Fresh from delivering its final technical advice to the European Commission on final terms and summaries in the context of the Prospectus Directive Amending Directive (2010/73/EU), the European Securities and Markets Authority (ESMA) has now turned its focus towards some of the remaining topics on which it has been mandated by the Commission to provide technical advice. On 13 December 2011, ESMA published a Consultation Paper containing its proposed advice in relation to the consent to use a prospectus in a retail cascade, as well as a review of certain provisions of the Prospectus Regulation (809/2004). Once ESMA’s technical advice is delivered to the Commission in final form, the Commission will consider it in proposing legislation on the issues which were delegated to it in the Amending Directive.

ESMA’s definition of a retail cascade is “a distribution mechanism where securities are offered to retail investors not directly by the issuer, but by a distribution network of financial intermediaries.” It considers that this can encompass more than one structure – firstly, a sale from the issuer to the financial intermediaries and a subsequent sale by the intermediaries to the retail investors, and secondly, a placement of the issuer’s securities to the retail investors by the intermediaries, without the intermediaries actually acquiring those securities at any point. In both cases, though, the financial intermediaries are acting in association with the issuer.