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ESMA Practical Guide on notifications under the Transparency Directive: handle with care

On 31 July 2019 ESMA published a new version of its Practical Guide on national rules of notification of major holdings under the Transparency Directive in the jurisdictions of the European Economic Area (excluding Liechtenstein). This is a slightly revised version of the orginal version dating back to 2017. For a copy of the latest version see ESMA Practical Guide.

The Practical Guide sets out some important aspects on notification of major holdings per jurisdiction including national notification thresholds, manner of filing, trigger events and relevant deadlines. While this Practical Guide provides helpful support in getting into the details of the notification requirements throughout the EEA, it cannot be relied on as it does not provide for a comprehensive overview of all relevant rules and may even be incorrect at some points.

Missing information

Apart from the scope of the disclosure rules and exemptions that may apply, subjects that may not be easily caught by the Practical Guide, its conciseness should not be relied on when holding potentially notifiable holdings in Dutch listed companies or companies listed in the Netherlands. Three reasons why this is the case:

Firstly, the Practical Guide only covers long disclosures. Even though this is understandable considering the scope of the Transparency Directive, shareholders should take into account that apart from the rules from the EU Short Selling Regulation (236/2012) of 14 March 2012 on net short positions, the Dutch disclosure regime referred to in the Practical Guide also applies to gross short positions. Consequently, the thresholds mentioned trigger a similar obligation to notify in case of gross short positions.

Secondly, the Practical Guide does not include any information on calculation and attribution of holdings in case other instruments than simple shares are involved or in case third parties (also) hold instruments or votes. In our experience this is often the element that is particularly discussed when questioning whether an obligation to notify exists and if so, who shall be required to notify. Examples include direct versus indirect holdings, real versus potential holdings and holdings of third parties such as subsidiairies, contractual funds, parties acting in concert and proxyholders that may have to be considered when notifying.

Thirdly, the Practical Guide indicates that intraday netting is permitted but does not discuss other common techniques or transactions such as securities lending, repos and total return equity swaps. All of these may trigger an obligation to notify.

Incorrect information

Apart from the above, certain information included in the Practical Guide is even incorrect. This is particularly true in respect of the deadline for notifying major holdings. According to the Practical Guide this has to take place “without delay”, which is correct. However, the explanation of the meaning of “without delay” in the Practical Guide is incorrect as it sets out that this shall be no later than six (6) trading days following the trigger event. This is not in line with the explanation given by the Dutch regulator (the AFM) in its Guideline for Shareholders (see AFM Guideline). The AFM explains hat the time between the trigger event and the notification shall be as short as possible. In addition, the AFM expects a shareholder that holds a critical holding (a holding that may trigger notification because of further transactions) to closely monitor the holding. Even though there is no formal legal deadline other than the “without delay” requirement and the actual deadline may depend on the circumstances of the matter, we generally advise clients that notification shall be made within two (2) trading days following the trigger event.

Apart from the above, the AFM indicates that passive crossings must be notified within four (4) business days following amendment of the details of the issued capital and outstanding votes of the company in the register kept by the AFM.

As a result, a deadline of six trading days following the trigger event as suggested by the Practical Guide may be too long for both active and passive crossings and may put a shareholder obliged to notify, at risk of being fined by the AFM for late notification.