Despite global economic turbulence, Gulf Co-operation Council (GCC) economies have continued to show healthy and stable growth in recent years. Positive oil price dynamics as well as the ability to retain cash by local businesses and individuals, among other factors, have contributed to an increase in gross domestic product (GDP) in most GCC economies.

To reduce reliance on the oil and gas industry, governments of some GCC countries have been taking measures to diversify the economies of their respective countries, particularly by aggressively developing the private sector, building industrial cities and establishing free trade zones.

One such GCC country is the United Arab Emirates (UAE), whose emirates have been establishing economic free zones to attract foreign investment. These are usually aimed at businesses operating in a specific sector, for example, commodities trading (Dubai Multi Commodities Centre), eco-friendly enterprises (MASDAR City, Abu Dhabi) and healthcare (Dubai Healthcare City).

This article focuses on financial free zone the Dubai International Financial Centre (DIFC), and recent changes to its legal framework, particularly in relation to rules on prospectuses.

To address the regional need for an internationally-accepted common framework and a regulated financial centre with international standards and a transparent system of law, in 2004, the Government of Dubai established a financial free zone, namely the DIFC, with its own system of laws and regulations, as well as an independent court system separate from the civil and commercial legal framework of the wider UAE (Article 12 of the UAE Constitution, Federal Law No 8 of 2004 and Dubai Law No 12 of 2004).

Apart from other things that the DIFC offers, such as, for example, 100% foreign ownership and a US$ denominated environment, the DIFC has its own stock exchange, NASDAQ Dubai (formerly known as the Dubai International Financial Exchange). This opened for trading on 26 September 2005 and has primary and secondary listing of equity and debt securities, debentures, certificated units issued by funds, structured products and Islamic products.

The operations of entities that provide financial services in and/or from the DIFC are monitored, supervised and regulated by the Dubai Financial Services Authority (DFSA). Financial services are defined in the DFSA Rulebook to include, for instance, banking services and capital markets (General Module (GEN), VER33/07-13); Rules 2.2.1-2.2.3).

Over a period of nearly two years, the DFSA undertook an extensive internal and external consultation process in relation to proposed changes to the DIFC Markets Law (issued in 2004), Offered Securities Rules and associated rules and regulations.

The main aim of the process was to better harmonise the DFSA's capital markets laws, rules and regulations with the European Union's Prospectus Directive (2003/71/EC) and Market Abuse Directive (2003/6/EC) and various capital market standards adopted by the Organisation for Economic Co-operation and Development.

The end result was the enactment of a new Markets Law DIFC Law No 1 of 2012 (New Markets Law) and associated Markets Rules (MKT) (Markets Rules), which replace in their entirety the 2004 DIFC Markets Law and the Offered Securities Rules. In addition, certain supporting amendments were also made to Regulatory Law DIFC Law No. 1 of 2004, as well as to the following DFSA Rulebook modules:

All of the changes referred to above (the New Regime) came into force on 5 July 2012.

In a public statement concerning the New Regime, Ian Johnston, Chief Executive Officer of the DFSA said: "These changes bring our markets regime into closer alignment with the EU requirements while retaining features necessary to accommodate regional needs and circumstances".

The New Regime represents a significant change to the DIFC legal framework in a number of areas including:

The remainder of this article focuses on the New Regime's rules on when a prospectus is required, the information a prospectus should contain, the length of its validity and the prospectus approval process.

Note that an offer of units in a collective investment fund is subject to separate considerations, which are not covered in this article (any and/or all references below to "securities" do not include such units).

When a prospectus is required. Prior to the New Regime, in the context of an offer of securities, whether a prospectus was needed and, if so, what it had to contain, were first determined by reference to whether the offer of securities was a public, exempt or unregulated offer.

However, under the New Regime, unless subject to exemptions (examples of which are given below), a prospectus is required in either of the following circumstances (section 14(12), New Markets Law):

While the previous definition of "offer of securities" referred to "offers" and "invitations" directly or indirectly targeting investors, under the New Regime an "offer of securities to the public" takes place if there is "a communication to any person in any form by any means, presenting information on the terms of the offer and the securities offered, so as to enable an investor to decide to buy or subscribe to those securities (…)" (section 12, New Markets Law). This broad definition has been narrowed down by certain exclusions. For example, communications made in connection with the trading of securities that are listed and traded on a regulated exchange and in the ordinary course of business of an authorised firm or recognised member are not considered to constitute an offer of securities that requires a prospectus (section 12(a), New Markets Law). As was the case under the old legal framework relating to offers of securities, the definition of an "offer of securities" under the New Regime requiring the issuance of a prospectus is subject to certain listed exemptions. Offers coming within these exemptions are either referred to as "exempt offers" (Rule 2.3, Markets Rules) or those offers that concern "exempt securities" (Rule 2.4, Markets Rules).

Examples of exempt offers where a prospectus is not required include:

Examples of exempt securities the offer of which does not require a prospectus include, among various others, "shares representing, over a period of 12 months, less than 10 per cent of the number of shares of the same class already admitted to trading on the same exchange" (Rule 2.4.1(a), Markets Rules).

In relation to secondary offers, under the New Regime, any subsequent offer of securities that had previously been offered to the public by way of an exempt offer will be considered to be a new offer and the issue of whether a prospectus is required or not for that subsequent offer must again be assessed by reference to the definitions of offer of securities, exempt offer and exempt securities contained in the New Regime (Rule 2.3.2, Markets Rules).

Information requirements. Where a prospectus is required, it must include a prospectus summary section, which must contain at least the following key information relating to the offer (Rule 2.5.1(3)(a), Markets Rules):

Validity. A prospectus issued under the New Regime is valid for 12 months from the date of its approval for the purposes of making an offer to the public or having securities admitted to trading, provided that it contains all relevant information (Rule 2.6.4, Markets Rules). There are restrictions on the extent to which historical data can be included in any prospectus (for example, financial information cannot be older than 18 months from the date of the prospectus) (Rule 2.9.1.(4), Guidance, Markets Rules).

In addition, if there is a significant change in, material mistake or inaccuracy affecting any material contained in a prospectus, or if a significant new matter arises during a prospectus' validity, then a supplementary prospectus must be produced (Rule 2.9.1.(1), Markets Rules).

Approval process. Under the New Regime, a prospectus is subject to a formal approval process by the DFSA (section 14.(1), New Markets Law). This differs to the former regime, under which there was no formal prospectus approval process. The DFSA only approves a prospectus where it is reasonably satisfied that:

Of course, the approval of a prospectus by the DFSA does not mean that the DFSA accepts any responsibility for the accuracy, comprehensiveness or merits of the information included in the prospectus (Rule 2.5.1(3)(d), Markets Rules). The responsibility for the contents of a prospectus remains with the issuer and/or advisers and experts responsible for verifying statements in the prospectus (Rule 2.10.1.(1), Markets Rules). The issuer can file a draft prospectus with the DFSA for informal review to avoid approval delays on the actual submission of the prospectus (Rule 2.6.2(4), Guidance note 1, Markets Rules). If the DFSA does not approve the prospectus, the issuer can appeal the decision to the DFSA's Regulatory Appeals Committee (Rule 2.6.2(4), Markets Rules).