The revised Transparency Directive (2013/50/EC) (the revised TD), which entered into force on 27 November 2013, harmonises the transparency requirements relating to information about issuers whose securities are admitted to trading on an EU regulated market and revises the scope of the original Transparency Directive (2004/109/EC). The changes are intended to enhance transparency for cross border investors and reduce administrative burden for issuers. Member states are required to implement measures to transpose the revised TD into national law within two years of its coming into force on 27 November 2013. A popular amendment introduced by the revised TD is the abolition of the requirement to publish interim management statements, which the UK Government fully supports and intends to implement as soon as practicable.

Other significant changes to the regime include the extension of the requirement to disclose major holdings in financial instruments to include holdings in all instruments with similar economic effect to holding shares and entitlements to acquire shares. (The UKLA DTRs already contain requirements to this effect.) The effect of this change means that notification obligations will relate to both cash-settled, as well as physically settled, financial instruments. The revised TD further seeks to clarify the methodology for calculating the number of voting rights and specifies a list of financial instruments which will be subject to the notification requirements.

ESMA mandate

Pursuant to the revised TD, the European Securities and Markets Authority (ESMA) is tasked with drafting regulatory technical standards (RTS) to facilitate the harmonisation and increased scope of the regime. On 21 March 2014, ESMA published its consultation paper setting out its draft RTS.

The consultation paper covers two main items:

  • the RTS on calculating major shareholdings, and
  • the establishment of an indicative list of financial instruments which are subject to the notification requirements under the revised TD.

To read the consultation paper, please click here - otherwise, read on for a brief summary of the areas covered by the RTS.

Major shareholdings

Pursuant to the revised TD, ESMA is consulting on draft RTS to deal with:

  • the method of calculating the 5% threshold for the market maker and trading book exemptions referred to in the Transparency Directive. In particular, ESMA is consulting on how the exemptions to the general rule of aggregation of voting rights should apply
  • the method of calculating voting rights in the case of financial instruments of similar economic effect to holding shares and entitlements to acquire shares, and which are referenced to a basket of shares or an index. One of ESMA's proposals is that, if a financial instrument is referenced to a series of baskets which do not reach the thresholds on an individual basis but would do so if aggregated, it would not expect disclosure on an aggregated basis
  • the methods of determining the 'delta' for the purposes of calculating voting rights relating to financial instruments which provide exclusively for a cash settlement. ESMA sets out two options for consultation: a prescriptive approach where the calculation is made according to one or more precise 'delta-adjusted' methods; or a principles-based approach where investors can use a generally accepted standard pricing model. ESMA is in favour of the second option, and
  • the exemptions applying to financial instruments held to fulfil client orders, or to respond to a client's request to trade otherwise than on a proprietary basis, or hedging positions arising out of such dealings.

Indicative list of financial instruments

The consultation paper sets out the proposed content of an indicative, but non-exhaustive, list of financial instruments which should be subject to the notification requirements laid down in the revised TD.

The list includes:

  • convertible and exchangeable bonds conferring a right to already issued shares
  • put or call warrants
  • repurchase agreements
  • contractual pre-emptive rights of purchase
  • shareholder agreements providing for any of the financial instruments mentioned above (or those financial instruments which are mentioned in the consultation paper).

The final list will be published on ESMA's website. ESMA is required periodically to maintain and update the list in light of any technical developments in the financial markets.

Next steps

The consultation ends on 30 May 2014, following which ESMA is required to report its final RTS to the European Commission by 27 November 2014.