The flagging rules entail an obligation for an acquirer to report when his portion of the shares in a listed corporation reaches or exceeds certain limits and an obligation for a transferor of shares in this type of corporation to report when his portion of the shares falls below certain limits. Flagging rules are found both in the Act on Trade in Financial Instruments (SFS 1991:980 Chapter 4 & 1) and in Stockholm Stock Exchange's registration contract.
The flagging obligation according to the law applies to Swedish and foreign physical and juridical persons. All types of scope are covered. A written report shall be made within seven days to both the company and the stock exchange or authorised market place where the company's shares are quoted. The obligation to report a shareholding commences when the quantity of votes of the holding amounts to at least ten (10) percent of the votes for all shares in the corporation. Thereafter a report shall be made each time any of the 20, 33 1/3, 50 and 66 2/3 percentage limits are passed (Bill 1991/92:113 p 220 f). According to chap. 4 & 2 of the Act on Trade in Financial Instruments, when calculating the shareholding attention shall be given to the holdings of certain associated persons. Information which a report shall contain is laid down in chap 4 & 3 of the same act.
The obligation prescribed in law to make public a shareholding only goes as far as required by the EC's directive for this area. However, the Act have been considered to be inadequate in several respects and have therefore been supplemented with a recommendation from the Trade and Industry Exchange Committee (Naringslivets Borskommitt‚ (NBK)) which through a reference in the registration contract becomes binding for a listed corporation. For other participants in the market, however, the recommendation is not legally binding but they generally comply with the recommendation.
In the event of a failure to comply with the recommendation by an exchange listed corporation, the Board of the Stock Exchange may suspend or cancel the registration or trading of the shares of the said corporation or impose a fine on it.
NBK's recommendations differ generally from the provisions of the act, inter alia, in the following way. Flagging shall take place when the holding exceeds or falls below five percent and thereafter every percentage evenly divisible by five up to 90 percent of the total number of shares or votes in the corporation. The report shall be delivered to an established news agency, a daily newspaper with at least national coverage, and to a stock exchange or other authorised market place where the share is quoted at 09.00 hrs at the latest on a trading day which follows after the transaction. With regard to the form of the delivery of the message, see Sections 4-7 of the registration contract.
The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.