Reports from the Danish Securities Council 1996

A Danish lawyer of a foreign company asked whether so-called sub-name contracts in the foreign company were covered by section 2 of this Act.

It appeared from the material submitted that a sub-name does not obtain ownership or co-ownership of any part of the assets of the foreign company and that the rights of sub-names according to the contract cannot be transferred to any third party without written consent from the company. Thus, in the opinion of the Danish Securities Council the sub-name contracts submitted were not securities covered by section 2 of the Act.

In this connection the Danish Securities Council did not decide whether sub-name contracts in general are covered by the Act.

For the sake of shareholders covered by section 1 (6) of the Executive Order No. 332 of 23 April 1996 on the Reporting of Transactions in Securities Listed on a Stock Exchange, etc. issued by the Danish Securities Council, cf. section 29 of the Danish Securities Trading, etc. Act, the Danish Securities Council forwarded a guidance on these rules to a number of trade organisations requesting them to inform their members hereof.

It appears from the guidance that, pursuant to section 29 of the Act, anyone who holds shares in a company with shares listed on a stock exchange shall immediately notify the stock exchange and the company upon acquisition of at least 5% of the shares (voting rights or the share capital) and report any changes in ownership already notified for each change of 5%.

Section 1 (6) of this executive order provides that anyone who is or will be covered by section 29 of the Danish Securities Trading, etc. Act shall report to a stock exchange unless reporting is made by a company obliged to report.

Generally, a company obliged to report typically does so when the transfer takes place through the trading systems of a stock exchange, but not if the transfer takes place by way of gift, inheritance or in connection with intercompany trading. In such cases it is necessary to make a separate reporting in order to fulfil the obligation.

Finally, it appears from the guidance that, pursuant to section 7 (2) of the executive order, the Copenhagen Stock Exchange has issued "Rules governing Shareholders' Reporting of Transactions to the Copenhagen Stock Exchange" which provide how the reporting is to be effected and which information the reporting is to contain.

It appears from section 33 (2) of the Danish Securities Trading, etc. Act that the Danish Securities Council may decide that an obligation to report shall also rest with others than the securities dealers covered by section 4 of the Danish Securities Trading, etc. Act which provides that a "securities dealer" shall mean credit institutions, investment companies, mortgage credit institutes and credit institutions which hold special authorisation.

On this basis the Danish Securities Council has decided and informed the companies in question that institutions established by special law which issue bonds listed on the Copenhagen Stock Exchange and which to a certain extent deal in listed securities through own holdings shall report transactions in securities listed on a stock exchange in so far as such transactions are made with counterparties not under an obligation to report.

A Danish lawyer of a foreign company asked whether a mini-prospectus concerning a so-called sub-name contract intended to be offered to many investors was covered by Part 12 of the Act (prospectuses at the first public offer of certain securities).

In this connection the Danish Securities Council evaluated the documents and the information submitted in relation to section 43 (2) of the Danish Securities Trading, etc. Act and section 1 (3) of the Danish Securities Council's Executive Order No. 329 of 23 April 1996 on Prospectuses at the First Public Offer of Certain Securities where the securities covered by the rules governing public offers are stated.

On this basis the Danish Securities Council did not find that the documents in question concerning a sub-name position in the foreign company were covered by Part 12 of the Act.

A journalist asked for access to inspect minutes from meetings of the Danish Securities Council, correspondence and files concerning a specific topic.

With reference to section 14 of the Danish Act on Free Access to Public Records and section 84 (2) of the Danish Securities Trading, etc. Act, cf. section 50 b of the Commercial Banks and Savings Bank Act, with respect to secrecy, the Danish Securities Council informed the journalist that the Council was not entitled to grant him access to the material concerned.

The prospectus and supplementary prospectus of a company had been submitted to the Danish Securities Council before the first public offer of shares, cf. Part 12 of Act No. 1072 of 20 December 1995 on Securities Trading, etc.

It was subsequently pointed out to the Danish Securities Council that in connection with the subscription for shares the company had in an advertisement underlined that the shares offered by the company had been prepared pursuant to the Danish Securities Trading, etc. Act and had been presented to the Danish Securities Council.

In this connection the Consumers' Ombudsman established that the underlined text was contrary to section 1 of the Danish Marketing Practices Act since it could not be regarded as being in conformity with the principles of fair competition to use the fulfilment of general regulatory requirements as a competitive parameter when corresponding offers of securities must be done according to the same rules and procedures.

An association asked on behalf of members of the Copenhagen Stock Exchange for exemption from the obligation to notify an issuer and the stock exchange of major holdings of the share capital or votes, cf. section 4 (1) of the executive order.

The Danish Securities Council complied with the request on the condition that the holding was part of the association's current business, that the holding was not used to interfere with the company's administration, that the holding would not last for more than 5 business days and that the next 5% limit would not be exceeded.

The exemption was granted for the present.

Two listed companies asked for exemption from the requirement with respect to presentation of half-yearly accounts, cf. section 26 (2) of the executive order.

The companies found that the accounting information might be misleading to the shareholders and moreover might seriously damage the companies and involve a risk to the companies' international competitiveness.

The Danish Securities Council complied with the request with respect to the half-yearly accounts for the period 1996 up to and including 1997.

With reference to the fact that the access to grant exemption is primarily intended to be used for small and medium-sized banks which have a limited trade in securities, the Danish Securities Council asked the banks through the Danish Bankers' Association that any applications for exemption be submitted before 26 August 1996 containing information about the applicant's turnover during the 1st half of 1996 of listed securities both as regards own holdings and as regards customers and enclosed a statement from the bank's management to the effect that the reporting of transactions in securities would be effected in some other manner, i.e. through an institution under an obligation to report.

Based on the applications received, the Danish Securities Council established that applicants with a total turnover of DKK 500 million and less after the first six months could be granted an exemption.

Accordingly, on 1 April 1997 exemption was granted to 111 banks whereas rejections were given to 16 applicants.

As appears from annex 1 the above 111 banks' total turnover of listed securities after the first six months of 1996 only accounted for about 0.18% of the total turnover at the Copenhagen Stock Exchange during the same period. Moreover, it appears from annex 2 and 3 that the proportion of turnover, in terms of amounts, between transactions in securities for customers and transactions in securities with own holdings is 11 to 89 whereas the proportion in terms of the number of transactions for customers and the number of transactions with own holdings is 3 to 1.

The exemptions will be in force until the beginning of 1998.

A bank had asked to be informed of the transactions which, pursuant to Executive Order No. 332 on the Reporting of Transactions in Securities Listed on a Stock Exchange, etc. issued by the Danish Securities Council on 23 April 1996, are to be reported to the Copenhagen Stock Exchange.

The bank referred to a power of attorney concluded with another bank under an obligation to report. The Danish Securities Council had received a copy of an agreement on individual portfolio management and a description of transactions carried out in portfolio management through the immediate trading system of the other bank and according to written order. Moreover, the Council had received copy of a note to a customer of the bank signed by the bank.

It appears from section 1 (1) and (2) of the above executive order that a securities dealer, including a bank, cf. section 4 (3) of the Danish Securities Trading, etc. Act, who participates in agreements concerning transfer in ownership (transactions) of securities admitted to listing on a stock exchange, shall report transactions. The reporting shall be effected to the stock exchange where the security has been admitted to listing. Pursuant to section 1 (2) the Danish Securities Council may in exceptional cases grant exemption from the obligation to report stated in subsection (1) provided that it has been ensured that the transactions in securities will be reported in some other manner. Such exemption will be granted for 1 year, but may be renewed.

According to the Danish Securities Council's previous information to the bank, it was a condition for obtaining exemption that the bank's turnover of listed securities during the first six months of 1996 did not exceed DKK 500 million. Only with a turnover below this limit can exemption be granted if a statement from the board of directors is submitted to the effect that there is an agreement on reporting through another bank under an obligation to report.

The agreement on individual portfolio management concluded with another bank under an obligation to report did not change these conditions since the bank as principal was still responsible for the transactions made, including reporting to the Copenhagen Stock Exchange, just as other trade through the bank's own holdings was to be reported by the bank.

As regards customer transactions through the other bank's immediate trading system and by written order from the bank, such transactions were effected and reported by the other bank, but appeared on a customer note made out by the bank.

Accordingly, the Danish Securities Council informed the bank that it was to report all transactions through the bank's own holdings in securities listed on the Copenhagen Stock Exchange effected by the bank or on behalf of the bank by agreement with another bank.

As regards customer transactions, these were also to be reported by the bank unless the bank clearly indicated to the customer that the transaction had been effected through the other bank under an obligation to report which had arranged the transfer of the securities in the Danish Securities Centre.

Pursuant to section 1 (6) of the above executive order, cf. section 29 of the Danish Securities Trading, etc. Act, reporting shall be effected when the voting right conferred on the acquired shares represents at least 5% of the share capital's voting rights or their nominal value accounts for at least 5% of the share capital or there is a change in a holding already notified which entails that limits at intervals of 5% from 10% to 100% and limits of 1/3 and 2/3 of the share capital's voting rights or nominal value are reached or are no longer reached or the change entails that the limits stated in section 29 (3), item 1, of the Danish Securities Trading, etc. Act, are no longer reached.

By request the Federation of Danish Investment Associations (the Joint Committee of Danish Investment Companies) was informed that when calculating its share holdings a collective investment undertaking must consider the total portfolio in the undertaking, cf. the principle laid down in section 23 of the Danish Act on Collective Investment Undertakings.

A foreign company which had acquired the majority of the voting rights in a Danish company asked for exemption from the time limit stated in section 2 (1), 1st clause, according to which the acquirer shall, not later than four weeks after the acquisition, allow all shareholders to dispose of all their shares on identical terms.

Basing its decision on the fact that the acquirer had been unable to fix the final transfer price of the shares in the Danish company, the Danish Securities Council complied with the request. At the same time the Danish Securities Council laid down a time limit within which an offer was to be submitted.

A number of Danish companies and one foreign company wanted individually to take over the share majority of a Danish listed company. In this connection the companies submitted competing offers to the shareholders of the listed company.

In response to competing offers each company raised its offer several times.

Only the price of the offer originally made was changed. The shareholders who might already have signed and handed in their acceptance to a company making an offer were entitled to consider themselves free in relation to such acceptance if the offeror submitted a higher offer.

In connection with the changes in the offered prices, the respective companies making the offers applied to the Danish Securities Council for permission to extend the period during which the original offer was open.

Pursuant to section 4 (1), item 9, of the above Executive Order the period during which the offer is open shall be not less than 4 weeks and not more than 10 weeks. An increase of the price compared with an offer already made shall be regarded as a new offer which in principle requires a new period during which the offer is open of not less than 4 weeks.

For the sake of the listed company the Danish Securities Council granted exemption from the minimum time limit set out in the above Executive Order so that a new period during which the offer is open could be shorter than 4 weeks. However, for the sake of the shareholders a minimum time limit of 14 days was maintained.

Published by the Danish Securities Council, May 1997
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