Wednesday, 27 November 2013

Scope of required disclosure when buying securities - AG Sharpston in Timmel (C-359/12)

26 November 2013: AG Sharpston opinion in case Timmel (C-359/12)

It's a cliche but financial services are often complex and consumers often require more strict protection measures with respect to such services. Currently, many consumer protection measures rely on information duties (despite raising criticism of this instrument it is still predominant) and what kind of information is to be disclosed and in what form often is subject to lengthy disputes. In the Timmel case AG Sharpston gave its opinion on the mandatory information that needs to be revealed in a 'prospectus' to the public interested in purchasing securities. 

The Prospectus Directive requires such information to be conveyed that enables investors to make an informed assessment of the financial position of the issuer and of the rights attaching to the securities in question. Regulation No 809/2004 sets detailed requirements for the content and format in which information should be presented in a prospectus. Interestingly, while the Directive mentions certain information as mandatory, the Regulation allows the issuer of a prospectus to omit such 'required' information if it is not known at the time when a base prospectus is approved and can only be determined at the time of issue (Par. 38). Mr Timmel subscribed for Dragon FX Grant securities (drawn up by Lehman Brothers Treasury Co.), for which certain required information was omitted from the base prospectus and from a supplement to it. He argued that he had a right to withdraw from the contract due to not valid publication of the securities in question, which right of withdrawal is granted to consumer-investors (private persons acting on their own account, not on behalf of a company). The AG Sharpston considers the supplement to the prospectus as having a function of correcting any material mistakes or inaccuracies as well as revealing significant new factors (Par. 41). If the required information became known to the issuer after the prospectus has been published but would not materially influence the assessment of securities, it does not have to be revealed in the supplement but may be added to the final terms instead (Par. 51).

Not only the base prospectus or its supplements did not contain required information, but they were also not made publicly available. The documents could only be found and retrieved for awhile on the homepage of the Luxembourg Stock Exchange, following a lengthy and complicated registration process, upon which only two documents per month could be consulted free of charge. This contradicts according to the AG Sharpston the requirements of Art. 29 Regulation, pursuant to which a base prospectus should be easily accessible to an investor when entering the website (Par. 68).

Additionally, the AG clarifies the issue as to where the base prospectus must be made available: at the registered office of the issuer and at the offices of the financial intermediaries (Par. 84).

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