30. 8. 76 Official  Journal  of the European  Communities No C 204/5 
multiplication  effect.  It was  also  noted  that  as the 
incidence  of the  proportional  elements  of the  retail 
price  structure  (i.e.  proportional  taxation  plus  trade 
percentage  margin)  increases  above  50%  of the  total 
retail  price,  the increments  in the multiplication  effect 
rise dramatically  faster  than  each  successive  increase 
in the  incidence  of the  proportional  elements  of the 
retail  price. 
3.3.3.  Because  of this  multiplication  effect,  the 
conditions  of competition  induced  by the  taxation 
system  are  thus  determined  by the  rates  of pro-
portional  taxation  on retail  prices  and  not  by the 
ratio  relationship  between  the  incidence  of specific 
and proportional  taxation.  In  fact,  significant 
differences  exist  between  Member  States  in  the 
incidence  of the  total  taxation  burden  on cigarettes. 
The achievement  of a fixed  relationship  between  the 
specific  duty  and  proportional  taxes  on the  most 
popular  price  class  in all Member  States,  which  is 
envisaged  as the final  stage  of the  harmonization  of 
structure  under  the  1972  Directive,  would  therefore 
only  go some  way  towards,  but  would  still  fall  short 
of, achieving  uniform  conditions  of  competition within  the Community.  This  would  be achieved  only 
when  a subsequent  harmonization  programme  of the 
rates  of taxation  on cigarettes  would  also  have  been 
completed  and  when  other  distortions  of competition 
will have  been  removed.  Obviously,  the  impact  of 
such  a harmonization  programme  upon  government 
revenues  and  expenditure,  and  the  consequential 
social  policy  effects,  must  be carefully  examined. 
3.3.4.  The  Committee  suggests  that  the  Com-
mission's  examination  of relevant  approaches  to the 
final  stage  of this  harmonization  programme  might 
include  an examination  of proposals,  which  might 
fix the  incidence  (i.e.  the  rates)  of proportional 
taxation  on maximum  retail  prices,  rather  than  the 
ratio  relationship  between  the  specific  and  the 
proportional  elements  of  taxation.  This  would 
involve  a departure  from  the  approach  envisaged  in 
Article  1 of the  draft  Directive  but  it would  ensure 
the earlier  realization  of uniform  conditions  of 
competition  in the  Community  as a unified  market, 
leaving  Member  States  free  to levy  a variable  specific 
excise  duty  until  such  time  as harmonization  of 
excise  rates  overall  can also  be agreed  upon. 
Done  at Brussels,  30 June  1976. 
The Chairman 
of the Economic  and  Social  Committee 
Henri  CANONGE 
Opinion  on the  proposal  for a Directive  coordinating  the conditions  for the admission 
of securities  to official  stock  exchange  quotation 
The text  referred  to the Committee  has  been  published  in Official  Journal  No C 56 of 
10 March  1976,  page  2. 
A. LEGAL  BASIS  FOR  THE  OPINION 
On 28  January  1976  the  Council  referred  the  abovementioned  proposal  to the 
Economic  and  Social  Committee  in accordance  with  Articles  54 and  198  of the Treaty 
establishing  the European  Economic  Community. 
No C 204/6 Official  Journal  of the European  Communities 30. 8. 76 
B. OPINION  OF  THE  ECONOMIC  AND  SOCIAL  COMMITTEE 
The Economic  and  Social  Committee  prepared  its opinion  on the above  matter  at its 
140th  plenary  session,  held  in Brussels  on 30 June  and  1 July  1976. 
The full  text  of the opinion  is as follows: 
THE  ECONOMIC  AND  SOCIAL  COMMITTEE, 
Having  regard  to the  Treaty  establishing  the Euro-
pean  Economic  Community,  and  in  particular 
Articles  54 and  198  thereof, 
Having  regard  to the  request  for  an opinion  made 
by the  Council  of the  European  Communities  on 
28 January  1976, 
Having  regard  to the  decision  taken  by its Bureau 
on 27 January  1976,  instructing  the  Section  for 
Economic  and  Financial  Questions  to draw  up an 
opinion  on the matter, 
Having  regard  to the  oral  report  made  by  the 
rapporteur,  Mr Cammann, 
Having  regard  to the  opinion  issued  by the,  Section 
for Economic  and  Financial  Questions  at its meeting 
on 1 June  1976, 
Having  regard  to the  discussions  at its  140th 
plenary  session,  held  on 30 June  and  1 July  1976 
(meeting  of 1 July  1976), 
HAS  ADOPTED  THE  FOLLOWING  OPINION 
unanimously,  with  six abstentions: 
1. General  observations 
1.1. The  Commission's  efforts  to coordinate  the 
conditions  for admitting  securities  for stock  exchange 
quotation  are  basically  to be welcomed,  as they  are 
closely  connected  with  the  alignment  of the  rules 
governing  stock  exchange  prospectuses. 
1.2. The  Committee  considers  it is imperative  that 
one must  move,  albeit  gradually,  towards  a European 
capital  market.  Directives  like  the present  one  are the 
best means  that  the Community  has  for attaining  the objectives  desired;  general  recommendations 
addressed  to the Member  States  will  have  little  effect. 
For this  reason,  it would  be better,  in the  initial 
phase,  to lay down  minimum  conditions  only,  rather 
than aim  for  an  ideal  arrangement.  But,  such 
minimum  conditions  should  be made  mandatory  by 
virtue  of a Directive. 
1.3. The  third  suggested  solution  (Section  II of the 
explanatory  memorandum),  namely  establishing  a 
'hard  core'  list  of conditions  to be applied  in all 
circumstances  in all  the  , Member  States,  seems 
acceptable. 
1.4. It  is a good  idea  not  to attempt  coordination 
of procedural  formalities.  It is not necessary  for the 
present  to extend  coordination  — above  and  beyond 
the planned  prospectus  rules  — to points  of detail, 
as these  do not  have  any  real  effect  on the  inter-
penetration  of stock  markets. 
2. Detailed  observations  on the individual  Articles 
and on the explanatory  memorandum 
2.1. Section  I: 
General  provisions  and  field  of application 
2.1.1.  It  is to be welcomed  that  the proposed  rules 
are to apply  to all securities  issued  by national  and 
foreign  bodies  in the  public  or private  sector  and 
officially  quoted  on a stock  exchange  in a Member 
State.  But  it is not  entirely  clear  what  construction 
should  be put  on the  third  paragraph  of Section 
IV B 1 of the  explanatory  memorandum,  where  it 
states  'it seemed  hardly  feasible  at the present  stage 
of work  to lay down  coordinated  minimum  condi-
tions  for admission  to quotation  on a national  stock 
exchange  for such  issues'. 
2.1.2.  It  was  pointed  out  that  the  proposal  for 
a Directive  relates  only  to the admission  of securities 
30. 8. 76 Official  Journal  of the European  Communities No C 204/7 
to official  quotation.  It does  not  apply  to either 
regulated  or unregulated  free  market  dealings  in 
securities.  The  Committee  suggests  that  the  Com-
mission  should,  in due  course,  deal  also  with  the 
conditions  governing  regulated  free-market  dealings 
in seouritries.  Issuers  would  then  have  a disincentive 
to opt  for  free-market  dealings  in their  securities, 
instead  of official  quotation. 
2.1.3.  Article  3 (2) 
Even  as worded  now,  the  Directive  would  apply  to 
the admission  of European  Community  and  ECSC 
loans. 
2.1.4.1.  Article  4 ( 3 ) 
As regards  the  admission  of certificates  representing 
shares,  see  the  comments  on Schedule  A, Section 
1.3 and  Sections  II.2 to III.4. 
2.1.4.2.  Article  4 (4) this is common  knowledge,  for example  as a result 
of the  continuous  publication  of stock  exchange 
prices. 
2.1.7.1.  Article  8 ( 1 ) 
As a consequence  of the special  character  of mortgage 
banks,  Member  States  have  to waive  imposition  of 
the obligation  to provide  continuous  information 
(Schedule  D, Section  A.3)  and  imposition  of any 
stricter  or additional  conditions,  to the  extent  that 
the legislature  has  already  taken  the  necessary 
measures  to protect  the public. 
2.1.7.2.  Article  8 (2) 
On account  of the aboveipentioned  statutory  control 
of mortgage  banks,  it is unnecessary  to require  such 
institutions  to make  further  information  available  to 
the public  at regular  intervals  in addition  to the 
annual  balance  sheet  and  profit  and  loss  account. 
The obligations  which  issuers  of securities  have  to 
fulfil  cannot  simply  be  imposed  on  issuers  of 
certificates.  Certificates  are  only  an instrument  in 
stock-exchange  dealings  and,  as  such,  are  a 
representation  of the actual  securities  issued. 
See also  detailed  comments  on Schedule  C, Sections  4 
to 6 (items  2.7.2  to 2.7.4.  below). 
2.1.5.1.  Article  5 ( 1 ) 
The rule  against  discrimination  is basically  sound. 
2.1.5.2.  A r t i c 1 e 5 ( 2 ) 
It should  be expressly  stated  that  Article  5 does  not 
apply  to mortgage  banks.  According  to Article  8 (1), 
such  institutions  are  not  subject  to this  section  in 
its present  wording. 
2.1.6.  Article  6 
It should  be made  clear  that  there  is no need  for 
special  proof  that  given  securities  have  been  admitted 
to stock  exchange  quotation  in a Member  State  if Section  II: 
2.2. Methods  of  control  and  powers  of  the 
competent  authorities 
2.2.1.  The  competent  authorities  must  havt  a 
general  right  to information.  But  they  should  ir no 
way be entitled  to investigate  an issuer's  financial 
status  (principle  of a formal  examination  of data  as 
to correctness  and  completeness).  The  prospectus 
must  contain  the  information  needed  for  an assess-
ment  of the  issuer.  If, in the  authorities'  view,  the 
information  is inadequate,  then  the  prospectus 
should  be altered  and  expanded  where  necessary. 
2.2.2.  Articic  10  (2) 
Provision  should  be made  for  a right  of appeal 
against  any  decision  of the  competent  authorities, 
and not  just  against  a decision  to refuse  an 
application.  The  Committee  suggests  that  Article  10 
(2) be deleted  and  that  the following  be inserted  as 
a new  Article  following  Article  17: 
'Each  Member  State  shall  provide  for  an appeal 
procedure  against  the rejection  of an application.' 
No C 204/8 Official  Journal  of the European  Communities 30. 8. 76 
2.2.3.  Article  11(b) 
The Committee  considers  that  it is indefensible  for 
an application  to be rejected  without  the  reasons 
for such  action  being  given. 
It therefore  suggests  that  Article  11 (b) be deleted 
and that  the words  'as a rule'  be inserted  after  the 
word  'shall'  in Article  10 (1). 
It should  only  be permitted  to give  no reason  for 
refusing  an application  for  admission  when  it is 
virtually  certain  that  the  legitimate  interests  of the 
Member  State  concerned  in general  or of investors 
would  be fundamentally  affected  by such  a reason 
being  disclosed. 
2.2.4.  Article  14 
The Committee  suggests  that  the following  sentence 
be added  at the  end  of Article  14:  'In acting  thus, 
they shall  take  due  account  of the issuer's  legitimate 
economic  interests.' 
2.2.5.  Article  15 
Basically,  it is a good  thing  that  the  competent 
authorities  should  have  the  power  to suspend  or 
discontinue  quotation.  But  the  procedure  for  doing 
this and  the  conditions  under  which  it is to be im-
plemented  should  be laid  down  at national  level. 
2.2.6.  Article  17 
Thf* Committee  proposes  that  the following  sentence 
be added: 
'This  requirement  shall  be considered  to be fulfilled 
in the case  of collective  security-deposit  banks.' and stock  exchanges  should  also  be members  of the 
Contact  Committee. 
2.3.2.  Article  19  (3)  and  (4) 
The Committee  suggests  that  the  obligation  to 
inform  stock  exchanges  about  other  applications  for 
quotation  should  be limited  to those  applications 
which  have  been  refused  or made  'during  the 
previous  three  years. 
2.3.3.  Article  2 0 
The Committee  suggests  that  only  one  contact  com-
mittee  be set up for  the application  of the  present 
draft  Directive  and  the  draft  Directive  on an EEC 
prospectus,  because  this  will  be more  conducive  to 
coordination. 
2.4. Schedule  A: Annex  I 
Conditions  for  the  admission  of shares  to official 
quotation  on stock  exchanges  of Member  States  of 
the European  Communities 
2.4.1.  Conditions  relating  to companies  for  whose 
shares  quotation  is sought 
Section  1.3:  The  company's  profit-makijtg  capacity 
This  rule  would  mean  in effect  that  the  issuer's 
financial  status  would  be automatically  examined. 
Such  a substantive  examination  is not the job of the 
authorities  responsible  for  admitting  securities  for 
quotation.  What  is more,  it is impossible  to give  any 
reliable  indications  as to profit-making  capacity  in 
the 'following  financial  year'. 
The Committee  therefore  proposes  that  Section  1.3 
be deleted. 
Section  III: 
2.3. Procedures  for  cooperation  between  Member 
States 
2.3.1.  In  the  coordination  of the  conditions  for 
admission  to  stock  exchange  quotation,  close 
cooperation  is necessary  between  the  competent 
authorities  in the  Member  States.  Where  views 
differ  over  particular  points,  the arrangements  in the 
issuer's  home  country  should  be regarded  as having 
precedence.  Representatives  of issuers,  issuing  banks 2.4.2.  Conditions  relating  to the  shares  for which 
quotation  is sought 
Section  11.4:  Distribution  of shares 
The Committee  suggests  the  following  rewording: 
'Shares  shall  be  deemed  to be  distributed  in 
sufficient  number  when  they  appear  to be so by 
the competent  authorities,  having  regard  to the 
size of the market  and  frequency  of deals.' 
30. 8. 76 Official  Journal  of the European  Communities No C 204/9 
2.4.3.  Section  II.7:  Quotation  in  the  country  of 
origin  or in the country  in which  the  major 
proportion  of the shares  is held 
Compliance  with  these  provisions  would  be difficult 
for companies  which  have  issued  bearer  shares  and 
are established  in countries  where  there  is no stock 
exchange.  The  Committee  suggests  that  the  second 
paragraph  be changed  to read: 
'Member  States  may  . . . have  ascertained  that 
official  listing  in the  country  of origin  or in the 
country  in which  the  major  proportion  of shares 
is held  has not been  refused  in order  to protect  the 
interests  of investors.' 
2.5. Schedule  B: Annex  II 
Conditions  for  the  admission  of debt  securities  to 
official  quotation  on stock  exchanges  of Member 
States  of the European  Communities 
2.5.1.  Admission  to  official  quotation  of  debt 
securities  issued  by an undertaking 
Conditions  relating  to undertakings  for  whose 
debt securities  quotation  is sought 
Section  A.I.2:  Capacity  of the  undertaking  to meet 
its commitments 
It is not  clear  how  an enterprise  is to show  in any 
given  case  that  it is able  to meet  the  commitments 
resulting  from  the issue  of loan  stock.  In addition, 
it is not  the  job  of the  official  authorities  to check 
an issuer's  financial  status.  This  would  be better 
done  by the issuing  banks.  The  Committee  therefore 
suggests  that  A.1.2  be deleted. 
2.5.2.  Section  B.4:  Admission  to official  quotation 
of debt  securities  issued  by the central  govern-
ment  or  regional  or  local  authorities  of 
another  State  or by a public  international 
organization 
Distribution  of debt  securities 
In many  oases  institutional  investors  can only  acquire 
debentures  when  they  are  quoted  on  a stock 
exchange.  Often  they  buy  up such  issues  almost 
completely.  This  method  of placing  an issue  cannot 
be dispensed  with  and  the  Committee  therefore 
suggests  that  B.4 be deleted. 2.6. Schedule  C: Annex  III 
Obligations  of companies  whose  shares  are admitted 
to official  quotation  on  a stock  exchange  of a 
Member  State  of the European  Communities 
2.6.1.1.  Section  1: Quotation  of newly-issued  shares 
of the same  class 
The requirement  that  a company  should  (i) have 
all the  shares  that  it has  already  issued  quoted  on 
a stock  exchange  and  (ii) have  all subsequent  issues 
similarly  quoted  is a difficult  problem.  There  are 
always  cases  where  it is undesirable,  from  the issuer's 
point  of view,  to have  the entire  issued  share  capital 
and subsequent  issues  quoted.  The  interests  of the 
puMic  and  the  investors  involved  are  not  generally 
affected. 
2.6.1.2.  It  should,  therefore,  be possible  to dispense 
initially  with  official  listing  of newly-issued  shares 
which  are  unlikely  to change  hands.  If they  are 
subsequently  sold  extensively  to the public,  they  will 
have  to be officially  quoted  in any  case. 
2.6.1.3.  The  Committee  suggests  that  the  words 
'as a rule'  be inserted  before  'required'. 
2.6.2.  Section  4: Continuing  information 
The obligation  to keep  the public  informed  regularly 
— at least  half-yearly  — goes  far beyond  what  is 
required  as regards  an interim  report.  The  provision 
is a difficult  one  because  (i) it is mandatory  and  (ii) 
it is not  stated  what  is regarded  as 'sufficient' 
information.  Even  if listed  companies  do,  by and 
large,  issue  such  interim  reports  voluntarily,  the 
Committee  considers  that  the  law  should  only 
require  the half-yearly  publication  of the  profit  and 
loss account. 
2.6.3.  Section  5: Additional  information 
This  rule  would  establish  a permanent  obligation 
to provide  information  which  would  be dependent 
on a state  of affairs  that  could  be interpreted  very 
broadly.  It should,  in the  Committee's  view,  be 
thoroughly  re-examined. 
No C 204/10 Official  Journal  of the European  Communities 30. 8. 76 
The wording  of paragraph  (a) is at all events  unclear, 
particularly  the  phrase  'large  movements  in the 
prices  of its shares'.  Paragraph  (c) should  be deleted, 
in view  of the statutory  disclosure  requirements  with 
regard  to certain  holdings. 
2.6.4.  Section  6: Equivalence  of information 
It should  be made  clear  what  is meant  by 'equivalent 
information'.  It must  be pointed  out  that  when 
securities  are  quoted  on several  foreign  exchanges 
considerable  technical  difficulties  can  arise  merely 
because  the  prospectus  or annual  report  has  to be 
published  simultaneously  in several  languages.  In 
many  cases  a certain  time-lag  before  the appearance 
of the foreign  language  versions  is unavoidable. 
2.7. Schedule  D 
Obligations  of issuers  whose  debt  securities  are 
admitted  to official  quotation  on a stock  exchange 
of a Member  State  of the European  Communities 2.7.1.  Debt  securities  issued  by an undertaking 
Section  A.2:  Alteration  of  the  memorandum  or 
articles  of association 
There  does  not  seem  to be any  justification  for the 
rule that  planned  alterations  to the memorandum  or 
articles  must  be disclosed  in the case  of debentures. 
This  should  only  be required  where  the  rights 
attaching  to debentures  may  be affected,  for instance 
in the case  of convertible  debentures  or option  bonds. 
2.7.2.  Section  A.3:  Continuing  information 
It is not  clear  why  debenture  issuers  too  must 
periodically  — at least  half-yearly  — make  available 
sufficient  information  to enable  the public  to evaluate 
their  assets,  financial  position  and  the  general 
progress  of business.  As long  as the issuer  of a loan 
fulfils  his obligations,  there  is no reason  why  he 
should  have  to disclose  such  information.  Moreover, 
companies  which  float  loans  are  generally  public 
limited  companies  whose  shares  are officially  quoted. 
Done  at Brussels,  1 July  1976. 
The Chairman 
of the Economic  and  Social  Committee 
Henri  CANONGE 
Opinion  on the  proposal  for a Council  Directive  on the  approximation  of the  laws, 
regulations  and  administrative  provisions  relating  to the  marketing  of high  nitrogen 
content  ammonium  nitrate  based  fertilizer 
The text  referred  to the Committee  has been  published  in Official  Journal  No C 16 of 
23 January  1976,  page  4. 
A. LEGAL  BASIS  FOR  THE  OPINION 
On 13  January  1976  the  Council  referred  the  abovementioned  proposal  to the 
Economic  and  Social  Committee  in accordance  wiith  Article  100  of the  Treaty 
establishing  the European  Economic  Community.