With effect from 1 January 2012 the statutory obligation to disclose substantial shareholdings in listed companies also includes certain cash-settled instruments, such as cash-settled equity swaps and stock options. Although such economic interests do not confer a legally enforceable right on the investor to acquire the underlying shares, they can still in practice result in the acquisition of those shares by the investor. The Dutch Authority for the Financial Markets (AFM) has introduced a policy rule regulating certain technical and operational aspects of the extension of the disclosure obligation. Nonetheless, uncertainty about the scope of this obligation will continue to exist in practice.


Under chapter 5.3 of the Dutch Financial Supervision Act (Wet op het financieel toezicht; DFSA) investors are required to disclose substantial holdings of shares and/or voting rights in listed companies to the AFM. Any person who knows or should know that as a result of acquiring or disposing of shares or voting rights, his stake will reach, exceed or fall below a statutory threshold (currently 5, 10, 15, 20, 25, 30, 40, 50, 60, 75 and 95 percent) must immediately notify the AFM. The notifications are entered in a public register on the AFM website. These rules, which have been in force for many years, were amended on 1 January 2012 to extend the disclosure obligation to include certain cash-settled instruments. The new rules were introduced through amendments to the DFSA and the Disclosure of Major Holdings and Capital Interests in Issuing Institutions Decree. Based on those amendments, the AFM has published a 'Guideline for Shareholders', which replaces its previous 'Information Brochure for Shareholders'.

Under the new rules, long positions resulting from cash-settled instruments are deemed to contribute to shareholdings (but not to voting rights, at least not in the technical sense) for the purpose of the disclosure obligation. Unlike physically-settled contracts, cash-settled instruments do not confer a legally enforceable right to acquire the underlying shares. In many cases, the cash-settled instrument is a contract (an OTC derivative) between a bank and a counterparty/client which provides for payment of a cash sum that depends on the value of the underlying shares. The new rules deliberately do not provide an exhaustive list or definition of such cash-settled instruments, but instead include a catch-all provision (see below under 'Extension of scope of disclosure obligation for shareholdings').

The reason for extending the disclosure obligation is that in practice certain cash-settled instruments can, despite the absence of a legal right to acquire the underlying shares, nonetheless result in their acquisition by the party who, pursuant to that instrument, holds a long position in those shares. In many cases the counterparty (often a bank) will hedge its short position by acquiring the underlying shares. In that event, it is by no means unlikely that the counterparty/bank, in the absence of any direct interest of its own, will be prepared to exercise the voting rights attached to the shares in accordance with the wishes of the party/client holding the long position. Moreover, in such a case the bank may often be willing to transfer the underlying shares to that party/client on maturity of the instrument (even though it has no obligation to do so). There have been some examples in Europe and America of parties that have covertly built up substantial economic positions in listed companies in this way using OTC derivative contracts with a number of banks. This lack of transparency is considered to be undesirable. It enables a listed company to be 'raided' by a party with an indirect (full or partial) controlling interest, and a potential bidder to build up an interest in a listed company without this being reflected in the price of the relevant shares. Transparency in respect of cash-settled instruments should contribute to realistic price formation.

Scope of disclosure obligation extended

As noted above, since well before 1 January 2012 investors have been required to notify their holdings of shares and/or voting rights in listed companies to the AFM when those holdings reach, exceed or fall below a statutory threshold. The listed company can be a Dutch public limited liability company (naamloze vennootschap) whose shares are admitted to trading on a regulated market within the EU/EEA or a foreign legal entity whose shares are admitted to trading on a Dutch regulated market (such as NYSE Euronext in Amsterdam).

Under section 5:45 of the DFSA, a notification obligation can also arise other than through the holding of shares (or voting rights). For example, depositary receipts for shares and rights to acquire shares or voting rights (such as convertible bonds and call options where the investor has the right to acquire the underlying shares upon settlement) are equated with shares for the purpose of the disclosure obligation.

As of 1 January 2012 the scope of section 5:45 of the DFSA has been widened to include three more subcategories. First of all, a new subsection 10(a) has been inserted, which provides that a person is also deemed to hold shares if he has a financial instrument (i) whose rise in value depends in part on the rise in value of the underlying shares or on dividend or other payments on those shares (in other words, a long position must be held in those shares), and (ii) which does not entitle him to acquire shares in a listed company (i.e. it is a cash-settled financial instrument). The use of the statutory term 'financial instrument' (which is broadly defined in section 1:1 of the DFSA) is in itself sufficient to bring numerous contracts within the extended scope of the disclosure obligation. Moreover, the words 'depends in part' (in subsection 5:45(10)(a)) are intended, among other things, to clarify the fact that an increase in the value of an instrument may sometimes also depend on factors other than an increase in the value of the underlying shares, as occurs in the case of indexes and baskets of shares. Also, the increase in the value of an instrument need not exactly reflect the increase in the value of the underlying share (see also below under 'AFM policy rule').

Second, the legislator has deliberately left open the definition of cash-settled instruments by including a catch-all provision in the new subsection 10 of section 5:45 of the DFSA, under which a person who has entered into a contract (other than a cash-settled financial instrument) that gives him an economic position comparable to that of a shareholder in a listed company is also deemed to hold shares for the purposes of the disclosure obligation. This catch-all definition was included on the grounds that an exhaustive list would take insufficient account of future financial innovations and that the disclosure obligation could thus be circumvented by means of contracts that fall outside the definition of 'financial instrument'. The AFM has not adopted the suggestion made by a number of market participants to issue a non-exhaustive list specifying which financial instruments and other contracts must in any event be notified.

Third, under the new subsection 10 of section 5:45 of the DFSA a person who may, by virtue of an option, be obliged to buy shares in a listed company is also equated with a shareholder. The legislator has justified the inclusion of such options (which are not cash-settled but physically-settled) on the grounds that this can prevent the circumvention of other provisions.

No netting of long and short positions

As already noted, the extension of the disclosure obligation relates only to long positions (where the value of the instrument increases in the event of an increase in the value of the underlying shares). Netting long and any short positions is not permitted because this would, according to the legislator, not be conducive to transparency.

Some market participants had suggested to the AFM that parties who disclose economic interests should be given the opportunity to arrange for an explanatory note to be entered in the notification register if they have also assumed obligations in exchange for the economic interest. It is, after all, quite conceivable that all or part of the interest that is disclosed serves as a hedge for, or is otherwise related to, such obligations. Without an explanatory note the party's net position would not be apparent. However, the AFM has not adopted this suggestion, at least for the time being.

AFM policy rule

The legislator left it to the AFM to provide guidance on the technical and operational aspects of the disclosure obligation. For this purpose the AFM published its 'Policy rule for the method of calculating shares to which financial instruments relate and the notification requirement for indices and baskets' on 30 December 2011 (the 'policy rule').

Delta-adjusted calculation

In its policy rule the AFM explains how the number of shares in the issuing institution to which the relevant cash-settled financial instruments or contracts relate should be calculated. In principle, the delta-adjusted calculation method should be used. This involves calculating the number of shares to be notified by multiplying the (nominal) number of underlying shares by the delta of the instrument in question. In response to reactions to the consultation version of the policy rule, the AFM has also agreed that the number of shares may be calculated on a nominal basis until 1 October 2012. However, when cash-settled instruments are notified on the basis of this nominal method, a document should be included as an explanation with the notification for publication in the register. The document should in any event include the exercise price and the number of shares on a nominal basis so that market participants can calculate the delta-adjusted position themselves, using other publicly available information. The party subject to the disclosure obligation may include additional information that can enhance the transparency of the position. From 1 October 2012, however, notification may be made only on the basis of the delta-adjusted calculation method.

Indices and baskets

As explained above, indices and baskets of shares (of which at least one share is in a listed company) will, in principle, now fall within the scope of the disclosure obligations for shareholders. However, the AFM has indicated that instruments relating to sufficiently diversified indices or baskets need not be included when determining the interest in a listed company. The policy rule is more specific: shares in an index or basket need be included in the calculation only if (i) they represent 1% or more of the class in issue of the listed company concerned, and/or (ii) they represent 20% or more of the value of the securities in the index or basket.

Manner of disclosure

When a position in cash-settled instruments is notified to the AFM, certain extra information must now be disclosed (in addition to the information that already had to be supplied under the rules in force before 1 January 2012). The extra information is as follows:

  • the type of financial instruments or contracts;
  • the expiry date of the financial instruments or contracts;
  • the number of shares in the listed company to which the financial instruments or contracts relate; and
  • insofar as the position to be notified may result in an obligation to buy shares in a listed company, the date on which or the period within which this obligation may arise.

For the time being the AFM considers that the present notification form, which is available on its website (www.afm.nl), is sufficient for notifications of cash-settled instruments. However, it is not yet clear how the AFM will classify these notifications in the public register on its website.

Transitional provisions

The transitional provisions introduce an initial disclosure obligation for persons who, on account of the new disclosure requirements, reached or exceeded the first disclosure threshold of 5% on 1 January 2012 and have not previously made a notification under the old disclosure obligations. Such persons must notify the AFM within four weeks of the entry into force of the new rules (i.e. no later than on 29 January 2012, according to the AFM).

Persons who made a notification before 1 January 2012 under the old disclosure rules will be subject to an initial disclosure obligation only if the number and type of the shares already notified have changed as a result of the new rules since the last notification (under the old rules). The altered composition of the portfolio must also be notified to the AFM within four weeks of the entry into force of the new rules.

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.