27 January 2017

Dutch Financial Supervisor liable for the leakage of short positions?

The Dutch Financial Supervisor / regulator (in Dutch: Autoriteit Financiële Markten) has made a big mistake by accidentally placing an internal document with all the private short positions since 2012 on the Dutch Financial Supervisor’s website (read: article in Business Insider Netherlands).

The Dutch Financial Supervisor posted all the short positions under 0.5% on the website. Investors who have these short positions must, under certain circumstances, notify the Dutch Financial Supervisor. Only the net positions of 0.5% and higher are public. The short positions will not be published under 0.5%, The Dutch Financial Supervisor has made the mistake of publishing everything.

The internal list of the Dutch Financial Supervisor has therefore been made public, which should have never happened.

Why is the mistake of the Dutch Financial Supervisor so annoying for sellers?

The internal document from the Dutch Financial Supervisor provides not only insight into the amount of short positions, but also the names of short sellers have been made public. That means that everything is out in the open and competitors can see exactly which positions are taken. Short positions to be taken can now therefore be anticipated, and moreover it can be seen what strategies are used.

Short register made public: Dutch Financial Supervisor liable?

The short register is an overview of the parties who speculate on the depreciation of listed companies. Shares must be borrowed and sold in the hope of buying them back at a lower rate. Investors are, to put it mildly, not amused about this error of the Dutch Financial Supervisor.

Legally speaking, there are the necessary points of interest. The error in my eyes at least qualifies as an unlawful act. It is also a data leakage. Under the Data Protection Act *(Wet Bescherming Persoonsgegevens), such data leakages should be reported to the Authority for Personal Data (Autoriteit Persoonsgegevens)* within 72 hours. That appears to have been the case with the Dutch Financial Supervisor. But there’s more. The information disclosed, in my view, qualifies as inside information. The Law stipulates that it is prohibited for anyone who possesses inside information, to communicate this information to a third party. The judgment reveals that the tipping off is strictly interpreted, in the sense that statements like that would have been carried out by mistake, do not hold up.

Who monitors the Dutch Financial Supervisor?

The Minister of Finance holds ultimate supervision over the Dutch Financial Supervisor, but it is questionable whether inferences will be made in relation to this. In these situations you would expect the Dutch Financial Supervisor to be responsible at least for the damage it has caused. The Dutch Financial Supervisor acknowledges that it was a mistake and many short investors will be hindered / damaged by it.

Damage caused by failure of the Dutch Financial Supervisor

The question is whether aggrieved parties could recover damages from the Dutch Financial Supervisor. Additionally, it is still unclear what the extent of the damage is. Have you possibly suffered damage by the fault of the Dutch Financial Supervisor? Please feel free to contact us