The FCA has recently completed a review of the way in which UK issuers disclose changes to their total voting rights to the market and the resulting effect on major shareholding notifications. In this article, we outline the key issues that market participants need to know when complying with the relevant regulatory obligations under the Disclosure Guidance and Transparency Rules.
In its recently published Primary Market Bulletin No. 33, among other matters, the FCA highlights several issues identified in its review for market participants to note when complying with the relevant regulatory obligations under the Disclosure Guidance and Transparency Rules (DTRs).
What are the relevant rules?
DTR 5 imposes obligations on:
- UK and non-UK issuers (including, from 1 January 2021, EEA issuers) whose shares are admitted to trading on a UK regulated market (such as the Main Market); or
- UK issuers whose shares are admitted to trading on a prescribed market (such as AIM or the AQSE Market).
There are also notification requirements for persons holding voting rights in these issuers, such as the requirement to notify any change in significant holding of voting rights which cross specified percentage thresholds. So that these notifications are accurate, it is important for issuers to ensure that the market has up-to-date information regarding their total voting rights.
What did the FCA review?
The FCA reviewed a sample of issuers of securities that had disclosed increases or decreases to their share capital in their financial statements during the period January 2017 to July 2020. The purpose of the review was to ascertain whether disclosures of expected notifications of changes in total voting rights and resulting changes to major shareholdings were fully compliant with the requirements in DTR 5.
What did the FCA find and what should market participants do?
Total voting rights announcements
Some announcements of total voting rights were found to lack “clarity” and the FCA identified several areas which issuers could avoid by doing the following:
- Use distinct announcements to fulfil regulatory obligations: The FCA points out that the immediate disclosure of voting rights following an acquisition or disposal of shares by an issuer in accordance with DTR 5.5.1R (acquisition or disposal by issuer of shares) and DTR 5.6.1AR (disclosure of total voting rights following completion of transaction) does not exempt the issuer from the obligation to report a new total voting rights figure at the end of the calendar month during which an increase or decrease has occurred – this must be made as a distinct announcement with the appropriate headline and classification.
- Disclose the correct total voting rights figures and refer to the applicable DTR rules: The FCA noted that new voting rights figures were reported in several ways – but often without mentioning the total voting rights figures or, indeed, the applicable DTR rules. Issuers are also reminded that all financial instruments to which voting rights are attached must be included in the calculation of the total voting rights figure.
- Use the appropriate announcement headline and tag it to the correct classification for regulated information: Some issuers failed to use the appropriate announcement headline to report new total voting rights figures. The FCA stressed that issuers must report total voting rights figures as a distinct announcement and use “Total Voting Rights” as a headline, whilst selecting the proper classification of regulated information as ‘‘Total number of voting rights and capital” in accordance with DTR 6 requirements.
- Similarly, it was found that information regarding new total voting rights was often disclosed as a part of proposed, or conditional, equity placing announcements or share repurchases before these transactions were formally approved or took place. Again, the FCA stresses that this disclosure does not exempt an issuer from the obligation to report a new total voting rights figure following settlement and at the end of the calendar month.
Major shareholder notifications – holders must take responsibility
The FCA has identified a number of cases where major shareholders had not disclosed their new positions (by completing and submitting a TR-1 form to the issuer) which occurred as a result of the change to the issuer’s total voting rights. Whilst the FCA recognises that some of these notifications might not have occurred, for example, where holders participated in an issuance pro rata to their existing holdings, the FCA believes that the lack of clarity identified in some total voting rights announcements is a key contributory factor in the level of missing notifications. Consequently, the FCA reminds holders of voting rights that they must assess whether their position has changed as a result of any event changing the overall breakdown of voting rights in the issuer.
New online portal for TR-1 Form notifications
Issuers are reminded that the new online portal for submissions of their TR-1 form notifications to the FCA is now live. Further information can be found on the FCA’s Shareholding disclosure and notification page.
Practical guidance is always welcome
Navigating the DTR 5 requirements for issuers and holders can be a difficult exercise, particularly where voting rights are directly or indirectly held through complex shareholding structures. Any practical guidance on correctly applying the rules will be welcomed by market participants to ensure that they are able to properly comply with their obligations under DTR 5.