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27 February 2007
The interest of investors in equity index-linked notes has increased over the past years. During the first nine months of 2006 banks and other financial institutions issued equity index-linked notes and other index-linked notes for a nominal amount of approximately Skr38 billion (€4.2 billion) in Sweden.
The Financial Supervisory Authority has reviewed the information contained in prospectuses and marketing brochures with which investors are presented when acquiring equity index-linked notes. The review aimed to follow up on (i) compliance with the new prospectus regime implementing the EU Prospectus Directive (2003/71/EC) (in particular, the rules that the authority deems to be the most significant for consumer protection), and (ii) the results of a review of index-linked notes conducted by the authority in 2005.(1)
Under the prospectus regime, prospectuses must contain the information which, according to the particular nature of the issuer and of the securities offered to the public or admitted to trading on a regulated market, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses, and prospects of the issuer and guarantor, if any, and of the rights attaching to such securities. This information must be presented in an easily analyzable and comprehensible manner.
The authority investigated four offers of equity index-linked notes made by four Swedish banks during the period from March to July 2006. The offers were made under base prospectuses registered with the authority. The documents covered by the review were:
On December 20 2006 the results of the investigation were presented in a report entitled "Equity index-linked notes - an evaluation of the new prospectus regime".(2) In the report, the authority concluded that the manner in which the information was presented to investors was deficient. The authority's findings included the following:
As of January 1 2007 the authority has increased its demands in connection with the examination of prospectuses for approval and registration. Supervision will be stricter and the authority will work more closely with the Consumer Agency to monitor the marketing of equity index-linked notes. This is likely to require increased resources within banks and other financial institutions when drafting the offering documents for equity index-linked notes and also an increased involvement of legal counsel - internal and external - in the drafting process.
For further information on this topic please contact Niclas Rockborn at Gernandt & Danielsson Advokatbyrå by telephone (+46 8 670 66 00) or by fax (+46 8 662 61 01) or by email (email@example.com).
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