"In another matter the Danish Securities Council has discussed the question of application of the Danish Commission Business Act in connection with securities trading.

Under Stock Exchange Reform II the Stock Exchange Committee found that the general rules concerning commission reservations should be maintained parallel with the rules of the Danish Securities Trading, etc. Act governing the conduct of those entitled to trade towards investors.

Thus the report, cf. volume II, 11.2.3., states that "however, orders placed on commission with a securities dealer is in all circumstances subject to the general rules governing commission business."

The scope of the provisions of the Danish Commission Business Act is being discussed, and, in the opinion of the Danish Securities Council, the provisions are out of date as regards securities trading ..... The conclusion [cf. reference to law literature, ed.] ... is that the rules are out of date and that there is a strong case for excluding securities trading from the Danish Commission Business Act because the Danish Securities Trading, etc. Act must now be presumed to contain rules and principles for securities trading which ensure that the customers are treated correctly.

Against this background, the Danish Securities Council asks the Ministry to contact the Ministry of Justice on the subject...."

Danish Securities Trading, etc. Act - take-over bids/tax aspects
In a letter to the department of the Danish Ministry of Economic Affairs the Danish Securities Council wrote as follows:

"In connection with the Danish Securities Council’s consideration of the rules concerning the obligation to submit offers and concerning take-over bids according to the Danish Securities Trading, etc. Act, members of the Council raised questions of a tax nature which, in the opinion of the Council, are of importance to the making of take-over bids in Denmark.

The Danish Securities Council asks the department to submit the questions to the Ministry of Taxation with a view to obtaining an opinion from the Ministry of Taxation on the possibilities of adapting the rules.

The themes are the following:

1. Tax on shares on the acceptance of a conditional/unconditional bid - the Danish Transfer Tax Act

On a shareholder’s acceptance of a conditional bid, the consequence of the current tax rules is that a transfer tax becomes payable even though the bid is not subsequently accepted.

This means that the liability to transfer tax will arise when the agreement concerning transfer has been made. The imposition of a tax on conditional agreements is common practice no matter whether the agreements are executed. The tax on cancelled transactions is not repaid, and option agreements are liable to tax whether they are executed or not.

The Danish Securities Council presumes that a similar practice will apply in connection with the acceptance of unconditional bids.

The practice originates from the former Stamp Duty Act, which did not contain exemption possibilities.

This means that in a situation of competing bids the liability to transfer tax may arise several times in respect of the same share even though payment for the share is only made once. In the opinion of the Danish Securities Council, the consequence of such practice might then be that shareholders will refrain from giving their acceptance at an early stage of the bid period.

The Danish Securities Council is of the opinion that to obtain a well-functioning procedure for take-over bids it is necessary that cancelled transactions and non-completed accepted bids are exempt from transfer tax.

2. Treatment of employee shares - section 7 a of the Danish Assessment Act

According to section 7 a of the Danish Assessment Act, no transfer, pledge or any other right of disposal in respect of employee shares is permitted until after 5 years and 7 years respectively.

Provided that the proceeds from the sale of employee shares are deposited into frozen accounts in the period, the Danish Securities Council is of the opinion that employees should have the right to accept a public take-over bid."

Section 33 (1) of the Danish Securities Trading, etc. Act and section 1 (1), cf. section 15, of Executive Order No. 332 of 23 April 1996 on the Reporting of Transactions in Reporting of Transactions in Securities Listed on a Stock Exchange, etc. issued by the Danish Securities Council
The Danish Securities Council asked the police to carry out investigations to establish whether or not section 33 (1) of the Danish Securities Trading, etc. Act had been contravened (obligation to report transactions in listed securities) in a situation where two securities dealers entered into a trading agreement concerning transfer in ownership of shares in a listed company and where at the same time it appeared that an agreement had been entered into not to report the trading agreement to the Copenhagen Stock Exchange.

Part 12 of the Danish Securities Trading, etc. Act
A firm of accountants asked the Danish Securities Council to take a position on whether a prospectus was to be drawn up in accordance with the rules laid down in Part 12 of the Danish Securities Trading, etc. Act in connection with the establishment of a new limited partnership.

The details of the case were as follows:

• The limited partnership was to be established with the sole object of purchasing part-ownership shares in default in ten other named limited partnerships;
• the part-ownership shares in the new limited partnership would only be offered to the limited partners of the mentioned limited partnerships;
• the potential group of purchasers in the ten limited partnerships would be approx 7,000 limited partners.

Against that background, the Danish Securities Council replied as follows:

"In reply we can inform you that the mentioned securities are covered by Part 12 of the Act because the offer concerns part-ownership shares in a new limited partnership and because it will be an offer to the public considering that the potential group of investors is approx 7,000 limited partners.

In view of the number of potential purchasers, combined with the requirements concerning the basis of disclosure of the investment decision, the exemption provision of section 2, item 2, of Executive Order No. 329 of 23 April 1996 on Prospectuses at the First Public Offer of Certain Securities issued by the Danish Securities Council does not apply in the present situation.

Therefore, based on the available information the Danish Securities Council is of the opinion that a prospectus has to be drawn up in connection with offers of the mentioned part-ownership shares in accordance with the requirements of Part 12 of the Danish Securities Trading, etc. Act and Executive Order No. 329 of 23 April 1996 on Prospectuses at the First Public Offer of Certain Securities issued by the Danish Securities Council."

Against that background the Danish Securities Council stated that the offer would be covered by the rules on offers laid down in Part 12 of the Danish Securities Trading, etc. Act, including the obligation to draw up a prospectus because

• it would be an offer to the public, cf. section 43 (1) of the Danish Securities Trading, etc. Act; and because
• in view of the size of the group of interested investors of approx 70 persons, it would not be an offer to a restricted circle having a financial or personal connection with the offeror or the issuer, cf. section 2 (1), item 2, of Executive Order No. 329 of 23 April 1996 on Prospectuses at the First Public Offer of Certain Securities; and because
• the contemplated conversion into a public limited company would be regarded as a formation of the public limited company, cf. section 66 of the Danish Private Companies Act.

Subsequently the Danish Securities Council ascertained that the offer of the securities took place even though a prospectus had not been sent to the Danish Securities Council and registered and published by the Danish Commerce and Companies Agency. Against that background, it stated that sections 16 and 17 of Executive Order No. 329 of 23 April 1996 on Prospectuses at the First Public Offer of Certain Securities had been contravened and that the Danish Securities Council had requested the police to carry out investigations to establish whether or not sections 16 and 17, cf. section 18, of Executive Order No. 329 of 23 April 1996 on Prospectuses at the First Public Offer of Certain Securities had been contravened.

In continuation of this, the company accepted a fine notice of DKK 5,000.

Against that background, the Danish Securities Council gave its permission for trading in Danish listed bonds with a remaining maturity of up to 2 years no matter whether the bonds were government bonds or mortgage credit bonds. Similarly, an application had been filed (under section 48 (3)) for permission to arrange trading in the socalled Specific Repos. The Danish Securities Council refused the application because the Council was of the opinion that, according to the available information, it was not trading in money-market related securities but business as a securities broker.

In that connection the Danish Securities Council stated:

"The Copenhagen Stock Exchange has stated that, unlike the listing of other securities, this is to a large extent a drawing up of procedures and conditions for registration and listing which, as a natural thing, can be given in the form of rules, and product descriptions.

Further, the Copenhagen Stock Exchange has referred to the fact that the basis for a listing of standardised futures and options will be adapted to international procedures and that with the intended terminology a continued high level of information value will be ensured.

According to section 4 of Executive Order No. 330 of 23 April 1996 on the Requirements for the Prospectus to be Published before Securities Can Be Admitted to Stock Exchange Listing issued by the Danish Securities Council, futures and other securities covered by the Danish Securities Trading, etc. Act, cf. sections 2 and 21 (1) of the Act, may be admitted to listing if the issuer and the securities meet the requirements provided for by Schedules A, B and C, subject to any adaptations that the Copenhagen Stock Exchange may deem necessary.

Further, it appears from section 12 of Executive Order No. 331 of 23 April 1996 on the Conditions for the Admission of Securities to Stock Exchange Listing issued by the Danish Securities Council that a stock exchange may lay down detailed conditions for the admission to listing of futures, options and other securities covered by section 21 (1) of the Danish Securities Trading, etc. Act.

Against the above background, the Danish Securities Council can inform you that, in the opinion of the Danish Securities Council, the Copenhagen Stock Exchange may use the basis outlined for the listing of futures and options.

In this connection it is assumed that the requirements of the above executive orders are satisfied.

The rules issued by the Copenhagen Stock Exchange on the above basis must be reported to the Danish Securities Council in pursuance of section 83 (3) of the Danish Securities Trading, etc. Act.

Finally, we can inform you that the Danish Securities Council will consider a clarification of the above matters in connection with the revision of the mentioned executive orders.".

The bank stated that it was due to a mistake and that the case had caused the bank to change its administrative procedures for orders that are to be executed immediately and for orders that are limited.

On the available basis the Danish Securities Council criticized the bank’s disregard of the obligation to report.

Transactions in Securities Listed on a Stock Exchange, etc. that a company obliged to report becomes subject to section 4 (1) for one type of securities but not for another type.

The reason given for the request was that in the Copenhagen Stock Exchange’s cooperation with the Stockholm Stock Exchange the Danish share trading is expected to take place for the time being on the Copenhagen Stock Exchange’s Electra trading system. This means that members of the Copenhagen Stock Exchange who wish to trade in both Danish shares and bonds must be linked up to two trading systems.

Companies obliged to report which are covered by section 4 (2), first clause, of the above Executive Order are only to be linked up to the Copenhagen Stock Exchange’s Electra trading system. This means that these companies will not be able to report within 90 seconds because there is no real-time transmission to the Swedish trading system of share transactions reported by non-members to the Electra trading system.

Further, the Copenhagen Stock Exchange had stated that a number of mortgage banks had obtained permission to report under section 4 (2), 2nd clause, cf. section 4 (1), of the Executive Order.

It had also been stated that, in the opinion of the Copenhagen Stock Exchange, the transparency of the share market would not require reporting by mortgage banks of share trading under section 4 (1) because share trading by mortgage banks only accounts for 0.5% of the total share turnover. Of that trade 0.49% is with members of the Copenhagen Stock Exchange, and these transfers are therefore published immediately.

In that connection the Danish Securities Council stated that "... in the opinion of the Danish Securities Council, there is nothing to prevent a stock exchange from permitting under section 4 (2), second clause, of the Executive Order on the Reporting of Transactions in Securities Listed on a Stock Exchange, etc. that a company obliged to report becomes subject to section 4 (1) for one type of securities but not for another type ....... However, it is a condition that the different types of securities are traded in separate trading systems.".

Part 2 of 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
During the whole or parts of a fairly long period in 1997, a number of banks had failed to report transactions in EU/EEA securities, due in part to system errors at the computer centre used by the banks.

According to section 9 (1) and (2) of Executive Order No. 332 of 23 April 1996 on the Reporting of Transactions in Securities Listed on a Stock Exchange, etc., a securities dealer is to report to the Danish

Securities Council (through the Copenhagen Stock Exchange) transactions in securities admitted to listing on a stock exchange or a similar regulated market within the European Union or in countries with which the Community has made an agreement unless the transactions are reported to the competent authorities of the country concerned.

The Danish Securities Council stated that the obligation to report had been disregarded and requested that transactions in EU/EEA securities executed in the relevant period be reported as soon as possible.

The Danish Securities Council added that it is assumed that administrative procedures and controls have been established which adequately en-sure compliance with the obligation to report.

The bank stated that it took the decision of the Copenhagen Stock Exchange to mean that the Copenhagen Stock Exchange criticized the bank’s customer for having contributed to price manipulation in contravention of section 7 of the Copenhagen Stock Exchange’s Rules of Ethics and section 34 (3) of the Danish Securities Trading, etc. Act.

For use in the consideration of the case the Danish Securities Council asked the Copenhagen Stock Exchange for a statement in the case.

According to the statement made, the member had executed a sale in the acceptance system after the member had shortly before this entered an offer at the same price. Further, the member had stated in reply to an enquiry from the Copenhagen Stock Exchange that there was no customer order behind the transaction.

In addition, the customer of the member had stated in a letter to the Copenhagen Stock Exchange that "one of its employees carried out price management on the last business day of 1996 shortly before closing hours", which the Copenhagen Stock Exchange had taken to mean that the customer was of the opinion that the Copenhagen Stock Exchange’s rules had been contravened.

It also appeared from the member’s report to the Copenhagen Stock Exchange that one of the member’s employees had been given a written warning and that more serious sanctions against the employee had been considered. This the Copenhagen Stock Exchange saw as an indication that the member, too, was of the opinion that the Rules of Ethics governing stock exchange operations had been contravened.

Based on an overall evaluation of the case, including transcripts of tape recordings, the Copenhagen Stock Exchange was of the opinion that the sole purpose of the transactions executed was to influence the price fixing of the share concerned. In that connection, the Copenhagen Stock Exchange had attached importance to, among other things, the fact that before the execution of the transaction it must have been apparent to the member that there were no usual market considerations behind the customer’s order and that the order was placed with the object of influencing the price fixing of the share concerned.

Due to the serious nature of the contravention, including in particular the fact that the matter concerned the act of influencing price fixing in connection with the end of the year and the fact that the member had withheld information from the Copenhagen Stock Exchange, the Copenhagen Stock Exchange had elected to publish its criticism.

According to section 7 of the Rules of Ethics governing stock exchange operations, the distribution of false, misleading, distorted or confidential

information, the spreading of rumours about issuers or listed securities or any other attempt at influencing price fixing by dishonourable means is not allowed.

The Copenhagen Stock Exchange supervises compliance with the rules and may in pursuance of clause 18 of the membership agreement made with each member criticize a member’s infringement of the terms and conditions of the agreement, and any sanctions may be published by the Copenhagen Stock Exchange.

According to the available information in the matter, the Danish Securities Council was of the opinion that the conduct of the Copenhagen Stock Exchange in the matter was not unjustified.

In this connection, the Danish Securities Council stated that in its decision the Council had not accepted the wording used by the Copenhagen Stock Exchange at the time of the press release.