I. Securities

Under Regulation (EU) 2017/1129 (“Prospectus Regulation”), the term “securities” refers to all transferable securities which can be traded on a market, with the exception of money market instruments having a maturity of less than 12 months.
The general rule for a financial instrument to be classified as a security is that it must be transferable and negotiable and encompass rights comparable to securities. The instrument is not required to be certificated to be classified as a security.

A security is deemed transferable if it can be transferred to an acquirer and its legal and technical characteristics remain unchanged when it is transferred. The nature of the transfer is not relevant.

The deciding factor for a security to be deemed negotiable is that it is sufficiently standardised and homogenously designed. The security may not confer any differing rights and must be identifiable in transactions by type and quantity. It is not necessary for securities to be able to be held in custody in order to be deemed negotiable. Furthermore, the criterion of negotiability must be met on financial markets. The possibility of negotiation is sufficient; actual negotiation is not required.

These criteria also play a decisive role in determining whether a token constitutes a security. The rights associated with a token, which generally must be organisational and/or financial rights, are the determining factors for categorising the token as a security. This means that a token must represent either an organisational right similar to a share or another financial right comparable to the examples of transferable securities (such as debt securities) set out in point 44 of Article 4(1) of Directive 2014/65/EU (“MiFID II”).

If an investment instrument is not classified as a security within the meaning of the EU Prospectus Regulation, the German Capital Investment Act (Vermögensanlagengesetz – VermAnlG) or the German Investment Code (Kapitalanlagegesetzbuch – KAGB) may apply. Under certain circumstances, it may also be classified as deposit business within the meaning of section 1 (1) sentence 2 no. 1 of the German Banking Act (Kreditwesengesetz – KWG), which requires authorisation.

Money market instruments having a maturity of less than 12 months do not require a prospectus. These instruments are characterised by high minimum volumes and short liquidation periods. Money market instruments in this sense include in particular treasury bills, certificates of deposit and commercial papers.

Prospectus requirement

BaFin

II. Offer to the public

In accordance with the legal definition in Article 2(d) of the Prospectus Regulation, an offer of securities to the public means a communication to the public 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 for these securities. This definition also applies to the placing of securities through financial intermediaries. The mere admission of securities to trading on a multilateral trading facility or the publication of bid or offer prices does not constitute an offer of securities to the public per se. A prospectus should thus only be required in such cases if these activities involve a communication that constitutes an offer of securities to the public under the Prospectus Regulation. To further specify the term “offer to the public” in the context of the permissibility of securities-related communications during trading on secondary markets, BaFin published an interpretive letter in June 2013 that still applies accordingly.

1. Content of the communication

The information provided in the communication must enable investors to decide whether or not to purchase the securities. It is assumed that an offer is made to the public if information on the essential aspects, such as what is being offered for sale and the price or price range, are set out. Advertising activities and other notices and publications do not constitute an offer to the public if they do not provide such information, for example where only a certain group of securities (e.g. “XY certificates”) is advertised.

2. Communication in any form and by any means

The communication must be specifically addressed to investors. A mere response to an investor’s enquiry generally does not constitute an offer to the public.

3. “to the Public”

There are no specific requirements attached to the term “public”. As a rule, offers addressed to a selected or known group of persons only, such as employees or specific professions, etc., also constitute offers to the public. The same applies to existing shareholders who are offered shares from a rights issue. For rights issues, the simplified disclosure requirement for secondary issuances may apply if the conditions of subparagraph 1(a) of Article 14(1) of the Prospectus Regulation are met. Moreover, for offers addressed to only a limited number of individuals or a known group of individuals, the exemption from the prospectus requirement under Article 1(4)(b) of the Prospectus Regulation may apply (see below under V.1.).

4. In Germany

The fact that the prospectus requirement is tied to an offer to the public in Germany is based on the legal definitions for home Member State and host Member State. These definitions establish a link to the Member State in which the offer of securities to the public is made (see Article 2(m) and (n) of the Prospectus Regulation). BaFin is responsible for approving the prospectus in cases where Germany is the home Member State. It is only in such cases that BaFin monitors fulfilment of the prospectus requirement.

A connection to Germany is deemed to exist if the prospectus is to be addressed to investors domiciled in Germany. Such a connection is generally assumed if the offer can be accessed from Germany.

If there is unrestricted online access to an offer to the public, for example, this means that the offer is addressed to the global public; consequently, a prospectus is required in Germany.

If there is no connection to Germany, a prospectus may be required under foreign law, in which case foreign authorities are responsible.

III. Admission to trading on an organised market

A prospectus is also required if securities are to be admitted to trading in Germany on a regulated market within the meaning of Article 2(j) of the Prospectus Regulation. As the availability of a prospectus is a listing requirement under section 32 (3) no. 2 of the German Stock Exchange Act (Börsengesetz – BörsG), stock exchanges review in the admission process whether a prospectus is available or whether an exemption from the prospectus requirement under Article 1(5) of the Prospectus Regulation applies.

IV. No prospectus requirement for offers to the public of less than EUR 1 million

There is no prospectus required under the first subparagraph of Article 1(3) of the Prospectus Regulation for offers to the public where the total consideration in the EU (including the EEA) is less than EUR 1 million. This ceiling is to be calculated over a period of 12 months. For offers of securities to the public that are below the EUR 1 million limit, however, a prospectus may be drawn up on a voluntary basis. Issuers are also required to adhere to the securities information sheet regime.

V. Exemptions

1. Offers to the public exempt from the prospectus requirement

Securities can be offered to the public without a prospectus approved by BaFin if one of the exemptions set out in Article 1(4) of the Prospectus Regulation applies, depending on the type of offer.
Article 1(4)(a) to (l) of the Prospectus Regulation governs the exemptions relating to the type of offer. Such an exemption from the prospectus requirement applies if

• the offer is addressed solely to qualified investors. Qualified investors are those described in Sections I and II of Annex II to MiFID II, i.e. professional clients or eligible counterparties;
• the offer is addressed to fewer than 150 non-qualified investors per Member State. In this case, the offer communication may only be accessible to a maximum of 149 persons. This means that either a maximum of 149 persons are specifically addressed, or that technical measures are in place to prevent more than 149 persons from being able to read the offer communication. However, this exemption rule cannot be utilised by arbitrarily breaking down the offer into multiple parts and addressing each of these to fewer than 150 persons. Such parts of an offer would together be considered as one offer and would thus trigger the prospectus requirement;
• the securities have a denomination per unit of at least EUR 100,000;
• the offer is only addressed to investors who can acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer;
• shares are issued in substitution for shares of the same class already issued if the issuing of such new shares does not involve any increase in the issued capital. This can be the case, for example, when a stock corporation’s share capital is re-denominated;
  
• securities are offered in connection with a takeover by means of an exchange offer, provided that a document is made available to the public containing information describing the transaction and its impact on the issuer;
• securities are offered or allotted or are to be allotted in connection with a merger or division, provided that a document is made available to the public containing information describing the transaction and its impact on the issuer;
• dividends are paid out to shareholders in the form of shares of the same class, provided that a document is made available containing information on the number and nature of the shares and the reasons for and details of the offer;
• securities are offered or allotted or are to be allotted to current or former directors or employees by their employer or by an affiliated undertaking, provided that a document is made available containing information on the number and nature of the securities and the reasons for and details of the offer or allotment; or
• certain non-equity securities are issued in a continuous or repeated manner by a credit institution, where the total aggregated consideration in the Union for the securities offered is less than EUR 75 million per credit institution calculated over a period of 12 months (this exemption was extended to a threshold of less than EUR 150 million for the period from 18 March 2021 to 31 December 2022); or
• securities are offered to the public by a crowdfunding service provider authorised under Regulation (EU) 2020/1503 of the European Parliament and of the Council, provided the offer does not exceed the threshold set out in Article 1(2)(c) of this Regulation.

Under the second subparagraph of Article 5(1) of the Prospectus Regulation, no prospectus is required if securities are resold by financial intermediaries, as long as a valid prospectus is available and the issuer or the persons responsible for drawing up the prospectus consent to its use by means of a written agreement. The prospectus must indicate whether and to what extent such consent has been given.

2. Exemptions from the prospectus requirement – admission to trading

Exemptions from the requirement to draw up a prospectus in the event of admission to trading on a regulated market can be found in Article 1(5) of the Prospectus Regulation. The decision on whether such an exemption applies is made primarily by the exchanges as part of the admission process.

For certain types of securities, including but not limited to the following, the obligation to publish a prospectus does not apply to the admission to trading on a regulated market:

• securities fungible with securities already admitted to trading on the same regulated market, provided that they represent, over a period of 12 months, less than 20% of the number of securities already admitted to trading on the same regulated market;
• shares resulting from the conversion or exchange of other securities or from the exercise of rights attaching to other securities, if these are shares of the same class as the shares already admitted to trading on the same regulated market and, if applicable, they represent, over a period of 12 months, less than 20% of the number of shares of the same class already admitted to trading on the same regulated market;
• securities resulting from the conversion or exchange of other securities, own funds or eligible liabilities by a resolution authority;
• shares issued in substitution for shares of the same class already admitted to trading on the same regulated market, where the issuing of such new shares does not involve any increase in the capital of the issuer;
• securities offered in connection with a takeover by means of an exchange offer, provided that a document is made available to the public containing information describing the transaction and its impact on the issuer;
• securities offered, allotted or to be allotted in connection with a merger or a division, provided that a document is made available to the public containing information describing the transaction and its impact on the issuer.

VI. Opt-in provision

Article 4 of the Prospectus Regulation provides for an option that enables the issuer to voluntarily draw up a prospectus even if the scope is not applicable or if exemptions apply and a prospectus is not required. The voluntary prospectus must meet all the requirements under the Prospectus Regulation. In all cases, however, to qualify for a voluntary prospectus, the financial instrument in question must be classified as a security and this security must be intended to be offered to the public or admitted to trading on a regulated market.