Guidelines on supplements seeking to introduce new securities to a base prospectus - ESMA consultation

Guidelines on the permissible scope of supplements to a base prospectus – ESMA consultation

On 18 February 2025 ESMA published a consultation paper (ESMA32-1953674026-5808) concerning its proposed draft guidelines on supplements which introduce new securities to a base prospectus approved under the EU Prospectus Regulation.

Key points

• Listing Act amendments to the EU Prospectus Regulation include an express prohibition on the use of a supplement to a base prospectus which introduces a new type of security that is not already described in a base prospectus.
• ESMA is consulting on proposed Guidelines to specify the circumstances in which a supplement is to be considered to introduce a new type of security for this purpose.
• To illustrate its proposed Guidelines, ESMA provides a number of examples of specific circumstances when a supplement is permitted to introduce new information relating to securities and when it is not.
• ESMA's proposed guidance may be seen to broadly reflect current market understandings of the permissible scope of supplements to a base prospectus, but there will still be circumstances where it will not be clear what constitutes a new type of security and the competent authorities may well interpret the new guidance as leading to a more restrictive approach in such cases.
• The consultation closes on 19 May 2025 and ESMA will aim to publish final Guidelines in Q4 2025 to take effect two months later.

Listing Act

The Recitals to the EU Prospectus Regulation have always provided that a supplement should not be used to include a type of security that is not already described in the relevant base prospectus. However, different competent authorities have found it difficult to reach consistent conclusions on when an amendment described in a supplement is simply an amendment to an existing type of security described in a base prospectus and when such an amendment is sufficiently significant as to constitute an entirely new type of security. Accordingly, in the amending Regulation ((EU) 2024/2809) introduced as part of the Capital Markets Union (CMU) package on listing and corporate insolvency known as the "Listing Act", the Recital has become an express prohibition , and ESMA is tasked with developing guidelines to specify the circumstances in which a supplement is to be considered to introduce a new type of security that is not already described in a base prospectus. The Guidelines will not have the force of law but competent authorities and market participants will be expected to adhere to them and any competent authority which does not comply will be required to notify ESMA of that non-compliance and its reasons.

ESMA's Proposed Guidelines

In its consultation, ESMA proposes two Guidelines to be followed to determine the circumstances in which a supplement is to be considered to introduce a new type of security that is not already described in a base prospectus.

Guideline 1

ESMA's proposed Guideline 1 provides: 

A supplement should include information which is material to assessing the securities that are already mentioned in the base prospectus. The addition of information about new types of security features into a base prospectus using a supplement does not provide information which is material to assessing the securities that are already mentioned in the base prospectus.

ESMA provides a number of examples of information which would not comply with this Guideline if included in a proposed supplement, including:

• a new type of underlying; 
• a new guarantee;
• a new step-up/step-down interest payment provision; or
• a new fixed-to-floating interest payment provision. 

In ESMA's view, such information simply adds to the type and nature of securities that can be issued using the base prospectus, and therefore, introduces a new type of security.

Guideline 2

ESMA's proposed Guideline 2 provides:

Issuers should consider the various types of securities they reasonably expect to issue during the validity period of the base prospectus and should appropriately provide for them when they submit their base prospectus for approval. This should be done by including disclosure such as the risk factors associated with the relevant type of securities as well as the overarching terms and conditions that are applicable and by identifying the type of securities which the issuer will issue in the overview of the programme.

To illustrate the application of proposed Guideline 2, ESMA commented that if an issuer reasonably expects to issue green bonds, sustainability-linked notes, equity-linked notes or currency-linked notes, then the base prospectus should at least generally provide for such possibilities. Therefore, any proposed supplement which sought to introduce such types of securities into the base prospectus would not be compliant with the Guideline.

On the other hand, ESMA further commented that the following are examples of information which if included in a proposed supplement would be compliant with the Guideline:

• a new currency as an underlying in a base prospectus that generally provides for the issuance of currency-linked notes;
• limited adjustments to existing redemption formulae or formulae for calculating interest with respect to securities that are already described in the base prospectus; and
• limited changes to risk factors with respect to securities that are already described in the base prospectus.

Impact

While it has been the practice of many of the competent authorities (e.g. BaFin, CBI and CSSF) under the existing EU Prospectus Regulation regime that new types of securities that are not already described in a base prospectus cannot be added via a supplement, ESMA's proposed guidelines provide some much-needed clarity in where to draw the line between amendments to a base prospectus by way of supplement which would result in the relevant information being considered a new type of security for this purpose and that which would not. In particular, the various examples provided should prove helpful guidance to market participants with respect to the scenarios described by ESMA. That said, there remains considerable scope for differing interpretations as to what constitutes a new type of security, particularly with regard to how to interpret "limited adjustments to existing redemption formulae or formulae for calculating interest with respect to securities that are already described in the base prospectus." If the proposed Guidelines are published in their current form, it may take some trial and error period as between issuers and competent authorities to fully understand the degree to which (if any) the permissible scope of supplements to a base prospectus has changed.

Next steps

The consultation closes on 19 May 2025 and  ESMA will aim to publish final Guidelines in Q4 2025. The proposal states that the Guidelines will then apply from two months after the date of their publication on ESMA’s website.