New Recommendation of the Securities Market Association Will Increase Transparent and Comprehensive Disclosure in Directed Share Issues

Key Takeaways

• The Finnish Securities Market Association has issued a new recommendation on good securities market practice concerning disclosure of information on directed share issues.
• The recommendation lists information that releases must include with respect to the justification for the directed share issue, determination of subscription price, and parties subscribing for the shares.
• The recommendation will be applied to directed share issues that are disclosed on or after 1 December 2024.
• The recommendation is intended to be followed as is, and it is not subject to the principle of “comply or explain”.

The Board of the Securities Market Association (“SMA”) has on 30 September 2024 issued a new recommendation on good securities market practice. The recommendation concerns the disclosure of information related to directed share issues, particularly with respect to the justification for the directed share issue, determination of subscription price, and parties subscribing for the shares. The new recommendation will be applied to directed share issues that are disclosed on or after 1 December 2024.

The Recommendation

The recommendation states that a directed share issue is possible when the conditions of the Finnish Limited Liability Companies Act (“Companies Act”) on directed share issues are met but notes that from the perspective of good securities market practice, the transparent and comprehensive disclosure of the justification for derogating from the preemptive subscription right of shareholders is important.

According to the new recommendation, the releases announcing the proposal, decision, or result of a directed share issue must, in addition to information required by law and the rules of Nasdaq Helsinki, present at least the following information:

• The reason for derogating from the preemptive subscription right of shareholders.
  • The facts and circumstances on which the board of directors bases its view on the weighty financial reason referred to in the Companies Act must be described to the extent that shareholders and investors are able to assess the factors that influenced the board’s decision based on the information presented.
  • If the reason for derogating from the shareholders’ preemptive subscription right is the time and cost savings achieved by the directed share issue compared to a rights issue, the company must specifically justify why the time and cost savings are decisive in terms of the interest of the company and the common interest of all of its shareholders under the circumstances.
  • If the share issue is directed to certain predetermined individual investors, the company must justify why the shares are offered to these particular investors.
• A description of how the subscription price of shares is determined and how it is verified or will be verified that the subscription price is determined on market terms.
  • If the subscription price is determined by means of book building or an independent appraiser, it is usually sufficient that this is mentioned. If the subscription price is determined in some other way, such as through negotiations, it is necessary to describe how the company has verified or will verify that the subscription price is based on market terms.
• Information about the parties that have subscribed for shares.
  • If the share issue is directed at certain predetermined individual investors, these investors must be named. If these investors include existing shareholders in the company, the justification for this must be provided.
  • If the directed share issue is executed by means of book building, it is sufficient that the company includes a mention that the subscriptions have been carried out by means of book building and provides a description of the investor groups subscribing for the shares. If a shareholder owning at least 10 per cent of all shares or votes of the company has subscribed for at least 10 per cent of the shares offered in the directed share issue in the book building procedure, the company must disclose the name of the shareholder.

If necessary, the Market Practice Board interprets the recommendation and may, in individual cases upon request, provide recommended decisions on the application of the recommendation or on good securities market practice.

Scope and Purpose of the Recommendation

The recommendation is applied to Finnish limited liability companies whose shares are admitted to trading on a regulated market in Finland or, at the company’s request or with the company’s consent, admitted to trading on a multilateral trading facility in Finland, and to directed share issues involving payment in which the subscription price of shares is paid in full in cash, with the exception of directed share issues in which shares are offered for subscription to the public (such as initial public offerings) or to the company’s employees.

The recommendation is intended to be followed as is, and it is not subject to the principle of “comply or explain”. The requirements of law and the rules of Nasdaq Helsinki must also be taken into account in addition to the new recommendation. Where applicable, the principles outlined in the recommendation may also be followed in other types of directed share issues, as well as in connection with the issue of option rights and other special rights.

The recommendation and the related rationale has been published on the SMA’s website in Finnish, Swedish, and English. In addition to the good securities market practice described in the recommendation, the recommendation also considers the content and application practice of provisions of the Companies Act. Companies should keep in mind that conduct in accordance with the recommendation does not, as such, guarantee that the directed share issue meets the requirements of the Companies Act and must, in each individual case, ensure that the requirements of the Companies Act for directed share issues are met.

If you would like to know more, please contact our lawyers below.