Countdown 124 days: New Danish Capital Markets Act

Corporate Update

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Below you will find a brief outline of the new Danish Capital Markets Act, its background and key contents. Our upcoming news series will explore the individual aspects of the Act. We will be holding seminars on Wednesday, 4 October 2017 and Thursday, 23 November 2017 at 09.00-12.00. Don’t forget to save the dates.

New principal act

The Danish Capital Markets Act forms part of a major overhaul and tightening of the rules on trading venues and securities trading in the wake of the financial crisis. Much of this overhaul takes place at EU level. In July 2016, the Market Abuse Regulation (MAR) took direct effect in Denmark, thus superseding parts of the Danish Securities Trading Act, in particular the rules on market abuse, disclosure requirements and inside information; these parts of the Act were repealed simultaneously.

As from 3 January 2018, the remainder of the Securities Trading Act will be replaced by an entirely new act: the Capital Markets Act. Moreover, the Capital Markets Act will implement parts of the MiFID II Directive, while also paving the legislative way for the application of the MiFIR Regulation.

The explanatory notes to the bill refer to the Capital Markets Act as the ’most important regulatory initiative within the capital market area since the introduction of the so-called Capital Market Reform II’, a reform which laid the groundwork for the drafting of the Securities Trading Act in 1995. Up until October 2016, the Securities Trading Act had been amended more than 55 times and, in the process, many provisions were repealed, amended or transferred to other regulations. all in all, the Capital Markets Act is the result of endeavours to ensure practical, up-to-date and consistent regulation of a comprehensive and complicated legislative text.

Main contents

The Capital Markets Act includes the body of rules covering the issuing of and trading in financial instruments on trading venues, including the rules on offering and admission to trading (prospectus rules), disclosure requirements, takeover bids and market players’ organisation and conduct of business.

In terms of the Securities Trading Act, a number of changes will be introduced, including:

  • Small prospectuses will be repealed
    The prospectus requirement for offerings below EUR 5m will be repealed to facilitate the raising of capital if the offering is small. The rules should be seen in the context of the new Prospectus Regulation, replacing the Prospectus Directive, which came into force on 21 July 2017 and will take effect gradually up until 21 July 2019, when it will be effective in its entirety.
  • New trading venues will be introduced
    Two new types of trading venue will be introduced:
    • OTF (Organised Trading Facility) – a multilateral system (which is not a regulated market or a multilateral trading facility) in which bonds, structured finance products, emission allowances and derivatives are traded.
    • SME growth market (growth market for small and medium-sized enterprises) – a type of trading venue intended to facilitate access to financing for SMEs. SMEs are defined as enterprises with an average market value below DKK 200m (approx. EUR 27m) measured over the three preceding years. An SME growth market has the structure of an MTF (Multilateral Trading Facility), but in addition to the requirements for an MTF, there are supplementary requirements designed to make the SME growth market attractive to both SMEs and new investors. Furthermore, MAR includes a number of exemptions for SME growth markets from the requirements laid down by MAR for MTFs. The exemptions are to contribute to making an admission to trading on an SME growth market attractive, without jeopardising investor confidence in the market.
  • Alternative marketplaces will be repealed
    Since the introduction by MAR of more requirements for the trading on MTFs, the differences between the regulation of MTFs and the Danish “alternative marketplaces” model have become distinctly fewer. On that basis, Denmark has elected to repeal this special Danish market type. As a result, the future regulated market types in Denmark will be solely the ones provided for by EU regulation, including the two new types of trading venue (OTFs and SME growth markets).
  • Requirements on algorithmic trading will be introduced
    New requirements will be introduced on control measures and systems for investment managers and trading venues using algorithmic trading. The purpose of the rules is to ensure that algorithmic trading does not disrupt the market, as it did in 2010 in the "flash crash".
  • Removal from trading at the issuer’s request will be regulated by the operator
    Removal from trading at the issuer’s request is not regulated by the Capital Markets Act. In future, it will be for the operator of the individual trading venue alone to lay down rules on such removal from trading.
  • Data reporting service providers will be subject to supervision
    The provision of data reporting services in the form of an Approved Publication Arrangement (APA), a Consolidated Tape Provider (CTP) or an Approved Reporting Mechanism (ARM) will, in future, require authorisation from the Danish Financial Supervisory Authority. The authorisation will be subject to several requirements e.g. for the management members of data reporting service providers, including that the management members must always be fit and proper and allocate adequate time to carry out the duties and responsibilities of their positions with the relevant service provider.

Summary

The new Danish Capital Markets Act will re-enact a vast number of rules as we know them from the Securities Trading Act and executive orders etc. issued under the Securities Trading Act.
In general, the state of law will continue to be familiar after 3 January 2018 as well.
Moreover, there will be a variety of interesting new and/or changed options and rules, which market players will need to learn and consider.

Over the autumn, we will be exploring some of these aspects on this website and at a number of seminars. Follow this site.