The International Capital Markets Review Fourth Edition Editor Jeffrey Golden

Law Business Research

The International Capital Markets Review

The International Capital Markets Review Reproduced with permission from Law Business Research Ltd. This article was first published in The International Capital Markets Review - Edition 4 (published in November 2014 – editor Jeffrey Golden). For further information please email [email protected]

The International Capital Markets Review Fourth Edition Editor

Jeffrey Golden

Law Business Research Ltd

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PUBLISHER Gideon Roberton BUSINESS DEVELOPMENT MANAGER Nick Barette SENIOR ACCOUNT MANAGERS Katherine Jablonowska, Thomas Lee, James Spearing ACCOUNT MANAGER Felicity Bown PUBLISHING COORDINATOR Lucy Brewer MARKETING ASSISTANT Dominique Destrée EDITORIAL ASSISTANT Shani Bans HEAD OF PRODUCTION Adam Myers PRODUCTION EDITORS Jo Morley, Anna Andreoli and Caroline Rawson SUBEDITOR Janina Godowska MANAGING DIRECTOR Richard Davey Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK © 2014 Law Business Research Ltd www.TheLawReviews.co.uk No photocopying: copyright licences do not apply. The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of November 2014, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected] ISBN 978-1-909830-30-1 Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: 0844 2480 112

ACKNOWLEDGEMENTS

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book: ADVOKATFIRMAET GRETTE DA AFRIDI & ANGELL LEGAL CONSULTANTS ALLEN & OVERY LLP ATTORNEYS AT LAW BORENIUS LTD BBH, ADVOKÁTNÍ KANCELÁŘ, S.R.O. DE PARDIEU BROCAS MAFFEI ENSAFRICA FENXUN PARTNERS INTERNATIONAL COUNSEL BUREAU KIM & CHANG KING & WOOD MALLESONS KOLCUOĞLU DEMİRKAN KOÇAKLI ATTORNEYS AT LAW LOYENS & LOEFF NV MAKES & PARTNERS LAW FIRM MAPLES AND CALDER MEYERLUSTENBERGER LACHENAL ATTORNEYS AT LAW MIRANDA & AMADO ABOGADOS MKONO & CO ADVOCATES

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Acknowledgements

MNA MARTINEZ ABOGADOS MONASTYRSKY, ZYUBA, STEPANOV & PARTNERS MORRISON & FOERSTER LLP / ITO & MITOMI OPPENHOFF & PARTNER PINHEIRO NETO ADVOGADOS PLESNER P.R.I.M.E. FINANCE FOUNDATION REED SMITH RUSSELL McVEAGH SIDLEY AUSTIN LLP SYCIP SALAZAR HERNANDEZ & GATMAITAN UGHI E NUNZIANTE STUDIO LEGALE URÍA MENÉNDEZ ABOGADOS SLP VIEIRA DE ALMEIDA & ASSOCIADOS, SOCIEDADE DE ADVOGADOS RL

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CONTENTS

Editor’s Prefaces

��������������������������������������������������������������������������������������������������vii Jeffrey Golden

Chapter 1

AUSTRALIA�������������������������������������������������������������������������������1 Ian Paterson

Chapter 2

BELGIUM��������������������������������������������������������������������������������21 Sylvia Kierszenbaum and Willem Van de Wiele

Chapter 3

BRAZIL������������������������������������������������������������������������������������36 Ricardo Simões Russo, Gustavo Ferrari Chauffaille and Luiz Felipe Fleury Vaz Guimaraes

Chapter 4

CHINA�������������������������������������������������������������������������������������45 Xusheng Yang

Chapter 5

COLOMBIA����������������������������������������������������������������������������60 Camilo Martínez Beltrán, Luis Miguel Falla Zúñiga and Luis Hofmann Delvalle

Chapter 6

CZECH REPUBLIC����������������������������������������������������������������69 Tomáš Sedláček and Zdeněk Husták

Chapter 7

DENMARK������������������������������������������������������������������������������80 Jørgen Permin, Emil Deleuran, Jef Nymand Hounsgaard and Simon Skjold Jensen

Chapter 8

EU OVERVIEW�����������������������������������������������������������������������92 Oliver Kessler and Stefanie Zugelder

Chapter 9

FINLAND������������������������������������������������������������������������������107 Ari-Pekka Saanio

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Contents

Chapter 10

FRANCE��������������������������������������������������������������������������������117 Antoine Maffei and Olivier Hubert

Chapter 11

GERMANY����������������������������������������������������������������������������141 Kai A Schaffelhuber

Chapter 12

INDONESIA��������������������������������������������������������������������������152 Yozua Makes

Chapter 13

IRELAND������������������������������������������������������������������������������164 Nollaig Murphy

Chapter 14

ITALY�������������������������������������������������������������������������������������180 Marcello Gioscia and Gianluigi Pugliese

Chapter 15

JAPAN������������������������������������������������������������������������������������195 Akihiro Wani and Reiko Omachi

Chapter 16

KOREA�����������������������������������������������������������������������������������209 Myoung Jae Chung, Hyunsoo Doh and Nina Sun Young Ju

Chapter 17

KUWAIT��������������������������������������������������������������������������������221 Abdullah Al Kharafi and Abdullah Alharoun

Chapter 18

LUXEMBOURG��������������������������������������������������������������������233 Frank Mausen and Henri Wagner

Chapter 19

NETHERLANDS������������������������������������������������������������������254 Mariëtte van ’t Westeinde and Martijn Schoonewille

Chapter 20

NEW ZEALAND�������������������������������������������������������������������269 Deemple Budhia and John-Paul Rice

Chapter 21

NORWAY�������������������������������������������������������������������������������283 Andreas O Myrstad and Johan C Kongsli

Chapter 22

PERU��������������������������������������������������������������������������������������299 Juan Luis Avendaño C and Nydia Guevara V

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Contents

Chapter 23

PHILIPPINES������������������������������������������������������������������������309 Maria Teresa D Mercado-Ferrer, Joan Mae S To and Earla Kahlila Mikhaila C Langit

Chapter 24

PORTUGAL���������������������������������������������������������������������������324 Orlando Vogler Guiné, Ana Moniz Macedo and Sandra Cardoso

Chapter 25

RUSSIA�����������������������������������������������������������������������������������335 Vladimir Khrenov

Chapter 26

SOUTH AFRICA�������������������������������������������������������������������351 Clinton van Loggerenberg and Stephen von Schirnding

Chapter 27

SPAIN�������������������������������������������������������������������������������������364 David García-Ochoa Mayor and Daniel Pedro Valcarce Fernández

Chapter 28

SWITZERLAND�������������������������������������������������������������������376 Christoph Heiz, Wolfgang Müller and Marc Schamaun

Chapter 29

TANZANIA����������������������������������������������������������������������������387 Kamanga Wilbert Kapinga and Kenneth Mwasi Nzagi

Chapter 30

TURKEY��������������������������������������������������������������������������������395 Umut Kolcuoğlu, Kemal Aksel and Begüm İnceçam

Chapter 31

UNITED ARAB EMIRATES�������������������������������������������������404 Gregory J Mayew

Chapter 32

UNITED KINGDOM�����������������������������������������������������������416 Tamara Box, Ranajoy Basu, Nick Stainthorpe, Caspar Fox, Roy Montague-Jones, Jacqui Hatfield and Winston Penhall

Chapter 33

UNITED STATES�����������������������������������������������������������������439 Bart Capeci

Appendix 1

ABOUT THE AUTHORS�����������������������������������������������������449

Appendix 2

CONTRIBUTING LAW FIRMS’ CONTACT DETAILS���471

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EDITOR’S PREFACE TO THE FOURTH EDITION

It is good of the publishers to include in this volume the Editor’s Preface to each of the previous editions of The International Capital Markets Review. Reading through these is like an archaeological dig. The first begins with a somewhat nervous look-back over the shoulder at the thenrecent financial crisis. An expression in that preface of admiration for the ‘resilience’ of the markets sounded at the time more a hope and expectation than a certainty or done deal. In the second, further signs that a ‘big freeze’ on capital market transactional work was ‘thawing’ were noted; however, the challenge of new and voluminous regulation, as much as the potential for deal flow, made this publication of particular relevance when that edition appeared. By the time the third preface was written, the major global financial institutions were hiring again, but we were still looking for hard evidence or ‘confirmation’ that an uptick in deal flow lay ahead and that the extra staffing was in anticipation of opportunity rather than more simply a reaction to a compliance burden. Now, as I put pen to this Editor’s Preface to the fourth edition of the work, we have just witnessed the successful launch of the world’s largest-ever stock flotation. Alibaba shares soared 39 per cent on the first day of trading and, after the bankers exercised a greenshoe option, raised US$25 billion. Meanwhile, The Times reports a buoyant London braced for a ‘listing stampede’. Hong Kong is rivalling New York for the greatest number of cross-border deals. The Financial Times also reminds us that in fact, measured by deal value, year-to-date listings in New York have raised twice as much as in London and Hong Kong combined – the fastest pace since 2000. A corner turned? Hopefully, we are seeing real opportunity, at least for the informed ICM lawyer. As in the past, this book seeks to keep at the ready for just such an ICM lawyer relevant analysis as a means for staying on top of an ever-expanding flow of necessary information. New capital market regulation increases exponentially, and often purports to have extraterritorial reach. More than half of the Dodd-Frank rulemakings have now been finalised but nearly a quarter of the rulemaking requirements are still yet to be proposed. This past year has also been a busy period for regulatory reform at the European level and in other key jurisdictions covered in this volume. Notably as well, courts around the world have been building up a significant jurisprudence in disputes involving complex products and other capital market structures. We have almost certainly seen more ISDA

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Editor’s Preface to the Fourth Edition contract cases since this book first appeared than in all the years that preceded that first edition put together. Not surprisingly then, this volume keeps getting ‘fatter’. Soon the publishers will have to provide wheels for the book! What started as coverage of 19 relevant jurisdictions, now surveys 33 – five of which (Colombia, Kuwait, Norway, Peru and Portugal) are included for the first time. There has, however, certainly been no dilution in the quality of contributions. Someone clever once said that you are only as good as the company that you keep, on which basis the reader can feel very good indeed when turning to the lawyers and law firms that share their collective experience in the pages that follow. It remains a privilege and an honour to serve these contributors as their editor. I am confident that the latest surveys that follow will prove useful to our practitioner readers, and I will not be surprised if a few legal archaeologists among those get to excavating beyond the prefaces and examine the strata of the jurisdictional landscapes of earlier editions as they aim to equip themselves for their professional journeys ahead. Who knows? One of you may even be an Indiana Jones, who, armed with the information herein, may be tempted to grab that bullwhip and fedora and undertake a particularly ground-breaking transactional adventure or two. Indeed, it may even be that those adventures form part of the ICM story when it gets told in future editions of The International Capital Markets Review! Jeffrey Golden P.R.I.M.E. Finance Foundation The Hague November 2014

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EDITOR’S PREFACE TO THE THIRD EDITION

As I write the preface to this third edition of The International Capital Markets Review, my morning newspaper reports that one of the major global banks, having shrunk its workforce by more than 40,000 employees over the past two years, will now embark on a hiring spree to add at least 3,000 additional compliance officers. It would be nice if the creation of these new jobs evidenced new confidence that capital markets activity is on the rise in a way that will justify more hands on deck. In other words, capital markets lawyers will have something to celebrate if this bolstering of the ranks was thought necessary to ensure that requisite regulatory approvals and transactional paperwork would be in place for a projected expansion in deal flow. And, indeed, my morning newspaper also reports a  new transaction of some significance, namely, Twitter’s filing for a  multi-billion dollar international public offering, accompanied by a tweet, of course – but with a true sign-of-the-times disclosure: ‘This Tweet does not constitute an offer of any securities for sale’! Yes, confirmation of an uptick in deal flow – especially ‘big deals’ flow – would be nice. In the preface to the last edition of this work, I speculated that there were ‘signs that any ‘big freeze’ on post-crisis capital markets transactional work may be thawing’. All the better if the current newspaper reports provide continued and further support for that inference. After all, when our first edition appeared a little over two years ago, the newspapers were saying terrible things about the capital markets. What is more likely, however, is that this increased staffing aims to cope with regulatory complexity that will now impact the financial markets regardless of any growth and perhaps may even have been designed to slow down the business being done there. That complexity, but also just the scale of recently promulgated new regulation and the practitioner’s resulting challenge in ‘keeping up’ have all encouraged this new third edition. The 8,843 pages of Dodd-Frank rule-making that I reported in my preface to the last edition have now grown to more than 14,000 pages at this time of writing – and approximately 60 per cent of the job remains unfinished. Other key jurisdictions have been catching up. Plus the rules are purposive and aim to change the way things have been done. If compliance and even ethics in the capital markets were ever instinctual, rather than matters to be taught and studied, that is probably a thing of the past.

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Editor’s Preface to the Third Edition The thickness of this volume has grown as well because of the increased number of pages and coverage in it. Nine new contributors (Finland, Indonesia, Italy, the Netherlands, the Philippines, Spain, Switzerland, Tanzania and the UAE) and an overview of EU Directives have been added. Banks are lending less to corporates, which in turn are having to issue more to meet liquidity needs. Moreover, with the low interest rate environment of quantitative easing, central banks are encouraging risk-taking rather than hoarding. For investors, risk-free assets have become very expensive. So we see a growing willingness to get off the traditional highway in search of yield. Investment banks are, as a result, often taking their clients (and their clients’ regular outside counsel) to difficult, or at least less well-known, geographies. Having a  pool of country experts and jurisdictional surveys that facilitate comparative law analysis can be very helpful in this instance. That is exactly what this volume aims to provide: a ‘virtual’ legal network and global road map to help the reader navigate varying, and increasingly difficult, terrain to arrive at right places. There has been much relevant change in the legal landscape surveyed in the pages that follow. However, what has not changed is our criteria for authors. The invitation to contribute continues to go to ‘first in class’ capital market specialists from leading law firms. I shall be glad if, as a result, the biographical notes and contact details of the contributing firms prove a useful resource as well. The International Capital Markets Review is not a novel. Impressed I might be, but I would certainly also be surprised by anyone picking up and reading this volume from cover to cover. What I expect instead, and what is certainly the publisher’s intention, is that this work will prove a valuable resource on your shelf. And I hope that you will have plenty of opportunities to take it off the shelf and lots of excuses to draw on the comparative jurisdictional wisdom it offers. Let me again express my sincere gratitude to our authors for their commitment to the task and their contributions. It remains a  privilege to serve as their editor and a source of great pride to keep their company in the pages of this book. Jeffrey Golden P.R.I.M.E. Finance Foundation The Hague October 2013

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EDITOR’S PREFACE TO THE SECOND EDITION

It was my thought that we should also include in this second edition of The International Capital Markets Review my preface to the first edition. Written less than a year ago, it captures relevant background and sets out the rationale for this volume in the series. The contemporary importance of the global capital marketplace (and indeed you must again admire its resilience), the staggering volume of trading and the complexity of the products offered in it, and the increased scrutiny being given to such activity by the courts all continue. And, of course, so does the role of the individual – the difference that an informed practitioner can make in the mix, and the risk that follows from not staying up to date. However, I was delighted, following the interest generated by our first edition, by the publisher’s decision to bring out a second edition so quickly and to expand it. There were several reasons for this. The picture on the regulatory front is much clearer for practitioners than it was a year ago – but no less daunting. According to one recent commentary, in the United States alone, rule-making under the Dodd-Frank report has seen 848 pages of statutory text (which we had before us when the first edition appeared) expand to 8,843 pages of regulation, with only 30 per cent of the required regulation thus far achieved. Incomplete though the picture may look, the timing seems right to take a gulp of what we have got rather than wait for what may be a very long time and perhaps then only to choke on what may be more than any one person can swallow in one go! Regulatory debate and reform in Europe and affecting other key financial centres has been similarly dramatic. Moreover, these are no longer matters of interest to local law practitioners only. Indeed, the extraterritorial reach of the new financial rules in the United States has risen to a global level of attention and has been the stuff of newspaper headlines at the time of writing. There are also signs that any ‘big freeze’ on post-crisis capital markets transactional work may be thawing. In the debt markets, the search for yield continues. Equities are seen as a  potential form of protection in the face of growing concerns about inflation. Participants are coming off the sidelines. Parties can be found to be taking risks. They are not oblivious to risk. They are taking risks grudgingly. But they are taking them. And derivatives (also covered in this volume) are seen as a relevant tool for managing that risk.

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Editor’s Preface to the Second Edition Most importantly, it is a big world, and international capital markets work hugs a  bigger chunk of it than do most practice areas. By expanding our coverage in this second edition to include six new jurisdictions, we also, by virtue of three of them, complete our coverage of the important BRIC countries with the addition of reporting from Brazil, Russia and China. Three other important pieces to the international capital markets puzzle – Belgium, the Czech Republic and New Zealand – also fall into place. The picture now on offer in these pages is therefore more complete. None of the 24 jurisdictions now surveyed has a monopoly on market innovation, the risks associated with it or the attempts to regulate it. In light of this, international practitioners benefit from this access to a  comparative view of relevant law and practice. Providing that benefit – offering sophisticated business-focused analysis of key legal issues in the most significant jurisdictions – remains the inspiration for this volume. As part of the wider regulatory debate, there have been calls to curtail risk-taking and even innovation itself. This wishful thinking seems to miss the point that, if they are not human rights, risk-taking and innovation are hardwired into human nature. More logical would be to keep up, think laterally from the collective experience of others, learn from the attention given to key issues by the courts (and from our mistakes) and ‘cherry‑pick’ best practices wherever these can be identified and demonstrated to be effective. Once again, I want to thank sincerely and congratulate our authors. They have been selected to contribute to this work based on their professional standing and peer approvals. Their willingness to share with us the benefits of their knowledge and experience is a true professional courtesy. Of course, it is an honour and a privilege to continue to serve as their editor in compiling this edition. Jeffrey Golden London School of Economics and Political Science London November 2012

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EDITOR’S PREFACE TO THE FIRST EDITION

Since the recent financial markets crisis (or crises, depending on your point of view), international capital markets (ICM) law and practice are no longer the esoteric topics that arguably they once were. It used to be that there was no greater ‘show-stopper’ to a cocktail party or dinner conversation than to announce oneself to be an ICM lawyer. Nowadays, however, it is not unusual for such conversations to focus – at the initiation of others and in an animated way – on matters such as derivatives or sovereign debt. Indeed, even taxi drivers seem to have a strong view on the way the global capital markets function (or at least on the compensation of investment bankers). ICM lawyers, as a  result, can stand tall in more social settings. Their views are thought to be particularly relevant, and so we should not be surprised if they are suddenly seen as the centre of attention – ‘holding court’, so to speak. This edition is designed to help ICM lawyers speak authoritatively on such occasions. In part, the interest in what ICM lawyers have to say stems from the fact that the amounts represented by current ICM activities are staggering. The volume of outstanding over-the-counter derivatives contracts alone was last reported by the Bank for International Settlements (BIS) as exceeding US$700 trillion. Add to this the fact that the BIS reported combined notional outstandings of more than US$180 trillion for derivative financial instruments (futures and options) traded on organised exchanges. Crisis or crises notwithstanding, ICM transactions continue apace: one has to admire the resilience. At the time of writing, it is reported that the ‘IPO machine is set to roar back into life’, with 11 flotations due in the United States in the space of a single week. As Gandhi said: ‘Capital in some form or another will always be needed.’ The current interest in the subject also stems from the fact that our newspapers are full of the stuff too. No longer confined to the back pages of pink-sheet issues, stories from the ICM vie for our attention on the front pages of our most widely read editions. Much attention of late has been given to regulation, and much of the coverage in the pages of this book will also report on relevant regulation and regulatory developments; but regulation is merely ‘preventive medicine’. To continue the analogy, the courts are our ‘hospitals’. Accordingly, we have also asked our contributors to comment on any lessons to be learned from the courts in their home jurisdictions. Have the judges got it right? Judges who understand finance can, by fleshing out laws and regulations and applying them to

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Editor’s Preface to the First Edition facts perhaps unforeseen, help in the battle to mitigate systemic risk. Judges who do not understand finance – given the increase in financial regulation, the amounts involved, and the considerable reliance on standard contracts and terms (and the need therefore for a uniform reading of these) – may themselves be a source of systemic risk. ICM lawyers are receiving greater attention because there is no denying that many capital market products that are being offered are complex, and some would argue that the trend is towards increasing complexity. These changing financing practices, combined with technological, regulatory and political changes, account for the considerable challenge that the ICM lawyer faces. ICM activity by definition shows little respect for national or jurisdictional boundaries. The complete ICM lawyer needs familiarity with comparative law and practice. It would not be surprising if many ICM practitioners felt a measure of insecurity given the pace of change; things are complex and the rules of the game are changing fast – and the transactions can be highly technical. This volume aims to assuage that concern by gathering in one place the insights of leading practitioners on relevant capital market developments in the jurisdictions in which they practise. The book’s scope on capital markets takes in debt and equity, derivatives, highyield products, structured finance, repackaging and securitisation. There is a particular focus on international capital markets, with coverage of topics of particular relevance to those carrying out cross-border transactions and practising in global financial markets. Of course, ICM transactions, technical though they may be, do not take place in a  purely mechanical fashion – a  human element is involved: someone makes the decision to structure and market the product and someone makes the decision to invest. The thought leadership and experience of individuals makes a difference; this is why we selected the leading practitioners from the jurisdictions surveyed in this volume and gave them this platform to share their insights. The collective experience and reputation of our authors is the hallmark of this work. The International Capital Markets Review is a  guide to current practice in the international capital markets in the most significant jurisdictions worldwide, and it attempts to put relevant law and practice into context. It is designed to help practitioners navigate the complexities of foreign or transnational capital markets matters. With all the pressure – both professional and social – to be up to date and knowledgeable about context and to get things right, we think that there is a space to be filled for an analytical review of the key issues faced by ICM lawyers in each of the important capital market jurisdictions, capturing recent developments but putting them in the context of the jurisdiction’s legal and regulatory structure and selecting the most important matters for comment. This volume, to which leading capital markets practitioners around the world have made valuable contributions, seeks to fill that space. We hope that lawyers in private practice, in-house counsel and academics will all find it helpful, and I would be remiss if I did not sincerely thank our talented group of authors for their dedicated efforts and excellent work in compiling this edition. Jeffrey Golden London School of Economics and Political Science London November 2011

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Chapter 21

NORWAY Andreas O Myrstad and Johan C Kongsli 1

I INTRODUCTION i

Legal framework

Norway is party to the Agreement on the European Economic Area (the EEA Agreement), which links Norway (together with the two other EEA EFTA States, Iceland and Liechtenstein) to the EU’s internal market. Hence, Norwegian capital markets law is to a significant extent based on EU directives and regulations. The primary pieces of regulation of the Norwegian capital markets are: a the Securities Trading Act and the Securities Trading Regulation, which, inter alia, implement the EU Markets in Financial Instruments Directive (MiFID), the EU Market Abuse Directive (MAD), the EU Transparency Directive, the EU Take-over Directive and the EU Prospectus Directive, as well as the other EUwide regulation relating to these directives; b the Stock Exchange Act and the Stock Exchange Regulation, which, inter alia, implement the EU Directive on the Admission of Securities to Official Stock Exchange Listings and on Information to be Published on those Securities (the Listing Directive) and parts of MiFID; c Chapter 2(IV) and 2(V) of the Financial Institutions Act and appurtenant regulations, which set out rules for the issuance of covered bonds and securitisation of loan portfolios and other receivables; d the Securities Funds Act, which implements the EU Directives on Undertakings for the Collective Investment of Transferable Securities (the UCITS Directives);

1

Andreas O Myrstad is a partner and Johan C Kongsli is a senior associate at Advokatfirmaet Grette DA.

283

Norway e f g

ii

the Alternative Investment Fund Managers Act, which (with certain exceptions) implements the EU Alternative Investment Fund Managers Directive (the AIFMD); the Norwegian Securities Registration Act and appurtenant regulations regulations, which set out requirements to registration of securities with the Norwegian Central Securities Depositary and operating requirements for securities depositaries; and the rules of the operators of the Norwegian trading venues (listing rules and continuing obligations for issuers, and member and trading rules for the participating broker-dealers), principally the rules set by the Oslo Stock Exchange (the OSE) for its trading venues. Delay in implementation of new EU directives and regulations

Unlike EU Member States, where EU regulations apply directly, EU regulations have to be incorporated into the EEA Agreement and thereafter be transposed into Norwegian legislation before they become applicable under Norwegian law (a two-pillar system). Although Norway has a history of timely implementation of EU directives and regulations, Norway currently faces challenges posed by the wave of new EU regulations within the field of capital markets law. The main issue is the power that the new European financial supervisors – the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) – have to adopt decisions addressed to individual financial institutions in certain circumstances. Such decisions may then only be appealed to EU courts. Norway is not a EU Member State and such delegation of powers is not encompassed by the current EEA treaty. Under the Norwegian Constitution, the proposed delegation of powers could be achieved following approval by at least three-quarters of the members of parliament; however, such approval is currently regarded as politically impossible to achieve. The grant of powers to these European financial supervisors under the new EU regulations has delayed – and is expected to continue to delay – implementation of several important regulations. The backlog of EU regulations that have not been implemented in Norwegian law includes: a the EU Regulation on establishing the ESMA (the ESMA Regulation); b the EU Regulation on Short Selling and Certain Aspects of Credit Default Swaps (the Short Selling Regulation); c the EU European Markets Infrastructure Regulation (EMIR); and d certain provisions of the AIFMD. There are also doubts as to the ability of Norway to implement in a timely fashion MiFID II, the EU Markets in Financial Instruments Regulation (MiFIR), MAD II, the EU Market Abuse Regulation (MAR) and the amended Transparency Directive when these directives and regulations become effective. Negotiations among Norway (and the other EEA EFTA countries) and the EU are ongoing in order to find a structure that is compatible with the Norwegian Constitution. In a move putting pressure on Norway in the negotiations it was reported in August that the European financial supervisors notified the Norwegian Financial Supervisory

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Norway Authority (NFSA) that failure to find a solution to this issue within the end of 2014 could result in the NFSA losing its observer status in these organisations. iii Courts Relatively few capital markets law disputes ultimately pass through the court system in Norway, and capital markets law disputes are for the most part resolved at the supervisory authority level, through complaint board procedures or through arbitration. Some important cases have, however, been passed upon by the courts during the past few years, particularly concerning Nordic Trustee’s standing to bring legal action on behalf of bondholders, the concept of acting in concert in respect of the takeover rules, managers’ or underwriters’ due diligence defence, and standards of disclosure in offering materials. iv

Supervisory agencies

The NFSA is the primary supervisory agency for the Norwegian financial markets. The NFSA is broadly responsible for: a supervising issuers with respect to compliance with the continuing and periodical reporting obligations set out in the Securities Trading Act and the Securities Trading Regulation; b supervising compliance with the prospectus rules and to serve as the prospectus authority in Norway; c supervising investors and other market participants with respect to market conduct; d supervising investment banks, broker-dealers, funds and fund managers, accountants and auditors with respect to prudential and other regulation; and e supervising financial markets infrastructure providers, such as operators of stock exchanges, regulated markets and multilateral trading facilities (MTFs) (principally the OSE), central counterparties (CCPs) and securities depositaries (principally the Norwegian Central Securities Depositary) with respect to prudential and other regulation. Certain supervisory functions are carried out in cooperation with the OSE, which in its capacity as operator of its trading venues is responsible for monitoring that the activities on these trading venues are conducted in accordance with the rules set out in the Securities Trading Act and the Securities Trading Regulation, in addition to its own rules governing activities on its trading venues. Most notably, cases of non-compliance with reporting requirements and market conduct rules by issuers, investors and other market participants are usually investigated by the NFSA on the basis of reports from the market surveillance department of the OSE. The OSE also has the power to suspend and impose trading halts in the instruments that are traded on its trading venues. Supervision of takeover bids and compliance with the takeover rules set out in the Securities Trading Act are in principle within the powers of the NFSA, but the NFSA has delegated these powers to the OSE, which currently functions as the takeover authority in Norway.

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Complaint boards

It is possible for retail investors to submit complaints about Norwegian financial institutions and broker-dealers to the Financial Services Complaints Board (the FSCB). The FSCB is a private complaints board, established by agreement between the Consumer Council and the Norwegian trade associations for Norwegian financial institutions. The FSCB does not at the outset make decisions that are binding on the financial institution or broker-dealer concerned, but rather non-binding recommendations; however, a recommendation from the FSCB in favour of a retail investor becomes binding on the financial institution or the broker-dealer concerned unless such party notifies the FSCB in writing within 30 days of the recommendation being passed that it will not follow the recommendation. Most recommendations passed by the FSCB are followed by the businesses concerned2, possibly because the recommendations are publicly available and non-compliance gives bad publicity. The FSCB has in recent years handled many cases on misselling, standards of disclosure and investment advice in respect of banks’ sale of structured products.3 Decisions made by the OSE, in its capacity as a regulated market operator and as takeover authority, may be appealed to the Stock Exchange Complaints Board (the SECB). The SECB’s role, and the procedures for cases brought in for the SECB, is regulated by the Stock Exchange Act and the Stock Exchange Regulation. The decisions made by the SECB are binding unless the case is brought to the courts and a court rules otherwise. As relatively few capital markets law disputes ultimately pass through the court system, some of the most interesting capital markets case law in Norway is found in the decisions made by the SECB. Although the decisions by the SECB do not formally qualify as legal precedent, these decisions are used as an important legal source due to their high quality. II

THE YEAR IN REVIEW

i

Developments affecting debt and equity offerings

Equity offerings During the first half of 2014 there were 12 IPOs on the Norwegian regulated markets, compared with 12 IPOs for the whole of 2013. This also compares with an average of 11 IPOs a year during the 2008–2012 period and an average of 32 IPOs a year in the 2003–2007 period. Although the number of IPOs during 2013 and the first half of 2014 was much in line with the number of IPOs during the close aftermath of the 2007–2008 financial crisis, which affected Norway less than many other countries, it was claimed that the IPO markets had reopened in the second half of 2013. This was due to some quite

2 3

More than 70 per cent, according to TemaNord 2001:520, ‘Out-of-Court Dispute Resolution: A Description of the System in the Nordic Countries’, p. 23. See Section II.iii, infra.

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Norway sizeable IPOs within the offshore, energy and shipping industries. The first half of 2014 also saw some small-cap tech IPOs. Prior to the 2007-2008 financial crisis, Norway had an active grey market for raising equity on the Norwegian OTC list (NOTC offerings). The NOTC list, which is not a regulated market or treated as an MTF, is a system operated by the Norwegian Securities Dealers Association (NSDA) for dissemination, by issuers, of material price sensitive information and for reporting of trading prices by the broker-dealers that are members of the NSDA. The NOTC list has served as an important venue for raising capital, in particular for offshore, energy and shipping start-ups, as it offers a less timeconsuming path to the capital markets than an IPO on a regulated market. NOTC offerings are often similar to Norwegian IPOs in terms of transaction size and liquidity in the aftermarket, but are: a undertaken pursuant to private placement exemptions, typically under the minimum ticket size exemption of the Prospectus Directive, although sometimes with a quite substantial distribution; b undertaken on the basis of ‘light-touch’ offering documentation – typically only a very high-level investor presentation or offering memorandum – accompanied by a ‘big boy letter’; and c associated with significantly fewer regulatory burdens for the issuer following listing. In the second half of 2013, NOTC offerings, which had almost completely disappeared since 2008, resurfaced, and this continued in the first half of 2014. During the period, more capital was reported to have been raised through NOTC offerings than through IPOs on the regulated markets of the OSE. In particular, the NOTC market was used to raise equity for new shipping projects. The NOTC offerings of 2013–2014 continued to be undertaken on the basis of ‘light-touch’ offering documentation, but some may say that a trend seems to be that more work is put into due diligence and disclosure for these types of offering than before. This was probably partly a result of a high-profile Oslo District Court ruling of late 2012, the MPF Corporation case,4 where high-yield bond investors succeeded in attributing losses to the arranger of the bond loan and where ‘big boy letter’-type exclusion clauses were essentially disregarded by the court. Historically, the issuers that listed on the NOTC list used this as a first step into the capital markets and then subsequently listed on the regulated markets of the OSE. A relatively large portion of the issuers that have carried out NOTC offerings in 2013– 2014 have, however, elected – or seem to be targeting – a US IPO as the next step, which is perhaps because many of these projects do not have a domestic origin. Debt offerings 2013 and the first half of 2014 were active periods in the Norwegian corporate bond market. According to the OSE, corporate bonds (all bonds except government bonds) of

4 TOSLO-2011-62353.

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Norway in total 146.4 billion Norwegian kroner were issued and listed on the trading venues of the OSE during the first half of 2014, which was 13.5 billion kroner more than for the first half of 2013. As of the end of the first half of 2014, 1,654 bond loans, with a total outstanding amount of 1,483 billion kroner, were trading on the trading venues of the OSE. The total amount of high-yield bonds (non-investment grade bonds) is difficult to determine as the Norwegian bond product is generally unrated, but the high-yield portion of the broader Norwegian corporate bond marked is substantial. The Norwegian high-yield bond product originated in the 1980s as an alternative source of funding for the domestic capital intensive and asset-based offshore energy and shipping industries, but has subsequently developed into a product that is actively used by international issuers in the US dollar-denominated offshore energy and shipping industries. From 2010, the Norwegian high-yield bond product has also increasingly been used by issuers within a more diverse set of industries and is today seen as open for cash flow-based companies in all industries. In recent years, the product has further appeared as a source of funding in regional leveraged buyouts. The Norwegian high-yield bond product is typically: a issued in sizes from US$50 million to US$700 million and with a tenor of between three and five years; b sold in private placements, typically under the minimum ticket size exemption of the Prospectus Directive, to domestic and specialist international professional investors on the basis of ‘light-touch’ offering documentation, including a brief term sheet that forms the basis for the bond loan agreement that is negotiated after the issue is placed, and accompanied by a ‘big boy letter’; c issued on the basis of a Norwegian law-governed bond loan agreement on the standardised template of Nordic Trustee, which was established in the 1990s and inspired by that of Law Debenture in the United Kingdom; d not subject to any rating other than shadow ratings by the research departments of the arranging investment banks; and e listed on the OSE or the Nordic Alternative Bond Market quite some time subsequent to the issue of the bonds and hence triggering regulatory requirements for listing particulars or prospectus only after the bonds have been sold and issued. This way of undertaking bond issues has continued in 2013 and the first half of 2014, although some may say that offering documentation, in particular for secured bonds and first-time issuers, is gradually moving closer to international high-yield standards with more disclosure in offering memoranda. This is probably partly a result of the Oslo District Court ruling in the aforementioned MPF Corporation case. The Norwegian high-yield bond product has traditionally had maintenancebased financial covenants. A noteworthy development, however, is that Norwegian bond issues with only incurrence-based financial covenants are appearing to a greater extent. During 2014, the powers of Nordic Trustee, which was subject to a landmark Supreme Court ruling in 2010, were further confirmed by another Supreme Court ruling on whether Nordic Trustee had standing to bring legal action in relation to a claim for damages brought on behalf of the bondholders against directors and senior executives of the borrower; see ‘Cases and dispute settlement’, infra.

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Norway Enhanced listing procedures During the second half of 2012, the OSE revised its listing procedure regime and, inter alia, introduced an optional fast-track procedure that issuers may utilise for a higher listing fee. The purpose of the fast-track procedure was to reduce the overall period of the exchange’s eligibility review from eight to four weeks, and also to reduce frontloading of transaction items through a more tailored process for each issuer, as well as to enable issuers to defer the required intention to float (ITF) release until closer to actual transaction launch than under the standard fixed-timetable listing procedure. The real impact of the fast-track procedure has become apparent in the second half of 2013 and the first half of 2014, during which the fast-track procedure was used in most IPOs. Proportionate disclosure regime The proportionate disclosure regime (PDR) under the EU Prospectus Regulation for rights issues, small and medium-sized enterprises (SMEs) and companies with a reduced market capitalisation (small-cap issuers) was implemented in Norway in the second half of 2013. There are relatively few rights issues in the Norwegian market, as a popular way of raising equity for public companies is rather to undertake a private placement directed towards a small number of professional investors and then subsequently offer the shareholders that were not invited to participate in the private placement some participation through a subsequent offering made on the basis of a prospectus (a ‘repair issue’). The typical repair issue does not qualify as a ‘rights issue’ as defined in the EU Prospectus Regulation as it does not entitle shareholders to take up the shares in proportion to their existing holdings in the strict sense, and as the entitlements to subscribe are not made negotiable or transferable. As a result, despite the large proportion of Norwegian IPOs and other offerings qualifying for the PDR for SMEs and small-cap issuers, after one year of the PDR, precedent shows that few issuers have made use of the right to reduce the level of disclosure in their prospectuses. Free float requirements and retail discount The OSE practises the minimum 25 per cent free float requirement of the Listing Directive and the Stock Exchange Regulation strictly, and does not generally grant exemptions from this requirement even in the event that the number of shareholders at listing and the value of the shares in free float is high. Similarly, as has been the standard for main-list stock exchange listings in the Nordic region, the OSE applies a requirement of a minimum of 500 shareholders each holding shares worth 10,000 kroner, from which it generally does not give exemptions. Some debate has evolved around the strict approach by the OSE towards free float, in light of the somewhat more relaxed approach taken by competing exchanges in neighbouring countries. In response to the strict free float requirements, retail discounts and retail bonus structures began to appear in Norwegian IPOs in order to attract sufficient numbers of shareholders and interest from retail investors. In 2013 and the first half of 2014 almost all Norwegian IPOs included a retail discount structure. Due to the usual overallocation facility and price stabilisation activities undertaken by the

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Norway arrangers during the 30 days after listing, retail investors could easily cash in the discount on the back of price-stabilising activities. As a result, the free float has, in many instances, been reduced substantially during the initial 30-day period. Critics have argued that the retail discount does not contribute to valuable liquidity in the aftermarket and that it is something of a hidden cost attached to Norwegian IPOs. Implementation of T+2 settlement cycle In anticipation of the EU Regulation on Settlement and Central Securities Depositaries (the CSDR), the Norwegian financial markets infrastructure providers – the Norwegian Central Securities Depositary, the OSE and the CCPs operating in Norway – announced in October 2013 that they would shift from a T+3 settlement cycle to a T+2 settlement cycle for all applicable instruments. According to the CSDR, the earliest required date for T+2 implementation is 1 January 2015, but in line with the other Nordic markets the migration to a T+2 settlement cycle in Norway took place on 6 October 2014. High-frequency trading In 2012, the OSE, along with a few other European exchanges, introduced an orderto-trade ratio (OTR) fee on its trading venues. Article 48(6) of MIFID II, which will require that regulated markets have in place systems to limit the ratio of unexecuted orders to transactions that may be entered into the system by a member or participant, will not come into force until 2017. Research looking at the effect the introduction of an OTR fee on the Italian Stock Exchange found that quoted spreads and depth deteriorated after the introduction of the fee. A recent study of February 2014 looking at the effects of the OTR fee on the OSE, however, found that OTR ratios dropped but the common measures of the quality of trading, such as liquidity, transaction costs and realised volatility, did not deteriorate, and were essentially unchanged.5 This may be explained by the difference in implementation of the OTR fee in Milan compared with Oslo.6 In Milan the OTR ratio was calculated including all orders from traders irrespective of type or placement. In Oslo, the calculation excluded certain activities, including orders that rest unchanged for more than one second from order entry and order amendments that improve the price, volume or both. The OSE rules may therefore provide useful information on how to implement regulation of high-frequency trading without undermining the positive liquidity effects of such trading.

5

See Jørgensen, Skjeltorp and Ødegaard, ‘Throttling hyperactive robots’, Message to trade ratios at the Oslo Stock Exchange, February 2014. 6 Ibid.

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Developments affecting derivatives, securitisations and other structured products

Derivatives and EMIR developments In preparation for EMIR, the Norwegian Ministry of Finance and the NFSA established a working group in 2012 to assess and produce a proposal for implementing EMIR in Norwegian law. As it became clear, however, that there would be delays in incorporating EMIR in the EEA Agreement due to the role of ESMA, the working group was given an additional task of proposing some immediate changes to the current Norwegian regulation of CCPs. The amendments were intended to introduce regulations for Norwegian CCPs equivalent to those that would have applied had EMIR been implemented. The stated goal of the amendments is to allow Norwegian CCPs to carry out clearing related to markets and participants established in the EU. Presumably this will have to be based on Article 25 of EMIR, allowing for recognition of third-country CCPs. It should, however, be noted that the Ministry of Finance has expressed uncertainty as to whether such an amendment to Norwegian legislation would be sufficient to give Norwegian CCPs access to EU markets without finding a solution to the ESMA problem and implementing EMIR. The proposed amendments to the Securities Trading Act were passed by parliament in 2014 and will be implemented in January 2015. The proposed changes are limited to adapting Norwegian law to EMIR requirements for CCPs, and there are as yet no proposals to independently adopt the EMIR clearing requirement. Securitisations A current proposal for a new Financial Companies Act (the FCA), replacing the Financial Institutions Act (the FIA), contains significant changes to the existing Norwegian legislation governing securitisation. The securitisation of loan portfolios and other receivables is currently regulated in Chapter 2(V) of the FIA. The regulation was introduced in 2002 in order to increase the European competitiveness of Norwegian financial institutions, but the rules have been little used and so far only one financial institution – Santander Consumer Bank AS – has carried out a programme of securitisation under the FIA. Santander securitised a 10.66 billion kroner pool of Norwegian car loan receivables in 2011. Current Norwegian legislation permits the sale of loan portfolios or other receivables to a special purpose vehicles (SPVs)(securitisation) following notification to the NFSA. The SPV will be exempt from further financial regulation subject to the conditions in the FIA being fulfilled. This includes limitations on any form of liability by the originator institution for the obligations of the SPV and limitations on ownership by the originator of any bonds issued by the SPV. The Banking Act Committee that prepared the original 2011 government white paper proposal for a new FCA was divided with regard to changes to the Norwegian rules on securitisation. The majority recommended that securitisation of loan portfolios should be limited to what is currently permitted under the Norwegian rules for the issuance of covered bonds. The reasons given for the proposal were the lack of interest in securitisations under the existing rules and the role of asset-backed securities in the 2008 financial crisis. The minority, however, was of the opinion that banks would likely be more interested in taking advantage of the rules in the future in order to diversify their

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Norway funding. Furthermore, the minority of the committee considered that the requirements in the FIA ensure a high degree of separation between the financial institutions and the SPVs issuing asset-backed securities, and that this is sufficient to prevent the recurrence of problems similar to those that led to the financial crisis. Except for one response from the Norwegian Confederation of Trade Unions, all responses to the white paper where in favour of continued access to securitisation for Norwegian financial institutions. It was pointed out that the issuance of covered bonds is limited to specific assets and is therefore not an option for all financial institutions. Santander Consumer Bank responded that their experience with securitisation in Norway was mostly favourable and urged a review of the legislation instead of a repeal. This sentiment was echoed by the Central Bank of Norway, which pointed out that, despite the financial crisis, securitisation could still result in a more efficient risk allocation and proposed that securitisation should be allowed to continue, but subject to licensing and greater oversight. Despite the fact that the responses to the hearing where overwhelmingly in favour of continuing to allow securitisation, the final proposition to the parliament as submitted by the government kept the proposal to remove the securitisation rules from the new act. The Ministry of Finance did, however, state that they acknowledged the views of the industry and that they would consider proposing revised rules for securitisation at a later date. Covered bonds Norwegian covered bond legislation was introduced in 2007, and is based on EU legislation and is UCITS and CRD-compliant. There are today about 20 Norwegian issuers of covered bonds, where the smallest ones only issue in the domestic capital market and the largest ones issue in the international capital markets. A minor clarification was introduced in 2013 into the appurtenant regulations to the FIA regarding the classification of vacation homes. Eligible real estate assets for inclusion in a cover pool are divided into ‘residential mortgages’ with a loan-to-value ratio less than 75 per cent and ‘mortgages secured by other real estate’ with a loanto-value ratio less than 60 per cent. Previously, there had been some uncertainty as to whether holiday homes were to be considered ‘residential’ (which is the case in Sweden) or ‘other real estate’ (which is the case in Denmark). The amendment to the covered bond regulations establishes that holiday homes in Norway be considered other real estate and the relevant mortgages be subject to the 60 per cent loan-to-value requirement. In the proposal for a new FCA, the existing rules for covered bonds are transposed more or less unchanged; however, there is one change that is of significant importance in relation to EMIR. It is proposed that the Ministry of Finance should be given the authority to set quantitative requirements for overcollateralisation of the cover pool: in other words, to determine by how much the value of the cover pool should exceed the value of issued covered bonds. Currently, there is only a general requirement that the cover pool must at all times exceed the value of covered bonds. The amendment is in line with the latest proposals from ESMA regarding exemptions for covered bond issuers from mandatory clearing and from certain risk mitigation techniques for OTC derivative contracts not subject to clearing. Both these exemptions require that covered bond issuers and cover pools meet certain conditions, including a requirement that covered

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Norway bond programmes be subject to a legal collateralisation requirement of at least 102 per cent. All the other conditions contained in the ESMA proposals are already fulfilled by Norwegian covered bond programmes and the proposed wording of the new FCA should result in Norwegian covered bond programmes benefiting from the exemptions. Structured retail products The market for structured retail products in Norway remains limited after the misselling of loan financed products by several financial institutions to the retail market prior to 2008, which led to a Supreme Court ruling in March 2013, the Røeggen case.7 The case attracted much attention in Norway, and resulted in a large number of complaints to the FSCB; see Section II.iii, infra. Despite the negative publicity from these cases, and guidance from the NFSA – which essentially banned the offering of structured products and loan financing of the same as a package – the Nordic Derivatives Exchange (NDX), a Swedish licensed regulated market with a Norway segment, has reported an increased interest in the listed market for structured-type investments. iii

Cases and dispute settlement

Out of the capital markets law cases that arose during 2013 and the first half of 2014, four cases stand out as being of particular interest. Sale of structured retail products challenged In March 2013, the Supreme Court passed its ruling in the Røeggen case, which concerned the standards of disclosure and investment advice by a major Norwegian bank in connection with sale of a structured product to a retail investor, Mr Røeggen. The investor had invested in a principal-protected note where the return depended on the performance of an underlying basket of shares, and the investment was loan financed with a loan from the issuer of the product. Mr Røeggen succeeded with his claim to have the contracts determined as void on the basis of a rule in the Contracts Act on revision of unfair contract terms, and to be compensated so as to be put in a position as if the contracts had never been entered into. The case was primarily decided upon a broad-based assessment by the Supreme Court of whether the offering materials gave balanced information about the risks versus the reward potential. The Supreme Court concluded that the bank had provided one-sided information on the reward potential and insufficient information about the risks, particularly in respect of the consequences of loan financing the investment. In a Norwegian context, this ruling was important as a precedent on the courts’ willingness to revise, or deem void, contracts for speculative investments with reference to the very general rule set out in the Contracts Act on revision of unfair contract terms. Following the ruling, a number of similar cases – in total 3,198 cases – were brought in for the FSCB, and 2,838 of these cases have been passed upon by the FSCB as of the end of the first half of 2014. The Røeggen case has been used as the main precedent

7 Rt-2013-388.

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Norway in the subsequent treatment by the FSCB in which 404 of the 2,838 cases processed so far have resulted in damages being awarded to the investor. The case has remained in the public eye as one of the members of the FSCB resigned in protest in August 2014 alleging that the board’s evaluation of complaints was preferential to the banks and not consistent with the ruling in the Røeggen case. Status of Nordic Trustee In 2009, the guarantor of a high-yield bond challenged the foundation of the trustee function of Nordic Trustee following a default and enforcement action by Nordic Trustee (on behalf of the bondholders) (the Thule Drilling I case).8 The claimant broadly argued that Nordic Trustee did not have standing, according to the Dispute Act, to bring legal action directly against the guarantor (or the issuer), and that such powers rested solely with the individual bondholders. The case was of particular importance since the standard Norwegian bond product contains a ‘no action’ clause (i.e., such that no individual bondholder can on its own account seek to recover its bonds). The claimant succeeded with his claim in both the district court and the court of appeal – a result that shook investors in the Norwegian bond product market and the Norwegian financial and legal community, and raised concern about the whole functioning of the Norwegian bond market; however, in 2010 the Supreme Court reversed the lower court’s decision and confirmed the status of Nordic Trustee in respect of default and enforcement action directly against the guarantor (and the issuer). In 2013, in a new case relating to the same bond loan (the Thule Drilling II case),9 the directors and officers of the issuer, who had been sued by Nordic Trustee (on behalf of the bondholders) argued that the Supreme Court ruling of 2010 did not extend Nordic Trustees’s standing to direct legal action against persons that were not parties to any contract with the trustee (the ‘no action’ clause did not encompass such claims), and succeeded with this argument in both the district court and the court of appeal. In June 2014, however, the Supreme Court further confirmed the status of Nordic Trustee by once again reversing the lower court’s decision. Mandatory disclosure and insider dealing Since implementation of MAD in Norway in 2005, there has been much debate about whether the Securities Trading Act and MAD, together with Commission Directive 2003/124/EC, prescribe that the issuer’s duty to disclose inside information always arises simultaneously with the time when insiders are prohibited from using inside information, or whether mandatory disclosure only arises ‘upon the coming into existence of a set of circumstances or the occurrence of an event’ as set out in Article 2(2) of the Commission Directive (2003/124/EC) on time limits for public disclosure of inside information. The latter only cites circumstances or events that are certain, as opposed to the definition of inside information in Article 1(1) of MAD, which includes future and uncertain elements (‘a set of circumstances which exists or may

8 Rt-2010-402. 9 Rt-2014-577.

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Norway reasonably be expected to come into existence or an event which has occurred or may reasonably be expected to do so’).10 As the Securities Trading Act does not, according to its wording, distinguish between the time at which mandatory disclosure and the prohibition of insider dealing, respectively, arise, the OSE has consistently applied and enforced a low threshold for mandatory disclosure and a correspondingly low threshold for legitimate interest in delaying disclosure. This debate culminated in a case before the SECB in April 2013, the Intex Resources case,11 over an administrative fine that the OSE had imposed on Intex Resources for breach of its continuing disclosure obligations. Intex Resources – a mining company listed on the OSE – had disclosed a memorandum of understanding (MoU) with a new strategic partner when the MoU had been signed, and had not initiated delayed disclosure procedures (or disclosed the event) at the earlier point in time when, the OSE claimed, there was a ‘realistic prospect’12 of the MoU coming into existence. Before the SECB, Intex Resources argued that the Securities Trading Act did not properly implement Article 2(2) of the Commission Directive (2003/124/EC), and hence that it could not be fined for not having initiated delayed disclosure procedures (or disclosed) the MoU prior to it coming into existence. Although the SECB for other reasons reversed the decision to fine Intex Resources, Intex Resources’ principal arguments were rejected by the SECB, which broadly was of the opinion that the approach to timing of mandatory disclosure contemplated by Article 2(2) of the Commission Directive – especially in light of the Daimler case – was not a clear treaty obligation on Norway. Further, the SECB was of the opinion that the wording of the Securities Trading Act, and the preparatory works of that Act, did not indicate that Norway had elected the approach contemplated by Article 2(2) of the Commission Directive (as was also the case for some other EU Member States), and added that the MAR in any event showed a departure from such approach. Significant fine for TRS In March 2014, the National Authority for Investigation and Prosecution of Economic Crime (NAIPEC) announced that it had issued a fine of 51 million kroner on a Norwegian industrial company, Aker, for misuse of inside information in connection with extension of a total return swap (TRS) on the shares of another Norwegian industrial company, Aker Solutions. According to the NAIPEC, the facts of the case were broadly as follows:13 Aker, which was Aker Solutions’ largest shareholder, and members of its senior management, had prior to the extension of the TRS, whose term was about to expire, become privy to inside information about Aker Solutions. Shortly after Aker had executed the TRS

10

See Jesper Lau Hansen, ‘The Hammer and the Saw – A Short Critique of the Recent Compromise Proposal for a Market Abuse Regulation’, Noridc & European Company Law Working Paper No. 10-35. 11 OBKN-2013-1. 12 See ECJ case C-19/11, Daimler. 13 Made publicly available by NAIPEC in a presentation dated 4 June 2014.

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Norway extension with its TRS counterparty – probably because of internal discovery and reflection – Aker approached the TRS counterparty explaining that it had been privy to inside information at the time of execution of the TRS extension, and offered the TRS counterparty to terminate the TRS extension and to give them the same inside information as that of which Aker was in possession (without further explaining the nature of the inside information). The TRS counterparty was, however, indifferent about the matter – probably because it had no share price exposure as a result of its hedging position having been in place from the original TRS – and did not want to terminate the TRS extension or to become privy to the inside information. Notwithstanding Aker’s efforts to reverse the transaction and to level out any information dissymmetry between the parties, the NAIPEC issued a significant fine on Aker. Although no legal precedent in the true sense, this case shows that Norwegian authorities can be expected to apply a very strict notion of ‘misuse’, also beyond derivative extensions. iv

Relevant tax and insolvency law

Tax law The past year did not see any important changes to Norwegian tax law relevant to capital markets, other than that the general income tax rate was reduced from 28 per cent to 27 per cent with effect from 1 January 2014. Corporate entities and personal investors resident in Norway are as a main rule subject to taxation on gains on financial instruments, such as shares, bonds, debt and financial debt contracts. Norway’s domestic tax rules do not allow taxation of a non-residents’ capital gain on the disposal of financial instruments, including shares in Norwegian companies, unless the non-resident has a permanent establishment in Norway to which the financial instrument may be allocated. Dividends paid to foreign shareholders are as a general rule subject to a 25 per cent withholding tax. Corporate shareholders resident in EU/EEA countries are tax-exempt under the ‘exemption method’. The withholding tax rate will normally be reduced to 15 per cent, or lower, when paid to corporate shareholders resident in tax treaty states. Interest paid to foreign companies are not subject to withholding tax. Insolvency law The past year did not see any important changes to Norwegian insolvency law. Norwegian insolvency law continues to be oriented towards administration of insolvency cases (by the regular courts, through appointment of receivers) and debt settlement proceedings (by the regular courts, through appointment of debt negotiations committees), rather than reorganisation or restructuring of the debtor’s business. Private non-judicially administered reorganisation is not regulated by law. Further, judicial reorganisation is not regulated by law, other than in respect of financial institutions (which are subject to a separate act on public administration of financial institutions).

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Norway v

Role of exchanges, central counterparties and rating agencies

Exchanges The principal Norwegian trading venues are the OSE-operated trading venues: a Oslo Børs, an official stock exchange and the Main List in Norway for shares, bonds, exchange-traded funds (ETFs), exchange-traded notes, standardised derivatives and warrants; b Oslo Axess, a regulated market and SME List for shares; c Nordic Alternative Bond Market, an unregulated market for high-yield bonds; d Burgundy MTF, an MTF for shares that are listed on other Nordic exchanges than the OSE; e Oslo Connect, a regulated market for tailor made derivatives; and f Fish Pool, a regulated market for fish and seafood derivatives. With the introduction of MiFID in 2007, the OSE has seen a significant decline in its market share although the decline has tapered off in the past two years with the main list of the OSE in the first half of 2014 seeing just under 60 per cent of the trades in the OBX segment shares. In addition to competition from MTFs and dark pools, the OSE also faces competition in the Nordic region from Nasdaq OMX Nordic, as the OSE remains the only incumbent Scandinavian exchange operated independently of Nasdaq OMX Nordic. In 2013, the OSE completed its acquisition of the then Swedish-licensed MTF Burgundy, which could be seen as a response to competition from both MTFs and from Nasdaq OMX since Burgundy offers trading in Norwegian, Swedish, Finnish and Danish shares. So far in 2014, however, the Burgundy MTF has seen a steep decline in its market share in the other Nordic OMX markets. CCPs The OSE introduced a clearing obligation for equities on its trading venues in 2010, with clearing operations being performed by Oslo Clearing, a subsidiary of the OSE. Oslo Clearing was granted a licence to clear equities by the Ministry of Finance on the condition that within one year there should be at least two CCPs offering clearing to the member firms of the OSE. A second CCP did not, however, enter the market until LCH. Clearnet began clearing equities and ETFs traded on the trading venues of the OSE in March 2014. The OSE closed the sale of its shares in Oslo Clearing to the Swiss financial market infrastructure company Six Group in May 2014. Legal integration resulting in a single CCP under Swiss licence is expected to occur in the third quarter of 2014. The year 2014 also saw the completion of the integration of the Norwegian CCP, NOS Clearing ASA into NASDAQ OMX Clearing. NOS Clearing is a specialist clearing house for OTC-traded derivatives providing clearing service for commodity derivatives markets such as electricity certificates, freight, iron ore and seafood. Unlike Oslo Clearing, it appears that NOS Clearing will continue to operate with a clearing house license from the Norwegian Ministry of Finance and under supervision of the NFSA.

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Norway Rating agencies Rating agencies do not have an important role in the Norwegian capital markets. With the exception of covered bonds and bonds issued by large corporates in the international corporate bond market, the Norwegian bond product is mostly unrated or subject only to shadow rating by the research departments of the arranging investment banks. vi

Other strategic considerations

The Norwegian capital markets continue to attract equity and bond issuers, particularly within the offshore energy, shipping, and aquaculture and seafood industries. The relatively simple documentation requirements and efficient origination and execution process, combined with trading venues and an analyst community with a particular emphasis on these industries, are significant contributing factors. Although international capital markets standards are influencing Norwegian standards, and there has been some litigation on the local standards of disclosure during in recent years, the most active arrangers and issuers in the Norwegian market appear to be committed to stick to the local approach, which in many ways defines the Norwegian capital markets. The recent litigation on the role of Nordic Trustee has also strengthened the Norwegian bond product. III

OUTLOOK AND CONCLUSIONS

Over the next year the big question in Norwegian capital markets regulation is whether a solution will be found for the relationship between Norway and the new European financial supervisors. To date, no politically viable solution to this issue has been presented. A failure to resolve this issue in a timely fashion will result in a delayed implementation in Norway of important new EU capital markets regulation, and a divergence between Norwegian capital markets regulation and those regulations that apply throughout the EU.

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Appendix 1

ABOUT THE AUTHORS

ANDREAS O MYRSTAD Advokatfirmaet Grette DA Andreas O Myrstad is a partner in Grette’s corporate department. He advises corporate and investment banking clients on public and private M&A, securities offerings and regulatory matters, with a particular emphasis public M&A and equity capital markets. Mr Myrstad has, prior to joining Grette, worked as an in-house counsel at the Oslo Stock Exchange, including within its takeover authority unit. JOHAN C KONGSLI Advokatfirmaet Grette DA Johan Christian Kongsli is an attorney in Grette’s banking and finance department. He advises banks and other financial institutions on securities offerings, regulatory matters and loan documentation, and in particular covered bonds, derivatives (EMIR) and capital requirements. Mr Kongsli has, prior to joining Grette, worked as a financial analyst for an American private equity company in London. ADVOKATFIRMAET GRETTE DA Filipstad Brygge 2 PO Box 1397 Vika 0114 Oslo Norway Tel: +47 22 34 00 00 Fax: +47 22 34 00 01 [email protected] [email protected] www.grette.no

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