Voting rights disclosure: Current Status under TD2 · TD2 brought substantial changes to the German...
Transcript of Voting rights disclosure: Current Status under TD2 · TD2 brought substantial changes to the German...
Voting rights disclosure: Current Status under TD2
Jochen Kindermann Lennart Dahmen
London, 17 March 2016
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Agenda
Introduction
TD2 Highlights
IPO/Capital increases/Securities lending
Formalities: issues with the template
Sanctions
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German implementation of TD2
First experiences
Entered into force on 26 November 2015
TD2 brought substantial changes to the German voting rights disclosure system – Regime change to trade date reporting – Group disclosures possible – „Streamlined“ definition of financial instruments – Increased sanctions – Baseline disclosures…
BaFin reports: Significantly less disclosures in Q1/2016 than before
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Uniform disclosure obligation
Previous regime: Three separate disclosure obligations
Current regime: Uniform disclosure obligation – no distinction:
Type 1 Equity
Type 2 (Financial) instruments with right to underlying
Type 1 Equity Type 3
Financial instruments with economic exposure to underlying
Type 2 (Financial) instruments with right to underlying
Type 1 Equity
Type 2 (Financial) instruments with right to underlying and/or with similar economic effect
Type 1 Equity
Type 1 + Type 2 Aggregate of holdings
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Threshold crossing date
Germany follows other European jurisdictions
Heavily debated before implementation - but market participants favoured trade date.
Previously: strict “settlement date”-regime change of legal title decisive.
Now: Trade date decisive, if: – claim for delivery is not subject to conditions – Delays in delivery?
Result: Two trading days less to prepare and submit the filing (T+4 instead of T+2+4)
European harmonization – switch to trade date
Prevention of insider abuse
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Group disclosures
Group disclosure by parent
Subsidiaries are exempted from own obligation if parent undertaking fulfills obligations.
Content is now clarified: – Top-down approach from parent to last
relevant subsidiary; Subsidiaries must be listed by name down to the last relevant entity.
– More details required if threshold crossing (directly held or directly attributed) occurs at their level.
Structure chart – now and in the near future.
Disclosure by parent exempts subsidiaries from their obligations
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Instruments – Changes to scope and calculation
Changes to the definition
Instruments within scope: if they – give their holder, on the due date, an
unconditional or discretionary right to acquire voting rights; or
– relate to shares/voting rights and have a similar economic effect (not required: physical settlement).
Non-exhaustive lists by ESMA and in German securities trading act (e.g. Options, Swaps, Futures, CFDs).
Cash-settled instruments: delta adjustment (Art. 5 COM-Regulation) instead of fixed delta = 1.
Attribution of instruments to Investment Managers
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Initial Public Offering (IPO)
Complex transactions with many concerned parties: – Underwriter – Old shareholders – New shareholders
Case study: – Underwriter to the IPO – Underwriter borrows shares from existing
shareholders for overallotment (Greenshoe) – Capital increase at the time of the IPO – „Stability phase“ after the IPO
IPOs: Picking up steam in the recent past
15 IPOs in 2015, same number expected for 2016.
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IPO: Timeline
Underwriting Agreement
Capital increase & admission to trading
1st day of trading: start of the stabilization phase
End of the stabilization phase
no disclosure obligation sec. 23 (2) no. 1
1st disclosure obligation sec. 21 (1a), 25, 25a
2nd disclosure obligation sec. 21 (/=) sec. 25 () sec. 25a (/=)
Existing shareholder:
Underwriting bank:
no disclosure obligation sec. 23 (1a)
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Initial Public Offering (IPO) - Underwriter
Changes in BaFin‘s practice
Exemptions available – New interpretation by BaFin allows
underwriter to benefit from exemption for clearing and settlement
– Furthermore, separate exemption applies to shares bought back for „stability“
– Exemptions also apply to holdings in instruments
Time limit for clearing and settlement exemption: three days (discretion possible?)
Underwriters can benefit from exemptions – best case: no disclosure obligation in connection with an IPO
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IPO – Other participants
Disclosure obligations may vary
Old shareholders: – Admission to trading: disclosure obligation for old shares
(Type 1) and lent shares (Type 2) & aggregated holdings. – After „phase of stabilisation“: financial instrument expires
(either return of equivalent shares or cash) – Type 1 disclosure triggered?
New shareholders: – Admission to trading: Type 1 disclosure obligation.
Obligations of the old shareholder
Obligations of the new shareholder
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Capital increase (I)
Case study
Underwriter: agrees to subscribe to all shares
Capital increase is entered into commercial register
Existing shareholders can be excluded from subscription to new shares.
Underwriter acquires all newly issued shares for (new) subscribers.
Threshold crossing date: Entry into commercial register
Start of submission period?
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Capital Increase (II) – Reporting Obligations
Underwriter
Underwriter may benefit from change of administrative practice – Exemption for clearing and settlement also
available to underwriter in a capital increase (c.f. IPO).
– Shares are only held for three trading days after registration
Ideally, no disclosure obligation is triggered for the underwriter
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Capital Increase (III) – Reporting Obligations (continued)
„Old“ Shareholders
Reporting obligation will depend on subscription rights – Exclusion or non-exercise of subscription rights leads to dilution of holdings
which will then trigger disclosure obligations.
Exercise of subscription right will give shareholders a claim for delivery of new shares typically, no disclosure; case-by-case evaluation necessary: – Shares may be attributed to shareholder through underwriting bank (held on
account of…) – If claim is not subject to conditions, shares are considered to be owned by
subscribing shareholder (change to trade date-principle)
Threshold crossing date: Entry into commercial register
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Capital Increase (IV) – Reporting Obligations (continued)
New shareholders
Reporting obligation triggered once shares come into existence (registration in commercial register).
Date of threshold crossing: Registration date vs. delivery/settlement date. – BaFin apparently accepts the delivery date as
a simplification for the new shareholder. – Consequences of incorrect crossing date?
Claim for delivery not an instrument.
BaFin‘s administrative practice offers simplification – at a cost.
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Securities Lending
BaFin‘s default scenario
Lender is obligated to transfer the shares to borrower without undue delay and with no conditions attached.
Reporting obligations for the borrower: – Exceeding Type 1 threshold when entering into
agreement.
Reporting obligation for the lender: – Falling below Type 1 threshold when entering into
agreement. – Exceeding Type 2 threshold when transferring shares. – Easement: BaFin allows one combined disclosure at the
time the agreement is entered into.
BaFin only addresses a very basic model
Case study covers reporting at the time of borrowing; obligations also apply at maturity
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Independent exercise: Disaggregation possible
Principle remains, but details changed
As before, parent of management companies can disaggregate voting rights if their subsidiaries exercise the voting rights independently.
German approach follows wording of TD2 (Art. 12 (4) and (5)).
„Notices of disaggregation“ must be filed.
Wording: Disaggregation only available to managed shares
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Disaggregation: Previous application was limited
Complete independence required
Under old German rules, disaggregation was only possible, if management entity exercised voting rights independently from all parent companies.
„Partially independent groups“ were not possible all or nothing.
Parent 1
Parent 2
Management Subsidiary 1
Management Subsidiary 2
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Disaggregation: More tolerance under new rules
Partial disaggregation possible
Change of administrative practice.
BaFin has relaxed its approach and allows the construction of „partially independent groups“.
Parent 1
Parent 2
Management Subsidiary 1
Management Subsidiary 2
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Formal issues with the template
Harmonization does not simplify everything
European-wide mandatory template, as proposed by ESMA.
Most jurisdictions have followed the European format closely.
Certain issues have persistently come up in the first five months of disclosures under TD2: – Oversights – Questions regarding field eight (chain of
companies)
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Template issues: Group disclosures
Points to note
Pecularities of a group disclosure: – Indicating actual holdings in instruments/shares is limited to >3% or >5% – Holdings of subsidiaries includes all relevant holdings, whether directly held
or attributed. – „Parent holdings“ do not count for field eight (but can nonetheless trigger a
disclosure obligation) – For subsidiaries, differentiation between attributed or direct holdings or
individual attributions is no longer possible.
Group falling to zero shares/instruments: – Field eight: no subsidiaries need to be listed.
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Sanctions: Introduction
Disclosures are a prominent issue at BaFin
Breaches of disclosure obligation account for more than 2/3 of all investigated breaches in the securities department at BaFin (2015).
In 2015, 330 breaches were closed. In 121 cases, sanctions were imposed (approx. 30%).
Highest sanction under the old rules: EUR 3.25m
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Sanction regime: Old rules offered clear guidance Under the old rules, breaches carried a maximum fine of EUR 1m for intent and
EUR 500k for recklessness.
In addition, BaFin sanctioned „organizational deficits“ combining multiple breaches and resulting in further reductions. – Effective sanction frame: EUR 250k per deficit.
Guidelines were available (individual cases):
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Sanctions: New Rules
High sanction frame can threaten profitability
German rules allow for fines of (higher amount prevails): – up to five per cent of annual revenues (group-
wide); – up to 10m EUR; – twice the economic benefit.
New sanction guidelines are expected to bring more clarity for “standard breaches”.
Mandatory naming and shaming – until now: highly exceptional.
Potential risks and sanctions increase drastically
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New rules still follow same basic prinicple
Individual sanctions will be determined following a three steps-procedure: – Severity of breach – Mitigating and/or aggrevating factors – Economic situation (only existence-threatening objections prevail)
Settlement with the regulator possible but: naming and shaming is not optional and cannot be negotiated.
BaFin still discussing increased sanction frame: – A linear increase of sanctions is not expected. – Further guidance will be offered in the Summer. – Open question: Current breaches that occurred after TD2 implementation?
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Jochen Kindermann Partner T +49 69 9074 5443 E [email protected]
Lennart Dahmen Associate T +49 69 9074 5428 E [email protected]
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