A new transparency directive (Directive 2013/50/EU) has been published at the end of 2013, to be implemented into German law until the end of 2015. The main implications will be a harmonised, EU-wide approach to notifications of voting rights from other (financial) instruments, so far governed by section 25a of the German Securities Trading Act. The current regime is fairly complex, also demanding a notification of BaFin and the issuer in case a third-party has the possibility to acquire voting rights under any (financial) instrument. Given that the provision contained in the new transparency directive does not refer to third-parties, the German regulator will hopefully also cut this out from the current provision. This would facilitate the notifications on voting rights to be made in connection with capital markets transactions considerably. Another cut-back from the current regime is the deletion of issuer’s obligation to publish a quarterly statement. Whilst Prime Standard issuers will still be required to publish quarterly financials, smaller issuers will welcome this development. In addition, the period in which half-yearly financials need to be published by issuers will be raised from two to three months after the end of the reporting period, giving more flexibility and maybe more market attention to those of smaller issuers.
Insider trading and market manipulation regime
The former market abuse directive has been replaced by an EU market abuse regulation (MAR) becoming directly applicable in each member state by 3 July 2016. Whilst many elements of the current regime will continue to apply, there are some noteworthy changes, including the following:
- An explicit provision will be exempting pilot fishing/ market sounding from the prohibition of insider trading if certain requirements are met;
- Directors’ dealings will be prohibited in closed periods, i.e. 30 calendar days prior to the announcement of (interim) financial information;
- The (attempted) cancellation of orders/transactions may constitute prohibited insider trading.
- Ad-hoc-publications will become mandatory also for issuers listed (at their initiative or with their consent) in the Open Market;
- Attempted market manipulation will become prohibited.
Small and medium-sized issuers may also benefit from the introduction of new growth markets proposed by the new MiFiD II (the revised directive on Markets for Financial Instruments). Any multilateral trading facility can be registered as such new growth market if certain conditions are fulfilled, e.g. at least 50% of the instruments traded are issued by SME. The intention clearly is again to give SMEs more publicity and attention. It remains to be seen how established markets such as the Frankfurt stock exchange will react.
Market practice regarding the issuance of convertible bond recently has turned to direct issuances, i.e. without using the tax advantages of an issuance by a Dutch or Luxembourg finance subsidiary. Reasons are the growing investor acceptance and the amount of costs for the establishment of a finance subsidiary. Another trend in the convertible bond market is a tendency to mandatory features, either mandatory convertible bonds or at least a soft mandatory feature, allowing for a share settlement. The recent takeover of convertible bond issuer GSW Immobilien AG by Deutsche Wohnen AG led to a change in the wording of change of control clauses, allowing investors to react more timely in a takeover scenario. Issuers who do not benefit from a valid authorisation to issue convertible bonds can benefit from a new ruling of the German Federal High Court (BGH). The judges confirmed that the issuance of a bond convertible into existing shares of the issuer and not into new shares (so called synthetic convertible bond) does not require a shareholders’ authorisation. The ruling was based on the issuance of CoMEN, bonds issued by COMMERZBANK AG and convertible into shares provided by SoFFin, a transaction on which Hogan Lovells had advised SoFFin.
Delisting without shareholders’ approval and mandatory cash offer
In a recent decision (so called “Frosta ruling”) the German Federal High Court renounced its previous Macrotron ruling. The Frosta ruling states that a complete delisting (i.e. the termination of the admission and of the listing) from a regulated market (e.g. from the regulated market of the Frankfurt Stock Exchange) does neither require a mandatory offer by the issuer or its major shareholder to buy all outstanding shares nor the consent of the shareholders’ meeting. The German Federal Supreme Court argued – on the basis of a preceding decision of the German Constitutional Court (BVerfG) – that a delisting does not affect the title in the shares (Beeinträchtigung des Eigentums). The delisting leaves the substance of the title in the shares with respect to its membership (mitgliedschaftlichen) and its proprietary (vermögensrechtlichen) elements unimpaired.
This renounces the so called “Macrotron” ruling of the German Federal Supreme Court (BGH) dated 25 November 2002, according to which a complete delisting of all shares from all regulated markets was only permissible on the basis of a consenting resolution of the shareholders’ meeting and after a mandatory offer of the issuer or its major shareholder to buy all outstanding shares.
Against this background a delisting from a regulated market or a so called downgrading from the regulated market in a quality segment of the unregulated market (Freiverkehr) such as the Entry Standard segment of the Frankfurt Stock Exchange is permissible on the basis of a resolution of the management board and, if applicable, of the supervisory board, subject to the rules of the stock exchange where the shares are listed. Such resolution(s) should, however, only be taken after having analyzed and weighed the advantages and disadvantages of such a measure for the issuer, its shareholders and its further stakeholders. The whole decision making process should be documented in detail to avoid personal liability of the members of the management and supervisory board (as only in such case the business judgement rule is applicable). The delisting becomes effective, however, only after elapse of a certain period of time (e.g. after a six months-period on the Frankfurt Stock Exchange).