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    Cross-listing Conundrum

    Posted by Karl Schindler on Feb 19, 2020
     

    Don’t fall into the "we are not invested in that country" trap.

    While it's true that many areas of compliance monitoring are focused on a single jurisdiction, shareholding disclosure and position limit compliance are essentially global in nature. When determining if it is necessary to monitor disclosure requirements or holding limits across multiple countries, investors shouldn't get trapped by the "we are not invested in X country" misconception. 

    Investments are often made in relation to a particular mandate or investment strategy, which contain a geographical or regional focus. Examples like US Large Cap Value, Emerging Markets Growth, Asia Pacific Mid-Cap all speak to a specific geography. Investment concentration or risk limits that are applied to portfolios or managed funds are also often based on specific regions or countries.

    Compliance in the shareholding disclosure space is different. 

    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! This occurs so often that we haven’t seemed to run out of phrases for the phenomenon: dual-listed, cross-listed, multiple-listed, etc.

    If one was asked to choose the single most important property of financial assets in shareholding disclosure it would be the LIST of all markets/exchanges where a given asset trades. Even though there are many more data points one needs to create a robust compliance algorithm, identifying all markets where an instrument trades is more important than the exchange where your broker actually executes a buy/sell order. It’s also more important than the “domicile” of the company issuing the securities. This means that even if you happen to be invested in a country-specific strategy like the large-cap equity exposure in the US, UK or Australia, it’s almost certain that the securities you will hold will be traded in many other markets around the world. That fact alone entails that, as a holder, you are subject to the regulatory regimes of those countries.

    With this in mind, one cannot fully know where one might have a shareholding disclosure obligation from the common, geographical notion of where one is invested.

    Examples abound, but let’s take a look at a few cases to demonstrate that for almost every type of investor, shareholding disclosure must be monitored globally.

    Case 1:

    Konami Holdings Corporation is a Japanese entertainment and gambling conglomerate with registered offices in Tokyo. However, you can find it listed on the London Stock Exchange, the Tokyo Stock Exchange (under code: 97660) and traded on other markets, including OTC markets in the United States and Europe. gambling

    Regardless of where trades are executed or which strategy Konami might be a part of, holders will be required to calculate and monitor their holdings and potentially disclose in the UK since Konami’s ordinary shares are traded on a regulated market. Concurrently, one is immediately subject to Japanese disclosure regulation given that Konami’s shares are listed on a Japanese “financial instruments exchange” which includes the Tokyo Stock Exchange.

    Keep in mind that disclosure calculations require aggregation across your corporate tree and might differ among the jurisdictions mentioned.

    CASE 2:

    HSBC Holdings plc, the multi-national bank, which is headquartered in the UK, has ordinary shares trading and listed on the London Stock Exchange, the Hong Kong Stock Exchange, Bermuda, various European markets and has a depository receipt trading on the New York Stock Exchange.HSBC_Building_London

    Again, regardless of where stock orders are executed, holders are immediately subject to a requirement to calculate their ownership in three jurisdictions. Substantial shareholding rules in Hong Kong and the UK apply, so disclosure in both regimes will be required if one reaches the relevant thresholds. 

    In addition, if holding the depository receipts, one must monitor the US Section 13 rules and potentially disclose. Lastly, regardless of the ownership level, Section 13F reporting may be required.

    Case 3:

    Shell

    Royal Dutch Shell, the British-Dutch oil and gas company headquartered in the Netherlands and incorporated in the United Kingdom, has both class A and B shares listed in Amsterdam and London, with depository receipts traded in New York.


    This means that one will first need to determine the EU home Member State where substantial holdings in the issuer need to be reported, during the Brexit transition period, and potentially have reporting in both the UK and the EU after the Brexit transition period. (Read more on Brexit here >>)

    In addition, when holding Shell’s American Depository Receipts, one must ensure monitoring of holdings and compliance with US Section 13 rules (both 13D/G and 13F).

    There are plenty of other examples, but here are a few extra for your own research and consideration: Takeda Pharmaceutical (between Japan and the UK), Amcor Plc. (between Australia and the US) and Equinor ASA, (between Norway and the US).

    This is why we believe that it’s vital to monitor shareholding disclosure obligations globally.

    Given the growing trend of securities being listed across the world and the fact that the most common attribute in disclosure regulation is not the incorporation, headquarters, or assets of a company, but where their securities are listed.

    Monitoring such obligations should be done using a single industry-standard - a shared and always up-to-date rule set. FundApps invites you to be a part of our growing client community and deploy this powerful rule set to your firm. Our expert compliance team works on your behalf to simplify the complex world of Shareholding Disclosure and minimise the risk of being fined. Our service combines state-of-the-art software with a dedicated team of compliance experts. It is currently used by some of the world’s largest asset managers, hedge funds and investment banks.

    So when determining if it is necessary to monitor disclosure requirements or holding limits across multiple countries, don't fall into the "we are not invested in that country" trap. Get in touch to discuss how we can help you automate your Shareholding Disclosure compliance.