The SRD II aims to encourage long-term shareholder engagement and transparency between traded companies and investors. Key elements of the SRD II include:
- Provisions to assist companies in identifying their shareholders;
- Requirements regarding the transmission of information between the company and its shareholders through intermediaries;
- Obligations on intermediaries to facilitate the exercise of rights by shareholders, including the right to participate and vote at general meetings;
- Rights of shareholders to vote on directors’ remuneration policies and reports; and
- Obligations relating to related party transactions.
The SRD II came into force on 9 June 2017. Member states had until 10 June 2019 to transpose its provisions into national law. As the United Kingdom has not yet left the EU, this legislation applies at present.
The SRD II incorporates the following requirements:-
1. Shareholder identification (Article 3a)
Member states must ensure that companies have the right to identify their shareholders.
On request by the company (or its nominee), an intermediary must provide to the company the information regarding shareholder identity without delay (Article 3a(2)). Information regarding shareholder identity is defined as information allowing the identity of the shareholder to be established. At a minimum, this includes:
- The shareholder’s name and contact details (including full address and, if available, email address).
- If the shareholder is a legal person, its registration number or, if unavailable, its unique identifier.
- The number of shares held.
- If requested, the categories or classes of the shares held and the date from which the shares have been held.
Member states must ensure that companies are able to obtain information regarding shareholder identity from any intermediary in a chain of intermediaries that holds it. Where there is a chain of intermediaries:
- A request of the company (or its nominee) must be sent between intermediaries without delay. The SRD II Implementing Regulation further provides that the request must be sent on by intermediaries no later than the same business day as receipt. However, if an intermediary receives the request after 4.00 pm on its business day, it must send on the request by 10.00 am on its next business day.
- The intermediary holding the information regarding shareholder identity must send it directly to the company (or its nominee) without delay. The SRD II Implementing Regulation further provides, subject to certain exemptions, the response must be sent by each intermediary to the issuer (or its nominee) during, the later of, either the business day after the record date or the date of receipt of the request.
This personal data of shareholders is not to be stored for longer than 12 months after they become aware that a person is no longer a shareholder. Member states may provide for processing of this data for other purposes.
Further, legal persons must have the right to rectify incomplete or inaccurate information regarding their identity.
2. Transmission of information by intermediaries (Article 3b)
Member states must ensure that intermediaries are required to send, without delay, to a shareholder (or its nominee) information from the company that it is required to provide to the shareholder to enable it to exercise the rights from its shares and which is directed to all shareholders of that class of shares. However, if this information is available on the company’s website, intermediaries may send a notice setting out where on the website it is located. Intermediaries are required also to provide all such relevant information to the shareholders that is required to enable them to exercise their shareholder powers.
The SRD II Implementing Regulation further provides that intermediaries must send to the issuer information regarding shareholder action without delay after it is received. The last intermediary must not set a deadline requiring shareholder action earlier than either three business days before the issuer deadline or record date. If there is a chain of intermediaries, then this information must be sent between intermediaries without delay (unless it can be sent directly to the company).
The SRD II Implementing Regulation sets out the minimum requirements regarding the types and format of information with respect to convening a general meeting (Article 4(1) and Table 3, SRD II Implementing Regulation).
In relation to a corporate event (other than a general meeting), the SRD II Implementing Regulation also sets out the minimum types of information and data elements that the must provide (Article 8(4) and Table 8, SRD II Implementing Directive). The notice must include all relevant information which enables the shareholder to exercise his shareholder rights and powers.
The SRD II Implementing Regulation also sets minimum requirements regarding the sequence of transmissions, dates and deadlines in a corporate event including:
- The issuer must notify to the first intermediary (and other intermediaries, as necessary) the information of the corporate event sufficiently early to allow market participants to react to and transmit the information, as well as to allow pending trades (or market claims) to be processed before any relevant deadlines (or the start of an election period).
- The payment date must be as close as possible to the record date, issuer deadline, or deadline of the third party initiating the corporate event (as applicable) to allow for processing payments to shareholders as swiftly as possible.
- Where the corporate event includes options for the shareholder:
- the election period is to be sufficiently long to allow shareholders and intermediaries a reasonable time to react; and
- the last participation date and the buyer protection deadline is to precede, in this order, the issuer deadline to allow for the buyer claims to be processed before the close of the election period.
- Where the corporate event is conditional, the issuer must notify the first intermediary of the outcome of the corporate event as soon as possible after the issuer deadline and before any payment is made in the corporate event.
(Article 8(2), SRD II Implementing Regulation.)
The SRD II Implementing Regulation also sets out that after the payment date of the corporate event, each intermediary must send the information about the actions taken or transactions completed by it for the account of the shareholder including:
- The outcomes based on shareholder action in a corporate event with options.
- The entitled or settled positions.
- Any proceeds received.
- The outcomes regarding any market claims.
3. Facilitation of the exercise of shareholder rights by intermediaries (Article 3c)
Member states must ensure that intermediaries facilitate the exercise of rights by shareholders including the right to participate and vote in general meetings. This must comprise one of the following:
- The intermediary arranging for rights to be exercised by the shareholder (or its nominee).
- The intermediary exercising the rights on the explicit authorisation and instruction of the shareholder and for the shareholder’s benefit.
Entitled position. The SRD II Implementing Regulation sets out that for the purpose of facilitating the exercise of shareholder rights in a general meeting, on request the last intermediary must confirm to the shareholder the entitled position in its records. The SRD II Implementing Regulation also sets out the minimum types of information and data elements for the confirmation of entitlement (Article 5(2) and Table 4, SRD II Implementing Regulation).
Notice of participation. The SRD II Implementing Regulation sets out that for the purpose of facilitating the exercise of shareholder rights in a general meeting, if required by the issuer or requested by the shareholder, intermediaries must send the notice of participation to the issuer to enable the shareholder (or its nominee) to exercise its rights. The last intermediary is to ensure information on the number of shares voted is consistent with the entitled position (Article 6(2), SRD II Implementing Regulation). If this notice is sent before the record date, the last intermediary must update the notice, if necessary, to align the information (Article 6(2), SRD II Implementing Regulation)).
Recording and counting of votes. After the general meeting, the shareholder (or its nominee) must be able to obtain (at least on request) confirmation its votes have been validly recorded and counted by the company (unless this is already available) (Article 3c(2)). The SRD II Implementing Regulation provides the minimum types of information and data elements that a confirmation of recording and counting of votes by the issuer to the shareholder (or its nominee) comprises (Article 7(2) and Table 7, SRD II Implementing Regulation). The confirmation of recording and counting of votes in the general meeting must be provided by the issuer in a timely manner and no later than 15 days after the request or the general meeting (whichever is later) unless the information is already available (Article 9(5), SRD II Implementing Regulation).