FRANCE: AMF proposed changes to the rules on France major shareholdings

Tuesday November 3 2015

The AMF has published a consultation setting out proposed changes to the General Regulation as regards the disclosure of France major shareholdings.

The Transparency Directive Amending Directive was enacted in 2013 and requires Member State implementation by the end of November 2015. It extends the disclosure of major shareholdings to instruments of economic effect similar to holding shares – so cash settled derivatives. It also amends the definition of issuer and home member state. ESMA has published an indicative list if financial instruments considered as having an economic effect similar to holding shares for the purpose of the new rules. ESMA has also published Regulatory Technical Standards which provide detail in practice of how the rules should be applied.

The transposition into French law of the revised Transparency Directive is currently being finalised. Some initial changes were introduced in January 2015, with the first changes to the AMF General Regulation being published in the Official Journal on 16 September.

The AMF consulted in June 2015 on the initial changes to make to Book II of its General Regulation. The amended General Regulation was approved by the order of 2 September 2015 and published in the Official Journal on 16 September. Adjustments were made as regards the definition of origin Member State.

On the disclosure of major shareholdings, the AMF consultation addresses the following changes to Articles 223-11 and 223-13 of the AMF General Regulation:

1. Extending the scope of assimilation of “derivatives”

The calculation of legal declarative thresholds referred to in Article L. 233-7 of the Commercial Code is made on the basis of the shares and voting rights actually held by the registrant and shares and voting rights that it must assimilate pursuant to Article L.233-9. The rules were extended to cash settled derivatives in 2012 in pre-emption of the changes to the Transparency Directive.

However, the final version of the Directive increases still further the scope of the assimilation since it covers any agreement or financial instrument relating to the shares issued entitling a physical settlement and granting that person a similar economic effect to the possession of the shares, which will amend the current wording of 4 ° bis of I of Article L. 233-9 of the Commercial Code. It is proposed to also change the AMF General Regulation. Paragraph III of Article 223-11 of the AMF General Regulation would be amended as follows:

“III. – For the purposes of item 4 bis of I of Article L. 233-9 of the Commercial Code, the person holding the information referred to in paragraph I shall take into account the shares already issued to which any agreement or financial instrument gives right to a physical settlement or paid in cash for it and having a similar economic effect to the ownership of such shares.”

The General Regulation will be amended to include the extended list of financial instruments provided by ESMA.

2. Defining the scope of the trading book exemption

It is proposed to amend Article 223-13 of the AMF General Regulation to clarify the method of calculating the 5% threshold regarding the trading book exemption provided for in the regulatory technical standard.

223-13 of the AMF General Regulation Article would read as follows:

“I. – The disclosure requirements provided for in paras I, II and III of Article L. 233-7 of the Commercial Code shall not apply to actions in particular: […] 2 ° Held by an investment services provider in its trading portfolio within the meaning of Directive 2006/49/EC of the Parliament and of the Council of 14 June 2006 on capital adequacy of investment firms and credit institutions, provided that:

A) These shares represent a share of the capital or voting rights of the issuer less than or equal to 5%.

B) The voting rights attached to such shares are not exercised or otherwise used to intervene in the management of the issuer.

In calculating the threshold referred to in the previous paragraph shall be included shares and voting rights held directly as well as shares and voting rights assimilated pursuant to Article L. 233-9 of the Commercial Code, which are based on the total number of shares comprising the capital of the company and total number of voting rights attached to these shares.”

3. Delta adjustment

The revised Directive states that ESMA shall develop regulatory technical standards to specify methods for the determination of the delta in the calculation of voting rights attached to financial instruments providing exclusively for cash settlement.

The last two paragraphs of paragraph III of Article 223-11 of the AMF General Regulation currently already provide that the number of shares and voting rights to be taken into account by the shareholder is calculated by multiplying the maximum number of shares and voting rights which carries the agreement or financial instrument by their delta and it is made with no compensation of any short position held by the shareholder under any other agreement or financial instrument settled in cash. It is proposed to complement this rule from RTS, which provide methodological specific settings and “governance” of the calculation model by the delta.

The penultimate paragraph of III of Article 223-11 of the AMF General Regulation, would be completed as follows:

“The delta is calculated on the basis of a standard pricing model in common use. A standard pricing model is a commonly used model used routinely in the financial sector for the financial instrument and robust enough to take account of relevant elements to that assessment.

The relevant elements for evaluation are at least the following:

– The interest rate;

– Dividends paid;

– The expiry date;

– The volatility;

– The price of the underlying stock.

In the determination of the delta, the shareholder shall ensure that:

– The model takes into account the complexity and risk of each financial instrument;

– The same model is used in a consistent manner for calculating the number of shares and voting rights taken into account by the shareholder.

“The computer systems used to calculate the delta should help ensure the consistency, accuracy, and consistent respect of the period provided for in Article 223-14.

The number of shares and voting rights is calculated daily on the basis of the last of closing of the underlying stock.

4. Indices and baskets of shares

The Directive provides that ESMA shall develop regulatory technical standards to specify for […] the method of calculating the number of voting rights in the case of financial instruments issued by reference to a basket of stocks or an equity index.

It is planned to bring the general regulation into line with the RTS by amending paragraph III of Article 223-11 of the AMF General Regulations as follows:

“For the purposes of item 4 bis of I of Article L. 233-9 of the Commercial Code, the person holding the information referred to in I take into account the shares already issued which are granted through any agreement or financial instrument giving right to a physical settlement or paid in cash for it and having a similar economic effect to the ownership of such shares.

“There shall be regarded as such financial instruments or agreements:

“A) indexed, referenced or relating to the shares of an issuer.

“B) Providing a long position in the shares to the person liable to the reporting obligation.

“This applies in particular to […]

“any financial instrument exposed to a basket or an equity index of multiple issuers unless they are sufficiently diversified. The number of shares and voting rights to be considered by the shareholder in the case of financial instruments issued by reference to a basket of stocks or a stock index is calculated based on the relative importance of the share in said basket or index whenever one of the following conditions is met:

“- The shares representing 1% or more of a class of shares issued by an issuer;

“- The shares represent 20% or more of the total value of the basket of securities or stock index.

“When a financial instrument is issued with reference to several baskets of equities or stock indices, shares and voting rights held through different baskets or stock indices are aggregated for the calculation of the thresholds. “

5. The list of financial instruments

ESMA has published an indicative list of financial instruments which can be considered to have an effect similar to holding shares. The list is available here.

The AMF notes that there are a number of instruments in the list which do not constitute financial instruments under law in France, and are therefore excluded from the General Regulation. This is:

• contractual buying pre-emption rights (these are disclosed under separate rules – see Article 233-11
• other conditional contracts or agreements than options and futures; hybrid financial instruments; combinations of financial instruments; and shareholders’ agreements having Directive 2004/109/EC Article 13(1)(a) and (b) financial instruments as an underlying  as these do not point to specific financial instruments in French law

Click on the above link for the consultation (in French).