospective Directive regime. Prospectuses will in practice normally contain warning language to that effect, such as:
This Prospectus has been approved by the [name competent authority], as competent authority under Regulation (EU) 2017/1129 (the Prospectus Regulation). The [competent authority] only approves this Prospectus as meeting the standards of completeness, comprehensibility and consistency imposed by the Prospectus Regulation. Approval by the [competent authority] should not be considered as an endorsement of the Issuer. Investors should make their own assessment as to the suitability of investing in the Securities.
See also Chapter 16 of this publication.
12 Article 267, Treaty on the Functioning of the European Union (TFEU).
13 Apart from the provisions of Article 11, Prospectus Regulation, stating generally that Member States ‘shall ensure that their laws, regulations and administrative provisions on civil liability apply to those persons responsible for the information given in a prospectus’.
14 Dutch Supreme Court, 27 November 2009, NJ 2014/201, point 4.10.4.
15 Informal translation by the author.
16 Some ‘clues’ can be found here and there. For instance, Recital (34), Prospectus Regulation states, ‘Any new matter liable to influence the assessment of the investment . . .’ (italics added).
17 Article 6:194 ff., Dutch Civil Code (DCC). It is somewhat of an anomaly that the rules on misleading advertising apply, since a prospectus should not and cannot be characterized as advertising.
18 Article 6:193a ff., DCC. A consumer is defined as a natural person not acting in the conduct of a profession or trade.
19 Articles 2 and 5, Directive 2005/29/EC.
20 EU Court of Justice, 16 July 1998, C-210/96 (Gut Springenheide) and 19 September 2006, C-356/04.
21 Interestingly in this connection, International Accounting Standard (IAS) 1 notes that the Framework for the Preparation and Presentation of Financial Statements states that ‘users are assumed to have a reasonable knowledge of business and economic activities and accounting, and a willingness to study the information with reasonable diligence’. This, incidentally, mirrors the view of the Dutch Supreme Court in the World Online judgment that an average investor is a person who may be expected to be willing to examine the information offered to him (see para. 4.10.3 of that judgment, referenced in n. 14). See also section XII ‘Materiality as a Concept in Various Jurisdictions: A High-Level Discourse’ (para. 9.32) below, where the term ‘reasonable investor’ is coined by the US Supreme Court; the use of this broad term has been widely criticized.
22 Expanded on in Commission Delegated Regulation (EU) 2019/979 dated 14 March 2019. This Regulation provides more detailed information requirements, distinguishing between summaries for respectively non-financial entities issuing equity securities, non-financial entities issuing non-equity securities, credit institutions, insurers, special-purpose vehicles (SPVs) issuing asset-backed securities, closed-end funds, and guarantors. Issuers outside of these categories should follow the requirements for the type of securities that correspond most closely to their securities on offer. The Regulation itself does not offer any specific guidelines as to which information is key and which information does not qualify. The Annexes to the Regulation, however, do provide some insight in that they specify in particular the basic financial information that issuers are required to include in the summary. They do not provide insight into which non-financial information is deemed necessary to be included in the summary.
24 Basic Inc. v. Levinson, 485 US, 224 (1988).
25 See e.g. D.H. Kaye, ‘What is Bayesianism? A Guide for the Perplexed’, Jurismatics Journal (1988) 28, 161 ff; Enrico Guerra-Pujol, ‘Visualising Probabilistic Proof’, Washington University Jurisprudence Review (2014) 39, 71.
27 ESMA Guidelines on risk factors.
28 In the US, this would be the Financial Accounting Standards Board (FASB) and the Public Company Accounting Oversight Board (PCAOB).
30 TSC Industries, Inc. v Northway, Inc., 426 US 438 (1976).
31 H.-D. Assmann and R.A. Schutze, Handbuch des Kapitalanlagerechts (Munich: Verlag C. H. Beck, 2007) 299 ff.
34 There is an abundance of literature and research papers on materiality standards as used in the accountancy profession. These will not be discussed in this chapter. For a useful introductory publication see W.F. Messier, N. Martinov-Bennie, and A. Eilifsen, ‘A Review and Integration of Empirical Research on Materiality: two Decades Later’, Auditing: A Journal of Practice and Theory (2005) 24(2), 153 ff.
35 Report of 30 May 2013, ESMA/2013/619; K.J. Hopt and H.-Chr. Voigt (eds), Prospekt- und Kapitalmarktinformationshaftung (Tübingen: Mohr Siebeck, 2005).
36 See De Serière, Effectenrecht, 751 (in Dutch) for an overview.
37 A clear summary of prospectus liability under US law is to be found in para. 4.1 of the conclusion of Advocate-General Timmerman in the World Online case (see n. 14). One has to bear in mind that this summary reflects the position in 2009, now some ten years ago.
38 TSC Industries, Inc. v Northway, Inc., 426 US, 438 (1976).
39 For instance: Basic Inc. v Levinson, 485 US, 224 (1988) and other Supreme Court and lower court cases cited in the publication mentioned in n. 37.
40 See e.g. K.S. Schulzke and G. Berger-Walliser, ‘Towards a Unified Theory of Materiality in Securities Law’, Columbia Journal of Transnational Law (2017) 56(6), with further references.
41 See e.g. R.H. Thaler, Misbehaving: the Making of Behavioural Economics (New York: Norton, 2015) 205, 231.
42 See e.g. Gerding, Bubbles and Financial Regulation (New York: Routledge, 2014): ‘In a bubble, investors become like turkeys merrily enjoying the good food they are being served right up to their rude awakening to their fate at Christmas . . .’ (Free after Taleb’s The Black Swan).
43 See also W. Joachim, ‘The “Reasonable Man” in United States and German Commercial Law’, Comparative Law Yearbook of International Business (1992) 15, 341 et seq. , who draws a parallel between the US concept of a reasonable man (investor) and the concept, largely comparable, prevailing in Germany.
44 See e.g. M. Habersack, P.O. Mülbert, and M. Schlitt, Handbuch der Kapitalmarktinformation (2nd edn, Beck Online, 2013) para. 29; H.-D. Assmann and R.A. Schütze, Handbuch des Kapitalanlagerechts (4th edn, 2015) 131 ff; H. Harrer, F. Drinkhausen and H.-M. Eckstein, Handbuch der AG (13th edn, C.H. Beck, 2018) 329.
45 H.-D.Assman and R.A. Schütze, Handbuch des Kapitalanlagerechts, 4th edn (n. 44), 141. In English:
Taking into consideration the objectives of prospectus liability, in order to ensure the completeness and correctness of information an average sensible investor needs to arrive at an informed investment decision in which the chances and risks concerned are recognised, all information with respect to circumstances constituting the factors that determine the value [of the securities concerned] and that an average sensible investor would more likely than not take into consideration when making his investment decision, must be deemed material [Translation by the author].
46 In English:
In this respect such information must be addressed [in the prospectus] that concern the factors that determine the value of the securities concerned, including in particular past and to be expected earnings, financial and legal risks, product and brand strategies, but on the other hand not technical information such as the number of depositary agents involved or totally unimportant balance sheet items [Translation by the author].
47 W. Gross, Kapitalmarktrecht/WpPG (6th edn, C.H. Beck, 2015) para. 21, nn. 35 ff.
48 Note the parallel with Article 17(5), Regulation (EU) 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (MAR), where a disclosure exemption is created specifically for banks and insurance companies if disclosure would disrupt the stability of a financial institution and of the financial system.
49 This would appear also to be in line with ESMA’s approach: see Final Report (Technical Advice under the Prospectus Regulation) dated 28 March 2018, ESMA 31-62-800, 210.
50 In the German text ‘würde’, and in the Dutch text ‘zou’.
51 Regulation (EU) 596/2014 of 16 April 2014.
52 The term ‘legitimate interests’ is not defined in MAR. The ESMA Guidelines (ESMA 2016/1478) also provide no definition, but the Guidelines give various examples of situations/circumstances where legitimate interests are involved.
53 See, in comparison, the discussion on the terms ‘material’ and ‘necessary’ in para. 9.03 above.
54 See e.g. T.M. Stevens, ‘Openbaarmaking van voorwetenschap’, in: D.R. Doorenbos et al. (eds), Handboek Marktmisbruik (Deventer: Kluwer, 2018), 7.6.4 (in Dutch).
55 The scrutiny and approval process pursuant to Article 20, Prospectus Regulation, as further detailed in Article 36 ff., CDR, should in theory, when checking the completeness of the prospectus, bear out whether information has been left out. But this is only possible where the competent authority has knowledge of that missing information, which it will usually not have.
56 See e.g. T. Tridimas, The General Principles of EU Law (Oxford University Press, 2006) 418; K. Van Gerven, ‘Of rights, remedies and procedures’ 37 Common Market Law Review, Issue 3 (2000) 501 ff ; L.A.D. Keus, Europees Privaatrecht (Deventer: Kluwer, 2010) 61; K. Lenaerts and P. Van Nuffel, European Union Law (London: Sweet & Maxwell 2011) 150; R. Meijer, ‘The Rewe/Comet “Doctrine” and its Implications for Dutch Law’, in: A. Hartkamp et al. (eds), Influence of EU Law on National Private Law (Deventer: Kluwer, 2014), 44; D. Busch, MiFID II/MiFIR: Nieuwe Regels voor Beleggingsondernemingen en financiële markten (Deventer: Kluwer, 2015) 211 (in Dutch); De Serière, Effectenrecht, 743 (in Dutch).
57 Directive 2014/65/EU of 15 May 2015.
58 The legal debate on this topic has focused more on this question in the context of MiFID II rather than with regard to the Prospectus Regulation.
59 The EU Court of Justice has in numerous judgments invoked the effet utile principle; however, without clearly defining its scope. See e.g. CJ EU 16 December 1976, 33/76, Jurispr. 1976, 1989 (Rewe); CJ EU 20 September 2001, C-453/99 (Courage/Crehan); CJ EU 30 May 2013, C-604/11, JOR 2013/274 (Genil48/Bankinter).
60 See amongst others J.P. Franx, Prospectusaansprakelijkheid uit onrechtmatige daad en contract (Deventer, Kluwer 2017) 295 ff (in Dutch); C.H.J. Jansen, E.R. Schreuder, and H.L.E. Verhagen, Prospectusaansprakelijkheid (Amsterdam: NIBE-SVV, 2003) 42 (in Dutch) ; De Seriere, Effectenrecht, 625 ff (in Dutch);
61 There appears to be a level of divergence between the European and the Anglo-Saxon approach here. For instance, whilst under Dutch law liability of accountants in case of investors’ reliance on audited financial statements is acknowledged, the so-called proximity doctrine may stand in the way of the liability of accountants under Anglo-Saxon law: see e.g. Gupta, Contemporary Auditing (6th edn, 2005) 1009 ff.
62 Dutch Supreme Court 2 December 1994, NJ 1996/246. The Dutch Supreme Court reiterated this in its World Online ruling (see n. 14).
64 One could argue that harmonizing prospectus liability is an essential part of the more general effort to harmonize capital markets rules, and therefore trumps any subsidiarity concern one might otherwise have.
65 To the extent Regulation (EC) 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations (Rome I) or Regulation (EC) 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome II) would not determine the outcome.
66 These are the central securities depositaries or international securities depositaries, such as Euroclear Bank in Brussels and Clearstream in Luxembourg, used for the settlement of securities transactions.
67 Respectively: Kolassa C-375/13 of 28 January 2015; Universal Music C-12/15 of 16 June 2016, and Helga Löber C304/17 of 12 September 2018
68 The place where the damage must be considered to have occurred.
69 Regulation (EU) 1215/2012 of 12 December 2012.
70 C-366/13 of 23 April 2015.
71 The question arises: which national law would that be? Presumably the law determined according to the provisions of Rome I.