THE NETHERLANDS

JOACHIM FLEURY*

1. REGULATORY REGIME FOR THE NETHERLANDS

1.1. Background1

Until the beginning of 1986, no regulatory frameworkexisted in the Netherlands for the protection of investors inunlisted shares and other unlisted securities. Apart from theAct on the Supervision of the Credit System (Wet ToezichtKredietwezen) (the "Banking Act"), which subjects certainDutch issuers of debentures to banking supervision and whichprohibits the public issue of unlisted debentures in or from theNetherlands below a minimum denomination (except with alicense), no regulations existed in respect to the issue andpublic offering of unlisted securities.

In the field of trading in unlisted securities, the StockExchange Decree of 1947 (Beschikking Beursverkeer 1947) didrequire that, in the absence of a specific exemption, all salesof shares and securities had to take place through a memberof the Amsterdam Stock Exchange, but as a general rule, thisDecree was not actively enforced.

In contrast, listed securities were always subject to theregulations on the admission and issue of and trade in sharesand debentures of the Amsterdam Stock Exchange and, withregard to share, gold, silver index and currency options, of theEuropean Options Exchange and, with regard to financialfutures, the Amsterdam Financial Futures Market. Theimplementation of these regulations in respect to shares anddebentures listed on the Amsterdam Stock Exchange takesplace through the Amsterdam Stock Exchange Association (the"Association") whose members are permitted to trade in bothlisted and unlisted securities. Non-compliance with theAssociation's regulations may result in dealings in the listed

*Partner, Clifford Chance, Amsterdam, The Netherlands, practicing asan advocaat. Amsterdam University's Law School, 1984. Mr. Fleury wasresident in Clifford Chance's New York office from 1990 until late 1992.

' This background information can be found in F.G.B. GRAAF, Introduc-tion, in THE NETHERLANDS SECURITIES ACT AND SECURITIES TRADINGDECREE vii (1986).

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securities concerned being suspended or prohibited.Under the present Dutch securities regulations, the

exchanges are subject to the Securities Board of the Nether-lands (Stichting ToezichtEffectenverkeer), an autonomous bodyresponsible for the supervision and regulation of the Dutchsecurities market.

1.2. Relevant Legislation

1.2.1. Introduction

The Securities Trading Act (Wet Effectenhandel) (the"STA") was enacted on October 30, 1985 and took effect as ofMay 1, 1986. The Stock Exchange Decree was repealed witheffect from the same date. The STA was an interim measureto provide statutory protection against fraudulent investmentoffers relating to unlisted securities, particularly for non-professional investors. The STA did not affect trading insecurities subject to the rules of the Amsterdam StockExchange, the European Options Exchange or the AmsterdamFinancial Futures Market.

The STA was replaced by the Act on the Supervision ofSecurities Transactions (Wet Toezicht Effectenverkeer) (the"New Securities Act") and the Act on Investment Institutions(Wet Toezicht Beleggingsinstellingen) (the "InvestmentInstitutions Act"). The Investment Institutions Act wasenacted on June 27, 1990 and came into force on October 15,1990. The New Securities Act was enacted March 7, 1991 andentered into force on June 15, 1992.

Together, the Investment Institutions Act and the NewSecurities Act are intended to establish the framework of theregulations covering the offering and trading of securities andthe operation of investment institutions in the Netherlands.

1.2.2. The STA and New Securities Act

a. Scope

The goals of both the STA and the New Securities Act are:(i) the adequate functioning of securities markets to ensureefficient pricing and allocation of capital, and (ii) protection ofinvestors against fraudulent practises, lack of sufficientinformation and lack of expertise. The STA provided for

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regulations on the offering of securities, stock brokers and(unit) trusts. As noted above, the STA did not and the NewSecurities Act does not affect trading in securities listed on theAmsterdam Stock Exchange, the European Options Exchange,or the Amsterdam Financial Futures Market.

The scope of the New Securities Act is wider in somerespects than that of the STA. For instance, with regard toinvestor protection, the New Securities Act provides for a newelement of protection such as the regular disclosure of relevantinformation by issuers of unlisted securities.' This obligationdoes not apply where offerings are made to a limited group,but does apply if securities are offered to professional investorsonly.

b. Main Prohibition

The New Securities Act prohibits doing any of the followingin or from the Netherlands outside a limited group:

(a) in the case of unlisted securities, to offer thesesecurities upon issue, without publishing a prospectusavailable to the public which meets the requirements ofthe Decree on the Supervision of Securities Transac-tions (Besluit Toeztcht Effectenverkeer) of 18 December1991 and to which every written announcement of theoffer refers; and(b) (to offer) to act as an intermediary in securitiestransactions (including providing securities brokerageservices).'

The prohibition against offering securities upon issue aimsto ensure that new securities offered upon issue to the publicare adequately described in a prospectus. (On some occasionsthe prospectus requirement also applies to certain previouslyissued securities.)4 The prospectus requirements incorporatedin the Decree on the Supervision of Securities Transactions arebased on the regulations of existing stock, options, and futuresexchanges in the Netherlands. As far as shares and deben-tures are concerned, they closely follow the European Commu-

2 New Securities Act, art. 5, para. 1.

s Id. art. 6, para. 1.4 Id. art. 3, para. 3.

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nities Listing Directives.Pursuant to the Exemption Decree of March 25, 1992

(Vrijstellingsregeling Wet Toezicht Effectenverkeer), securitiesmay be offered to professional investors in or from theNetherlands without the publication of a prospectus meetingthe requirements of the New Securities Act.5 However, thecontinuing disclosure obligations remain applicable. Normallya selling restriction will be included in the offer document (andthe subscription agreement where applicable) to achievecirculation only to professional investors. Professionalinvestors who benefit from this exemption include: (invest-ment) banks, pension funds, insurance companies, securityfirms, investment institutions, central governments, largeinternational or supranational organizations, and otherentities, including, inter alia, treasuries and finance companiesof large corporations active on a regular and professional basisin the financial markets for their own account.

The Exemption Decree also provides for exemptions fromthe prospectus requirements if the denomination of thesecurities is NLG 100,000 (or the counter value in foreigncurrency) or more, if the securities qualify as "Euro-securi-ties"6 and if the securities are offered to persons who are notresident in the Netherlands.7 These exemptions are subject tovarious conditions.' If use is made of the first and last

exemption, the issuer will also be exempted from the continu-ing disclosure obligations.9

1.2.3. The Investment Institutions Act

a. Scope

The aims of the Investment Institutions Act are similar tothose of the New Securities Act. In view of those objectives,the Investment Institutions Act imposes requirements as tothe expertise and trustworthiness of those involved in invest-ment institutions, the soundness of the institutions, and the

5 Id. art. 4.See infra section 2.4.1.Exemption Decree, art. 8.

8 See id. arts. 4, 8.

Id art. 9.

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information to be furnished to the public.1 0 The supervision isnot aimed at the performance of the institutions; the Invest-ment Institutions Act does not afford any protection againsttrading losses.

The Investment Institutions Act applies to investmentinstitutions which solicit or obtain monies beyond a limitedgroup for collective investment, in order to allow the partici-pants to share in the income from such investments.1 Thoseinvestment institutions can take the form of an investmentcompany or investment fund. In most cases, the form will bethat of a corporation with limited liability, so that the sharesin the company constitute the participation rights of theinvestment institution. An investment fund is not a legalentity; it is constituted by assets that are administered andkept by third parties for the benefit of the unit holders.'2

b. Main Prohibition

Under the Investment Institutions Act it is prohibited,except within a limited group, to solicit or obtain, in or fromthe Netherlands, monies or other goods by way of participationin a non-licensed investment institution, or to offer participa-tion rights in such an institution.'" Where an investment fundis involved, the provisions of the Investment Institutions Actapply to the management company.

Pursuant to the Minister of Finance's power to grantexemptions under this Act, recognized private venture capitalcompanies and investment institutions which solicit fundssolely from professionals have been exempted from theprohibition against non-licensed activities.'4

The license can be granted by the Minister of Finance (whohas delegated his powers to The Netherlands Central Bank)when certain requirements are met; these requirementsconcern expertise and trustworthiness, financial resources,management and the information to be furnished to the

10 See, e.g., Investment Institutions Act, art. 5.* Id. art. 412 d. art. 1, sub. b.13 1& art. 4.14 The Decree of 9 October 1990.

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investors of the investment institution and the public.15

Upon request, the Minister may also grant a license to anapplicant, who must show first that it is not reasonablypossible to nieet the prescribed requirements fully, and second,that the aims which the Investment Institutions Act seeks toaccomplish have been adequately achieved in other ways."6Such an exemption or dispensation may be subject to certainconditions.

1.2.4. The Banking Act

a. Scope

The Banking Act describes the various financial undertak-ings subject to banking supervision. It deals with the licens-ing and registration of banks, gives details of the controlswhich may be imposed by a bank, and describes how otherfinancial institutions are supervised.

b. Main Prohibition

Under the Banking Act, it is prohibited to offer to thegeneral public debentures with a denomination of less thanNLG 100,000 or to attract borrowings of a smaller denomina-tion from the general public unless (i) the instruments are orwill be listed on an exchange in the European Communities,(ii) the company issuing or dealing in the instruments isalready subject to supervision by The Netherlands CentralBank as a credit institution, or (iii) a dispensation has beenobtained from the Ministry of Finance.1" This prohibition mayapply concurrently with the New Securities Act.

"5 Investment Institutions Act, art. 5, para. 1, in conjunction withInvestment Institutions Decree of 25 September 1990, arts. 2-6 (BesluitToezicht Beleggingsinstellingen).

16 Investment Institutions Act, art. 5, para. 3.17 Banking Act, art. 42, in conjunction with the Decree of 29 January

1979 and the Decree of 11 October 1982.

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1.2.5. The Savings Certificates Act

a. Scope

The Savings Certificates Act (Wet inzake Spaarbewijzen)(the "SCA") of May 21, 1985 became operational at thebeginning of 1987 and, without intending to so do, impacts onthe issue and trading of commercial paper and certificates ofdeposit. The SCA contains rules applicable to savingscertificates (spaarbewijzen). It was enacted in order to put anend to tax evasion by investment in bearer savings certifi-cates."8 The SCA defines savings certificates as "bearersecurities constituting a claim for a fixed amount on theissuing institution and paying no interest during their term."'It is more or less by accident that commercial paper, certifi-cates of deposit, and medium term notes issued in or from theNetherlands may fall within this definition of savings certifi-cates.

By Decree dated March 11, 1987, an agreement of February2, 1987 between the Central Bank, the Association of Bankers,and the Postbank N.V. which established a uniform code ofconduct concerning bearer savings certificates issued afterFebruary 1, 1987 (the "Agreement") was declared generallybinding pursuant to the SCA on enterprises and institutionsthat issue savings certificates." Breach of the Agreement bysuch enterprises or institutions is a criminal offense.

b. Main Prohibition

According to the SCA, all transactions concerning savingcertificates have to be conducted by a member of the Stock Ex-change."' According to the Agreement, a registration note(registratie nota) must be issued by any enterprise or institu-tion entering into any transaction concerning savings certifi-cates. This note must mention the name, address, anddomicile of the counterparty; the nature of the transaction; and

"' Memorandum on bearer savings certificates submitted to the SecondChamber (Tweede Kamer) of the Dutch Parliament on 9 April 1981(Kamerstukken 16 532, no. 5).

" SCA, art. 1, sub. a.Id. art. 2.

± Id art. 3.

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a clear description of the number, type, and serial numbers ofthe savings certificates concerned.22 A "transaction" isdescribed as "any activity whereby a savings certificate isphysically transferred." 3 Furthermore, Article 4 of theAgreement provides that unless savings certificates are quotedon a stock exchange,24 they must contain a legend referring tothe requirement for a registration note. Article 5 of theAgreement prohibits any reference in publications concerningsavings certificates to the words "to bearer" (aan toonder). Thecertificate itself may be expressed to be "to bearer" but only ina way that is customary in relation to securities generally.

2. PUBLIC AND NON-PUBLIC OFFERINGS

2.1. General

Since the STA took effect, practitioners in the Netherlandshave been devising selling restrictions and warnings for use ininternational debt offerings by Dutch issuers. This task wascomplicated by the SCA, which affects the issue and trading ofcommercial paper and certificates of deposit. A third categoryof selling restrictions are those intended to avoid the applica-tion of banking supervision to the Dutch issuer; these restric-tions will be discussed below. 5 Selling restrictions areutilized to avoid a breach of the relevant regulations by theissuer and/or the syndicate and to limit the risk of liability vis-a-vis purchasers other than professional investors.2" Theconditions under which an exemption for offerings to profes-sional investors is granted further provide that sellingrestrictions have to be included in all documents relating tothe offering of the securities. This Article will mention themost important selling restrictions and the circumstances in

"2 The Agreement, art. 2.2 1d.

According to the territorial approach concerning the SCA adopted bythe Ministry of Finance and The Netherlands Central Bank, this can onlymean the Amsterdam Stock Exchange.

2'5 See infra section 2.4.1.26 The question whether the issuer must take precautions to prevent a

resale of the securities to the general public is currently the subject oflitigation in the Netherlands.

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which they may be used. 7

2.2. Public Offerings

From the statutory regime discussed in section 1, supra, itis clear that Dutch legislation aims to ensure that securitiesissued to the public in or from the Netherlands are fullydescribed in a generally available prospectus that meetsdetailed statutory requirements. Even when such securitiesissues are described in a prospectus, a dispensation from theMinister of Finance is necessary if (unlisted) debentures witha denomination of less than NLG 100,000 are involved, unlessthe company issuing the debentures is subject to supervisionby The Netherlands Central Bank.28 Breach of these regula-tions can result in imprisonment and a fine.

In practice, the prospectus is customarily distributedduring the initial offering period. It will often mention thatapplication has been made for official listing of the bonds ornotes on a stock exchange (e.g., the Amsterdam or LondonStock Exchange). The Decree on the Supervision of SecuritiesTransactions provides that the Securities Board can, inaccordance with the relevant EC Directives, recognize aprospectus used in connection with an offering and listing ofsecurities in another EC Member State.2"

In connection with the requirement that a prospectus beprepared and distributed in accordance with the detailedguidelines under the New Securities Act (which need not bethe same as those set by the relevant Stock Exchange), in theevent that securities not yet listed or about to be listed, on anEC Stock Exchange are offered upon issue to the generalpublic in or from the Netherlands, an issuer should use aselling restriction to the effect that:

If application to list the securities on the [ ] ex-change is refused these securities may only be offeredor sold as part of their initial distribution to individualsor legal entities who or which trade or invest in securi-ties in the conduct of a profession or trade within the

17 See infra sections 2.2. and 2.4.£8 See supra section 1.2.4.

£3 Decree on the Supervision of Securities Transactions, art. 2, para. 4.

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meaning of The Netherlands Act on the Supervision ofSecurities Transactions (Wet Toezicht Effectenverkeer)of March 7, 1991.This restriction is useful only where application is made to

list the securities on an EC Stock Exchange. A listing on aU.S., Japanese, or other exchange does not exempt an offeringof securities to the general public in or from the Netherlandsfrom the prospectus requirements of the New Securities Act,as the prospectus cannot be recognized by the SecuritiesBoard. 0 Such issues should either have the benefit of anindividual dispensation from the Securities Board or beaccompanied by a prospectus complying with the New Securi-ties Act.

2.3. Gray Area Between Primary and Secondary Market

There exists a gray area between primary and secondarymarket transactions. In the event that debt securities arelisted on an EC Stock Exchange to allow, through the use of arecognized prospectus, the offering of such securities to thegeneral public in the Netherlands, an issuer arguably has aninterest in including a warning in the prospectus and thesyndication documents. Such a warning would cover thecontingency that a syndicate member (i.e., any of the manag-ers, underwriters or selling group members) or any subsequentdealer is not a member of the Exchange on which the securi-ties are listed and not otherwise exempted or licensed underthe New Securities Act and still offers to provide intermediaryservices in respect to the securities to non-professionalinvestors in or from the Netherlands (which is prohibitedunder Article 6 of the New Securities Act, regardless of wherethe intermediary is domiciled).3 " Such a warning could readas follows:

Persons, firms or companies may only offer to act as anintermediary in selling or purchasing [the securities] toor from non-professional investors in the Netherlandsif they are licensed under The Netherlands Act on theSupervision of Securities (Wet Effectenverkeer) of

30 Id.31 New Securities Act, arts. 5, 6, 8 and 9.

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7 March 1991 or exempt from the requirement to obtaina license pursuant to that Act.However, the Ministry of Finance takes the view that

syndicate members act as such "intermediaries" only if theyoffer the securities for the issuer's account and not for theirown. For example, in the normal Eurobond syndicate theabove restriction is not required, because syndicate membersact as principals, not as agents; the initial distribution of thesecurities is covered exclusively by Article 3 of the NewSecurities Act.

2.4. Non-Public Offerings

2.4.1. As Defined By Nature of Investor

As mentioned in section 1, supra, where debt securities arenot listed on an EC Stock Exchange and no exemption fromArticle 3 of the New Securities Act has been obtained inrespect to a proposed offering to the general public in or fromthe Netherlands, an issuer must either prepare and distributea prospectus complying with the requirements under the NewSecurities Act or, alternatively, abandon the idea of a publicissue altogether. In that case, the issuer can restrict theoffering of securities to persons who are not residents of theNetherlands, and comply with the conditions attached to thisexemption. It can further use the "Euro-securities" exemptionprovided that no general advertising or canvassing campaignis conducted. Euro-securities are securities defined as those:

(a) the issuance of which is "taken over" by a syndicateof which at least two members are domiciled in differ-ent EC Member States;(b) of which sixty percent or more is taken over bysyndicate members which are situated in one or morestates (n.b. not only EC Member States) other than thestate in which the statutory seat of the issuing entity islocated; and(c) which can only be subscribed for or bought in firstinstance through the mediation of credit institutions

32 F.G.B. GRAAF, EUROMARKET FINANCE: ISSUES OF EUROMARKET

SECURITIES AND SYNDICATED EUROCURRENCY LOANS 178 (1991).

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subject to the supervision of the Dutch Central Bank orother financial institutions.

The issuer can also contemplate issuing securities with adenomination of NLG 100,000 (or the counter value if foreigncurrency) or more. Frequently, however, it would limit theoffering to professional investors or limited groups under theNew Securities Act. To achieve the latter objective, thefollowing selling restriction is often used:

The [securities] may not be offered, transferred or soldto any individual or legal entity as part of their initialdistribution, except to individuals or legal entities whoor which trade or invest in securities in the conduct ofa profession or trade within the meaning of the Exemp-tion Decree issued pursuant to The Netherlands Act onthe Supervision of Securities Transactions (Wet ToezichtEffectenverkeer) March 7, 1991 (which includes banks,pension funds, brokers, dealers, other institutionalinvestors and commercial enterprises which regularly,as an ancillary activity, invest in securities). 4

The following text is optional:

Because these [securities] have not been admitted forofficial listing on a recognized securities exchange inthe Netherlands nor has a prospectus been preparedand made available in accordance with the regulationsissued pursuant to The Netherlands Act on the Supervi-sion of Securities Transactions (Wet ToezichtEffectenverkeer) of March 7, 1991 nor has an exemptionor dispensation under such Act been obtained inconnection with the issue of these [securities].

As far as the exception for offers to limited groups isconcerned, one needs to realize that a group will not easily beconsidered a limited group; it needs to be limited in number,specifically defined, the relation between members of the groupand the issuer may not be of a financial nature only, and itmust be clear that the offer is only available to the groupmembers. For example, an association of which one can easily

Exemption Decree, art. 1, sub. g.34 GRAAF, supra note 32, at 178-79.

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become a member most likely will not be considered a limitedgroup.

3 5

The above-mentioned restrictions should, as a minimumrequirement, be imposed on the syndicate and printed in theissue documents. Also, it is useful, but not necessary, to printthem on the securities themselves. A more restrictive and farreaching "professionals only" selling restriction is necessary inthe event that (a) a Dutch finance company is involved thatwishes to avoid a breach of Dutch banking regulations, or (b)an issue of unlisted debentures takes place in or from theNetherlands which must be limited to professional parties onlyto avoid a breach of the Banking Act."6 This restriction thensets aside the STA "professional only" restriction.

2.4.2. As Defined By Nature of the Product

a. Listed Securities

As mentioned above, the prohibition against issuingsecurities without making available a prospectus does notapply to securities that are or will be officially listed on arecognized stock exchange in the Netherlands as defined in theNew Securities Act (including securities officially listed on theAmsterdam Parallel Market).37

Although listing with an exchange in another EC MemberState would not as such provide a basis for an exemptionunder the New Securities Act, such a listing normally impliesthat a prospectus has been issued that meets the requirementsof the applicable EC directive." Such a prospectus cannormally be recognized by the Securities Board and adaptedrather easily to meet Dutch requirements. If the prospectusis in English, this usually only involves adding a loose pagewith additional information on the treatment of the securitiesunder Dutch tax law.

" New Securities Act, Explanatory Memorandum (Memorie vanToelichting), at 7.

36 See supra section 1.2.4.b.

New Securities Act, art. 3, para. 2 and art. 16.s Decree on the Supervision of Securities Transactions, art. 2, para. 4.

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b. Commercial Paper, Certificates of Deposit and MediumTerm Notes

Under the Agreement"9 commercial paper and certificatesof deposit each have an ambiguous status. Article 1 of theAgreement excludes transactions in commercial paper andcertificates of deposit from its application, but only to theextent that such transactions are carried out "between profes-sional lenders and borrowers." The exception was providedfor because commercial paper and certificates of deposit areusually only traded between professional parties and areunlikely to be used for tax evasion purposes.4" In addition,the issuance of guilder commercial paper and certificates ofdeposit has been allowed since January 1, 1986, makingconstraints on their trade counterproductive. 4 '

The Ministry of Finance takes the view that the "profes-sional lenders and borrowers" that are exempted under theAgreement are the same group as the professional circuitexempted under the New Securities Act.42 This means thatit is a group which includes professional dealers and interme-diaries and commercial enterprises with corporate treasurydepartments that regularly invest in securities.

Because of the unfortunate (underlined) wording of theabove-mentioned exemption, commercial paper or certificatesof deposit may become subject to the Agreement's require-ments upon the first trade with a non-professional. Becausesuch a trade cannot be effectively precluded by any amount ofdrafting, the legend required by Article 4 of the Agreementshould be printed on the instrument as a precaution.

Article 3 of the SCA43 provides that, as long as the Agree-ment is in force, a transfer and acceptance of savings certifi-cates may only take place either (a) through the mediation ofa member of the Amsterdam Stock Exchange Association(Vereniging voor de Effectenhandel) or the issuer itself; or (b)by and between individuals not acting in the course of theirprofession or business.

8 See supra section 1.2.5.a.40 GRAAF, supra note 32, at 180.41 Id

42 Id.43 See supra section 1.2.5.

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Again due to the unfortunate (underlined) wording ofArticle 3, the above restrictions also apply in situations thatare outside the scope of the Agreement, even though thepurpose of Article 3 is merely to ensure compliance with theAgreement. Its restrictions, therefore, serve little purpose incases where the Agreement is not applicable (i.e., with regardto professionally traded commercial paper and certificates ofdeposit). Nevertheless, the Ministry of Finance takes the viewthat, although the Agreement does not apply to inter-profes-sional transactions in commercial paper or certificates ofdeposit, Article 3 of the SCA continues to apply to suchtransactions.""

All savings certificates (regardless of their maturity) wereexcluded from the definition of "securities" under the STA.45Therefore, the STA did not apply to the issue or trading ofcommercial paper, certificates of deposit and medium termnotes qualifying as savings certificates within the abovedefinition. The New Securities Act, however, does includesaving certificates (including medium term notes, commercialpaper, certificates of deposit, etc.).4 A prospectus for thesesavings certificates is required for offerings to the public andbrokers do need a license when offering intermediary servicesin respect of commercial paper or certificates of deposit in orfrom the Netherlands.

As long as they are represented by a global note, commer-cial paper, certificates of deposit, and medium term notes donot qualify as savings certificates because participation in aglobal note is acquired and the securities are traded in book-entry form in the records of the clearing system with which theglobal note has been deposited.4" Once the global note ispartly or wholly exchanged for definitive bearer paper, suchpaper will, in principle, qualify as savings certificates. 48

There is some argument that the global note itself (i.e., thetyped instrument) also qualifies as a savings certificate. 49

In the event that commercial paper or certificates of

4' GRAAF, supra note 32, at 180-81.4 STA, art. 3, sub. a.4, New Securities Act, art. 1, sub. a and art. 2.47 GRAAF, supra note 32, at 181.4 Id.

4, Id

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deposit are issued in physical definitive form by a Dutch issuerand qualify as savings certificates, the benefit of the exemptionfrom the Agreement for professionally traded commercialpaper and certificates of deposit should, in principle, besought. To that effect, the issue documentation should containa warning that the paper may not be offered or transferred in,or from, the Netherlands or may not be offered or transferredby or to a resident of the Netherlands, except betweenprofessional lenders and borrowers. It is advisable, but notlegally required, to print such a warning on the face of thepaper as well.

Because the Ministry of Finance takes the view that"professional lenders and borrowers" has the same meaning asthe professional circuit exempted under the STA and theregulations issued under the New Securities Act,50 thefollowing text can be used:

These Notes may not be offered in or from the Nether-lands or by or to a resident of the Netherlands, exceptbetween individuals or legal entities who or which tradeor invest in securities in the conduct of a profession ortrade (which includes banks, brokers, dealers, insur-ance companies, pension funds, other institutionalinvestors and commercial enterprises which regularly,as an ancillary activity, invest in securities).

As mentioned above,51 compliance with this restrictiondoes not avoid application of Article 3 of the SCA and,consequently, the restriction must be expanded to read asfollows:

These Notes may not be offered or transferred in orfrom the Netherlands or by or to a resident of theNetherlands, except between individuals or legalentities who or which trade or invest in securities inthe conduct of a profession or trade (which includesbanks, brokers, dealers, insurance companies, pensionfunds, other institutional investors and commercialenterprises which regularly, as an ancillary activity,invest in securities) and then only if such transfer and

5 Id. at 180.S See supra section 2.4.2.b.

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acceptance is effected through the mediation of amember of The Amsterdam Stock Exchange Association(Vereniging voor de Effectenhandel) or by the Issuer.However, because the professional investor/dealer exemp-

tion from the Agreement only applies to the extent thatcommercial paper or certificates of deposit are de facto tradedexclusively between such professionals," and because onecannot entirely avoid incidental trades with non-professionalinvestors, the legend as required by the Agreement should beprinted on the face of the paper as a precaution. The abovementioned restrictions can be added in order to ensure thatthe legal position is understood entirely. This gives rise to thefollowing text to be printed on the face of the global anddefinitive notes:

If a purchase, sale, delivery or transfer of this Notetakes place wholly or partly within the Netherlands orinvolves residents of the Netherlands, such transactionmust be effected by [insert name of Dutch issuer] orthrough the mediation of a member of The AmsterdamStock Exchange Association (Vereniging voor deEffectenhandel) and must be either:(i) between individuals or legal entities who or whichtrade or invest in securities in the conduct of a profes-sion or trade (which includes banks, brokers, dealers,insurance companies, pension funds, other institutionalinvestors and commercial enterprises which regularly,as an ancillary activity, invest in securities); or,(ii) in any other case, recorded in a transaction note,including the name and address of each party to thetransaction, the nature of the transaction and thedetails and serial number of this Note.

The usual New Securities Act selling restrictions apply tothe offering of interests in the global note. 3 Therefore, thecomplete selling restriction for commercial paper and certifi-cates of deposit, to be inserted in the dealer agreement and inthe information memorandum, reads as follows:

'= GRAAF, supra note 32, at 182.See supra section 2.4.2.b.

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(I) The Notes, when in the form of rights representingan interest in a Global Note, may not be offered,directly or indirectly, as part of their initial distributionin or from the Netherlands except:

(a) to individuals or legal entities who or whichtrade or invest in securities in the conduct of aprofession or trade within the meaning of theregulations issued under The Netherlands Act onthe Supervision of Securities Trading (WetToezicht Effectenverkeer) (which includes banks,brokers, dealers, insurance companies, pensionfunds, other institutional investors and commer-cial enterprises which regularly, as an ancillaryactivity, invest in securities).[(b) [in circumstances which constitute an offer]within a limited group within the meaning of theAct on the Supervision of Securities Trading.]

(II) Definitive Notes and Global Notes may not beoffered or transferred in or from the Netherlands or byor to a resident of the Netherlands, except betweenindividuals or legal entities as referred to in (I)(a) aboveand then only if such transfer and acceptance is effect-ed by the Issuer or through the mediation of a memberof The Amsterdam Stock Exchange Association(Vereniging voor de Effectenhandel).

c. Euro Commercial Paper, Euro Certificates of Deposit andEuro Medium Term Notes issued from the Netherlands

Since the last quarter of 1989, the Ministry of Finance ofthe Netherlands and the Central Bank have adopted the viewthat when securities qualify as savings certificates (includingcommercial paper, certificates of deposit and medium termnotes) and are issued by a Netherlands entity outside theNetherlands, and therefore in principle subject to foreignsecurities laws, the offering of such securities in the Nether-lands will only be subject to the SCA and the Agreement willonly apply if the offer is made as part of the initial distributionof these securities or immediately subsequent to such distribu-

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tion abroad.54

According to this "official" interpretation, the SCA and theAgreement have no extra-territorial scope: they apply only tosavings certificates issued outside the Netherlands but offeredin the Netherlands as part of their initial distribution orimmediately thereafter.55 Therefore, commercial paper,certificates of deposit or medium term notes issued by a Dutchentity on a foreign domestic market or on the Euromarketswill be outside the scope of the SCA and the Agreement, ifthey are not offered or sold in the Netherlands, as part of theinitial distribution or immediately thereafter.

These securities nevertheless qualify as securities underthe New Securities Act and should comply with its provisions.Consequently, the following selling restriction should becomplied with to keep commercial paper, certificates of depositor medium term notes issued by a Dutch entity in a foreigndomestic market or on the Euromarkets in compliance withthe New Securities Act, the SCA, and the Agreement:

(i) The Notes and the Global Note may not, directly orindirectly, as part of their initial distribution or imme-diately thereafter, be offered, sold transferred ordelivered in the Netherlands; and(ii) The Notes, the Global Note and rights representingan interest in the Global Note may not be offered, soldor transferred as part of their initial distribution,directly or indirectly, to entities other than individualsor legal entities which trade or invest in securities inthe conduct of a profession or trade within the meaningof the regulations issued under The Netherlands Act onthe Supervision of Securities Trading (Wet ToezichtEffectenverkeer) of 7 March 1991 (which includes banks,brokers, dealers, insurance companies, pension funds,other institutional investors and commercial enterpriseswhich regularly, as an ancillary activity, invest in

GRAAF, supra note 32, at 183.5 What is meant, presumably, is that the legending requirement does

not apply in those situations; any secondary market trades of "extra-territorial" commercial paper or certificates of deposit must surely complywith the SCA and the Agreement if such trades involve residents of theNetherlands or take place wholly or partly within the Netherlands.

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securities).The selling restrictions and the legend discussed in section

2.4.2.b., supra, were utilized for Euro commercial paper, Eurocertificates of deposit and Euro-medium term notes issued byNetherlands entities in the period before the authoritiesadopted the territorial approach to the SCA and the Agree-ment. They remain useful in the following situations:

(a) for commercial paper and certificates of depositissued in the Dutch domestic market; and(b) for foreign commercial paper/certificates of depositor Euro commercial paper/Euro certificates of depositissued by a Dutch entity and to be offered in part or inwhole in the Netherlands during or immediately afterits initial distribution; and(c) for foreign commercial paper/certificates of depositor Euro commercial paper/Euro certificates of depositissued by a Dutch entity that does not wish to rely onpseudo-legislative interpretation letters from theMinistry and the Central Bank; and(d) in the event that a Dutch issuer qualifies under theterritorial approach but wishes to inform its dealers ofthe Dutch restrictions on secondary market tradestaking place wholly or partly within the Netherlands orinvolving residents of the Netherlands.To the extent that medium term notes are issued in

discounted form, the above discussion applies, mutatismutandis, to such securities when issued in or from theNetherlands.

d. Securities in Non-Licensed Investment Institutions

The prohibition against soliciting or obtaining, in or fromthe Netherlands, monies or other goods by way of participationin a non-licensed investment institution or offering participa-tion rights in such an institution, beyond a limited group, doesnot apply to:

(a) investment institutions (i) whose registered officeis situated in another Member State of the EuropeanCommunities which has implemented the UCITSDirective; (ii) whose object, under its instrument of

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incorporation or its rules, is solely to invest in securi-ties on the principle of risk spreading; and (iii) whoseunits will be repurchased or redeemed, at the unitholders request, directly or indirectly out of the assets;provided The Netherlands Central Bank is notified ofthe intention to offer units in the Netherlands. Theinvestment institution mentioned in this paragraph canbe a legal entity but also a mutual fund. The participa-tion rights may be shares but also participation rightsin a mutual fund;(b) the offer of units by natural persons except if madein the course of their occupation or business, (so-callednon-professionals); and(c) those to whom exemption is granted.5"

e. Debentures

An exemption or dispensation from the NetherlandsMinister of Finance is necessary unless, as mentioned insection 1.2.4., supra, in the case of a public issue of debentures(not shares) with a denomination of less than NLG 100,000 inor from the Netherlands (a) the instruments are or will belisted on a stock exchange in the European Communities; or(b) the company issuing the instruments is subject to supervi-sion by The Netherlands Central Bank as a credit institu-tion. 17

3. RESALES OF PRIVATELY PLACED(PROFESSIONALS-ONLY) SECURITIES

The New Securities Act treats the offering of certainpreviously issued securities as equal to an initial offering. Asa result, the prohibitions mentioned in section 1.2.2.b, supra,apply. In particular, this concerns the offering of:

(a) securities previously issued and held outside theNetherlands (within or outside a limited group); and(b) securities previously issued in the Netherlands (orpossibly elsewhere) and issued within a limited group

s, Investment Institutions Act, art. 4, para. 1 and art. 14.67 Banking Act, art. 42.

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at that time; and(c) securities previously issued in the Netherlandsoutside a limited group but subject to a dispensation(i.e., without making a prospectus available).The STA included a similar provision which applied only to

subsection (b) securities. 8 The New Securities Act does notexplicitly restrict the offering of previously issued securitiesfrom the Netherlands. It is uncertain whether this wasintended. Resales that are not covered in any of the abovecategories of secondary offerings are not subject to legalrestrictions in the Netherlands; the ordinary rules applicableto intermediary services apply.5"

4. MARKET REGULATION ISSUES IN NON-PUBLIC OFFERINGS

4.1. Intermediary Services

Under the New Securities Act and the Exemption Decreethe prohibition against offering intermediary services (includ-ing securities brokerage) without a license in or from theNetherlands does not apply when

(a) offering exclusively to professional investors; or(b) offering within a limited group;6" or(c) the services are offered by members of a recognizedstock exchange and relate exclusively to securities thatare or will be officially listed on that exchange;(d) the services are offered by an authorised creditinstitution; or(e) member of securities exchanges in other EC Mem-ber States in respect of securities listed on such ex-changes.6

Also the above exemptions are subject to various condi-tions.62

Pursuant to articles 11 and 12 of the Exemption Decree

" STA, art. 4, para. 3.6' See infra section 4.1.60 See supra section 2.4.1 for a discussion of the scope of this concept." New Securities Act, arts. 8, 9, and Exemption Decree, arts. 11-17.62 Id.

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and subject to the conditions mentioned therein, the membersof the Association along with banks and financial institutionsalready subject to supervision by the Dutch Central Bank areauthorized to act as intermediaries with respect to anysecurities irrespective of whether they are listed or where theyare listed. International securities houses in the Netherlandsthat are either members of the Association, or branches of non-Dutch banks subject to the supervision of the Dutch CentralBank also benefit from this general exemption.

4.2. Printing Requirements

Securities (bearer and registered) issued by a Dutch issueror specifically targeted to the Dutch market should complywith the following printing requirements set out in RoyalDecree no. H7 of 8 January 1947:

(a) if the securities carry coupons: the coupons must beprinted in one or more colors which are interrupted by avertical white band in the middle of the coupon with a widthof one to one and a half centimeters; or

(b) if the securities carry no coupons: they should beprinted in one or more colors which are interrupted by avertical white band in the middle of the instrument with awidth of three to five centimeters;

in both cases, in such manner that the printed text onsuch instruments runs through the white band as wellas through the colored parts on either side.In addition, each bond or note and each coupon should

mention the issuer's full name and domicile. The offeringcircular/prospectus should identify the Chamber of Commercewith which the issuer is registered and the registrationnumber. Where the issuer's share capital is mentioned, theamount of shares issued and the amount paid upon suchissued shares should be disclosed."3

's See Articles 75 and 186 of Book 2 of the Netherlands Civil Code.

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5. EUROPEAN COMMUNITY INFLUENCE

When promulgating the Investment Institutions Act, theNetherlands Government complied with its obligations underthe European Communities Directive of December 20, 1985 onthe Coordination of Laws, Regulations and AdministrativeProvisions relating to Undertakings for Collective Investmentsin Transferable Securities." This EC Directive provides forunification of the laws of the Member States relating tocollective investment undertakings, particularly with regardto the obligations and controls imposed on those undertakings.This Directive was intended i) to make it easier for a collec-tive investment undertaking situated in one Member State tomarket its units in other Member States; (ii) to facilitate theremoval of the restrictions on the free circulation of the unitsof collective investment undertakings in the EuropeanCommunities; and (iii) to help bring about a European capitalmarket.6 5 Although the EC Directive's sole object is thecollective investment in transferable securities of publiclyraised capital, 6 the Investment Institutions Act has a broad-er range. A further coordination at the European Communi-ties-level was not possible due to appreciable differencesamong the Member States.

The New Securities Act further implements EC Directive89/298 Harmonising Securities Public Offer Prospectuses.67

6. CONCLUSION

The general objective of the Netherlands legislationdiscussed is to promote the proper functioning of the financialmarkets through supervision of stock exchanges and invest-ment institutions, and to protect (potential) investors in thesemarkets. In addition, the relevant Netherlands legislation is

64 EC Directive 85/611 on the Coordination of Laws, Regulations andAdministrative Provisions relating to Undertakings for Collective Invest-ments in Transferable Securities, 1985 O.J. (L 375).

" See preamble to EC Directive 85/611.66 Operating on the principle of risk spreading, the units of which are

repurchased or redeemed at the requests of holders, directly or indirectly,out of those undertakings' assets ("open-undertaking").

6 EC Directive 89/298 Harmonising Securities Public Offer Prospectuses,1989 O.J. (L 124/8).

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based on the principle that professional investors do not needas much protection as other investors since they should havesufficient knowledge about the expertise, trustworthiness,financial resources, management, legal structure and opera-tions of an investment fund or investment institution in whichthey intend to invest. The relevant legislation also imposesrequirements upon issues regarding the contents of the issuedocumentation (prospectus) made available. The new securitieslegislation is a flexible though solid framework, which shouldbe able to respond to the demands of rapid internationalizationof the capital markets and obligatory implementation of ECRegulations.