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Transparency Directive

Shareholding disclosure monitoring and reporting services for the EU Transparency Directive (TDA)

The EU Transparency Directive was introduced in 2004 (Directive 2004/109/EC) not long after the formation of the EU. Its goal was to create more transparency for the benefit of investors through a harmonization of requirements by market participants. This transparency was to be secured via a regular flow of disclosures and information. This stood as the primary means of creating a long position reporting regime, until the TD was updated in 2013 with the TDA (Directive 2013/50/EU).

Regulation v.s. Directive

It is important to note that the introduction of the rule sets came as a “Directive”, and not a “Regulation”.

A “Regulation” is a binding legislative act. It is immediately applicable in its entirety in all Member States and it overrules national laws

A "Directive" sets certain aims, requirements and objectives that must be achieved by all Member States by a certain date specified in each Directive. However, it is up to the individual countries to define how to achieve these goals by implementing them in their local laws. They are free to add stricter requirements - known as “gold plating”. As a result, a directive may be enforced in different manners in the EU Member States. 

Transparency Directive (TD) v.s. Transparency Directive Amended Directive (TDAD)

Horizontal Aggregation

Under the original TD, the concept of horizontal aggregation was introduced in some Member States as a gold plating to the rule, but under the TDA this became a requirement. This concept requires investors to monitor holdings in three different ‘buckets’:

  • Equity Shares
  • Financial Instruments (Financial Instruments + Financial Instruments with similar economic effect)
  • An aggregate of the Equity Shares and Financial Instruments ‘buckets’ 

Disclosures are required if any one of these buckets breaches a threshold. Previously, they were calculated separately.

Disclosure of Vertical Aggregation

Calculations of holdings need to be done at the top level of a corporate structure to see if any thresholds have been crossed. The concept of Vertical Aggregation requires that investors perform the same calculations at each level in their corporate hierarchy should there be a requirement to disclose at their top level. The goal is to identify the entire chain of ownership within a corporate group.

A broader scope of disclosable financial instruments

Under the TDA financial instruments with similar economic effect were introduced and are now disclosable. These instruments were disclosable under gold-plating under the TD, but a requirement under the TDA. These instruments - like cash settled derivatives - will never give their holder access to the underlying shares, but instead, provide an economic effect that is similar to holding the corresponding shares or instruments that would give access to the underlying shares. 

In the context of Horizontal Aggregation, these instruments are treated as Financial Instruments. However, when calculating the equivalent shares, the calculation must be delta adjusted.

 

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