OTC equity derivatives are included in the definition of derivative financial instruments pursuant to article 1(2) and (2-ter) of the TUF.
Dealers are included in the category of qualified counterparties, as specified in article 6(2-quarter)(d) of the TUF (ie, brokerage companies, banks; undertakings for collective investments in transferable securities; investment companies; insurance companies; pension funds; financial brokers registered on the lists contemplated by article 106 of the Consolidated Law on Banking (TUB) (Legislative Decree No. 385/1993); banking foundations; governments and their corresponding offices; central banks and supranational organisations of a public nature; companies whose exclusive activity consists of trading on their own behalf in financial markets; and other individuals identified by Consob, in consultation with the Bank of Italy, with respect to the criteria set out in Directive 2014/65/EU).
Italian laws and regulations require specific information duties to be observed by intermediaries and issuers of financial instruments.
With reference to disclosure concerning major shareholding, article 120 of the TUF provides for some disclosure obligations for qualified holdings and delegates to Consob, the regulation of thresholds and notification’s procedures.
Article 119 of Consob Regulation No. 11971/99 (Regulation 11971) provides that those who directly or through nominees, trustees or subsidiaries, hold potential investments (ie, pursuant to article 116-terdecies (d) of Regulation 11971, shares that are the underlying equity of derivative instruments listed under article 1(2-ter)(a) of the TUF and all other financial instruments or contracts, which, by virtue of a legally binding agreement, attribute the holder, on its exclusive initiative, the unconditional right to purchase, by physical delivery, the underlying shares or the discretion to buy, through physical settlement, the underlying shares) have some disclosure obligations to target companies and to Consob and specifies the relevant thresholds for the above-mentioned disclosure duties.
In particular, the number of voting rights relating to an exclusively cash-settled derivative is calculated on a delta-adjusted basis, by multiplying the notional amount of underlying shares by the delta of the instrument, in accordance with the provisions contained in article 5 of Regulation (EU) 2015/761; the number of voting rights relating to financial instruments referenced to a basket of shares or an index is calculated in accordance with article 4 of Regulation (EU) 2015/761.
Article 119-bis of Regulation 11971 establishes exemptions from reporting obligations. Among the exemptions listed therein, when a notification obligation concerning the same material holding applies to both a controlling company and its subsidiary, the latter is exempted from the obligation.
Article 193 of the TUF provides that failure to disclose major shareholdings pursuant to article 120 of the TUF, and the delay in communications, is sanctioned by several measures including an administrative fine.
Such sanctions apply to company representatives and to the staff of the companies or entities in circumstances in which the conduct has a significant impact on the overall organisation or company risk profiles of business, or has caused serious harm to the protection of investors or to the integrity and proper functioning of the market.
With reference to transactions concluded by significant parties and individuals closely associated with such parties, article 114(7) of the TUF provides that persons performing administrative, supervisory and management functions in a listed issuer and managers who have regular access to inside information and the power to make managerial decisions affecting the future development and prospects of the issuer, persons holding shares amounting to at least the percentage established therein, and any other entities controlling the issuer, must inform Consob and the public of transactions involving the issuer’s shares or other financial instruments linked to them that they have carried out directly or through nominees.
Such disclosures must also be made by persons identified by Consob. Consob also identifies procedures and time limits for such notifications and for the disclosure of information to the public and the circumstances in which such obligations apply with reference to companies in a control relationship with the company whose shares are in question and any other entities in which the persons specified above perform administrative, supervisory and management functions.
Article 152-septies of Regulation 11971 specifies that article 114(7) of the TUF applies to:
- Italian companies issuing shares traded on Italian or other EU-regulated markets; and
- companies issuing listed shares traded on a regulated market that are not registered in an EU member state and having Italy as the member state of origin.
The same article 152-septies of Regulation 11971 provides that the requirements of article 114(7) of the TUF shall apply to transactions involving the purchase, sale, subscription or exchange of shares or financial instruments linked to shares.
The procedures and time limits applicable to disclosures to Consob and the public are governed by article 152-octies of Regulation 11971.
Article 193 of the TUF provides that a fine applies to companies, entities and associations required to make the disclosures referred to in article 114 of the TUF.
With reference to mutual equity holdings, article 121 of the TUF provides that, except in the circumstances set out in article 2359-bis of the Italian Civil Code, in the case of mutual equity holdings exceeding the limits established by article 120(2) of the TUF, the company that has exceeded the limit may not thereafter exercise the voting rights pertaining to the excess shares and must sell them within 12 months from the date on which the equity holding exceeded such limit. If such sale does not take place by the applicable deadline, the suspension of the voting rights is extended to cover the entire equity holding. The limits previously mentioned are increased as indicated in article 121(2) of the TUF if the threshold is exceeded by both companies subsequent to an agreement authorised in advance by the ordinary shareholders’ meetings of the companies concerned.
Where a person owns a shareholding exceeding the aforementioned thresholds of a listed company, or its controlling entity acquires a shareholding exceeding such limit in a listed company controlled by the former, the voting rights attached to the shares in excess of the limit specified are suspended.
In all of the above cases, the shareholdings are calculated by applying the methods described under article 120(4)(b) of the TUF that include potential investments.
The prior approval of the Bank of Italy is required where the equity derivative involves the acquisition of holdings resulting in the control of or the ability to exercise a significant influence over a bank, and in any case where the acquisition of shares would result in the transfer of a relevant shareholding in an Italian bank; or the modification of such shareholding above or below certain thresholds.
Prior written notice is required to be given to the Bank of Italy pursuant to article 15 of the TUF if the equity derivative involves directly or indirectly, the transfer of a relevant shareholding in an Italian intermediary.
Article 35 of Consob Regulation No. 16190/2007 (Intermediaries’ Regulation) establishes that intermediaries must inform clients on their classification as retail customer, professional customer or qualified counterparty. Article 38 of the Intermediaries’ Regulation provides that portfolio management agreements entered into by retail customers shall specify whether the intermediary can invest in derivative financial instruments.
The TUF identifies the Bank of Italy and Consob as the regulatory authorities primarily responsible for applying the above rules. In particular, pursuant to article 5 of the TUF, the Bank of Italy is responsible for the risk mitigation, property stability and sound and prudent management of intermediaries, and Consob is responsible for the transparency and soundness of behaviours. The Italian Insurance Supervisory Authority is the authority responsible for the supervision on the insurance companies.
Back to top