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Nordic Market Newsletter 10/2011

11 November 2011


Proposal for New MiFID Regulation
The European Commission’s (the Commission) proposals for revisions to the Markets in Financial Instruments Directive (MiFID) were published on 20 October 2011. The present MiFID directive 2004/39/EC on markets in financial instruments entered into force on 1 November 2007. The revisions are proposed as a consequence of the lessons drawn from the financial crisis. The policy objectives for these revisions are inter alia to increase market transparency for market participants and reinforce transparency towards and power of regulators in key areas. Also, the Commission aims to enhance investor protection and address organisational deficiencies and excessive risk taking or lack of controls by investment firms and market operators.

To increase coordination at a European level significant parts of MiFID are proposed to be moved to the Markets in Financial Instruments Regulation, which - unlike the Directive - has direct effect in the Member States.

The next steps are for the European Parliament and European Council (which consist of representatives of the EU Member States) to negotiate and agree on the proposals outlined in both the Directive and the Regulation. The timing for this has not been stated. Taking into account that the proposed amendments relate to the G20’s commitment to tackle the less regulated and more opaque parts of the financial system, observers have stated that an agreed draft of the proposed legislation may be ready by the end of next year.

Amendments to the Transparency Directive
The European Commission has made a proposal to revise the Transparency Directive (2004/109/EG). The main amendments concern disclosure rules and quarterly reports. Also sanctions and specific reporting obligations for companies engaged in the logging or raw material production industries are covered by the amendments. The Directive shall henceforth be applicable also to cash settled derivatives and similar financial instruments. The definition of what instruments that shall be subject to the disclosure rules has been made broad in order to cover both existing and future financial instruments with a financial outcome similar to the outcome of holding shares, regardless of the instrument provides a right to physical delivery or not.

The Commission proposes that the requirement for quarterly reports and financial reports for part of the year for listed companies shall be repealed. To obtain a uniform application, member states shall be prohibited to require such reports by national law.

Amendments to the Market Abuse Directive
On October 20, the European Commission proposed to revise the Market Abuse Directive (2003/6/EG). The proposal consists of a regulation on insider dealing and market manipulation and a directive on criminal sanctions for insider dealing market manipulation.

The regulation extends the scope of regulation to a variety of financial instruments. The definition of the term insider information will remain but also include carbon credits. Insider information will also cover more general non- public information which, if public, would be considered relevant when making an investment decision. Consequently the insider information does not have to be precise or to be intended to affect the market value of the relevant financial instrument. The prohibition of trading on insider information will be extended to cover modification or withdrawal based on insider information.

The Directive provides that member states shall have criminal sanctions for insider dealing and market manipulation, including attempt to or complicity in such crime. Contrary to the Regulation, the Directive stipulates that insider crime or market manipulation shall have been committed with intent. The Member States will also be required to have rules which make it possible to hold representatives for legal persons responsible for insider dealing or market manipulation.

Common European Sales Act
On October 11, 2011, the Commission proposed an optional Common European Sales Act with the purpose of demolishing the remaining barriers to cross-border trade. The Commission's proposal now needs approval from EU Member States and the European Parliament.


Amendments to the rules of Euroclear Finland
The rules of Euroclear Finland have recently been amended regarding the issuer’s obligation to nominate an issue agent. According to the amendment, which came into force on 10 October 2011, the issuer has the option to apply for an exemption not to use an issue agent for performing duties generally assigned to the issue agent. Such exemption may be granted by the Managing Director of Euroclear Finland. Once the permission is granted, the issuer shall perform the duties that are otherwise responsibility of the issue agent.

The duties of the issue agent consist of functioning as the issuer’s representative and executing the actions to issue and allocate shares in dematerialized book-entry form in co-operation with Euroclear Finland and the account operators. According to the rules of Euroclear Finland, an issue agent must be an account operator or an agent of an account operator accepted by Euroclear Finland. The exemption is designed to increase flexibility and effectiveness in, for example, situations where the new issue is directed to a limited number of investors.


Proposed bill on implementation of Regulation (EU) No 513/2011 amending Regulation (EC) No 1060/2009 on credit rating agencies
As a result of changes to the amendment regulation, the supervision of credit rating agencies will be transferred from previous national authorities to a European supervisory authority, ESMA (European Securities and Markets Authority). Adjustments to the Swedish Act (2010:1010) on credit rating agencies to meet the amendment regulation have been proposed. However the Swedish legislative amendment is of little significance since there is no credit rating agency registered in Sweden.

Swedish Financial Supervisory Authority
Obligation to report endowment assurance holdings

The Swedish Financial Supervisory Authority has proposed an amendment to the Swedish act on obligations for certain holdings of financial instruments. The proposal implies that insiders will also be obligated to report relevant shareholdings represented through endowment assurances. These transparency reports will apply to endowment assurances within the control of the insider or his or her related persons.

The Swedish Securities Council
In October, the Swedish Securities Council published five statements:

  • An anonymous ruling (2011:20) was made on the scope of the Swedish Takeover Rules so far as they relate to share trades prior to, and during, a public bid process. The Council expressed the opinion that an agreement to pay additional consideration to the seller, where the purchaser/initial bidder later accepts a higher competing bid, is fair practice provided the target shareholders are sufficiently informed of their right to withdraw their acceptances and accept the higher competing bid and there is enough time to exercise these rights. The Council also declared that cash-settled swap-agreements are fair practice provided that the agreement is published in connection with the takeover offer. If the bank enters into an irrevocable reagrding the hedged target shares, the bank's purchase price for the shares will affect the bid consideration.
  • In statements 2011:25 (Transatlantic), 2011:26 (Kappahl), 2011:27, (Kappahl) and 2011:29 (HQ) exemptions from mandatory bids were granted, concerning the fulfillment of guarantee commitments in connection with preferential emissions. This was conditional on the shareholders of the issuing company being informed of the guarantee commitment and the potential equity and voting share which might be acquired by the guarantor, prior to the general meeting of shareholders. The share issue must be approved by at least two-thirds majority; the current main shareholder's holdings would be disregarded. The guarantee commitment must be formulated so the guarantor can only subscribe for shares which are left over after the other shareholders, including the guarantor if the guarantor is a shareholder, have been offered to subscribe for shares, and subsequently all shareholders, excluding the guarantor, and the public have been invited to subscribe for the remaining shares without preferential rights.



New Three-party Government Announces Policy Paper
On 15 September 2011 a general election for the Danish parliament was held. The outcome of the election provided for a shift of power as the centre-right coalition led by the Liberal Party lost power to a centre-left coalition led by Social Democrats, making Helle Thorning-Schmidt Denmark’s first female Prime Minister.
On 2 October 2011 the new Danish three-party government was presented. The new government consists of ministers from the Social Democrats (Socialdemokratiet), the Socialist People's Party (Socialitisk Folkeparti), and the Danish Social Liberal Party (Det Radikale Venstre).
Later on 2 October 2011 the new government presented its basic policy paper describing the government’s joint policy and focus areas on a number of topics. With regards to tax policy the policy paper included the following policy statement:

  • The freeze on taxes and duties policy adopted by the former centre-right coalition government is to be continued, which generally means that Danish tax or duty will not be increased. If, however, it is deemed necessary to raise certain taxes or duties (ex. to protect the environment) the increased tax revenues are to be applied towards lowering other taxes or duties. Also, it is stated that if EU regulations impose a duty on Denmark to lower certain taxes or duties, such lowering may be finance by raising other taxes or duties.
  • The new government will handle and close any “tax loopholes”, as soon as the Danish tax authorities becomes aware of such “tax loopholes”. The statement must be viewed as a general declaration as there is no indication of which “tax loopholes” the government has in mind.
  • The taxation of income from work will be lowered gradually, provided that such lower taxation can be financed.
  • Initiatives will be taken to strengthen the individual taxpayer’s legal rights in relation to taxation, including simplification of the tax regulations.
  • A committee is to be appointed to explore the possibilities to implement a tax proceeds neutral and environment promoting revision of the taxation of cars.

It is notable that the policy paper does not mention increased taxation of banks and other financial institutions, adoption of transfer taxes in connection to on sales of shares or increased taxation of person’s income over DKK 1 million (increased taxation of “wealthy persons”), irrespective of such taxes having been mentioned as possible taxes during the election campaign.

Originally, members of the Social Democrats and the Socialist People's Party had called for more fundamental changes of the Danish taxation rules, however, observers generally believe that the influence of the Danish Social Liberal Party has contributed to the relatively few changes in Danish taxation announced in the policy paper.


New rules on Gaming Services in Denmark as of 1 January 2012
For many years Danske Spil, a company that is owned 80 per cent by the Danish state, has been the only company holding a license to operate and market gaming services on the Danish market. Over time, the monopoly given to Danske Spil has been met with critique from the European Commission, as the monopoly has been considered to conflict with the rules on freedom to provide services within the Community.

In June 2010 The Danish Parliament passed a legal framework regulating online and land-based gaming in Denmark in order to liberalize the Danish gaming market. The process of finding a reasonable solution, however, was difficult. This was mainly due to the fact that special rules for the surplus generated in Danske Spil existed, as this surplus since 1941 has been given away as economical support to youth and sports organizations.

The legal framework passed in 2010 described a new model following which, any gaming provider could apply for license to operate in Denmark under the condition that the gaming provider would pay a substantial part of the surplus earned on the activities in Denmark to the youth and sport organizations that would otherwise be at risk of disappearing as a consequence of the lack of contributions from Danske Spil. As the duties to be paid were of different size based on whether the supplier was an online or a land-based supplier, several complaints of the new legislation were filed with the European Commission, who recently approved the different duty rates, mainly because the European Commission found that the positive effects of the liberalization of the sector outweighed potential distortions of competition.

The deadline for applications for licenses to provide gaming services in Denmark from 1 January 2012 expired 17 October 2011. However, applications may still be filed but the filing operator must expect a later starting date than 1 January 2012. All licenses will be issued with a time limit of one year but can be expected to be prolonged to last for five years.


Amendments to the Norwegian code on corporate governance
On 21 of October the Norwegian Committee on Corporate Governance (NUES) published certain minor changes and clarifications to the Code of Corporate Governance. According to the amendments, companies listed on the Oslo Børs and Oslo Axess markets will be subject to more stringent rules regarding statements of the companies’ corporate governance structure. The amendments were effective upon the same day.