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New Dutch regulator (AFM) policy rule on notification obligation for gross short positions

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Joost Elsenburg

Counsel

Amsterdam

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15 July 2013

On 1 July, 2013 a new Corporate Governance Act, the so-called Act Frijns, entered into force. This new Act introduced (among other things) an obligation to notify gross short positions of 3% or more in Dutch companies listed on a European regulated market and non-European issuers listed on NYSE Euronext Amsterdam1. This obligation applies next to the disclosure obligation under the Short Selling Regulation (236/2012/EU) (the Regulation).

In order to clarify this obligation further the AFM has published the “Policy rule in relation to the definition and the calculation of a short position as defined in the Wft” (the policy rule). This policy rule provides rules on the calculation of gross short positions under the Dutch Financial Supervision Act (FSA).

By way of summary, the rules contained in the policy rule are as follows:

  • a short position is defined as a position in the issued capital of an issuing institution that arises from: (i) a short transaction in a share issued by or with the cooperation of an issuing institution; or (ii) entering into a transaction that creates a financial instrument other than that referred to in item (i) or that is linked thereto, whereby a result is that the party entering into the transaction receives a financial gain in the event that the value of the share falls;
  • a short transaction in a share via a short transaction in the index or the basket of shares will not qualify, unless the share in the index or basket represents 1% or more of the total number of issued shares of the same type, or the share represents 20% or more of the value of the securities in the index or basket, or both;
  • a position in a financial instrument will qualify if this position confers a financial advantage in the event of a decrease in the price of the share;
  • it is irrelevant whether the instrument is cash or physically settled;
  • short positions in financial instruments that give rise to a claim to unissued shares, convertible bonds or other comparable instruments shall not be considered as short positions;
  • the short position must be calculated using the delta-adjusted model;
  • transactions in all financial instruments, whether on or outside a trading venue, must be taken into account;
  • allocation is made on the basis of Articles 12 and 13 of the Commission Delegated Regulation 98/2010/EU; and
  • no set-off is permitted between a long position and a short position; however intraday netting is possible, whereby at the end of the day the total of the gross short position must be notified.

Notification of the gross short position must be made within two trading days after a short position has reached, exceeded or fallen below a threshold 2. Notifications need to be made in the same manner as notifications for long positions. There is no initial notification for gross short positions. Only gross short positions entered into on or after 1 July 2013 must be notified.

Footnotes

See January 2013 Risk Note for an overview of other obligations that were introduced by the Act Frijns.
The thresholds are 3, 5, 10, 15, 20, 25, 30, 40, 50, 60, 75 and 95%.

Contributed by Niels van de Vijver and Joost Elsenburg