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Publicado el 13/9/2016
Newsflash Distressed Transactions
Stricter Requirements on Proprietary Transactions of Executives (Directors’ Dealings) after the New Market Abuse Regulation
The transaction behaviour of executives holding financial instruments issued by their own company (so-called Directors’ Dealings) often indicates possible corporate developments in the future.
However, transactions made purely because of strategic reasons, e.g. in a distressed company, can be problematic. In order to maintain the transparency of capital markets and to protect the transactional decisions of potential investors certain propriety transactions of executives therefore have to be notified and disclosed.
As of July 3, 2016, the EU Market Abuse Directive (MAD) (Regulation (EU) No 596/2014, OJ L 173/1 12.6.2014) entered into force. The regulation applies directly in German law and has a substantial impact on the German capital markets law. With respect to the notification and disclosure requirements for Directors’ Dealings and compared to the previously applicable national law, is the scope of the rules is now considerably broader and at the same time the rules for proprietary transactions of executives have become significantly stricter. Below we introduce some of the major changes by way of an overview.
Art. 19 MAD replaces Section 15a German Securities Trading Act (Wertpapierhandelsgesetz (WpHG))
The obligations of issuers and executives as well as related parties regarding proprietary transactions are found in Article 19 MAD. This regulation replaces all existing national regulations concerning Directors’ Dealings, and therefore section 15a WpHG, for the purpose of harmonisation of the internal market for financial services providers.
Persons covered by the regulation
Persons at the issuer in leadership positions or closely related to the latter are to be reported pursuant to Art. 19 MAD. As such, no difference arises to section 15 par. 2 WpHG.
However, the group of persons of the concerned issuer was expanded. Whereas section 15a WpHG only covered issuers of financial instruments in the regulated market, Art. 19 par. 4 MAD now additionally targets those who are being dealt on the outside market or who filed for their admission to be traded on the outside market provided that the application was filed upon request of the issuer himself.
Transactions covered by the obligation to report
According to the former legal situation, only transactions with shares and related financial instruments, especially derivatives, were covered by section 15a WpHG. Art. 19 MAD expands this area of application to cover all proprietary transactions with participations or debt securities of the issuer as well as related derivatives or other financial instruments. Therefore, bonds are now in the area of application.
Moreover, the number of captured transaction types has grown widely. Whereas pledges have not been covered by the term “own transactions (“eigenen Geschäfts”) in the sense of section 15a WpHG in the past, they are now summarised under the term “proprietary transactions” in the sense of the MAD (see. Art. 19 par. 7 MAD). Besides, in the sense of Art. 19 par. 14 MAD, the European Commission was granted authority to issue a delegated regulation to determine transaction that are obligated to report, which the Commission made use of with regulation EU 2016/522. A comprehensive catalogue of the different transaction types can be found in Art. 10 par. 2 of the regulation. For example, donations and inheritances now have to be reported according to Art. 10 par. 2 lit. k) of regulation EU 2016/522, which should settle the since former legal situation existing dispute once and for all.
Reporting deadlines and documentation obligation
Executives and persons closely related to them have to report their issuer and the competent authority (in Germany the BaFin) every proprietary transaction with recognised financial instruments. The report has to be filed immediately, which means without undue delay, but not later than three business days – instead of previously five workdays – after the deal is completed. This may become a problem, since the issuer has published the report as well, but not later than three business days. Therefore, commencement and deadline of the report to the issuer and the publication via the issuer are identical, which will be a problem for the issuer if the person obliged to report makes use of the full three day period.
In addition, the issuer is obliged to inform his executives in writing about their duties. The executives themselves are obliged to inform the persons closely related to them. Furthermore, the issuer will also be obliged to continuously create a list of all executives that are covered by the obligation to report. Since persons closely related to the executives have to be covered by this list as well, the issuer will have to his executives regularly about them.
Additionally to the obligation to report, the sphere of obligations is expanded by limited trading bans in the sense of Art. 19 MAD for executives and persons closely related to them. Within those so-called Closed Periods it is generally prohibited for executives and persons closely related to them to directly or indirectly do business with financial instruments of the issuer. This trading ban is effective for a period of 30 calendar days before the mandatory announcement of an end-of-year report or an interim report.
Besides the extension of the scope for Directors’ Dealings and the related intensification of responsibilities, it is predictable that record keeping of the persons obliged to report will be a substantial administrative involvement for the issuer. It is advised, especially for outside market issuers who have previously not been affected by Directors’ Dealings, to adjust their internal organisation to the new capital market regulations.