Amendments in the Public Offering of Securities Act

On the 1st August 2017 a number of significant amendments in Public Offering of Securities Act (POSA) entered into force. They are as follows: 1) a change in the definition of `public offering of securities`; 2) new provisions for the public offering and admission of securities to trading on a regulated market; 3) an additional payment requirement by an Investor Compensation Fund. The present list of changes is not exhaustive, the amendments envisage a number of other changes related to bonds.

The first amendment envisages that “public offering of securities” shall be addressed to 150 and more persons while so far 100 persons it had to be addressed to at least 100 persons.

The second significant amendment about the public offering and admission of securities to trading on a regulated market introduces exceptions to the public offering regime which are as follows:

1. Issue of securities the total value of which within the European Union amounts to less than the BGN equivalent of EUR 1 000 000, as this threshold is calculated over a period of 12 months;
2. Non-equity securities issued continuously or periodically by banks where the total value of the securities offered within the European Union is less than the BGN equivalent of EUR 75 000 000, this threshold being calculated over a period of one year, provided these securities:
3. are not subordinate, convertible or exchangeable;
4. do not give the right to subscribe or acquire other types of securities and are not linked to a derivative financial instrument.

The admission to trading on a regulated market of the securities referred to in items 1 and 2 above of an issuer, an offeror or a person asking for admission to trading on a regulated market, the latter are obliged to prepare a prospectus in accordance with the requirements of the POSA. The deadline for confirming the prospectus by the Financial Supervision Commission was extended in case of request of an issuer that has no securities admitted to trading on a regulated market and has not offered public securities. The term is up to 15 business days instead of 10 business days as usual. The new amendments trigger a refusal of the Financial Supervision Commission in the event the requirements of the law and / or the applicable European Union law are not met or the way public notification is not complied with.   The new regime for public notification requires publications in at least one central daily newspaper or in an information agency website or other media that can ensure the effective dissemination of regulated information to the public in all Member States.

The third substantial amendment is an additional requirement for the payment of funds from the Investor Compensation Fund. Prior to the change in the POSA, there were only two reasons for the payment of investor compensation, namely:

1. A court decision in case of initiated insolvency proceedings of an investment intermediary, including when the insolvency proceedings are terminated on the grounds of Art. 632 of the Commerce Act;
2. The license, respectively the authorization, to act as an investment intermediary is withdrawn.

   With the POSA amendments of 1 August, the requirement to compensate customers introduced following cumulative conditions:

1. the financial instruments and / or the funds held by the investment intermediary for the account of its clients are not available in the relevant accounts for reasons other than the performance of contractual relations with clients;
2. at the discretion of the Financial Supervision Commission at that time the investment intermediary is unable, for reasons directly related to its financial circumstances, to repay customer funds, respectively, to restore the financial instruments and will not be able to do this in the short term.

The amendments to the POSA of 1st August 2017 change significantly the requirements for initial public offering and admission to trading on a regulated market of bonds as well.