European Union
1993 saw the establishment of two key European directives regarding trade in securities. The first of these pertains to investment services while the second concerns capital requirements for securities institutions (capital adequacy). The two directives will lead to more balanced competitive conditions for securities institutions operating freely throughout the European Union. Under the investment services directive, a broker granted access in one EU member state may operate in all other members states. In addition the directive outlines stipulations on the disclosure and publication of transactions designed to enhance market transparency.
Member states are required to have implemented the two directives through national legislation by January 1, 1996 at the latest. National stock exchanges will retain the right to formulate their own regulations with regard to rule-making and supervision. The Netherlands will implement the two directives by amending its Act on the Supervision of Securities Trading, as well as the regulations of the official stock exchanges.
An amendment to the existing prospectus directive was submitted during the year under review. The amendment allows companies already listed on one European stock exchange to gain access to all other exchanges in EU member states without having to meet additional prospectus requirements. Incorporation of this amendment into national legislation will remove a major stumbling block to the introduction of Eurolist and open the way for entry of the larger bourse-listed companies to all regulated European capital markets. A major plus point for issuing institutions is that they will only be required to communicate with their home bourse in listings and corporate information matters.
Another European initiative concerns the formulation of a directive on a minimum level of guarantee funds (compensation funds) for investors. These funds are designed to provide a measure of compensation for investors in the case of a broker going bankrupt. A collective guarantee scheme already operates in The Netherlands as part of the Act on the Supervision of the Credit System. This is being reassessed to ascertain whether it requires supplementing to bring it into line with the proposed European directive.
National
The new act on the disclosure of unusual transactions (known by its Dutch acronym MOT) and act on identification in financial services (Wif) came into effect on February, 1 1994. The new legislation is aimed at combating the laundering of money obtained through criminal activity via financial service institutions.
The MOT act requires financial institutions such as banks and brokers to report unusual transactions to a central point. Proposed transactions and transactions between professional colleagues must also be reported in cases where there are indications they could be deemed unusual.
The Wif act amounts to a tightening of the earlier Act on the Establishment of Identity in Financial Services which dates from 1988. The act requires financial institutions such as banks, brokers and remisiers to establish the identity of a client before extending their services. For the purposes of the act, financial services are taken to include the custody of securities and banknotes, the opening of accounts and the cashing of coupons or bonds.
The submission and passage through parliament of the necessary amendments to the Act on the Supervision of Securities Trading connected with the implementation of the European directives on investment services and minimum capital requirements is expected to take place in 1994. These amendments will not affect the act's - based on self-regulation - basic structure.
Stock Exchange Regulations
In the year under review, the Stock Exchange Association promulgated new regulations pertaining to the stabilisation of share prices and price manipulation. Stablizing the share price in the event of a new issue is permitted, provided certain conditions are met. Intervention aimed at boosting prices is inadmissible, however. Members are also prohibited from manipulating share prices or colluding in their manipulation. The ruling defines share price manipulation as the dissemination of untrue information with the aim of influencing the price of a particular stock, or behaviour which could result in a misleading impression of the market in a particular stock.
In addition the regulations regarding private securities transactions by members and their employees were extended. The new regime differs most importantly from existing rulings in that it now also covers all staff employed by Association members. The regulation for banks, securities credit institutions and non-securities credit institutions are in line with the ruling established in consultation with De Nederlandsche Bank (Central Bank) and the Netherlands Bankers' Association. Employees of hoekman (stock jobbing) firms may only deal for their own accounts in stock classes assigned to the firm for investment purposes. Stock exchange members are constrained to operate an in-house code at least compliant with bourse guidelines.
So-called due diligence procedures have been tightened to stimulate the quality of new stocks. The syndicate leader of bourse launch is required to research adequately the degree to which the company concerned meets the requirements for a bourse listing, partly basing its line of enquiry on a checklist compiled by the Association. Such studies must examine matters such as the organisational structure, products and market of the company concerned, financial data and data pertaining to the supervisory and executive boards, the company's fiscal and legal position, risks, strategy and expectations. The new procedure emphasises the responsibility of the issuing institution and the syndicate leader.
In connection with the incorporation of the Official Parallel Market into the Main Market it has been decided to amend the requirements for entry onto the Main Market. This procedure is characterised by the fact that the qualitative requirements have been tightened, while quantitative requirements have been relaxed. The new requirements, officially due to take effect with the inauguration of the new trading system, will insofar as possible be applied in the transitional phase.
Entry requirements stipulate a company's shareholders' equity must amount to at least NLG 10 million. The minimum made available for market trading must likewise amount to an effective NLG 10 million (previously NLG 50 million); while at least 10% of total share capital must be available for market trading. The issuing organisation must have proved its viability with products or services in the five years prior to its stockmarket launch or have built up a significant market share. In addition, at least three of the five preceding fiscal years should have been closed at a net profit.
National Consultations
The Amsterdam Exchanges NV acts as the pivot of the national capital market, where demand from the issuing institutions is met by supply from institutional and private investors based at home and abroad. As a self-regulatory organization it maintains intensive links with The Netherlands Securities Board, De Nederlandsche Bank and the Ministry of Finance. In order to cater optimally to the wished of the market players, regular meetings are held with the issuing organizations and institutional investors, for example within the framework of the Round Table Consultations. Regular contact is also maintained with the Association of Securities-Issuing Companies (VEUO), the Association of Official Parallel Market-listed Stocks (VOPAF) and shareholders' association VEB.
For further information on the Amsterdam Exchanges NV please contact Joost Maas on +31 20.5234567 or Paddy Manning on +44 (0) 171 4364101.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
© Mondaq Ltd 1995 Tel +44 171 820 7733.
