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ISSUERS & INVESTORS
1. Regulation no. 11/2015 for the modification and supplementation of certain normative acts
The new regulation is intended to modify a series of 7 regulations issued by the NSC/FSA. Essentially, the purpose of these amendments is to implement several provisions of the European standards for corporate actions processing (“Market Standards for Corporate Actions Processing”) and to provide implementing norms for a number of recent changes to the primary legislation. In addition, the FSA has finally initiated the long awaited tiding-up/consolidation process of implementing legislation by cancelling certain norms included in separate sets of Rules (dispuneri de măsuri) and inserting them in the body of the new modified regulations.
What/ When – Regulation no. 11/2015 enters into force as of the date of its publication in the Official Gazette of Romania (7 October 7, 2015), except for certain provisions which will enter into force at a subsequent date, either on January 1, 2016 or on February 1, 2017.
- Regulation no. 13/2005 on the authorization and operation of the central depository, clearing houses and central counterparties;
- Regulation no. 32/2006 on financial investment services;
- Regulation no.5/2010 concerning the use of global accounts system, implementation of mechanisms with or without pre-validation of financial instruments, performance of securities lending operations, operations of establishing associated guarantees and short selling operations;
- Regulation no. 1/2006 on issuers and operations with securities;
- Regulation no. 6/2009 on the exercise of certain rights of the shareholders within the general meetings of trading companies;
- National Securities Commission Regulation no. 4/2009 on the Public Register of the National Securities Commission;
- FSA Regulation no. 3/2015 modifying and supplementing National Securities Commission Regulation no. 1/2006 on issuers and operations with securities and National Securities Commission Regulation no. 6/2009 on the exercise of certain rights of the shareholders within the general meetings of trading companies.
The main amendments to:
A. Regulation no. 13/2005 on the authorization and operation of the central depository, clearing houses and central counterparties
The amendments consist mainly in adding certain implementation norms with respect to the role, rights and obligations of the central depositary and of the issuers in connection with the processing of corporate events.
For example, the new regulation sets forth that:
- the central depositary is responsible for the payments to the participants in the system of set off – settlement and registration of the dividends and of any due amounts to the securities holders, while participants are responsible for immediately transferring the relevant amounts to the securities holders;
- the central depositary has the role of ensuring support for the processing of corporate events in accordance with the legal provisions; the new regulation also provides for the rules issued by the central depositary and the contracts concluded with the issuers and participants in its system;
- in certain exceptional situations and with the observance of certain requirements, the central depositary has the right to make direct ownership transfers in order to correct certain previous transfers which were incorrectly made;
- the new regulations impose amendments to the services contracts concluded by the central depositary with the issuers (e.g. for reference to the collection of the options in case of corporate events where the holders of financial instruments have the right to opt for the results they will receive as a result of the corporate event).
B. Regulation no. 5/2010 concerning the use of global accounts system, implementation of mechanisms with or without pre-validation of financial instruments, performance of securities lending operations, operations of establishing associated guarantees and short selling operations
The new provisions expressly set forth the fact that the intermediaries participating in the central depositary system as well as any other intermediary in the cases where there is a custody chain, and the participants in the central depositary system or other indirect participants are responsible for debiting/crediting in their own registries the clients’ financial instruments and/or cash accounts, in accordance with the corporate events in connection with the financial instruments evidenced in these accounts and with the instructions received from the clients, if necessary.
C. Regulation no. 6/2009 on the exercise of certain rights of the shareholders within the general meetings of trading companies
The new provisions:
- Set forth for the first time the concept of ”guaranteed participation date”, which is defined as being the last day on which a financial instrument may be purchased with associated rights, in view of participating in a distribution with options, mandatory reorganization with options or, as the case may be, a voluntary reorganization. From now on, issuers will have to take into consideration the guaranteed participation date and must also specify in the convening notice the proposal concerning the guaranteed participation date and the period for exercising the options;
- Add a specification related to the proper implementation of the regulation and of article 243 of Law 297/2004 on capital markets in case of companies the shares of which are traded in an alternative trading system;
- Indicate the documents based on which the capacity of shareholder (or that of legal representative, in case of legal persons) may be acknowledged. Thus, such capacity is established based on the list of shareholders received from the central depositary on the reference/registration date. In cases where the reference/registration date are different, the capacity of shareholder/legal representative is established based on (i) the statement of account which indicates the capacity of shareholder and the number of shares held; (ii) the documents which confirm the registration of the information concerning the legal representative with the central depositary or with the participants. These provisions will also apply accordingly in the case of the shareholder who proposes to add new items on the agenda or who addresses questions to the issuer with respect to the agenda.
D. Regulation 4/2009 on the Public registry of the National Securities Commission
New sections are added to the FSA Registry with respect to the following: alternative investment funds administrators, alternative investment funds authorized by/ registered with the FSA, the person responsible for risk management in case of the entities managing alternative investment funds or in case of investment management companies, IT auditors, distributors of units in collective investment undertakings.
E. Regulation no. 3/2015 modifying and supplementing National Securities Commission Regulation no. 1/2006 on issuers and operations with securities and National Securities Commission Regulation no. 6/2009 on the exercise of certain rights of the shareholders within the general meetings of trading companies
The supplementing of the provisions of Art. 21 paras. (3) and (5) concerning the communication of the final terms by the FSA to ESMA.
F. Regulation no. 1/2006 on issuers and operations with securities
Out of the key changes, we list below a series of new elements in connection with corporate events, to which issuers must pay attention to :
- The regulation of new concepts, such as the guaranteed participation date or the results management, corporate events .
- The obligation to specify within the resolutions of the extraordinary general meeting of the shareholders / board of directors approving the issuance of new shares, the guaranteed participation date and other elements specific for the relevant operations;
- In case of corporate events the results of which are financial instruments, the general meeting of the shareholders must establish the date of payment on the business day subsequent to the date of registration, taking into consideration inclusively the legal terms necessary for registering the event with the Trade Registry Office and the FSA;
- Certain provisions related to mergers and spin-offs are modified (e.g., provisions concerning the suspension from trading of the shares issued by the company subject to the merger/spin-off, provisions concerning the spin-off/merger project; the term is extended – from 15 to 30 days – during which the shareholders who do not give their approval with respect to the merger/spin-off operation may notify to the issuer the withdrawal from the company);
In addition, the changes include the following:
- special provisions applicable to issuers whose securities are traded within an alternative trading system, including: establishing the reports which must be published by these companies, applying the same rules as in the case of companies traded on the regulated market with respect to increasing the share capital and the cancellation of the preference right in case the share capital increase is made by contribution in cash and in kind, the obligation of having the financial statements audited by financial auditors, establishing the date of registration, approval by the EGMS of certain acts of disposal the amount of which exceeds 20% of the total of the fixed assets, less the receivables, the power of writ of execution of the GMS resolution for fixing the dividends, the obligation of the financial auditor to draft additional reports with respect to the financial operations claimed by the shareholders who hold at least 5% of the total voting rights;
- incorporating in Regulation 1/2006 most of the provisions which were so far included in certain mandatory measures which were not published in the Official Gazette of Romania (e.g. with respect to the withdrawal from trading pursuant to a EGMS decision, concerning the registration of authorized evaluators, the rights of allocation and trading thereof, the notes concerning the GMS resolutions having as subject matter the increase of the share capital, the reports concerning the inside information and for which it is requested to delay disclosure to the public).
Object 3 (EC) Regulation no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards certain elements related to prospectuses that are disseminated as advertisement (the “Prospectus Regulation”)
The Prospectus Regulation sets forth the obligation for the issuers from third countries to present the financial historical information from the prospectuses for public offerings of securities or for admitting the securities for trading on a regulated market in accordance with the international financial reporting standards (IFRS) or the national accounting standards of a third country, provided that they are equivalent to these standards.
The modification of the Prospectus Regulation is intended to extend the transition period during which the issuers from third countries were allowed to use the GAAP of a third country which is evolving towards adopting the IFRS or assumed the commitment to adopt these standards.
This period is extended until April 1, 2016 at the latest. It is deemed that this additional period should be sufficient to allow the Indian authorities to finalize the process of convergence with IFRS of GAAP in India. Thus, the issuers from third countries do not have the obligation to revisit the historical financial information included in a prospectus and relevant for the financial exercises preceding the financial exercises starting on April 1, 2016 or after this date, nor the obligation to provide a narrative description of the differences between the international financial reporting standards adopted pursuant to (EC) Regulation no. 1606/2002 and the accounting principles according to which information concerning financial exercises preceding the financial exercises starting on April 1, 2016 or after this date must be drafted, provided that the historical financial information is drafted in accordance with the accounting principles generally accepted in the Republic of India.
Out of the key amendments to the Bucharest Stock Exchange Rulebook – market operator, we mention those in respect of the special selling order procedure – “vânzare specială la ordin), i.e., the alignment with FSA regulations imposing that such procedure be used, including in which concerns forced executions, pursuant to the Civil procedure code, of securities subject to garnishment/court-ordered seizure.
As regards the important modifications operated on the Bucharest Stock Exchange Rulebook – alternative trading system operator, we mention those in respect of the admission conditions (i.e., elimination of the automatic exclusion of companies undergoing judicial reorganization, in the context created by Law 151/2014).
- BVB launched on September 22, 2015 a new Corporate Governance Code applicable to all the companies listed on the regulated market. The differences between the requirements applicable to the companies listed under the Standard tier and those listed under the Premium tier are quite small (e.g. at least one member of the Board of Directors or Supervisory Board must be independent in case of the companies in the Standard tier. In case of companies in the Premium tier, a number of minimum two non-executive members of the Board of Directors or Supervisory Board must be independent);
- The “comply or explain” system is maintained, i.e., issuers do not have the obligation to comply with the provisions, but if they do not observe the provisions, they must accordingly explain the non-conformity to the market, the shareholders and potential investors;
- Contrary to the old reporting system which imposed a post-factum information obligation, only through the annual report, as of January 2016, the targeted issuers will have the obligation to inform the market in real time through the current reports system with respect to any case of non-compliance with the provisions of the New Corporate Governance Code .
- The Code is divided into 4 sections: Responsibilities, Risk Management and Internal Control System, Fair Rewards and Motivation and Building Value through Relations with Investors.
- Useful links:
- The New Corporate Governance Code: http://www.bvb.ro/info/Rapoarte/Diverse/ENG_Corporate%20Governance%20Code_WEB_revised.pdf
- Compendium on corporate governance practices http://www.bvb.ro/info/Rapoarte/Diverse/EN_EBRD_BVB_Compendium_18.09.2015.pdf
- Manual for reporting Corporate Governance http://www.bvb.ro/info/Rapoarte/Diverse/EN_EBRD_Manual%20for%20reporting_CG_18.09.2015.pdf
At an international level, corporate governance remains an important legislative policy tool in the post-crisis era. In this context, the OECD/G20 updated its Principles of Corporate Governance on September 5, 2015. For more information see link: http://www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf.
The European Commission launched on September 30, 2015 an action plan in order to establish a Capital Markets Union for the 28 Member States by 2019, whose main objective will be to grant companies the possibility of broader financing options.
Furthermore, on the same date, the Commission also launched two legislative proposals, one related to securitization, and the other related to the European Long Term Investment Funds.
KEY DEVELOPEMENTS TO MONITOR:
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The key important proposed changes refer to the quorum and majority requirements for withdrawing the preference right in relation to the share capital increase.
The draft law has been passed by the Senate and is under debate at the Chamber of Deputies.
Please follow link at: http://www.cdep.ro/pls/proiecte/upl_pck.proiect?cam=2&idp=15144.
See link: http://www.asfromania.ro/legislatie/consultari-publice/4538-proiect-de-lege-privind-emitentii-de-instrumente-financiare-si-operatiuni-de-piata.