As from January 2012 Dutch listed companies are obliged to notify the market for substantial shareholdings including cash-settled financial instruments which have a similar economic effect to holdings of shares. In particular, the Dutch government now imposes the obligation for parties to aggregate holdings of CFDs and other financial instruments with a similar economic effect (such as cash-settled options and total return equity swaps) with holdings of listed stocks and other financial instruments included under the present Dutch disclosure and transparency regulation. The new rule also impacts persons who have sold put options on stocks in listed companies.
The new rules follow a consultation by the Ministry of Finance back in September 2009 and come into effect in the Netherlands in advance of an expected change of the Transparency Directive (2004/109/EC) to the same effect.
The Netherlands Financial Authority has published a policy rule in respect to the new notification rules. This memorandum briefly describes the background of the new rules, the scope of the (amended) substantial shareholdings disclosure regime, the AFM’s policy rule and finally, the so-called initial notification requirement (under which notification may be required within four weeks following 1 January 2012).
The new rules stipulate that a person will be considered to possess stock in a relevant listed company if an investor:
- holds an instrument of which the rise in value depends, in whole or in part, on the rise in value of stock or related distributions, and which does not grant a direct right to settle in stock (for instance contracts for difference and total return equity swaps);
- may be obliged to purchase stock as a result of having sold a put option; or
- has effected another contract with a similar economic effect to holding shares.
From 1 January 2012 onwards market participants are obliged to aggregate their holdings in companies through conventional financial instruments such as shares and physically settled call options, convertible bonds and warrants with the above mentioned instruments, which would encompass cash settled options, CFDs as well as total return equity swaps.
The new aggregation obligation compliments the current framework for disclosure of substantial shareholdings in the Dutch Financial Supervision Act. This implies that holders of stock and/or votes (and of derivative instruments that either result in an entitlement to purchase the same or are cash settled instruments or put options as references above) in a Dutch public firm that happens to be listed on a regulated exchange in the European Economic Area (“EEA”) (a “Dutch Listed Company”) are obliged to disclose the aggregated total of such holdings to the AFM if this total exceeds 5% of the issued share capital and/or the voting rights attached to the issued share capital of the Dutch Listed Company (the other applicable disclosure thresholds follow those of the European Union Transparency Directive). The same applies to holders of shares and/or votes (and of relevant derivative instruments, as described above) in a non-Dutch issuer with its corporate seat outside the EEA that is listed on a regulated market in the Netherlands (a “Non Dutch Listed Company”). A bill has been submitted to Dutch parliament which, once enacted, would lower the initial disclosure threshold to 3%.
Long and short trades in respective financial instruments may under certain situations be netted, however short positions resulting from an open sale of call options cannot be taken into account to offset corresponding long positions.
In the context of public bids, the Public Offers Decree (Besluit openbare biedingen Wft, the “Decree”) sets out for the disclosure to the Netherlands Authority for the Financial Markets of “contracts that relate to transactions in securities that a public offer relates to” by the offeror after it has publicly announced its intention to launch an offer for the target company. Moreover, the Decree obliged the offering party and the target firm to make public disclosure announcements of the same agreements (as referred to above) entered into by either of them in the time between the launch of the offer and the date at which a statement is made about the fulfillment of the offer. It could be argued that contracts for differences and other derivative financial instruments resulting in a mere financial stake in the target company is included within the scope of these reporting requirements. However, this does not appear from the explanatory notes to the Decree and is also not market practice. Please note that cash settled instruments should not be taken into account when determining whether or not a mandatory bid needs to be made (30% of the voting rights).
The methodology for working out the number of underlying stock will be based on a delta adjusted method. The delta of a stock derivative represents how the change in price of the derivative coincides to the change in price of the underlying stock. If the value of a derivative mirrors a change in the underlying stock price, then the delta is 1 (full correlation). Until 30 September 2012, positions may also be declared on the basis of the nominal number of underlying stock, in which case another document should be filed with the Netherlands Authority for the Financial Markets containing at least the exercise price, the nominal number of underlying stock and all such other information the market participant considers needed to enhance transparency.
The Netherlands Authority for the Financial Markets has also clarified the issue on whether economic stakes in listed companies held via indices or other baskets of stock are subject to the notification duty. The Netherlands Authority for the Financial Markets stipulates that a derivative in relation to a basket or index will be subject to disclosure only (subject to crossing any disclosure thresholds) if the respective securities make up 1% or more of the class in issue and/or 20% or over of the value of the stock in the basket or index. If a market participant (investor) has an interest in more than one basket or index (including the same underlying stock), then the interests do not need to be added if they are each below the 1% or 20% threshold as described, unless this is constitutes part of investment mechanism to avoid the disclosure duties.