SUMMARY. CESR should also provide assistance on implementing the legislation, since a number of questions are still outstanding.

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1 CESR CALL FOR EVIDENCE EVALUATION OF THE MARKET ABUSE REGIME - JOINT RESPONSE FRENCH ASSOCIATION OF INVESTMENT FIRMS (AFEI) AND FRENCH BANKING FEDERATION (FBF) SUMMARY In light of this review of the market abuse regime, and given the importance of the issue, AFEI and FBF are calling on CESR to make every effort to further the harmonisation process set in train by the Market Abuse Directive (MAD), with a view to making the overall regime more effective, and enabling companies, especially those with operations in several countries, to optimise their processes so that they can successfully combat market abuse. CESR should also provide assistance on implementing the legislation, since a number of questions are still outstanding. Stabilisation of financial instruments Respond to questions about implementing the regulation (option of trading on the sell side, implementation procedures for non-equity products, reporting) Investment research / Investment recommendations Harmonise disclosure thresholds. Publish Level 3 guidance with genuine interpretive value to clarify the linkage between the market abuse and Markets in Financial Instruments Directive (MiFID) regimes. Insider lists When drafting future guidance, consider a standard harmonised format for insider lists and specify the level of information required. Detail procedures for providing information to people on insider lists. Consider pan-european approaches to recognising the distinction between permanent and temporary insiders, with the possibility of ad hoc lists for permanent insiders. Notification of transactions that are suspected of constituting market abuse: Clarify the question of the competent authority octobre 2006

2 1. On 19 June 2006, CESR issued a call for evidence to evaluate the market abuse regime introduced by Market Abuse Directive 2003/6/EC of 28 January 2003 and its implementing measures: Directive 2003/124/EC: definition and public disclosure of inside information and definition of market manipulation; Directive 2003/125/EC: fair presentation of investment recommendations and disclosure of conflicts of interest; Directive 2004/72/EC: definition of accepted market practices, preparation of insider lists, notification of transactions by managers and persons closely associated with them, and notification of suspicious transactions. Regulation 2273/2003: exemptions for buyback programmes and stabilisation of financial instruments. One and a half years after the regime was established, CESR is asking stakeholders for their comments, to identify the contributions, benefits and difficulties associated with implementation of the new market abuse regime in Europe. The French Association of Investment Firms (AFEI) and the French Banking Federation (FBF) wish to submit the following comments: I. General comments An important initiative by CESR given the huge significance of the market abuse regime 2. AFEI and FBF would like begin by emphasising the importance of CESR's initiative. The market abuse regime is a major concern for AFEI and FBF members. Investment firms and credit institutions are required to go to considerable lengths to formally record procedures and practices and to introduce monitoring systems, substantially increasing costs. In this sense, the MAD has proved to be a major undertaking, and one that has significantly altered the way that companies are organised. France recently completed the transposition process with the entry into force on 1 July 2006 of the final obligation arising from the MAD, namely the obligation to provide notification of transactions that are suspected of constituting market abuse. A two-fold challenge with a bearing on the competitiveness of participants as well as on market integrity and security 3. The market abuse project is doubly important because it affects not just the integrity and security of the European market, but also the competitiveness of participants. The goal of integrating the European market makes it vital to harmonise practices in order to effectively combat market abuse. Allowing different regulations to subsist across the European Union (EU) would be counterproductive and generate competitive distortions. Different regulations would be counterproductive because the people who commit market abuse would surely direct their transactions through Member States with the least burdensome regulations. Competitive distortions would arise because groups with locations in several octobre 2006

3 countries would have a powerful incentive to ease the constraints placed upon them by moving their market activities to the Member State with the least burdensome regulations. In practice, the second point is far more worrisome than the first insofar as it could ultimately water down the "security" provided by the market abuse regime at the expense of investors, who would be first in line to suffer losses. This lends particular importance to the need to harmonise anti-abuse measures. AFEI and FBF therefore welcome the harmonisation efforts pursued through the MAD. However, having conducted a review of the regime among our membership, we find that more harmonisation can and should be introduced in a number of areas. CESR should make every effort to further the harmonisation process set in train by the MAD, both to make the overall regime more effective and to enable companies to successfully combat market abuse 4. For the reasons described above, the market abuse regime should be harmonised as fully as possible to ensure that the system is effective. Although some of the regime's measures are inherently cumbersome, efforts must be made to ensure that these mechanisms are not made unnecessarily complex, especially for companies with bases in several countries. The persistence of different practices and/or divergent interpretations by Member States of the legislation could make it harder for companies to manage their procedures. CESR should give high priority to taking action in this area. Companies have introduced a range of mechanisms, procedures and tools to ensure that their systems comply with the market abuse regime. In doing so, they have highlighted a number of areas in which the rules are not yet sufficiently harmonised. These areas, which are covered in II.- A. below, are: - investment research / investment recommendations - insider lists - notification of suspicious transactions 5. The persistence of domestic practices and different interpretations by Member States of the European framework stand in the way of harmonisation. In particular, they prevent companies with operations in several countries from optimising processes to successfully combat market abuse. Procedures must be simplified and harmonised as far as possible to ensure that efforts to prevent abuse are effective. However, the current market abuse regime does not always allow for such harmonisation. For example, when European regulators ask for different information on insider lists, they have to prepare as many list formats as there are different regulations. This makes procedures more complex and harder to manage and also generates additional costs. Combined, these problems ultimately make systems less effective and the European market correspondingly less secure. This is especially true for large companies operating across the EU, which not only represent a large majority of participants, but are also the most active on the markets octobre 2006

4 CESR must also provide clarification on implementing the legislation. 6. While further regulatory convergence is both desirable and demanded, a clearer understanding of certain mechanisms is also needed. For this reason, aside from the question of harmonisation, we found that guidance and clarification were needed on several points, particularly the section of the regulation that deals with stabilisation (see II.- B.). As an example, French companies have asked for marketplace guidance on the organisation needed to meet the reporting obligations for suspicious transactions. AFEI and FBF have published a professional guide to adopting procedures for reporting suspicions of market abuse. The guide stresses the need for an internal organisation structured around training and awareness-raising on market abuse issues to make staff more vigilant a pre-requisite if they are to detect suspicious transactions. In light of this review of the market abuse regime, and given the importance of the issue to the European market, AFEI and FBF are calling on CESR to make every effort to further the harmonisation process set in train by the MAD, in order to make the overall regime more effective and to enable companies to optimise their processes so that they can successfully combat market abuse. However, CESR should also provide assistance on implementing the legislation, since a number of questions are still outstanding II Detailed comments A. Furthering the harmonisation process Investment research / investment recommendations 1. Work towards harmonising MAD disclosure thresholds Article 6 of Directive 2003/125 sets out the obligations for investment recommendations together with additional obligations in relation to the disclosure of interests and conflicts of interests. Member States must require that "any recommendation produced ( ) discloses clearly and prominently ( ) major shareholdings that exist between the relevant person or any related legal person on the one hand and the issuer on the other hand. These major shareholdings include at least the following instances [where] shareholdings exceeding 5% of the total issued share capital in the issuer are held by the relevant person or any related legal person [and where] shareholdings exceeding 5% of the total issued share capital in the relevant person or any related legal person are held by the issuer". The same article stipulates that "Member States may provide for lower thresholds than the 5% threshold as provided for in these two instances". In practice, this is exactly what has happened. France uses the 5% threshold, while Germany and the UK have introduced 1% thresholds. For the reasons set out above (see 3 to 5), this type of difference is undesirable. Furthermore, in this specific case, the question of whether investors receive equal information is at stake. In an integrated market, investors can legitimately expect to receive the same level of information in all Member States. Although the MAD failed to resolve this problem by establishing a single European threshold, this should octobre 2006

5 not stop CESR from seeking a solution at its level, given the importance of ensuring that investors receive equal information. Accordingly, AFEI and FBF call on CESR to consider ways to harmonise the disclosure thresholds for investment research. First, however, the methods for calculating shareholdings, particularly in the case of institutional groups, must also be harmonised. For this, AFEI and FBF suggest that CESR look to the Transparency Directive for possible solutions. 2. Clarify the linkage between the MAD and MiFID investment research regimes 7. The MAD and MiFID both tackle the issue of investment recommendations. The MAD provides a definition for investment recommendations, thus creating a general framework 1. In addition to this general regime, however, MiFID's Implementing Directive 2 introduces special supplementary rules for certain investment recommendations, termed "investment research". The European Commission knew there would be questions about the way the two regimes interact, since the issue was not necessarily made clear by the contents of MiFID. Accordingly, it devoted a section of its Background Note 3 to providing clarification in this area, including the following diagram: Figure 2: Recommendations and research Non-recommendations (e.g. image advertising) Recommendations within Directive 2003/125/EC Marketing communications Investment research Personal recommendations Investment advice and other personal recommendations 1 Cf. Directive 2003/125/EC, Article 1, sub-paragraphs 3 and 4. 2 Cf. Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC ("MiFID") of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive, Article Cf. Background Note published on 6 February 2006 at the same time as proposed Level 2 measures (Draft Commission Directive implementing the Markets in Financial Instruments Directive 2004/39/EC ("MiFID")), paragraph octobre 2006

6 8. AFEI and FBF understand from this information that the overall market abuse framework for investment recommendations is divided into three categories: Investment recommendations within the meaning of the market abuse regime that are "positively" "labelled or described as investment research" but do not constitute investment advice. This type of recommendation constitutes investment research within the meaning of MiFID and is subject to MiFID requirements on conflicts of interest, in addition to the market abuse requirements for investment recommendations. Investment recommendations within the meaning of the market abuse regime that are not labelled or described as investment research. These recommendations are not subject to MiFID rules on investment research but are subject to MiFID requirements for "marketing communications", in addition to the market abuse requirements for investment recommendations. Investment recommendations within the meaning of the market abuse regime that are personal recommendations provided to customers. These may constitute investment advice within the meaning of MiFID. 9. The clarification provided by the Commission is certainly helpful in ensuring proper and uniform understanding of the relationship between these two overlapping regimes. However, it is not necessarily sufficient and in any case lacks official status, because the Background Note is an informal document that has no binding value in European regulations. The Commission even says that the diagram "is for information purposes only, and does not determine the interpretation of the MiFID or the implementing Directive". AFEI and FBF therefore call on CESR to clarify the relationship between the MAD and MiFID regimes for investment research by issuing new Level 3 guidance with genuine interpretive value. With Member States about to transpose MiFID, the need for such clarification has taken on some urgency. However, the European Commission indicated at the open hearing organised by CESR on 17 October that it intended to publish a communication on MiFID in which it would cover the question of the relationship between the MiFID and MAD regimes for investment research. AFEI and FBF warmly welcome the Commission's initiative on this communication, which is scheduled for release before the end of In view of this development, the need for CESR guidance in this area may not be so urgent after all. Insider lists 1. The content of insider lists should be more broadly harmonised 10. Article 5 of Directive 2004/72/EC deals with the obligation to draw up lists of insiders, setting out the requirements in relation to content, updating the lists, and providing information to people on such lists. However, the directive merely specifies the minimum content for insider lists. It indicates that the list should state "the identity" of insiders, without saying what information is required. This has resulted in widely differing interpretations by European regulators as to the mandatory content for insider lists octobre 2006

7 Germany's BAFin, for example, requires extensive information, including personal details such as address and date of birth. Aside from the fact that interpretations requiring large amounts of information to be gathered raise problems in terms of processing personal data 4, AFEI and FBF also wish to point out that these sorts of divergences are undesirable for the reasons discussed above (see 3 to 5). They are especially unwelcome in this instance because managing insider lists is an extremely burdensome task for companies that have to "promptly update" their lists (Directive 2003/6, Art.6 3). In any case, collecting detailed information on the people on insider lists does not serve the purpose of these lists, which is to create a tool to supervise the circulation of inside information, and to aid regulators as required. We note that CESR has proposed a standard reporting format in the related area of suspicious transactions reports (CESR b, "suspicious transaction reporting format"). We therefore ask CESR to consider preparing a standard format for insider lists, stipulating the required level of content detail. The aim of these discussions should not be to align standards with those of the most "demanding" regulators, given that, as mentioned above, it is not necessary to collect exhaustive information on the individuals recorded in the lists to achieve the lists' goals. 2. Harmonising the procedures for providing information to people on insider lists 11. Article 5 of Directive 2004/72 states that the persons in charge of lists of insiders should "take the necessary measures to ensure that any person on such a list [ ] acknowledges the legal and regulatory duties entailed and is aware of the sanctions attaching to the misuse or improper circulation of such information". People on insider lists, then, must provided with the above information. Nothing in the text of the directive says that this information should be provided on a case-by-case basis or that people must be provided with individual and personalised information. Yet this is what happens in some Member States, like Italy 5. It is extremely difficult from a practical perspective for an institution to personally inform every person who is to be added to or taken off a list of insiders. This is especially true for large groups with long, constantly changing lists. Given that providing individual and personalised information to people on insider lists would create a completely unnecessary additional burden, CESR should give companies latitude in terms of the procedures used to supply information to people on insider lists. AFEI and FBF call on CESR to specify the procedures for providing information to people on insider lists. 4 Cf. Directive 95/45/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data. 5 According to Article 152-quinquies of the Consob Regulation on Issuers, each person registered in the insiders' list has to be informed of this fact and the communication must be individual and personal octobre 2006

8 3. Introduction of mutual recognition arrangements : a welcome initiative, but one that perhaps does not go far enough 12. At the open hearing on 17 October, CESR intimated that it was planning to set up a mutual recognition system for insider lists. While this initiative is to be welcomed because of its potential benefits, it must be stressed that unless list contents and the procedures for providing information to people on the lists are fully harmonised, companies with bases in several countries (see 5) will continue to face exactly the same problem of managing intragroup insider lists. Even a mutual recognition system will not enable these companies to introduce uniform procedures in this area. At the very least, CESR should explain how these arrangements might function in practice. If necessary, it should be possible to introduce a system of this sort without having to amend the Level 1 text of the directive. 4. Insiders classified by function, permanent insiders A useful but unharmonised distinction 13. On 18 January, the French securities regulator, the AMF, published a position on the compilation of insider lists, in response to practical queries from practitioners in France. The AMF's position is consistent with a well-established practice in the industry, authorising companies to draw a distinction between temporary and permanent insiders. Permanent insiders are people who, by virtue of their function, have regular access to insider information about the issuer, such as compliance officers. Since these individuals have access to insider information because of the nature of their job, they can be included in ad hoc lists that are dealt with separately from lists of people who temporarily become insiders because of a transaction. Temporary insiders, meanwhile, are people who have access to information about the issuer from time to time, say because they are involved in preparing a financial transaction. These are also known as transaction team insiders. We have learned that this approach is also used in the UK, which is planning to manage the circulation of insider information on an ad hoc basis, according to the function of employees. This distinction is crucial to ensure that the circulation of inside information is managed as effectively as possible. AFEI and FBF therefore call on CESR to consider ways to include the possibility of drawing up ad hoc lists for insiders based on their functions. It is worth recognising the distinction between temporary and permanent insiders, especially given the abovementioned issue of companies with bases in several countries octobre 2006

9 B. Provide assistance in implementing the legislation Regime for reporting suspicions of market abuse 1. Identify the competent authority based on the approach used by MiFID regulatory reporting arrangements 14. It is not easy for companies to determine which authority is competent to receive suspicious transaction reports. The question is even more complicated if the transaction involves a security that is listed on several markets or if the companies are remote members of markets located in other countries. This creates direct difficulties for companies in terms of managing their internal procedures. Similar problems might have arisen in the context of the reporting arrangements introduced by MiFID. This did not happen, however, because the directive established the simple principle whereby reports are submitted to the home authority, which is responsible for forwarding the information to other concerned authorities. As regards the procedures for determining the competent authority, AFEI and FBF therefore ask CESR to consider ways to align the market abuse regime for reporting suspicious transactions with the MiFID regulatory reporting arrangements. 2. Promote intragroup circulation by modifying secrecy requirements 15. Reports of transactions suspected of constituting market abuse are subject to particularly stringent secrecy requirements. The Directive states that "Member States shall ensure that the person notifying to the competent authority (...) shall not inform any other person, in particular the persons on behalf of whom the transactions have been carried out or persons related to those persons, of this notification, except by virtue of provisions laid down by law ( )" (Directive 2004/72, art. 11, 1). The secrecy principle is indeed vital to protecting the persons who report transactions 6. However compliance with this requirement is detrimental to the intragroup management of systems to detect and report suspicious transactions. AFEI and FBF therefore believe that CESR should initiate discussions to assess the extent to which the secrecy requirement could be relaxed with respect to the circulation of information within the same group. 6 (see 2 of the same article) octobre 2006

10 Stabilisation 16. Contributors to the CESR open hearing on stabilisation on 17 October voiced a number of concerns that are widespread in Europe. AFEI and FBF wish to stress once again how important and urgent it is for CESR to try and dispel these uncertainties and to issue guidelines for assessing the implementation of stabilisation rules. The questions raised by European Regulation 2273/2003 of 23 December 2003 ("the Regulation") touch on three main areas: 1. sell-side trading 2. specific characteristics of non-equity products 3. reporting procedures Given the issues at stake, clarifications are vitally important, i.e. complying with the new framework established by the MAD, and providing the market and investors with liquidity as soon as a security is admitted to listing. In view of the sanctions that will apply in the case of non-compliance with the MAD, companies will limit their trading if they are unable to find solutions that are sufficiently secure, and this will deprive the market of a higher quality service. 1. Stabilisation and sales of securities 17. The Regulation refers only to "stabilisation transactions" 7 without ever expressly stating whether such trades are exclusively purchase transactions or whether stabilisation can also necessitate sell-side trades. So the question arises as to whether sale transactions are allowed and whether they benefit from the safe harbour provided by the Regulation. Certainly, the Regulation does not mention the possibility of the stabiliser intervening on the sell side, but it is also certain that no provision expressly prohibits it. However, the possibility does seem to be implicit in recital 11 8 which provides that "stabilisation transactions mainly have the effect of providing support for the price of an offering of relevant securities ( )". While the phrase "providing support for the price" implies trading on the buy side, the adverb "mainly" necessarily implies that stabilisation transactions are not exclusively purchases and therefore that sell-side trades can be envisaged. 18. Trading on the sell side serves a useful purpose by rebuilding stabilisation capacity and enabling the stabiliser to trade again on the buy side if market conditions require. Indeed, it was for this purpose that the practice of refreshing the greenshoe was developed. The usefulness of sell-side trading for replenishing stabilisation capacity is particularly important in fixed income markets, given that greenshoe options are not widely used there. If there is no greenshoe option, 7 Article 9.1 b); 9.2; 9.3c) and "Stabilisation transactions mainly have the effect of providing support for the price of an offering of relevant securities during a limited time period if they come under selling pressure, thus alleviating sales pressure generated by short term investors and maintaining an orderly market in the relevant securities. This is in the interest of those investors having subscribed or purchased those relevant securities in the context of a significant distribution, and of issuers. In this way, stabilisation can contribute to greater confidence of investors and issuers in the financial markets." (Regulation, recital 11) octobre 2006

11 the Regulation limits the stabiliser's position to 5% of the initial offer 9. But this level can be reached very quickly, especially where a security is highly volatile that is, in precisely those situations where stabilisation is most necessary. For this reason, the stabiliser must be able to make sales to replenish its overallotment capacity, restore its initial position and successfully accomplish its stabilisation objective. In any event, sell-side trading is at minimum necessary for liquidating positions taken during the course of the stabilisation operation, a fact that is recognised explicitly in recital For the reasons set out above, sell-side trading should benefit from the same safe harbour as buy-side trading. However, the UK Financial Services Authority (FSA) has taken a different tack. It considers that the sale of securities acquired as part of a stabilisation programme including sales made for the purpose of facilitating the stabilisation activity cannot be considered as behaviour aimed at supporting the offer price, i.e. the objective of stabilisation. Consequently, and even though it says that this does not mean sale transactions are necessarily abusive, the FSA believes that such sales are not covered by the Regulation's safe harbour 11. Since the Regulation's safe harbour cannot be taken for granted, AFEI and FBF believe that CESR should try and establish the conditions in which sell-side trades could be undertaken while benefiting from the safe harbour or an equivalent mechanism. 9 "A position resulting from the exercise of an overallotment facility by an investment firm or credit institution which is not covered by the greenshoe option may not exceed 5% of the original offer." (Regulation, Art. 11b) 10 In order to avoid confusion of market participants, stabilisation activity should be carried out by taking into account the market conditions and the offering price of the relevant security and transactions to liquidate positions established as a result of stabilisation activity should be undertaken to minimise market impact having due regard to prevailing market conditions". 11 FSA, Markets Division: Newsletter on Market Conduct Issues, Implementing the Market Abuse Directive: FSA Handbook changes, Issue No.12 (special edition) June Price stabilisation: refreshing the Greenshoe - We have discussed the issue of refreshing the Greenshoe with a number of market participants, including the Market Abuse Practitioner Group in November We concluded that the phrase refreshing the Greenshoe can mean different things to different people and for that reason may not be a particularly helpful phrase. A number of scenarios were discussed. These included the need to sell securities which had been acquired as a result of stabilising purchases with a view to re-establishing a short position in case further stabilising purchases were needed during the stabilising period. An alternative scenario was in a choppy market where the stabilising manager might have overallocated to the tune of 15% and the price had then risen above the issue price, triggering the exercise of the Greenshoe option. If the price subsequently fell, stabilising purchases may be required which would be easier if a short position could be (re)established. Since the Greenshoe option is only exercised in situations where the price has risen and there is no other way to cover the short position established through initial over allotment, neither of these scenarios can really be described as refreshing the Greenshoe. - The underlying concerns prompting these questions appear to be that none of the scenarios outlined above are clearly addressed in the stabilisation Regulation, casting doubt on whether the behaviour is covered by the safe harbour. Our view is that selling securities which have been acquired through stabilising purchases including selling them to facilitate subsequent stabilising activity is not behaviour which can be categorised as being for the purpose of price support, which is the objective of stabilisation. For this reason the behaviour is not covered by the safe harbour provided in the Regulation, but this does not mean that the behaviour is itself abusive see MAR2.2.5G and MAR2.2.7G. As set out at MAR2.2.8G, such sales should be constructed in a way which minimises market impact and with regard for market conditions. (Similar provisions exist in the current price stabilising rules see existing (pre-1 July) MAR 2.4.2R(3) which could include flattening a position or establishing a short position with a view to facilitating further stabilising activity.) However, such sales cannot themselves be for the purpose of price support and therefore cannot be regarded as stabilising transactions within the safe harbour octobre 2006

12 2. Non-equity products Bonds 20. AFEI and FBF members have raised many questions about applying the Regulation's provisions to fixed income products. Broadly, they note that the wording of the Regulation, drafted originally with equities in mind, is ill-suited to the specific characteristics of bonds However, after in-depth discussions with its members, AFEI was able to come up with outline solutions, thereby providing them with analytical material that complies with the Regulation but that has been "translated" and tailored to the characteristics of fixed products (e.g. "terms of the offers" applies to the calculation of bond spreads, "pricing date" is the date of adequate public disclosure of the terms of the offer", etc.) AFEI and FBF believe that CESR should take a stance on this issue. Shares issued with pre-emptive subscription rights? 21. Does the scope of the Regulation cover stabilisation activities for offers of shares with preemptive rights? These offers have two characteristics. First, the role of the stabilising agent is not simply to trade in the shares or in the rights, which are also quoted, but to attempt to maintain consistency between the prices of the two instruments. Indeed, this is the reason that recital 12 of the Regulation provides that: "Stabilisation activity may be carried out either on or off a regulated market and may be carried out by use of financial instruments other than those admitted or to be admitted to the regulated market which may influence the price of the instrument admitted or to be admitted to trading on a regulated market". Second, application of Article 10.1 of the Regulation, which permits the safe harbour only if stabilisation "[is] not in any circumstances be executed above the offering price" would make no sense. As it is, when offers of shares with pre-emptive rights are made, the subscription price is always significantly lower than the prevailing market price at the time the transaction takes place 12. Therefore, after the share goes exrights, its price lies in the interval between the subscription price for new shares and the price of the share cum rights. It is doubtless for this reason that the AMF has had occasion, in connection with several transactions of this kind, to indicate that "having regard to the characteristics of an offer of shares with a pre-emptive subscription right for existing shareholders, the market interventions of the stabilisation manager do not constitute stabilisation transactions within the meaning of Article 2.7 of Regulation EC 2273/2003 of 22 December ". AFEI and FBF believe that CESR should take a stance on this issue. 12 In practice, the discount runs from 15% to 50%, depending on the company, the size of the issue and the context of the transaction. 13 AMF visa for Suez securities note, BALO 9/9/05, 6.5., p.55; BNP Paribas, BALO 6/3/06, 6.5., p. 44.; Lafuma, BALO 10/2/06, 6.5., p octobre 2006

13 3. Reporting procedures Reporting of stabilisation transactions carried out by a banking syndicate 22. When stabilisation is managed by a banking syndicate, the question that arises is whether the information about the stabilisation transactions can be reported by the "lead manager" or "co-ordinator" on behalf of all the other members, or whether each member of the syndicate must make the same reports separately. Since "multi-reporting" would appear to confer no public benefit, and since Article 9.5 of the Regulation provides for a central point of inquiry for requests from the competent authority, AFEI and FBF believes that members of the syndicate ought to have latitude to agree contractually among themselves on which of them will be responsible for making the report on behalf of them all. The most natural solution is that this responsibility should devolve upon the lead manager. AFEI and FBF believe that CESR should take a stance on this issue. Competent authority of the relevant market 23. Article 9.2 of the Regulation provides that the issuers or investment service providers carrying out the stabilisation must notify "the competent authority of the relevant market" of the details of all stabilisation transactions. The question is how the "competent authority of the relevant market" is to be construed. For shares and securities equivalent to shares as well as for bonds convertible or exchangeable for shares, there is little doubt that this authority is the competent authority of the regulated market on which the relevant securities are admitted to trading, as specified in Article 9.5 of the Regulation. For "straight" bonds, however, the answer is less obvious. Even if such securities are admitted to trading on a regulated market, the bulk of the trading in them takes place on the over-the-counter market, and in practice that is where stabilisation is carried out. Two solutions can be contemplated, depending on whether the competent authority is: i. the authority of the country where the bond is listed, or ii. the authority of the country from which the "lead manager" or "co-ordinator" ISP (see above) carries out the stabilisation. Although it has the merit of simplicity, the first solution would in practice appear to have little value in countering the concerns of "market abuse" that underlie the rules for stabilisation transactions. For one thing, the fact that a bond is listed in a country does not mean that it is actually traded there, even over the counter 14. For another, bonds are often listed in several countries at once, making it impossible to designate a single competent authority. Although AFEI and FBF therefore consider the second solution to be the more appropriate, they believe that confirmation of this position must be obtained at the European level via CESR. 14 This is the case for the Luxembourg market in particular octobre 2006

14 C. Other issues Issuers and insider lists 24. AFEI and FBF have been informed on several occasions, and with respect to different topics, that issuers apparently find it hard to understand the system for preparing insider lists. Since this type of requirement is relatively new for issuers, compared with intermediaries, there may be differences in understanding between the two communities. By and large, the main problem is the link between the lists of insiders that are specific to the issuer and those relating to third parties. In France, for example, it has been noted that some issuers have informed their "adviser ISPs" in writing that they are considered as third party insiders. However, those ISPs have not drawn up a corresponding list because they have not received any inside information from the issuer. The main source of confusion seems to be the concept of "permanent insiders" (see 4). Admittedly, an ISP can be considered as a "permanent insider" because it regularly advises the issuer, but that designation proceeds from the assumption that the firm actually receives inside information about the issuer 15. To ensure that the system as a whole is efficient, it is important that persons or entities should be added to insider lists only in situations where inside information is involved. Joint discussions between issuers, intermediaries and the regulator are due to be organised in France. However, we felt that CESR should be informed of this issue, since there is no objective reason why problems arising from the relationship between issuers and third parties should be confined to this country. 15 See AMF position of 18 January 2006: Issuers and third parties are free either to establish a single list of persons with regular or occasional access to inside information about the issuer or to establish lists of permanent insiders and occasional insiders. - Permanent insiders are persons with regular access to inside information about the issuer by virtue of their duties. Permanent insiders can belong to one of two categories: - Persons "working" at the issuer, who include (depending on the issuer's size, method of organisation or business) members of the administrative, management or supervisory bodies, as well as the issuer's other employees or workers, where such persons have regular access to inside information concerning the issuer directly or indirectly. Third parties with access to inside information "through their professional relations" with the issuer, namely professionals having regular relations that give them access to inside information, such as the issuer's statutory auditors and regular advisers or companies undertaking duties that the issuer has outsourced. In turn, these third parties shall draw up their own lists which, further to the list drawn up by the issuer, shall include the names of staff members having insider status by virtue of their professional relationship with the issuer. The issuer's list shall show only the registered name (for legal entities, the most common case) or the name (for independent service providers) of third parties but shall not include the names of the individual employees of the third parties who are responsible for the issuer's dossier. " octobre 2006