Transparency Directive
The TD replaces and updates parts of existing EU legislation the 'Consolidated Admissions and Reporting Directive' (CARD). The Directive is designed to enhance transparency on EU capital markets by establishing minimum requirements on periodic financial reporting and on the disclosure of major shareholdings for issuers whose securities are admitted to trading on a regulated market in the EU. The TD also deals with the mechanisms through which this information is to be stored and disseminated.
The TD distinguishes between the concepts of home and host Member State regulation, allowing the issuer's home country regulator to impose more stringent TD disclosure requirements than those set out in the directive but restricting the host competent authority from doing the same.
The TD establishes disclosure requirements on an ongoing basis about issuers who have securities admitted to trading on a regulated market situated or operated within the EU for investors who invest in these securities. There are three broad areas covered under the Directive:
- the minimum content of annual, half-yearly and interim management statements;
- the notification requirements of both issuers and investors in relation to the acquisition and disposal of the major holdings in companies;
- the method of disseminating and storing the information covered in 1 & 2 on a pan-European basis
Impact on firms
All issuers, who have securities admitted to trading on a regulated market situated or operated within the EU, will be covered by the TD. The TD will require these issuers to disclose periodic and ongoing information for investors on a Pan-European basis.
The implementation of the TD has required substantial revisions to the Listing Rules, particularly Chapter 9, which sets out some of an issuer's Continuing Obligations, as well as expanding the scope of FSA's regulation to include major shareholding disclosures which was regulated by the DTI. The TD is a minimum harmonisation directive so the UK may choose to impose additional requirements where it deems it appropriate to do so.
Implementation timetable
Political agreement on the TD was reached on 11 May 2004.
The Transparency Directive was published in the Official Journal on 31 December 2004. The TD came into force on 20 January 2005. There is a 24 month implementation period, so the implementation deadline for the TD was 20 January 2007. The FSA has met this deadline and the TD was implemented in the UK on this date.
Key Provisions
Financial Information
Issuers, with securities admitted to trading on a regulated market, will be required to disclose annual and half-yearly financial reports, and in the case of issuers of shares, interim financial statements. The major area of contention in this area is the establishment of whether or not third country issuers meet equivalent standards of financial reporting to that of IAS. Although the TD has now been implemented in the UK discussions are still taking place at an EU level on the equivalence of accounting standards of third country issuers. The content of all this information, and the timeframes in which it must be published, are set out in the TD.
Disclosures of major shareholders' transactions
Disclosure of Major Shareholders' transactions - The notification requirement is triggered when the size of holdings reach, exceed or move below certain thresholds stated in the TD (5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%). The shareholder will be required to inform the issuer. The issuer will then inform the market. Parent undertakings are required to combine their holdings with those of their controlled undertakings for notification purposes.
We have maintained the super-equivalent notification thresholds under the Companies Act 1985 for UK issuers (3% then +/- every 1%). The scope for UK issuers also goes beyond the TD minimum of regulated markets and includes prescribed markets (such as AIM & PLUS).
On the 20th of January 20007 the TD was implemented in the UK and the responsibility for major shareholding disclosures moved from the DTI to the FSA.
The thresholds and resulting notification requirements are subject to some exemptions and modifications:
Clearing and Settling - shares acquired for the sole purpose of clearing and settlement within the usual short settlement cycle will be exempt from the requirement to notify.
Custodians - shares held by custodians in their custodian capacity will not be required to notify, provided that they can only exercise the voting rights attached to such shares under instructions given in writing or electronically.
Market makers - market makers are exempt from the 5% threshold when acting in the capacity of market maker. This is provided that they are authorised under the Market in Financial Instruments Directive and do not intervene in the management of the issuer or exert any influence on the issuer to buy back shares or back the share price.
Investment Management Companies - the parent undertakings of management companies, as defined by the TD, are not required to aggregate their holdings with those of their controlled undertakings. This is provided that the controlled undertaking exercises the voting rights independently from the parent.
Dissemination and storage of regulated information
Issuers, with securities admitted to trading on a regulated market, will be required to disseminate regulated information in a fast, non discriminatory manner on a pan-European basis. In addition, all regulated information will need to be stored and be easily accessible. A key issue for both CESR and subsequent implementation of the directive by Member States is the requirement imposed by the TD on each Member State to ensure it has at least one officially appointed mechanism for this.
Minimum harmonisation
The TD is a minimum harmonisation directive which allows home Member States to impose additional requirements on issuers with securities admitted to trading on a regulated market. Host Member States are not allowed to impose more severe requirements on issuers admitted to trading on a regulated market within the host Member State's territory, or on investors in relation to their major shareholding disclosure notification requirements.