The AFM (Autoriteit Financiële Markten), the Dutch financial markets regulator, has adopted new measures regarding short selling of shares in listed Dutch financial companies. These new measures, which are no longer restricted to naked short selling, took effect on 5 October 2008. They replace the previous measures on naked short selling of 21 September 2008.
The new measures effectively ban short selling of shares in listed Dutch financial companies and they require the notification of certain net short positions to the AFM. The new AFM measures correspond to the ban of the Financial Services Authority (FSA) in the United Kingdom, including the exceptions to the ban, but are not similar in all respects. One important difference between the two regimes is that the FSA requires public disclosure of certain net short positions, whereas the AFM merely requires a notification thereof to the AFM.
The new measures are effective from 5 October 2008 and will apply for a period of 30 days. Both the term and the contents of the measures can be modified in the meantime.
The new measures relate to net short positions in Dutch financial companies listed on NYSE Euronext Amsterdam ('Dutch Financials'). According to the AFM these are:
ING Groep N.V.
Kas Bank N.V.
SNS Reaal N.V.
Van der Moolen Holding N.V.
Van Lanschot N.V.
Restrictions on net short positions in Dutch Financials
The first measure effectively bans short selling of Dutch Financials. If a transaction creates or increases a net short position in a Dutch Financial, this will be considered as behaviour amounting to market abuse as referred to in Section 5:58 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The same applies to the placing of a trading order which, if executed, would have the same effect. These actions are therefore prohibited.
Some explanatory remarks
The prohibition relates to all net short positions; i.e. they apply to both 'covered' and 'uncovered' short positions. They are not restricted to naked short positions, as the previous measure was.
A net short position includes any net short position which gives rise to an economic exposure to the issued share capital of a Dutch Financial. In calculating whether one holds a net short position, every form of economic interest in the issued share capital should be included. Such economic interest can be created by any financial instrument that gives rise, directly or indirectly, to an exposure to the issued share capital.
These prohibitions do not apply to a transaction entered into or trading order that has been placed before 5 October 2008.
These measures do not apply to market makers, acting in that capacity. A market maker is a person or entity that, ordinarily as part of its business, deals as principal in equities and/or derivatives (whether OTC, exchange-traded or on an MTF) in a way that ordinarily has the effect of providing liquidity on a regular basis to the market on both bid and offer sides of the market in comparable size.
Notification of net short positions in Dutch Financials
A net short position in a Dutch Financial that represents an economic interest in the total issued capital of the Dutch Financial concerned of a quarter per cent (0.25%) or more (a 'notifiable short position') must be notified to the AFM on an ongoing basis.
Some explanatory remarks
The first notification must be made at the end of the day on 7 October 2008, notifying the notifiable short position as of the end of the day on 6 October 2008.
The notification contains at least the name of the holder of the notifiable short position, the size of the notifiable short position, the name of the Dutch Financial concerned and the date on which the notifiable short position was held. The disclosure must be made by means of a 'Notification form short position' which is available on the AFM website.
The request to notify short positions on the basis of the measure of 21 September 2008 remains effective for the short positions held at the end of the day on 3 October 2008.
The AFM has set out new answers to frequently asked questions (see www.afm.nl). Please note that the AFM may publish additional FAQs or clarify existing ones as further questions arise. Not all FAQs have been discussed in this newsflash.
Pursuant to Section 5:62 of the Dutch Financial Supervision Act (Wet op het financieel toezicht) investment firms (beleggingsondernemingen) are obliged to report transactions that may amount to market abuse to the AFM. In its FAQs the AFM indicates that the reporting obligations under the reporting regime of Section 5:62 remain unchanged, but that a creation or an increase of a net short position in a Dutch Financial as set out herein, will be considered by the AFM as behaviour amounting to market abuse.
On 1 October 2008 a legislative proposal has been submitted to the Dutch parliament. Amongst other things, this proposal states beyond all doubt that the AFM can take measures against short selling, with retroactive effect from 1 October 2008.