Impact of the amended Transparency Directive on position reporting for holdings in German shares

January 2016 | EXPERT BRIEFING | CAPITAL MARKETS

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Five years after its entry into force, Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (Transparency Directive) was due for revision by the European Commission. This revision resulted in Directive 2013/50/EU by which the Transparency Directive was amended in certain aspects (Amending Directive). The Amending Directive was due for implementation in the member states by 27 November 2015. In Germany, this has happened through a corresponding law of 20 November 2015 which further modifies the obligations imposed in Germany on market participants with regard to the disclosure and notification of major holdings in listed shares and of certain other long positions.

Revision of the Transparency Directive

Among other amendments (e.g., regarding the home member state rules), the Amending Directive introduced certain changes to the information on major holdings. In its assessment of the former Transparency Directive, the European Commission decided that particular types of financial instruments that can be used to indirectly acquire an economic holding in listed companies without acquiring the shares were not covered by the former notification and disclosure regime. Thus, among other amendments to the disclosure and notification requirements, the Amending Directive (partly subject to further specification by the EU Commission’s delegated acts) now includes the requirement for a notification of major holdings of all financial instruments of similar economic effect to holdings of shares (i.e., that can be used to build up indirect long exposure to listed companies), irrespective of whether these instruments foresee a right of physical settlement or not. The thresholds which trigger a reporting requirement for these financial instruments start at 5 percent. Furthermore, holdings of shares and holdings of such indirect long positions will be aggregated for the purpose of calculating the thresholds triggering a notification requirement. The aim of the European mandate is also to ensure greater consistency and uniformity in disclosure and notification rules applicable across Europe, in particular regarding the calculation and aggregation of major holdings. The options for EU member states when implementing the new rules have been reduced – however, the member states will still be permitted to set lower notification thresholds.

Changes to the German notification regime

By broadening its scope, the Amending Directive aligns the European notification requirements for major holdings with the former German notification regime which (in reaction to certain takeover cases) already took into account that certain derivative instruments could eventually lead to a ‘hidden’ stake-building and a possible market disruption and, thus, already required notification of holdings in financial instruments that do not necessarily entitle its holder to acquire shares but still create a long position in shares listed in Germany from an economic point of view. Comparable regulatory requirements which go beyond the Transparency Directive information on major holdings regime have also been seen in other EU member states.

In compliance with the Amending Directive, the German notification obligations have now been rearranged to cover: (i) direct holdings in shares (if these exceed the 3 percent threshold); (ii) indirect holdings in shares through (directly or indirectly held) financial instruments with or without physical settlement (if these exceed the 5 percent threshold); and (iii) aggregated positions of both (where again a 5 percent threshold applies).

This is (in substance) nothing new so far. However, despite some similarities of the new EU regime with the former German notification regime, the transposition of the Amending Directive also required amendments to the old regime which was applied to major holdings in shares listed in Germany. A significant change has been introduced insofar as if one of the above mentioned thresholds is exceeded, a notification of all positions is required. As a consequence, if directly held shares trigger a notification requirement, additional positions in such shares which are held indirectly through financial instruments will now also require notification even when the relevant threshold has not been exceeded (‘all or nothing’). The attribution of holdings has been amended in order to reflect further scenarios, such as certain agreements to exercise voting rights and the safekeeping of shares. The relevant ‘acquisition time’ of a share purchase has been redefined in a way that the ownership of holdings will now be assumed at an earlier stage (i.e., already upon the agreement of an unconditional transfer obligation). Furthermore, the calculation of the delta in relation to financial instruments which provide for cash settlement has been changed.

Besides the changes in law, the administrative practice applied by the German regulator, the Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin), must also be closely observed since it could be subject to change as well. As one of many examples, BaFin announced in its newly issued FAQ that, despite any changes in the German law, it will broaden and further review the interpretation of ‘indirectly held’ financial instruments, i.e., if a financial instrument held by a third party (e.g., a fund manager or adviser) needs to be taken into consideration when calculating the holdings of another person or entity (e.g., the fund).

The new German notification rules apply with effect from 27 November 2015 in case of any changes in the holdings. A transitional period applies for notification requirements which have been triggered as a result of the coming into force of the new law (without there being any actual changes in the relevant holdings). For all reports in relation to major holdings, a new (uniform) template form is available which is based on the respective ESMA template. This should result in increased transparency and reduce the number of notifications. Electronic filing is not expected to be available before late 2016, however.

As a consequence of the implementation of the Amending Directive, market participants investing throughout the EU common market will benefit from a greater level of harmonisation which is a further step toward a pan-European level playing field. Although the transposition of the Amending Directive into national law will result in adjustments of the national reporting regime in many EU member states in a first step, investors will be able to streamline their notification procedures in the long term. However, it is expected that an ongoing change of the respective administrative practice, as well as a potentially inconsistent application of the new rules throughout the different EU member states will continue to present a significant challenge.

Hilger von Livonius is a partner and Philipp Riedl is counsel at King & Wood Mallesons. Mr von Livonius can be contacted on +49 89 89081 341 or by email: hilger.vonlivonius@eu.kwm.com. Mr Riedl can be contacted on +49 89 89081 341 or by email: philipp.riedl@eu.kwm.com.

Hilger von Livonius and Philipp Riedl

King & Wood Mallesons