GERMANY: Draft bill on implementation of EU Transparency Directive

Wednesday February 25 2015

The German Ministry of Finance has proposed a draft law on the implementation of the amendments to the Transparency Directive (Directive 2013/50/EU) as regards the disclosure of major shareholdings. Transposition into national law of the amendments to the Transparency Directive are required by November 2015.

The changes concern primarily the treatment of financial instruments for the purposes of the German major shareholding rules.

Changes to the Securities Trading Act have been proposed as below:

Reporting period – Under the current Article 21, the reporting period for a major shareholdings notification begins with the date on which the reporting person becomes aware or should have become aware, that his voting rights have reached, exceeded or fallen below a relevant threshold, with knowledge of an event being presumed to be two trading days after the holding reaches, exceeds or falls below the above thresholds. Under the proposed amendments, there will be exemptions from this where a threshold is breached as a result of an event that changes the breakdown of voting rights. The reporting period begins here at the latest on publication by the Issuer of total voting rights under § 26a paragraph 1.

Investment companies – Additionally, it is clarified in Article 21 that shares of an investment company with variable share capital pursuant to § 109 paragraph 1 of the Investment Code issued are not in scope of the rules.

Attribution of voting rights – Article 22 is proposed to be amended to add two additional situations where voting rights attaching to shares of an issuer must be reported:

• Voting rights held by a third party under an agreement with the reporting party, providing for the temporary transfer of voting rights without the associated shares for consideration, insofar as it is legally possible, and
• Voting rights which are held by the reporting party as collateral, provided that they control the voting rights and declare their intention of exercising them.

Paragraphs 3 and 3a, on the definition of subsidiary and exemptions from being considered a subsidiary for investment services enterprises, have been removed from Article 22 and will be dealt with a new Article 22a – see below.

Subsidiary exemptions – a new article 22a will be inserted, which references the definition of subsidiary and introduces exemptions from a company being considered a subsidiary in certain circumstances, including for investment service providers. The exemption is largely the same as what was understood under Article 21. The new section covers exemptions from the definition of subsidiary for a third-country company providing management services, subject to certain criteria, and also exemptions for EU management firms from the subsidiary aggregation requirements under prescribed circumstances.

Non-consideration of voting rights – a new exemption is introduced for shares purchased for the purposes of stabilization where voting rights are not exercised or otherwise used to interfere in the management of the issuer. Additionally, for non-consideration of voting rights for investment services providers, reference is made to Articles 2, 3 and 6 of the Commission’s delegated regulation.

Notification requirements relating to holdings in financial instruments – Articles 25 and 25a have been replaced with new text, which streamlines the reporting process. The new text is summarized below:

§ 21, paragraphs 1 and 1a shall apply with the exception of the 3 percent threshold accordingly to directly or indirectly held instruments that:

1. give the holder at maturity under a formal agreement, either the unconditional right to acquire voting rights associated with shares already issued by an issuer for which the Federal Republic of Germany is the country of origin, or a discretion as to his right to purchase these shares.
2. Instruments not covered by paragraph 1, but relating to such shares and having a similar economic effect as the instruments referred to in paragraph 1, regardless of whether they grant a right to physical settlement or not.

The number of voting rights shall be calculated by reference to the full nominal number of shares underlying the instrument, unless the instrument provides for cash settlement; In this case, the number of voting rights shall be calculated on a delta-adjusted basis

Positions under paragraph 1 must be aggregated together for calculating whether a threshold is breached under this section. Long and short positions are not permitted to be netted off.

The rules will now contain a list of relevant instruments, as below:

1. transferable securities
2. Options
3. futures
4. swaps
5. Forward rate agreements and
6. contracts for difference

Calculations of baskets, indices and solely cash settled instruments shall be by the method prescribed by the European Commission in its delegated regulation.

Article 25a now details the aggregation requirements. The thresholds under Article 21(1) and (1a) shall apply, with exception of the 3% threshold, to aggregated holdings under Article 21, Article 22 and Article 25.

Comments on the draft law are due by 14 March 2015.

Click on the above link for the draft bill (only in German).