On 14 September 2011, the European Securities and Markets Authority (“ESMA”) published a Call for Evidence on Empty Voting.

ESMA defines empty voting as having voting rights attached to shares without corresponding economic exposure. In other words a situation arises where voting power is borrowed for a short time in order to increase voting rights or voting power is utilised even though an investor’s shares have been sold.

Empty voting may give rise to several issues including:

  • conflict of interest issues for shareholders with economic interests;
  • hidden ownership;
  • transparency of the voting structures of listed companies;
  • corporate governance; and
  • corporate control.

The U.S. Securities and Exchange Commission (the “SEC”) opened a public consultation last year seeking comment on this issue and while empty voting has been debated widely in the US and in Europe, it has not yet been determined if regulation needs to be passed. France and Portugal are addressing the issue of empty voting there is no framework that exists at a European level.

The Call for Evidence will allow ESMA to collect evidence on the extent to which empty voting practices exist in practice and the effect of such practices. ESMA is seeking views in the broader context rather than restricting the issue to specific European legislation or other specific issues. The questions to be determined fall under the following categories:

  • ways of exercising empty voting;
  • consequences of empty voting;
  • internal policies relating to voting practices; and
  • need for regulator action.

Comments are to be received by 25 November 2011. Comments will allow ESMA to assess whether there is need for further work on this issue.