Treatment of options and other derivatives

Acquisition/grant/disposal

The acquisition or disposal of options or other derivatives is generally subject to the notification obligation. The option premium must be given as the price. Equally, the acquisition or grant of options or other derivatives on the basis of an employment contract or as part of a remuneration package is subject to the notification obligation, regardless of whether or not the beneficiary has some freedom of action as regards allotment. The acquisition of shares as a condition for participating in a corresponding scheme is also subject to the notification obligation. By contrast, a notification by the person discharging managerial responsibilities that they are entering into a remuneration package agreement is not subject to the notification obligation, provided that the person discharging the managerial responsibilities is only entitled to receive shares of the issuer when further conditions have been satisfied; the notification obligation only arises when these conditions occur and the transaction is actually executed (see point (i) of Article 10(2) of Commission Delegated Regulation (EU) 2016/522).¹

Cash-settled instruments that are neither negotiable nor transferable and that serve to calculate a performance-based remuneration claim (for example phantom stock, stock appreciation rights, restricted stock units, etc.) are not subject to the notification obligation. Because the acquisition or disposal of financial instruments using inside information is prohibited under Article 14 in conjunction with Article 8 of the MAR, non-negotiable and non-transferable financial instruments do not fall under the prohibition of insider dealing.

Exercise

The specific details of the notification obligation in the event of exercise depend on the design of the option or other derivative.

For options or other derivatives (such as certificates) that are designed to be solely cash-settled, exercise must be classified as a disposal transaction. The price to be disclosed is the payment made per option/derivative/share. To avoid confusion, “exercise against cash settlement” should be stated as the transaction type.

For options or derivatives designed for the acquisition of shares, exercise generally triggers the acquisition of shares. It is sufficient in such cases to notify the acquisition of the shares. It is not necessary to separately notify exercise. The price at which the shares are actually acquired must be disclosed.

To the extent that the person subject to the notification obligation has a choice between cash settlement and the acquisition of shares when exercising the option, the exercise type selected decides whether or not to notify.

Even if the shares are disposed of immediately following the acquisition or exercise, the disposal of shares is subject to the notification obligation, as long as the disposal is made via a securities account of the person subject to the notification obligation and not directly through the issuer or a bank engaged by the issuer.

Pre-emptive rights

Pre-emptive rights granted to shareholders in the course of a capital increase are subject to the notification obligation. The person subject to the notification obligation is not normally aware of the grant date for pre-emptive rights. For this reason, the date when the pre-emptive rights are credited to the securities account of the person subject to the notification obligation should be disclosed as the date of the transaction (example in BaFin’s examples of notifications according to Article 19 of the MAR²).

Pre-emptive rights trading is also subject to the notification obligation (example in BaFin’s examples of notifications according to Article 19 of the MAR³).

Acquiring shares by exercising pre-emptive rights is also subject to the notification obligation. A separate notification regarding the exercise is not necessary. The acquisition of shares by exercising pre-emptive rights should be given as the “type of transaction”. The date of the transaction is the date when the shares are created through the entry of the capital increase in the commercial register.

Section II.3.9.7 applies where the pre-emptive right is exercised subject to a condition precedent.

Joint securities accounts

In specific cases, the question arises in the case of joint securities accounts whether a notification obligation applies and, if so, to what extent.

If the holders of a joint securities account are organised as a civil law partnership, the guidance applicable to companies will apply (see section II.1.2.7).

If a transaction is settled through a joint securities account, this must be identified in field 4b) of the template as an explanation of the type of transaction.

Share dividends

Dividend payments in the form of shares are subject to the notification obligation. This also applies if the person subject to the notification obligation can choose between a cash payment and the grant of shares, and opts for a dividend in the form of shares.

Price information in special cases

Prices without a quantifiable equivalent

In some cases, it may not be possible to determine a price because the consideration cannot be expressed as a meaningful Euro amount. This may be the case, for example, if financial instruments are transferred to a company in return for shares of that company. In such cases, the price can be given as “not quantifiable”. As a general rule, a short explanation should also be provided.

Price for exchange deals

Where consideration is paid not in the form of money but in shares, for example, the shares granted must be given as the consideration. If shares of issuer A are exchanged for shares of issuer B at a ratio of 1:4, either the purchase of four B shares or the sale of 0.25 A shares must be given, where the four shares (0.25 shares) must be given as the price and the B (A) share as the currency. As a general rule, a short explanation should also be added.

Price for payments of interest

If an interest payment is agreed instead of a specific purchase price upon conclusion of the transaction, this fact must be disclosed.

Subscription of financial instruments

The successful subscription of shares or other financial instruments is a purchase transaction that is subject to the notification obligation. As a rule, the contractual obligation under the law of obligations is concluded on acceptance of the subscription by the company. However, the subscriber is not normally aware of that date. For this reason, the date when the person subject to the notification obligation becomes aware of the acceptance of his or her subscription order must be given as the date of the transaction.

Conditional transactions

Conditions subsequent

Transactions that are entered into under a condition subsequent are only required to be notified when it is clear that the condition will not occur and the transaction will actually be executed. The notification must be submitted to BaFin and the issuer within the statutory period.

If the condition subsequent occurs, there is no obligation to submit a notification.

Conditions precedent

If transactions are entered into under a condition precedent, the notification obligation only arises when the condition has occurred and the transaction has actually been executed (see point (i) of Article 10(2) of Commission Delegated Regulation (EU) 2016/522). In this case, the date when the condition occurs must be given as the date of the transaction. A short explanation of the condition is also permitted in these cases. See also section II.2.2.

Agreeing payment against delivery does not constitute a condition in the sense described above.

Exchanges of shares in mergers

Non-negotiable exchanges of shares in the course of mergers or divisions are not subject to the notification obligation.

Discretionary orders

In the case of discretionary orders, the date on which the order is placed with the bank is decisive. The date on which the contractual obligation arises under the law of obligations is decisive for the date of the transaction (see section II.2.2).

Transactions carried out by asset managers

Transactions that are carried out by an (independent) asset manager are always subject to the notification obligation if they are executed under a power of attorney and the person potentially subject to the notification obligation becomes or was the holder of the financial instruments concerned.

Transactions carried out under trustee arrangements

Trustee’s notification obligation

Transactions executed by a person subject to the notification obligation as a fiduciary trustee (Vollrechtstreuhänder) on behalf of a third party who is not subject to the notification obligation are exempt from the notification obligation, as they are not own account transactions within the meaning of Article 19 of the MAR.

Trustor’s notification obligation

Transactions executed by a trustee for the benefit of a person subject to the notification obligation are subject to the notification obligation under Article 19 of the MAR.

The person subject to the notification obligation remains responsible for discharging the notification obligation. However, BaFin has no reservations if the trustee is mandated to submit the notifications on the trustor’s behalf.

Gifts and donations

Gifts and donations are subject to the notification obligation. In the case of gifts and donations that are not notarised, the date of the transaction is the date when the performance is effected under section 518 (2) of the BGB. If a person discharging managerial responsibilities makes a gift or donation of shares (and the promise to give or donate is not notarised), the date of the transaction is the date when the shares are credited to the securities account of the donee (example in BaFin’s examples of notifications according to Article 19 of the MAR⁴).

Disclose “0” (zero) as the price (example in BaFin’s examples of notifications according to Article 19 of the MAR⁵).

The decisive factor in calculating the relevant threshold according to Article 19(8) MAR (see section II.2.3) is the last published price for the financial instrument concerned in accordance with the post-trade transparency obligations under Articles 6, 10, 20 and 21 of Regulation (EU) No 600/2014⁶ on the date of acceptance of the gift or donation.⁷O7

Inheritance

Both the acceptance of an inheritance and any subsequent distribution are subject to the notification obligation (examples in BaFin’s examples of notifications according to Article 19 of the MAR). If the testator is a person discharging managerial responsibilities, there is no notification obligation for persons closely associated with the person discharging managerial responsibilities and who are beneficiaries of the inheritance, as they are no longer closely associated persons. When an inheritance is accepted, the date of the transaction is either the date on which the inheritance is explicitly accepted or the date when the inheritance is deemed to be accepted under section 1943 of the BGB, i.e. the end of the six-week disclaimer period after an heir becomes aware of the inheritance.

Disclose “0” (zero) as the price. The decisive factor in calculating the relevant threshold according to Article 19(8) MAR (see section II.2.3) is the last published price for the financial instrument concerned in accordance with the post-trade transparency obligations under Articles 6, 10, 20 and 21 of Regulation (EU) No 600/2014⁸ on the date of acceptance of the inheritance.⁹

Securities lending (securities loans)

Securities lending is subject to the notification obligation. The consideration is the lending fee. Retransfer at the end of the securities loan is not subject to the notification obligation.

Pledge, transfer by way of security

Pure pledges are subject to the notification obligation, as is any transfer by way of security (point (a) of the first subparagraph of Article 19(7) of the MAR). There is no notification obligation if the pledging happens because of the drawdown of an overdraft facility under the bank’s general terms and conditions (see also the third sentence of recital (58) of the MAR). If there is a notification obligation, the number of shares pledged to secure the loan must be given in field 4b) of the template, and “not quantifiable” should be given in field 4c) for the “price" and “volume”.

The realisation of such collateral is subject to the notification obligation if the person realising the collateral is subject to the notification obligation under Article 19 of the MAR.

Footnotes: