Capital Markets September 2010

Topics: Amendments re the general meeting of shareholders in Act on the financial supervision and Netherlands Civil Code; AFM policy rule on entrepreneurship or investment activities; AFM joint guidance on auction manipulation.

General meeting
Both the Netherlands Act on the financial supervision (Wet op het financieel toezicht, Wft) and the Netherlands Civil Code (Burgerlijk Wetboek, BW) have been amended as of 1 July 2010, further implementing legislation from Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies.

The new legislation aims to achieve that all investors in shares (or depositary receipts) of listed companies within the European Economic Area (EEA) will be adequately informed about decision-making within a company and that the rights of shareholders can be effectively exercised cross-border.

Article 5:25ka Wft
The new article 5:25ka Wft is found in chapter 5:1a Wft which contains rules for the provision of information by issuers of which shares (or depositary receipts) are admitted to trading on a regulated market. Summarized, article 5:25ka Wft imposes on issuers the obligation to, ultimately on the 42nd day prior to the date of the general meeting, inform the shareholders of (i) the convocation, place, date, time, agenda and meeting rights; (ii) underlying documents; (iii) the draft resolutions or, in the absence thereof, explanatory notes to the agenda; (iv) draft resolutions submitted by shareholders; and (v) a form of proxy and a form for proxy voting in writing. Furthermore, an issuer should ultimately on the 42nd day prior to the meeting inform the shareholders on the issuer’s website of the total number of shares and voting rights on the date of the convocation. When, after the set registration date the total number of shares and/or voting rights has undergone changes, the issuer should, ultimately on the first working day following the registration date, inform the shareholders of the updated numbers.

Additional obligations exist after the general meeting has been held. Ultimately 15 days after the date of the general meeting, the issuer should publish the voting results on its website. This information should remain available for at least one year following the initial publication.

The provisions of article 5:25ka Wft apply to issuers whose securities are admitted to trading on a regulated market (both in the Netherlands or in another EEA member state) with the Netherlands as home member state. Notwithstanding this, the provisions re the publication as mentioned under (i) above, and the obligation to publish the number of shares and voting rights, apply to issuers whose securities are admitted to trading on a regulated market, with a different home member state but with registered seat in the Netherlands. Furthermore, the obligations as referred to above under (ii) up to and including (v) and the obligations to publish the voting results and information on the website, apply to all issuers with registered seat in the Netherlands and whose securities are admitted to trading on a regulated market.

Section 2:114 BW
The amended section 2:114 BW contains provisions applicable to all public limited liability companies (naamloze vennootschappen), whether listed or not, with respect to the general meeting. The new paragraph 1 of this section stipulates that the convening notice for the general meeting should include (a) the matters to be dealt with; (b) the place and time of the general meeting; (c) the procedure for joining the general meeting by proxy; and (d) insofar shares or depositary receipts are admitted to trading on a regulated market, the procedure for joining the general meeting and exercise of voting rights by means electronic communication (insofar the articles of association provide for electronic voting) and the company’s webadress.

The new paragraph 4 of article 2:114 BW stipulates that, insofar shares or depositary receipts are admitted to trading on a regulated market, to meet the requirements of the rules mentioned under (a) up to and including (c) above, only an announcement that the shareholders can take notice of the required information at the company’s offices, will suffice.

AFM policy rule entrepreneurship or investment activities
On 27 July 2010, the Netherlands Authority for the Financial Markets (AFM), published its policy rule on entrepreneurship or investment activities. The distinction among entrepreneurship and investment activities is of importance for the assessment whether an entity is an investment institution, which is the case if the activities consist of (collective) investment. Then, such entity is subject to a license requirement pursuant to the Wft. The policy rule contains a decision tree the application of which leads to a broad indication of whether certain activities qualify as investment activities or entrepreneurship. The most important topic thereby is whether in the entity labor is performed that direct or indirect influences the value of the assets. If the decision tree does not lead to a clear conclusion, specific cases can be submitted to the AFM in order to obtain the AFM’s opinion.

AFM Joint Guidance on Auction Manipulation
In July 2010, the AFM published, jointly with the regulators in Belgium, France and Portugal, the Joint Guidance on Auction Manipulation. Market manipulation constitutes (as insider trading) market abuse. Subject to certain exceptions, pursuant to the Wft it is inter alia prohibited to conduct or effect a transaction or trade order in financial instruments listed on a regulated market or multilateral trading facility, that sends or may send an incorrect or misleading signal with regard to the supply of, demand for or the price of those financial instruments, or to conduct or effect a transaction or trade order in financial instruments in order to maintain the price of those financial instruments at an artificial level.

The joint guidance does not contain new regulatory elements. The document specifically pays attention to which activities the four regulators consider as possible market manipulation. In the course of 2009, the regulators have seen potential market manipulation, caused by the creating or enhancing of arbitrage possibilities in the context of rights issues, through the manipulation of the theoretical opening or closing price of the rights. The joint guidance contains an example of this kind of market manipulation. Further information re the AFM’s view on market manipulation and a list of signals that could lead to an AFM investigation are found in the AFM-brochure “Market Manipulation” of February 2010 (in the Netherlands language).