Our point of view

Nordic Market Newsletter 11/2012

20 December 2012


Proposal for a Directive on the gender balance among the non-executive directors of listed companies and related measures

The European Commission has presented a proposal for a Directive on the gender balance among the non-executive directors of listed companies and related measures. The proposal means that affirmative action should be at the election of directors for the underrepresented sex unless the board is already comprised of 40 percent of each sex. In addition, the companies themselves present goals for gender balance in senior management. The proposal can hardly be implemented in Swedish corporate law.

European Commission

Eu Commission has presented its action plan action plan for the measures it intends to take on corporate governance and company law in the coming years.


New Security Accounts Act

The reform of the Finnish securities markets legislation also introduces an entirely new area of law, namely regulation applicable to securities custody activity. The new security accounts act (laki arvopaperitileistä) (below, the “Security Accounts Act”) governs legal issues relating to security accounts held by a custodian or sub-custodian and the rights in rem pertaining to securities held on such accounts. The principal goal of the new regulation is to clarify the rights and obligations of investors and custodians in an arrangement where a custodian holds securities in custody on behalf of investors. Ultimately, the new regulation will improve investor protection and trading in securities and the use of securities as collateral.

The Security Accounts Act will be applicable for instance where securities are held on an asset management account administered by the account holder (i.e. the custodian) on behalf of its domestic and/or international asset management clients. The new rules will in practice govern the so called sub-bookkeeping undertaken in Finland with respect to the rights of the custodian’s asset management clients. The new law will also apply when a Finnish investor invests in foreign securities through a custodian operating in Finland and the Finnish custodian appoints a foreign sub-custodian to hold the securities on behalf of its clients in the country where such securities are issued or otherwise located (multi-tiered holding). Similarly, the new law is applicable to a Finnish custodian appointed by an international custodian to hold Finnish securities for the benefit of foreign investors.

The Security Accounts Act will apply to custodian activity carried out in Finland. The test whether or not activity is carried out in Finland will be determined on the basis of the location where the services are deemed to be provided to the client, being the actual beneficial holder of the securities or the custodian acting on behalf of the beneficial holder (and not, for instance, the location of the securities or the location of the servers where accounts are being held). The parties will not be in a position to contractually agree whether or not Finnish law applies. For instance, with respect to multi-tiered holding of securities in different countries, the Security Accounts Act will govern the rights of clients of custodians and the obligations of custodians operating in Finland on the basis of the above test.

The Security Accounts Act sets out provisions on the treatment of securities in custody in the event of the insolvency of the Finnish custodian or sub-custodian. According to the act, the principal rule is that securities held by a custodian on behalf of its clients will not, in the insolvency of the custodian, belong to the custodian’s bankruptcy estate Accordingly, in the insolvency of the custodian, the clients would be able to recover securities held on behalf of them. In the event that the custodian had neglected its duty to segregate client assets from its own assets, securities belonging to its clients on the basis of entries made to the custody accounts and securities belonging to the custodian can nonetheless be segregated. This means that the custodian’s failure to comply with the duty of segregation of client assets does not automatically result in a loss of the clients’ rights.

The Security Accounts Act is proposed to enter into force in early 2013. The provisions of the new law will however apply to the obligations of custodians and rights of account holders also where the agreement regarding the custodian services or account entries evidencing the account holders’ rights have been made prior to this date.

First Experiences of New Short Selling Rules in Finland

New EU regulation on short-selling* (“Regulation”) took effect in all EU Member States on November 1st 2012. The Regulation is the first attempt to harmonize the short selling legislation in the EU and has direct effect in all Member States without the need for further implementation.

The Regulation imposes an obligation on investors and market participants to notify the competent authority of significant short positions on shares and sovereign debt. The obligation is triggered when the position reaches, exceeds or falls below 0.2 per cent of the relevant issuer’s issued share capital. New notifications must be submitted for each additional 0.1 per cent. Subsequent to the notification, the competent authority publishes on its website notified net short positions which reach, exceed or fall below 0.5 per cent of the issuer’s issued share capital. The competent authority in Finland is the Finnish Financial Supervisory Authority (“Fin-FSA”).

It can be noted that the regulation also limits uncovered short sales and gives the Fin-FSA and the European Securities and Markets Authority the right to restrict the selling of certain shares and securities in case of a serious threat to financial stability or market confidence.

The Fin-FSA has published a form on its website on the manner how the notification must be submitted. The notifications can be made in English, Finnish and Swedish.

The Fin-FSA has provided useful information on notifications on its website that may be of interest** . In addition, in providing advice in these matters to international clients, we have come across certain further issues that can be noted:

  • In the case of an umbrella structure, the calculation of the net short position takes place at the level of the respective sub funds and as for master-feeder structures the calculation takes place at the level of the respective master fund.
  • In the case of funds that are managed by the same management entity and pursue the same investment strategy, the net short positions of each sub fund should be aggregated and notified by the managing entity.
  • American depositary receipts (ADRs) must be notified and calculated in the same manner as ordinary shares, and the net position is calculated from the entire issued share capital of the issuer and not only in respect of the ADRs.

* Regulation (EU) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps