Commission Regulation (EC) No 2273/2003
of 22 December 2003
implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments
(Text with EEA relevance)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community,
Having regard to Directive 2003/6/EC of the European Parliament and the Council of 28 January 2003 on insider dealing and market manipulation (market abuse)(1), and in particular Article 8 thereof,
After consulting the Committee of European Securities Regulators (CESR)(2) for technical advice,
Whereas:
(1) Article 8 of Directive 2003/6/EC provides that the prohibitions provided therein shall not apply to trading in own shares in "buy back" programmes or to the stabilisation of a financial instrument, provided such trading is carried out in accordance with implementing measures adopted to that effect.
(2) Activities of trading in own shares in "buy-back" programmes and of stabilisation of a financial instrument which would not benefit from the exemption of the prohibitions of Directive 2003/6/EC as provided for by Article 8 thereof, should not in themselves be deemed to constitute market abuse.
(3) On the other hand, the exemptions created by this Regulation only cover behaviour directly related to the purpose of the buy-back and stabilisation activities. Behaviour which is not directly related to the purpose of the buy-back and stabilisation activities shall therefore be considered as any other action covered by Directive 2003/6/EC and may be the object of administrative measures or sanctions, if the competent authority establishes that the action in question constitutes market abuse.
(4) As regards trading in own shares in "buy-back" programmes, the rules provided for by this Regulation are without prejudice to the application of Council Directive 77/91/EEC on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent(3).
(5) Allowable "buy back" activities in order to benefit from the exemption of the prohibitions of Directive 2003/6/EC include issuers needing the possibility to reduce their capital, to meet obligations arising from debt financial instruments exchangeable into equity instruments, and to meet obligations arising from allocations of shares to employees.
(6) Transparency is a prerequisite for prevention of market abuse. To this end Member States may officially appoint mechanisms to be used for public disclosure of information required to be publicly disclosed under this Regulation.
(7) Issuers having adopted "buy-back" programmes shall inform their competent authority and, wherever required, the public.
(8) Trading in own shares in "buy-back" programmes may be carried out through derivative financial instruments.
(9) In order to prevent market abuse, the daily volume of trading in own shares in "buy-back" programmes shall be limited. However, some flexibility is necessary in order to respond to given market conditions such as a low level of transactions.
(10) Particular attention has to be paid to the selling of own shares during the life of a "buy-back" programme, to the possible existence of closed periods within issuers during which transactions are prohibited and to the fact that an issuer may have legitimate reasons to delay public disclosure of inside information.
(11) Stabilisation transactions mainly have the effect of providing support for the price of an offering of relevant securities during a limited time period if they come under selling pressure, thus alleviating sales pressure generated by short term investors and maintaining an orderly market in the relevant securities. This is in the interest of those investors having subscribed or purchased those relevant securities in the context of a significant distribution, and of issuers. In this way, stabilisation can contribute to greater confidence of investors and issuers in the financial markets.
(12) Stabilisation activity may be carried out either on or off a regulated market and may be carried out by use of financial instruments other than those admitted or to be admitted to the regulated market which may influence the price of the instrument admitted or to be admitted to trading on a regulated market.
(13) Relevant securities shall include financial instruments that become fungible after an initial period because they are substantially the same, although they have different initial dividend or interest payment rights.
(14) In relation to stabilisation, block trades shall not be considered as a significant distribution of relevant securities as they are strictly private transactions.
(15) When Member States permit, in the context of an initial public offer, trading prior to the beginning of the official trading on a regulated market, the permission covers "when issued trading".
(16) Market integrity requires the adequate public disclosure of stabilisation activity by issuers or by entities undertaking stabilisation, acting or not on behalf of these issuers. Methods used for adequate public disclosure of such information should be efficient and can take into account market practices accepted by competent authorities.
(17) There should be adequate coordination in place between all investment firms and credit institutions undertaking stabilisation. During stabilisation, one investment firm or credit institution shall act as a central point of inquiry for any regulatory intervention by the competent authority in each Member State concerned.
(18) In order to avoid confusion of market participants, stabilisation activity should be carried out by taking into account the market conditions and the offering price of the relevant security and transactions to liquidate positions established as a result of stabilisation activity should be undertaken to minimise market impact having due regard to prevailing market conditions.
(19) Overallotment facilities and "greenshoe options" are closely related to stabilisation, by providing resources and hedging for stabilisation activity.
(20) Particular attention should be paid to the exercise of an overallotment facility by an investment firm or a credit institution for the purpose of stabilisation when it results in a position uncovered by the "greenshoe option".
(21) The measures provided for in this Regulation are in accordance with the opinion of the European Securities Committee,
HAS ADOPTED THIS REGULATION:
CHAPTER I
DEFINITIONS
Article 1
Subject matter
This Regulation lays down the conditions to be met by buy-back programmes and the stabilisation of financial instruments in order to benefit from the exemption provided for in Article 8 of Directive 2003/6/EC.
Article 2
Definitions
For the purposes of this Regulation, the following definitions shall apply in addition to those laid down in Directive 2003/6/EC:
1. "investment firm" means any legal person as defined in point (2) of Article 1 of Council Directive 93/22/EEC(4);
2. "credit institution" means a legal person as defined in Article 1(1) of Directive 2000/12/EC of the European Parliament and the Council(5);
3. "buy-back programmes" means trading in own shares in accordance with Articles 19 to 24 of Council Directive 77/91/EEC;
4. "time-scheduled 'buy-back' programme" means a "buy-back" programme where the dates and quantities of securities to be traded during the time period of the programme are set out at the time of the public disclosure of the "buy-back" programme;
5. "adequate public disclosure" means disclosure made in accordance with the procedure laid down in Articles 102(1) and 103 of Directive 2001/34/EC of the European Parliament and of the Council(6);
6. "relevant securities" means transferable securities as defined in Directive 93/22/EEC, which are admitted to trading on a regulated market or for which a request for admission to trading on such a market has been made, and which are the subject of a significant distribution;
7. "stabilisation" means any purchase or offer to purchase relevant securities, or any transaction in associated instruments equivalent thereto, by investment firms or credit institutions, which is undertaken in the context of a significant distribution of such relevant securities exclusively for supporting the market price of these relevant securities for a predetermined period of time, due to a selling pressure in such securities;
8. "associated instruments" means the following financial instruments (including those which are not admitted to trading on a regulated market, or for which a request for admission to trading on such a market has not been made, provided that the relevant competent authorities have agreed to standards of transparency for transactions in such financial instruments):
(a) contracts or rights to subscribe for, acquire or dispose of relevant securities;
(b) financial derivatives on relevant securities;
(c) where the relevant securities are convertible or exchangeable debt instruments, the securities into which such convertible or exchangeable debt instruments may be converted or exchanged;
(d) instruments which are issued or guaranteed by the issuer or guarantor of the relevant securities and whose market price is likely to materially influence the price of the relevant securities, or vice versa;
(e) where the relevant securities are securities equivalent to shares, the shares represented by those securities (and any other securities equivalent to those shares).
9. "significant distribution" means an initial or secondary offer of relevant securities, publicly announced and distinct from ordinary trading both in terms of the amount in value of the securities offered and the selling methods employed;
10. "offeror" means the prior holders of, or the entity issuing, the relevant securities;
11. "allotment" means the process or processes by which the number of relevant securities to be received by investors who have previously subscribed or applied for them is determined;
12. "ancillary stabilisation" means the exercise of an overallotment facility or of a greenshoe option by investment firms or credit institutions, in the context of a significant distribution of relevant securities, exclusively for facilitating stabilisation activity;
13. "overallotment facility" means a clause in the underwriting agreement or lead management agreement which permits acceptance of subscriptions or offers to purchase a greater number of relevant securities than originally offered;
14. "greenshoe option" means an option granted by the offeror in favour of the investment firm(s) or credit institution(s) involved in the offer for the purpose of covering overallotments, under the terms of which such firm(s) or institution(s) may purchase up to a certain amount of relevant securities at the offer price for a certain period of time after the offer of the relevant securities.
CHAPTER II
"BUY-BACK" PROGRAMMES
Article 3
Objectives of buy-back programmes
In order to benefit from the exemption provided for in Article 8 of Directive 2003/6/EC, a buy-back programme must comply with Articles 4, 5 and 6 of this Regulation and the sole purpose of that buy-back programme must be to reduce the capital of an issuer (in value or in number of shares) or to meet obligations arising from any of the following:
(a) debt financial instruments exchangeable into equity instruments;
(b) employee share option programmes or other allocations of shares to employees of the issuer or of an associate company.
Article 4
Conditions for "buy-back" programmes and disclosure
1. The "buy-back" programme must comply with the conditions laid down by Article 19(1) of Directive 77/91/EEC.
2. Prior to the start of trading, full details of the programme approved in accordance with Article 19(1) of Directive 77/91/EEC must be adequately disclosed to the public in Member States in which an issuer has requested admission of its shares to trading on a regulated market.
Those details must include the objective of the programme as referred to in Article 3, the maximum consideration, the maximum number of shares to be acquired and the duration of the period for which authorisation for the programme has been given.
Subsequent changes to the programme must be subject to adequate public disclosure in Member States.
3. The issuer must have in place the mechanisms ensuring that it fulfils trade reporting obligations to the competent authority of the regulated market on which the shares have been admitted to trading. These mechanisms must record each transaction related to "buy-back" programmes, including the information specified in Article 20(1) of Directive 93/22/EEC.
4. The issuer must publicly disclose details of all transactions as referred to in paragraph 3 no later than the end of the seventh daily market session following the date of execution of such transactions.
Article 5
Conditions for trading
1. In so far as prices are concerned, the issuer must not, when executing trades under a "buy-back" programme, purchase shares at a price higher than the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out.
If the trading venue is not a regulated market, the price of the last independent trade or the highest current independent bid taken in reference shall be the one of the regulated market of the Member State in which the purchase is carried out.
Where the issuer carries out the purchase of own shares through derivative financial instruments, the exercise price of those derivative financial instruments shall not be above the higher of the price of the last independent trade and the highest current independent bid.
2. In so far as volume is concerned, the issuer must not purchase more than 25 % of the average daily volume of the shares in any one day on the regulated market on which the purchase is carried out.
The average daily volume figure must be based on the average daily volume traded in the month preceding the month of public disclosure of that programme and fixed on that basis for the authorised period of the programme.
Where the programme makes no reference to that volume, the average daily volume figure must be based on the average daily volume traded in the 20 trading days preceding the date of purchase.
3. For the purposes of paragraph 2, in cases of extreme low liquidity on the relevant market, the issuer may exceed the 25 % limit, provided that the following conditions are met:
(a) the issuer informs the competent authority of the relevant market, in advance, of its intention to deviate from the 25 % limit;
(b) the issuer discloses adequately to the public the fact that it may deviate from the 25 % limit;
(c) the issuer does not exceed 50 % of the average daily volume.
Article 6
Restrictions
1. In order to benefit from the exemption provided by Article 8 of Directive 2003/6/EC, the issuer shall not, during its participation in a buy-back programme, engage in the following trading:
(a) selling of own shares during the life of the programme;
(b) trading during a period which, under the law of the Member State in which trading takes place, is a closed period;
(c) trading where the issuer has decided to delay the public disclosure of inside information in accordance with Article 6(2) of Directive 2003/6/EC.
2. Paragraph 1(a) shall not apply if the issuer is an investment firm or credit institution and has established effective information barriers (Chinese Walls) subject to supervision by the competent authority, between those responsible for the handling of inside information related directly or indirectly to the issuer and those responsible for any decision relating to the trading of own shares (including the trading of own shares on behalf of clients), when trading in own shares on the basis of such any decision.
Paragraphs 1(b) and (c) shall not apply if the issuer is an investment firm or credit institution and has established effective information barriers (Chinese Walls) subject to supervision by the competent authority, between those responsible for the handling of inside information related directly or indirectly to the issuer (including trading decisions under the "buy-back" programme) and those responsible for the trading of own shares on behalf of clients, when trading in own shares on behalf of those clients.
3. Paragraph 1 shall not apply if:
(a) the issuer has in place a time-scheduled "buy-back" programme; or
(b) the "buy-back" programme is lead-managed by an investment firm or a credit institution which makes its trading decisions in relation to the issuer's shares independently of, and without influence by, the issuer with regard to the timing of the purchases.
CHAPTER III
STABILISATION OF A FINANCIAL INSTRUMENT
Article 7
Conditions for stabilisation
In order to benefit from the exemption provided for in Article 8 of Directive 2003/6/EC, stabilisation of a financial instrument must be carried out in accordance with Articles 8, 9 and 10 of this Regulation.
Article 8
Time-related conditions for stabilisation
1. Stabilisation shall be carried out only for a limited time period.
2. In respect of shares and other securities equivalent to shares, the time period referred to in paragraph 1 shall, in the case of an initial offer publicly announced, start on the date of commencement of trading of the relevant securities on the regulated market and end no later than 30 calendar days thereafter.
Where the initial offer publicly announced takes place in a Member State that permits trading prior to the commencement of trading on a regulated market, the time period referred to in paragraph 1 shall start on the date of adequate public disclosure of the final price of the relevant securities and end no later than 30 calendar days thereafter, provided that any such trading is carried out in compliance with the rules, if any, of the regulated market on which the relevant securities are to be admitted to trading, including any rules concerning public disclosure and trade reporting.
3. In respect of shares and other securities equivalent to shares, the time period referred to in paragraph 1 shall, in the case of a secondary offer, start on the date of adequate public disclosure of the final price of the relevant securities and end no later than 30 calendar days after the date of allotment.
4. In respect of bonds and other forms of securitised debt (which are not convertible or exchangeable into shares or into other securities equivalent to shares), the time period referred to in paragraph 1 shall start on the date of adequate public disclosure of the terms of the offer of the relevant securities (i.e. including the spread to the benchmark, if any, once it has been fixed) and end, whatever is earlier, either no later than 30 calendar days after the date on which the issuer of the instruments received the proceeds of the issue, or no later than 60 calendar days after the date of allotment of the relevant securities.
5. In respect of securitised debt convertible or exchangeable into shares or into other securities equivalent to shares, the time period referred to in paragraph 1 shall start on the date of adequate public disclosure of the final terms of the offer of the relevant securities and end, whatever is earlier, either no later than 30 calendar days after the date on which the issuer of the instruments received the proceeds of the issue, or no later than 60 calendar days after the date of allotment of the relevant securities.
Article 9
Disclosure and reporting conditions for stabilisation
1. The following information shall be adequately publicly disclosed by issuers, offerors, or entities undertaking the stabilisation acting, or not, on behalf of such persons, before the opening of the offer period of the relevant securities:
(a) the fact that stabilisation may be undertaken, that there is no assurance that it will be undertaken and that it may be stopped at any time;
(b) the fact that stabilisation transactions are aimed to support the market price of the relevant securities;
(c) the beginning and end of the period during which stabilisation may occur;
(d) the identity of the stabilisation manager, unless this is not known at the time of publication in which case it must be publicly disclosed before any stabilisation activity begins;
(e) the existence and maximum size of any overallotment facility or greenshoe option, the exercise period of the greenshoe option and any conditions for the use of the overallotment facility or exercise of the greenshoe option.
The application of the provisions of this paragraph shall be suspended for offers under the scope of application of the measures implementing Directive 2004/.../EC (prospectus Directive), from the date of application of these measures.
2. Without prejudice to Article 12(1)(c) of Directive 2003/6/EC, the details of all stabilisation transactions must be notified by issuers, offerors, or entities undertaking the stabilisation acting, or not, on behalf of such persons, to the competent authority of the relevant market no later than the end of the seventh daily market session following the date of execution of such transactions.
3. Within one week of the end of the stabilisation period, the following information must be adequately disclosed to the public by issuers, offerors, or entities undertaking the stabilisation acting, or not, on behalf of such persons:
(a) whether or not stabilisation was undertaken;
(b) the date at which stabilisation started;
(c) the date at which stabilisation last occurred;
(d) the price range within which stabilisation was carried out, for each of the dates during which stabilisation transactions were carried out.
4. Issuers, offerors, or entities undertaking the stabilisation, acting or not, on behalf of such persons, must record each stabilisation order or transaction with, as a minimum, the information specified in Article 20(1) of Directive 93/22/EEC extended to financial instruments other than those admitted or going to be admitted to the regulated market.
5. Where several investment firms or credit institutions undertake the stabilisation acting, or not, on behalf of the issuer or offeror, one of those persons shall act as central point of inquiry for any request from the competent authority of the regulated market on which the relevant securities have been admitted to trading.
Article 10
Specific price conditions
1. In the case of an offer of shares or other securities equivalent to shares, stabilisation of the relevant securities shall not in any circumstances be executed above the offering price.
2. In the case of an offer of securitised debt convertible or exchangeable into instruments as referred to in paragraph 1, stabilisation of those instruments shall not in any circumstances be executed above the market price of those instruments at the time of the public disclosure of the final terms of the new offer.
Article 11
Conditions for ancillary stabilisation
In order to benefit from the exemption provided for in Article 8 of Directive 2003/6/EC, ancillary stabilisation must be undertaken in accordance with Article 9 of this Regulation and with the following:
(a) relevant securities may be overallotted only during the subscription period and at the offer price;
(b) a position resulting from the exercise of an overallotment facility by an investment firm or credit institution which is not covered by the greenshoe option may not exceed 5 % of the original offer;
(c) the greenshoe option may be exercised by the beneficiaries of such an option only where relevant securities have been overallotted;
(d) the greenshoe option may not amount to more than 15 % of the original offer;
(e) the exercise period of the greenshoe option must be the same as the stabilisation period required under Article 8;
(f) the exercise of the greenshoe option must be disclosed to the public promptly, together with all appropriate details, including in particular the date of exercise and the number and nature of relevant securities involved.
CHAPTER IV
FINAL PROVISION
Article 12
Entry into force
This Regulation shall enter into force in Member States on the day of its publication in the Official Journal of the European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 22 December 2003.