On 9 February 2010 the Committee of European Securities Regulators (CESR) published a consultation paper on its proposal to extend major shareholding notifications to instruments of similar economic effect to the holding of shares and entitlements to acquire shares.

The Transparency Directive requires disclosure of major shareholdings. A major shareholding is composed of the voting rights attached to shares owned by the holder and by the voting rights he is entitled to acquire. CESR wishes to extend the scope of the Transparency Directive to require disclosure of major holdings in instruments of “similar economic effect” to shares and entitlements to acquire shares. The reason for this is that instruments other than shares may be used to acquire or exercise influence in a company with shares admitted to trading on a regulated market or allow for creeping control and therefore have a similar impact on investors in the company as the acquisition of shares or entitlements to acquire shares would have. However, CESR believes that the scope should only extend to instruments referenced to shares that have already been issued by an issuer whose shares are traded on a regulated market.

The Transparency Directive is a minimum harmonisation directive and CESR notes that some countries, such as the UK, have already introduced broader regimes for the disclosure of major shareholdings. CESR makes it clear that although it wishes to broaden the scope of the major shareholding disclosure regime, it does not intend to change the general principles underlying the current regime. It also does not wish to discourage investors from acquiring instruments that create similar economic effect to holding shares and entitlements to acquire shares but merely wishes to make the transactions more transparent to the market.

CESR requests comment on the following issues:

  • Defining what securities will fall within the scope of the regime - CESR seeks comments as to whether there should be a broad definition based on the concept of “similar economic effect” to holding shares and entitlements to acquire shares. Any attempt to include an exhaustive list of instruments to which the Transparency Directive applies may increase the risk of avoidance through the creation of new instruments that are not on the list. CESR does, however, intend to produce a non-exhaustive list of instruments which fall within the scope of the Transparency Directive for guidance purposes if this approach to the definition is adopted. Alternatively, a legal definition could be adopted similar to the definition of financial instruments contained in the Markets in Financial Instruments Directive (MiFID).
  • Calculation of thresholds - CESR seeks comments as to whether share equivalence should be calculated on a nominal or delta-adjusted basis (the UK follows the delta-adjusted approach).
  • Whether the disclosure regime should be limited to instruments that contractually do not preclude the possibility of giving access to voting rights (the safe harbour approach) or whether it is better to have a general disclosure regime, to which a number of exemptions would need to be developed to limit its scope. If the general regime is adopted, what exemptions are appropriate?

CESR invites responses to its consultation paper by 31 March 2010 following which it will publish the responses on its website.

(CESR, Consultation Paper: CESR proposal to extend major shareholder notifications to instruments of similar economic effect to holding shares and entitlements to acquire shares, Ref:CESR/09-1215b, 09.02.10)