The notification obligation applies to persons discharging managerial responsibilities and persons closely associated with them (Article 19(1) of the MAR). In addition to natural persons, persons closely associated with them can also be legal persons and other entities (point (26) of Article 3(1) of the MAR) (“persons subject to the notification obligation”).

The notification obligation always applies only to the person subject to the notification obligation who engages in the notifiable transaction, even if that person’s notification obligation derives from a person discharging managerial responsibilities. A consequence of this is that the person discharging managerial responsibilities is not responsible for notifications by persons closely associated with that person discharging managerial responsibilities.

The notification obligation applies to the group of persons described in the following.

Person discharging managerial responsibilities

Persons discharging managerial responsibilities (point (25) of Article 3(1) of the MAR) mean:

• members of the management body (usually the management board),
• members of the administrative body,
• members of the supervisory body,
• personally liable partners and
• other senior executives who have the power to take managerial decisions affecting the issuer and have regular access to inside information.

The question of who “other senior executives” are cannot be answered by any one-size-fits all definition, but must rather be assessed on a case-by-case basis. As a general principle, however, not every person discharging managerial responsibilities below management board level is subject to the notification obligation. To be subject to the notification obligation, the person discharging managerial responsibilities must take managerial decisions affecting the future development and business prospects of the issuer. The notification obligation only arises if the person discharging managerial responsibilities has the power to take strategic decisions for the company as a whole. The person is not subject to the notification obligation at the latest where the decision is subject to approval by the management board.

BaFin assumes that only a very small number of persons will be categorised as “other senior executives” in the case of stock corporations (Aktiengesellschaften) established under German law or companies whose governance structure is similar to that of German stock corporations. Such a role may apply to an issuer’s senior general executives (Generalbevollmächtigte), members of an “extended management board” or of a body (executive committee) consisting of members of the management board and the heads of key business units. “Other senior executives” may be encountered more frequently in the case of stock corporations established under foreign or European law that have, for example, a single-tier management board structure.

The notification obligation may exist even where the person discharging managerial responsibilities is not authorised to make all the decisions alone. It suffices for such person to be a member of the body making the decisions in question.

Persons working at subsidiaries, parent companies or affiliated companies, rather than at the issuer, are by definition not “other senior executives”, as the rule only applies to persons who discharge managerial responsibilities within the issuer itself. As a rule, this also applies to persons discharging managerial responsibilities seconded by the parent company. In the case of transactions in guaranteed debt securities of a subsidiary, persons discharging managerial responsibilities in the parent company issuing the guarantee are only subject to the notification requirement if the persons discharging managerial responsibilities in the guarantor can be subsumed under the definitions in points (25) and (26) of Article 3(1) of the MAR with regard to the subsidiary, in other words they are, for example, themselves also members of the governing body of the subsidiary or persons closely associated with such members.

In the case of a GmbH (limited liability company) issuing debt securities, a member of the advisory board is also a “person discharging managerial responsibilities” if this person exercises powers in the specific individual case that are comparable to those of a member of a supervisory board or a member of the management. This applies equally to a (sole) shareholder or partner who is a legal person, if that shareholder or partner exercises powers comparable to those of a member of a supervisory board or a member of the management.

The mere fact that an “other senior executive” is listed in the issuer’s insider list does not establish any notification obligation for this person under Article 19 of the MAR.

Natural persons who are closely associated with the persons discharging managerial responsibilities (family members, subpoints (a), (b) and (c) of point (26) of Article 3(1) of the MAR)

The following persons are subject to the notification obligation:

• spouses or registered civil partners

  The notification obligation applies regardless of whether or not they live in the same household. Separated spouses or registered civil partners are also subject to the notification obligation until they are legally divorced or the registered civil partnership has been dissolved. Partners in non-marital life partnerships are not classified as persons closely associated.

• dependent children

  Only children who the person discharging managerial responsibilities has a legal responsibility to maintain are subject to the notification obligation. The question of whether maintenance is actually paid is not relevant in this context. In Germany, the specific maintenance obligation is governed by the corresponding provisions of the BGB (sections 1601 et seq. of the BGB).

  In the case of foreign nationals or persons residing outside Germany, the maintenance obligation may arise under the provision of a foreign legal system. For this reason, it is not possible to formulate a generally applicable, straightforward definition of entitlement to maintenance. Children under 18 who do not work and children who have reached the age of majority are generally subject to the notification obligation under Article 19 of the MAR until they finish school or their first degree or vocational training course.

• other relatives who have been living in the same household with the person discharging managerial responsibilities for at least one year at the time the transaction subject to the notification obligation was entered into

  Only relatives within the meaning of section 1589 of the BGB are covered by this provision. The criterion “living in the same household” is met if accommodation and the household budget are shared. In such cases, the notification obligation applies regardless of the degree of relationship. Non-dependent children still living in the same household are also subject to the notification obligation.

Notification obligation for legal persons and other entities (subpoint (d) of point (26) of Article 3(1) of the MAR)

The following entities are subject to the notification obligation:

• legal persons,
• trusts (e.g. foundations),
• partnerships (including civil law partnerships),

where

• the person discharging managerial responsibilities or a natural person closely associated with the person discharging managerial responsibilities discharges managerial responsibilities in that company (as a member of a management, administrative or supervisory body, or as a personally liable partner) or

• the person discharging managerial responsibilities or a natural person closely associated with that person discharging managerial responsibilities

  • directly or indirectly controls the company, or
  • the company was established for the benefit of such a person, or
  • the economic interests of the company are substantially equivalent to those of such a person.

A literal interpretation of the points described above would lead to an unreasonable expansion of the notification obligation and defeat the purpose of the provision. For this reason, taking into account the ESMA Q&As¹, the notification obligation under Article 19 of the MAR must be reduced to its real purpose – the existence of a notification obligation also where transactions are carried out by persons discharging managerial responsibilities subject to the notification obligation via companies.

In ESMA’s view, transactions by companies only trigger a notification obligation if the person discharging managerial responsibilities or a person closely associated with the person discharging managerial responsibilities discharges managerial responsibilities in the other legal person, trust or partnership. The person must take part in or influence the decision by those companies to carry out transactions in financial instruments of the issuer.

However, even in those cases, the legal person or other entity only has a notification obligation if the natural person subject to the notification obligation directly or indirectly controls that legal person or entity, that legal person or entity was set up for the benefit of that natural person, or the economic interests of the company are substantially equivalent to those of that natural person.

This has the following consequences:

Mere cross-board memberships

A legal person, trust or partnership that is not identical to the issuer is not subject to the notification obligation merely because a person discharging managerial responsibilities within the issuer also discharges managerial responsibilities within that other entity (e.g. supervisory board membership at both the issuer and another company). In ESMA’s view, the situation is different only if that entity is directly or indirectly controlled by the issuer’s person discharging managerial responsibilities, was set up for the benefit of that person discharging managerial responsibilities, or its economic interests are substantially equivalent to those of that person discharging managerial responsibilities.

Transactions by issuers

All transactions by an issuer are not subject to the notification obligation. This applies in particular to its non-trading book and trading portfolio/trading book transactions as well as transactions under buy-back programmes. Otherwise, inclusion of issuers as the primary trigger of the notification obligation would represent a circular argument.

Transactions by non-profit entities

Non-profit entities are not subject to the notification obligation because, in light of the non-profit activities of those entities, the persons discharging managerial responsibilities and persons closely associated with the persons discharging managerial responsibilities cannot derive any significant economic benefit from such entities.

Transactions by other companies

In the case of other companies, the notification obligation depends on whether the person discharging managerial responsibilities or the natural person who is closely associated with that person discharging managerial responsibilities has the possibility to profit economically from the acquisition of financial instruments by that company and thus circumvent the notification obligation. This outcome is based on a teleological reduction that is necessary to take account of the spirit and purpose or the rule, namely only to capture transactions by companies where there is the possibility for the natural person to secure a significant economic benefit. Such a significant economic benefit may be ensured, for instance, if the person discharging managerial responsibilities or the natural person closely associated with that person discharging managerial responsibilities holds an equity interest of at least 50 per cent in the company, holds at least 50 per cent of the company’s voting rights or is entitled to at least 50 per cent of the company’s profits.

Because of the large variety of potential legal arrangements, the elements leading to control cannot be listed exhaustively. As a rule, however, there is likely to be control if the majority of voting rights or shares are held or a control and profit-and-loss transfer agreement has been entered into. If there are several levels in the company’s structure, the question of whether there is a notification obligation will depend on whether or not the control threshold applicable to the entity potentially subject to the notification obligation is exceeded, directly or indirectly, by the natural person

• or the company was established for the benefit of the person discharging managerial responsibilities or the natural person closely associated with that person discharging managerial responsibilities,
• or the company’s economic interests are substantially equivalent to those of the person discharging managerial responsibilities or the natural person closely associated with that person discharging managerial responsibilities.

This criterion is met, for example, if several persons who are potentially subject to the notification obligation are invested in a company and they are only able to realise a significant economic benefit if their shares are combined. If there are several levels in the company’s structure, the question of whether there is a notification obligation will depend on whether or not the control threshold applicable to the entity potentially subject to the notification obligation is exceeded, directly or indirectly, by the natural person. Another application example is a special fund (Spezialfonds) that has been established for the person discharging managerial responsibilities or the natural person closely associated with that person discharging managerial responsibilities.

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