Update of the Luxembourg transparency rules
28 June 2016
Luxembourg finally implements the Transparency Amending Directive. In line with the Directive, the Transparency Act 2008, amongst others:
- reinforces rules on the disclosure of major shareholdings, including a new requirement for aggregation of holdings of shares and financial instruments linked to such shares (which category is also broadened); and
- a number of continuing disclosure obligations for issuers have been removed, including the abolition of quarterly financial reporting and “new loan issue” notifications.
On 12 May 2016 a new law1 amending the Transparency Act 20082, as well as certain provisions of the Prospectus Act 20053 (the New Law) was published. The New Law implements the Transparency Amending Directive4 and the Omnibus II Directive5 into Luxembourg law. Both directives should have been implemented by the end of 2015. On the date of the present alert, it is expected that the CSSF6 will shortly provide further guidance on the new rules. In October 2015 ESMA7 provided a revised set of questions and answers taking into account certain changes enforced by the Transparency Amending Directive.
Main changes to the transparency rules
The New Law follows closely the content of the Transparency Amending Directive. No gold plating has been added by the Luxembourg legislator.
The main amendments introduced by the New Law and the Transparency Amending Directive are as follow:
- extension of the definition of “issuer” to now include natural persons. With respect to depositary receipts, it has been clarified that it is the issuers of the represented securities that are caught by the definition of “issuer” irrespective of an admission to trading on a regulated market of the underlying securities;
- amendments to the provisions relating to the election of the home Member State:
(A) clarification that any third country issuer is allowed to elect its home Member State amongst the Member States where its securities are admitted to trading on a regulated market;
(B) issuers, who have a right of choice, are now allowed to change their home Member State if in the initial home Member State the issuer has no longer securities admitted to trading on a regulated market. The issuer is then entitled to elect a home Member State from the Member States where its securities are listed on a regulated market or, if applicable, the Member State where its registered office is located;
(C) new notification requirements in respect of the election of the home Member State are inserted (next to the already existing requirement to publish, store and file such election as regulated information): an issuer must notify the competent authority in the Member State in which its registered office is located and the competent authority in each host Member State in addition to the notification made to the competent authority in its home Member State; and
(D) a new default rule is added for issuers not having disclosed the choice of their home Member State. All the Member States where these issuers have securities admitted to trading on a regulated market will be considered as their home Member States. These issuers will have to comply with the applicable rules until they have made a choice that has been disclosed in accordance with the Transparency Act 2008.
In order to reduce the administrative burden for issuers, ESMA has made available on its website a new standard “Home Member State Disclosure form” that can be used by issuers for submitting their home Member State election to all relevant competent authorities.
- modifications in respect of financial statements:
(A) annual financial reports must be publicly available for at least ten years instead of five years;
(B) half-yearly financial reports must now be published within three months after the end of the relevant period (instead of two months) and must also be publicly available for at least ten years (instead of five years); and
(C) the obligation (for issuers having shares admitted to trading on a regulated market) to publish quarterly financial reports or interim management statements is removed.
issuers active in the extractive or logging of primary forest industries must make public their report on payments made to governments. This report must be prepared in accordance with Directive 2013/34/EU.
the following major changes are made to the notification obligation in respect of major holdings:
(A) a safe harbour provision is added in respect of share stabilisation and buy-back programmes;
(B) the scope of financial instruments that are covered, next to shares, by the notification obligations is considerably broadened. In addition to the financial instruments providing a right to acquire shares with voting rights, the New Law now also covers financial instruments referenced to shares which have a similar economic effect to instruments providing a right to acquire shares, irrespective of whether there is a right to cash or physical settlement attached to those instruments. A non-exhaustive list of securities is added in this respect to the Transparency Act 2008 in order to give some guidance on the scope of this extended obligation. Although the parliamentary documents did consider the point, the reference to the indicative list of securities prepared by ESMA has not been implemented into the New Law. Such list can be consulted on the websites of the CSSF and ESMA;
(C) new calculation rules are added for the determination of the number of voting rights attached to the financial instruments that are covered by the notification obligations;
(D) further to the implementation of the Transparency Amending Directive, new rules for the aggregation of voting rights attached to shares and other financial instruments have been introduced. The aggregation of all securities held (ie both shares and related financial instruments) is now mandatory under the Transparency Act 2008. Additional notification obligations can be triggered when the holder of the financial instruments acquires the shares that constituted the underlying shares of those financial instruments.
Shareholders are encouraged by ESMA to use the new “standard form for major holdings” for any notification to be made to issuers and the competent authorities.
Although no guidance (from the CSSF) yet exists, it is recommended that holders of financial instruments now falling within the scope of the above rules shall prepare themselves to make a baseline disclosure of their holdings in those financial instruments if one or more of the thresholds provided for by the Transparency Act 2008 are crossed. The same applies to holders of shares and financial instruments if, in accordance with the new aggregation principles, a threshold is crossed.
the obligation to publish “new loan issues” (interpreted by the CSSF as meaning a new issuance of securities on a regulated market) and any guarantee or security in respect thereof is removed from the Transparency Act 2008. The legislator considers that such obligation is already covered by the publication of information required in accordance with Directive 2003/6/CE8 implemented into Luxembourg law by the Market Abuse Act 20069;
the requirement to communicate draft amendments to the instrument of incorporation to the national competent authority and to the relevant regulated market has also been deleted;
the Luxembourg legislator has seized the opportunity to clarify some powers granted to the CSSF under the Transparency Act 2008. In this respect the CSSF is now allowed to request new or revised publications of regulated information or even require an issuer to make modifications to already published regulated information; and
finally, the sanctioning power of the CSSF has undergone a comprehensive review that essentially tracks the changes introduced by the Transparency Amending Directive. It must in particular be noted that the levels of sanctions are considerably increased and that the CSSF is now entitled to publicly disclose on its website decisions taken in connection with such sanctions. A framework providing certain indications on how these sanctioning powers shall be exercised is also added. The suspension of voting rights, in the case where a holder of financial instruments issued by a Luxembourg company does not comply with the relevant major holdings notification requirements, was already covered by the existing provisions of the Transparency Act 2008.
Clean-up of the Transparency Grand Ducal Regulation
The Luxembourg rules completed by a delegated regulation from the European Commission
In addition to the Transparency Amending Directive and the New Law, consideration needs to be given to the Commission Delegated Regulation11 prepared on the basis of powers granted in the Transparency Amending Directive to ESMA and the European Commission for the drafting of regulatory technical standards. The Commission Delegated Regulation adds some clarifications regarding major holdings. It gives detailed guidance on the calculation and aggregation of the 5% threshold in the context of certain exemptions and on the determination of the voting rights attached to (i) financial instruments referenced to a basket of shares or an index or (ii) financial instruments providing exclusively for a cash settlement. The Commission finally provides some guidance on the so-called trading book exemption applicable to major holdings.
Few updates to the prospectus regime
The New Law only amends two provisions of the Prospectus Act 2005:
(a) a reference to the Transparency Directive is added in the definition of home Member State in article 2 of the Prospectus Act 2005, whereby a third country issuer is allowed to change its home Member State when its securities are no longer admitted to trading on a regulated market in its current home Member State;
(b) final terms are now communicated directly by the CSSF to the national competent authorities of the host Member States and to ESMA.
It must be noted in this context that the amendment to the filing process set out in (b) has been applied by the CSSF since 1 January 2016. The process for submitting final terms, as well as certain rules applicable to the submission of prospectuses, have recently been further amended in the CSSF Circular 16/635, which updated the technical specifications regarding the submission to the CSSF of documents in connection with the Prospectus Act 2005. This circular has been adopted further to the entry into force of the Commission Delegated Regulation (EU) 2016/30112 which is directly applicable in the EU Member States.
1 The Luxembourg act dated 10 May 2016
2 The Luxembourg act dated 11 January 2008 on transparency requirements for issuers of securities, as amended (the Transparency Act 2008)
3 The Luxembourg act dated 10 July 2005 relating to prospectuses for securities, as amended (the Prospectus Act 2005)
4 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, 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 (the Transparency Amending Directive)
5 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) (the Omnibus II Directive)
6 Commission de Surveillance du Secteur Financier being the Luxembourg financial sector regulator (CSSF)
7 European Securities and Markets Authority (ESMA)
8 Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse)
9 The Luxembourg act dated 9 May 2006 relating to market abuse, as amended (the Market Abuse Act 2006)
10 The grand ducal regulation of 11 January 2008 implementing the Transparency Act 2008 (the Transparency Grand Ducal Regulation)
11 The Commission Delegated Regulation (EU) 2015/761 of 17 December 2014 supplementing Directive 2004/109/EC of the European Parliament and of the Council with regard to certain regulatory technical standards on major holdings (the Commission Delegated Regulation)
12 The Commission Delegated Regulation (EU) 2016/301 of 30 November 2015 supplementing Directive 2003/71/EC of the European Parliament and of the Council with regard to regulatory technical standards for approval and publication of the prospectus and dissemination of advertisements and amending Commission Regulation (EC) No 809/2004