Question 1

What are the different rules for shareholding disclosure?

Accepted Answer

Major Shareholding: these rules apply to anyone holding (directly or indirectly) a certain percentage in a firm. It is usually related to voting rights but can also refer to total shares outstanding, class shares outstanding or total issued capital. Thresholds commonly start at 3 or 5%, but can be as low as 1% in certain countries. Short Selling: the EU SSR applies to all 28 EU Member states and the 3 EEA EFTA states as well. Currently net short position holders are required to report positions of 0.1% and above. They must disclose to the public when they at least equal to 0.5% of company issued share capital and every 0.1% above that. Other jurisdictions have their own short selling regulations, such as Singapore and Hong Kong. Takeover Reporting: some jurisdictions impose enhanced reporting obligations for holders of securities or instruments that reference securities in a party involved in a takeover bid. These obligations apply whether you are involved in the bid or not. Issuer Limits: these cover the major shareholding limits for issuers in jurisdictions where issuers are permitted by law to impose lower bespoke disclosure thresholds in their articles of association. These limits are set by issuers, and not the regulator. These articles of association also identify how a company will issue shares, pay dividends, audit financial records, and provide voting rights. Issuer Requests: (also called Section 793 requests in the UK). There are certain jurisdictions where issuers can reach out to investors and require them to disclose their share ownership amount.nSensitive Industries: certain industries in specific jurisdictions require pre-approval before a threshold can be crossed. Some even impose hard limits for thresholds that can't be crossed or require disclosure when certain thresholds are.nDenominators: often the disclosure requirements are based on the number of shares a company has in issue (Total Shares Outstanding), but also commonly the number of voting rights available. Sometimes even esoteric denominators such as Class Shares Outstanding or even Total Nominal Capital.

Question 2

Do I need to abide by other countries' shareholding disclosure rules?

Accepted Answer

Unfortunately yes, you do. Disclosure requirements find their origin in each country which has a public market for securities. Regulators in each country are often interested in ensuring that holders of the companies which happen to be listed on their exchanges or involved in a takeover, disclose of their substantial holdings. And as the globalisation of financial markets increases, more and more public companies trade on multiple markets!

Question 3

What are the consequences for failing to comply with shareholding disclosure rules?

Question 4

Which countries have the most serious sanctions?

Accepted Answer

Canada: fines are the most common sanction here. However, in some instances failure to comply may constitute an offense subject to prosecution. This could lead to imprisonment for up to 5 years and a fine of up to CAD $5 million. EEA Countries: the implementation of the Amended Transparency Directive (TDA) had a significant impact on the proposed sanctions across EEA countries. One of the most notable sanctions under this directive was either a fine of up to EUR ‎€10 million, or 5% of annual turnover, or up to twice profits gained or losses avoided for legal entities; and the higher of up to EUR €2 million or up to twice profits gained for individuals. France: in comparison to the TDA, France’s regulator, the AMF, has stipulated administrative sanctions that might be as high as EUR ‎€100 million, or for legal entities 15% of the total annual turnover, and if relevant, up to 10 times the amount of profits gained or losses avoided. Additionally, the AMF also proposes criminal and civil sanctions. South Korea: under the 5% regime, failure to submit a report can lead to criminal sanctions that include imprisonment of up to three years, or a fine of up to KRW 100 million. Furthermore, submission of false information or omission of material facts can lead to harsher criminal sanctions such as imprisonment of up to five years or a fine not exceeding KRW 200 million. This offense can also lead to the suspension of voting rights, or a disposal order of the infringing securities for up to 6 months.

Question 5

How can I ensure that my firm is staying compliant?

Accepted Answer

Here at FundApps, our industry-leading solution automates the Shareholding Disclosure monitoring process for 100+ financial institutions around the world. Including 400+ rules which cover over 100 jurisdictions, our service monitors disclosure requirements for major shareholding, short selling and takeover panels. We receive legal and regulatory information from aosphere (an affiliate of Allen and Overy) and source other market data such as takeover panels. Our in-house team of regulatory experts interprets this information and codes it into rules. These rules are used by all FundApps clients, ensuring they remain compliant at all times. Your positions file is run against the Shareholding Disclosure rules and the system automatically notifies you when disclosures are required.

Case Study: A Swiss Asset Manager

Regulation: ASIC Short Position Reporting

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