Entry into force of amendments to capital markets transparency legislation The Luxembourg law of 10 May 2016 (the Amending Law ) implementing amendments to the Luxembourg transparency law for issuers of securities has entered into force on 15 May 2016. The Amending Law implements Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 1 (the Amending Directive ) and Article 1 of Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 2 and amends the Luxembourg law of 11 January 2008 on transparency requirements of issuers (the Transparency Law ) and, on one point only, the Luxembourg law of 10 July 2005 on prospectuses for securities. The Grand Ducal Regulation dated 11 January 2008 on transparency requirements of issuers of securities is also amended by a new Grand Ducal Regulation dated 10 May 2016. On 22 June 2016, the Commission de surveillance du secteur financier ( CSSF ) published Circular 16/637 amending CSSF Circular 08/337 on the entry into force of the law of 11 January 2008 and of the Grand-Ducal Regulation of 11 January 2008 on transparency requirements for issuers of securities offering general guidance on the amended Transparency Law, and Circular 16/638 amending CSSF Circular 08/349 relating to details regarding the information to be notified with respect to major holdings. On 27 June 2016 the CSSF also updated its Q&A on The Transparency Law and the Grand-Ducal transparency regulation. KEY CHANGES: For issuers for which Luxembourg is the home Member State: reduction of administrative burden by the removal of certain transparency requirements. For foreign issuers for which Luxembourg is the home Member State and who are active in extractive industries or the logging of primary forests: new requirement to publish a report on payments to governments. For investors: notification obligations are now imposed on investors taking exposure on shares via a much wider range of financial instruments, the definition of which is considerably widened, and introduction of aggregation rules. The CSSF receives significant new injunction and sanction powers. Changes are also introduced with respect to the disclosure of the home Member State. 1 Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 amending Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (the Transparency Directive ), Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and Commission Directive 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC. 2 Directive 2014/51/EU of the European Parliament and of the Council of 16 April 2014 amending Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 in respect of the powers of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority). 6585611_2
1. Main changes for issuers with Luxembourg as home Member State: Quarterly financial reports: The requirement to publish interim management statements or quarterly financial reports is now formally abolished. In its press release of 27 November 2015 the CSSF had already announced it would not take any enforcement action against issuers not publishing quarterly reports or interim statements for the period ending September 30, 2015 or thereafter. This was because the deadline for implementing the Amending Directive expired on 26 November 2015. A quarterly financial report which has been made available to the public by an issuer on its own initiative or to comply with another legal or regulated obligation constitutes, in principal, inside information. Accordingly, such a quarterly financial report must be published in accordance with the Transparency Law and Regulation (EU) N 596/2014 on market abuse, meaning it must be distributed in an efficient manner, stored at the Officially Appointed Mechanism ( OAM ) and filed with the CSSF 3. Reports on payments to governments: Issuers for which Luxembourg is the home Member State for purposes of the Transparency Directive and which are active in the extractive industries or the logging of primary forests must, beginning with their financial year starting on or after 1 st January 2016, publish an annual report on payments made to governments. That report must comply with the requirements set out in Directive 2013/34/EU 4. The report constitutes regulated information for the purposes of the Transparency Law 5. For Luxembourg incorporated issuers, this requirement had already been introduced into company law by a law of 18 th December 2015 6. The deadline for publishing such report for all issuers subject to the Transparency Law is 6 months after the end of the financial year (versus 12 months under article 340sexies of the law of 10 th August 1915 on commercial companies for other issuers). Issuers may also include the report on payments to governments in their annual financial report, which must be published within 4 months after the end of the financial year 7. 3 CSSF Q&A, 27 June 2016, question 7. 4 Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. 5 CSSF Circular 08/337 (as amended), section 3. 6 Law of 18 December 2015 amending the law of 10 th August 1915 on commercial companies and the law of 19 th December 2002 on the register of commerce and the accounting and annual account of undertakings and implementing Directive 2013/34/EU. For the consolidated report: articles 340 ter et seq. of the law of 10 August 1915 on commercial companies. For the stand alone report: article 72 septies of the law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of undertakings, as amended. 7 CSSF Q&A, 27 June 2016, question 52. 2
Extension of publication deadline and of the period during which information must be available: The deadline for publishing half-yearly financial reports is extended from 2 to 3 months after the end of the reporting period. The period during which annual financial reports and half-yearly financial reports must remain publicly available is extended from 5 to 10 years 8. Reports on payments to governments must also remain available during 10 years. It should be noted that the CSSF considers that the declaration of the persons responsible within the issuer (which forms part of the financial reports) must cover the statutory accounts and the consolidated accounts and that issuers who publish their statutory accounts separately from the consolidated accounts should make either two declarations or one declaration that covers the statutory accounts and the consolidated accounts 9. New bond issues and proposed changes to articles: The obligations to disclose new bond issues to the market and to communicate to the CSSF proposed amendments to the issuer s articles of association are abolished. In its November 27, 2015 press release, the CSSF had, likewise to what is mentioned above, indicated it would not take enforcement action against issuers who failed to comply with these requirements after 26 November 2015. It must be noted though that should a bond issue or a proposed change to the articles constitute non-public price sensitive information, issuers will remain liable to publish such information. The same applies to documents made available for the preparation of a general meeting of shareholders which must be deposited at the CSSF, stored at the Officially Appointed Mechanism and distributed in accordance with the Transparency Law, if they meet the criteria of inside information 10, within the meaning of the Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) 11. New home Member State rules (i) Issuers of shares and retail debt instruments For the determination of the home Member State of third country issuers of shares or debt instruments with denominations per unit of less than EUR 1,000 (or its equivalent) ( retail debt instruments ), the Transparency Law no longer cross-refers to the Prospectus Directive. Such issuers have the option to select a home Member State for purposes of the Transparency Law amongst those EU 8 The time limit of 10 years concerns reports published as from 15 May 2016; for reports published before 15 May 2016, the time limit is of at least 5 years (CSSF Circular 08/337 (as amended), section 3, i and ii). 9 CSSF Q&A, 27 June 2016, question question 18. 10 CSSF Q&A, 27 June 2016, question question 49. 11 According to the CSSF (Press Release 16/31), as from 3 July 2016, Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse is binding and directly applicable in Luxembourg regardless of the fact that the Luxembourg legislator has not yet specifically adjusted the Luxembourg law of 9 May 2006 on market abuse, as amended, implementing in Luxembourg the Directive 2003/6/EC. 3
Member States where their shares or retail debt instruments are admitted to dealing on a regulated market. This choice is not limited in time and may be changed by those third country issuers in the circumstances summarised below in (iii). The determination of the home Member State of EU issuers of shares or retail debt instruments remains unchanged (i.e. the Member State of the issuer s registered office) as does the principle that the home Member State determination rule applicable in case of issuers of shares or retail debt instruments prevails in case of those issuers which also issue debt securities with denominations per unit of at least EUR 1,000 (or its equivalent) ( wholesale debt securities ) 12. (ii) Issuers of wholesale securities The general rule on determination of the home Member State for EU and third country issuers of wholesale debt securities remains the same: these issuers have the option to select their home Member State amongst the Member State of their registered office and the Member State(s) where their debt instruments are admitted to dealing on a regulated market The choice of home Member State by issuers of wholesale debt securities remains valid for 3 years unless (x) the wholesale debt instruments of such issuer are no longer admitted to dealing on a regulated market, or (y) if during such 3 year period the issuer s shares or retail debt instruments subsequently become admitted to dealing on a regulated market (in which case the rules for determination of the home Member State of share or retail debt instruments issuers apply), or (z) if the circumstances summarised in (iii) below occur during such 3 years 13. (iii) Option to change home Member State A third country issuer of shares or retail debt instruments or an issuer (EU or third country) of wholesale debt securities, whose securities are no longer admitted to dealing on a regulated market in its then home Member State, but where its securities continue to be so admitted in one or more other Member States, may chose its home Member State amongst those other Member States and, in case of an EU issuer, the Member State of its registered office... 12 CSSF Circular 08/337 (as amended), section 2. 13 CSSF Q&A, 27 June 2016, question 54. 4
(iv) Disclosure of home Member State 2. Changes for investors: Issuers of securities must publish their home Member State and must notify their choice of home Member State to (i) the competent authority of the Member State where they have their registered office (if they are organised within the European Union), (ii) the competent authority of their home Member State and (iii) the competent authorities of all host Member States. For issuers of wholesale debt instruments or third country issuers of shares or retail debt instruments having failed to publish their choice of home Member States within 3 months from the date their securities are first admitted to trading on a regulated market, the home Member State will be deemed to be the Member State where the securities are so admitted to trading Where securities are so admitted on regulated markets in more than one Member State, all these Member States shall be considered as home Member States, which means those issuers will be subject to the regulations and in particular reporting requirements of all these Member States. That situation will remain until such issuers shall have opted for one home Member State and have published that choice. The information on the home Member State constitutes regulated information for the purposes of the Transparency Law 14 and accordingly needs to be published in the manner required for regulated information, filed with the CSSF and stored with the OAM. The CSSF considers that issuers, who have not made their home Member State public before 15 May 2016, will be under the obligation to do so by 15 August 2016 15. Significant broader list of financial instruments triggering the obligation to notify the acquisition or disposal of major holdings: In addition to where they directly or indirectly hold shares in an issuer, individuals and legal entities will be subject to notification obligations if they, directly or indirectly, hold: (a) financial instruments which, on maturity, give the holder, under a formal agreement (that is, an agreement which is binding under applicable law), either the unconditional right to acquire or the discretion to acquire already issued shares with voting rights of an issuer whose shares are admitted to trading on a regulated market; and/or (b) financial instruments other than those included in (a) but which are referenced to issued shares with voting rights and whose economic effect is similar to that of the instruments referred to in (a). The instruments under (b) will be in scope irrespective of whether they confer a right to physical or cash settlement (article 12 of the amended Transparency Law). 14 CSSF Circular 08/337 (as amended), section 3. 15 CSSF Circular 08/337 (as amended), section 4, c. 5
These financial instruments include transferable securities, option agreements, futures, swaps, forward rate agreements, contracts for differences and any other agreements with a similar economic effect. The European Securities and Markets Authority (ESMA) has drawn up a list of financial instruments subject to notification requirements 16. With respect to financial instruments held before 15 May 2016, the CSSF, in its press release of 17 May 2016, extended the deadline by which these holdings needed to be notified to 31 May 2016. Sale and purchase agreements relating to shares to which voting rights are attached but which are subject to conditions precedents such as for example regulatory or antitrust consents, will be considered to constitute a financial instrument within the meaning of sub-paragraph (b) of article 12 (1) of the Transparency Law 17. Aggregation: Contrary to the situation before the enactment of the amendments to the Transparency Law, investors holding both shares with voting rights and qualifying financial instruments, will now need to aggregate the underlying voting rights and to notify such holdings if the aggregate number of voting rights reaches or exceeds (or falls below) a reporting percentage. The CSSF by its press release of 17 May 2016 extended the deadline to 31 May 2016 for holders coming into an obligation for notifying major holdings as a result of aggregation. Obligation to notify of the ultimate economic beneficiary: The CSSF has emphasised that the obligation to notify the acquisition or disposal of major holdings, as provided for by article 8 of the amended Transparency Law, also applies to the ultimate economic beneficiaries of the voting rights (irrespective of whether these are individuals or legal entities), indirectly holding these voting rights 18. Calculation of voting rights in case of qualifying financial instruments: In principle, the number of voting rights must be counted by reference to the full notional amount of shares underlying qualifying financial instruments. However, where a financial instrument provides exclusively for a cash settlement, the number of voting rights is calculated on a delta-adjusted basis by multiplying the notional amount of underlying shares by the delta of the instrument. Investors must aggregate and notify all financial instruments relating to the same underlying issuer. Long positions may not be netted with short positions. Trusts and entities without legal personality: The notification obligations are extended to trusts and entities without legal personality. 16 ESMA/2015/1598, Indicative list of financial instruments that are subject to notification requirements according to Article 13(1b) of the revised Transparency Directive, 22 October 2015. 17 CSSF Q&A, 27 June 2016, question 56. 18 CSSF Circular 08/349 (as amended), section 2. 6
Notification period: The 4 Luxembourg 19 stock exchange days period for notification now starts on the day following the day on which the trigger event occurs (typically, but not limited to, the day of the acquisition or sale of shares or entry into of a qualifying financial instrument), irrespective of whether that trigger event day is a Luxembourg stock exchange day or not. Additional exemption: Voting rights attached to shares acquired for stabilisation purposes (in accordance with Commission Regulation (EC) No 2273/2003 of 22 December 2003 20 ) are excluded from the scope of the mandatory notification of acquisition or disposal of major holdings provided that the voting rights attached to those shares are not exercised or otherwise used to intervene in the management of the relevant issuer. 3. Extension of CSSF powers: The Amending Law increases the powers of the CSSF to ensure that the provisions of the Transparency Law are complied with. The CSSF now has the express power in case of non-compliance with the Transparency Law to require (i) that regulated information be re-published or re-notified, (ii) that a corrected version of the regulated information be published or notified or (iii) that the correction or modification be made in the publication or notification of subsequent regulated information. The law now specifies that in addition to the power to order issuers or holders of shares or other financial instruments as well as certain other persons to comply with the law, the CSSF also has the power to enjoin them to cease the conduct in breach and to desist from any repetition of that conduct. The Amending Law also clarifies that the CSSF has the power to direct the withdrawal of securities from trading in case of breach or suspected breach of the Transparency Law. 4. Penalties: The Amending Law has implemented the penalties provided for by the Amending Directive. In case of failure to make public or notify regulated information or notify the acquisition or disposal of a major holding within the required time limit, the CSSF may impose the following administrative pecuniary sanctions: (i) in case of legal entities, fines may reach the higher of (i) 10,000,000 euros or 5% of their annual turnover (on a consolidated basis for groups) or (ii) twice the amount of the profits gained or losses avoided because of the breach, where 19 Including for issuers which are not listed in Luxembourg. 20 Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments. 7
(ii) those can be determined; in case of individuals, fines may reach the higher of (i) 2,000,000 euros or (ii) twice the amount of the profits or losses avoided because of the breach, where those can be determined. In the event of non-compliance by a legal entity, sanctions can be applied to the members of its administrative, management or supervisory bodies, and to any other individuals who are responsible for the non-compliance under applicable law. 5. Publication of sanctions: As required by the Amending Directive, every sanction decision of the CSSF for noncompliance with the Transparency Law shall be published on the CSSF website. The publication shall include the type and nature of the non-compliance and the identity of the individuals and legal entities responsible for therefor. Such publication may be delayed or be made on anonymous basis (i) where, in the event that the sanction is imposed on an individual, publication of personal data is determined to represent a disproportionate sanction; (ii) where publication would seriously jeopardize the stability of the financial system or an ongoing official investigation; or (iii) where publication would, in so far as it can be determined, cause disproportionate and serious damage to the institutions or individuals involved. 8