Section 1266: Transparency rules
1606.Section 1266 inserts seven new sections into Part 6 of FSMA: sections 89A, 89B, 89C, 89D, 89E, 89F and 89G. Part 6 of FSMA deals with certain aspects of the regulation of securities that are traded on regulated markets in the UK. These new sections make provision about rules that may be made by the “competent authority” (which is the Financial Services Authority (“the Authority”)) for the purposes of the Transparency Directive (2004/109/EC)“transparency rules”.
New Section 89A: Transparency rules
1607.Subsection (1) of new section 89A of FSMA enables the Authority to make transparency rules to implement the Transparency Directive in the UK. Subsection (2) enables the rules to include provision for any matter arising out of or related to the Directive provisions.
1608.The Transparency Directive itself covers issuers whose securities are traded on regulated markets and people who hold voting rights attached to shares in such issuers. The scope of the rule-making power allows the rules to address other matters arising from the Directive’s implementation, for example, to ensure that secondary legislation adopted by the Commission can be incorporated into the transparency rules, and that optional aspects of the Directive can be implemented, where the Authority considers this appropriate.
1609.It is expected that rules made under section 89A(1) will implement the Transparency Directive by-
requiring holders of votes attached to shares in issuers to make disclosure about their holdings at certain thresholds (see new section 89B);
requiring issuers to make public their annual accounts and reports, prepared in accordance with the EU International Accounts Standards Regulation (Regulation (EC) 1606/2002), and, where appropriate, half-yearly and interim management statements about their business(see new section 89C);
requiring issuers to make notification about voting rights held by themselves in respect of their own voting shares (see new section 89D);
requiring issuers to notify the Authority and the market of any proposed change to their constitution (see new section 89E).
1610.Subsection (3)(a) enables the Authority to make rules about disclosures of voteholdings to UK markets that are not regulated markets (within the meaning of section 103(1) of FSMA) (such as the AIM). Subsection (3)(b) enables the Authority to make rules about disclosure in relation to certain comparable instruments in respect of voting shares. These are instruments that give the holder a level of economic, as opposed to legal, control over votes attached to shares. An example of the type of instrument that the rules could extend to cover is a contract for difference, known as a “CFD”.
1611.Subsection (4) specifies further matters that the rules may cover. These include: how the proportion of voting rights held by an issuer is to be determined; when voting rights held by one person may be regarded as being held by another; the nature, form, timing and presentation of any notification; and the circumstances in which any of the requirements of section 89A may not apply.
New Section 89B: Provision of voteholder information
1612.New section 89B sets out provisions for notifications by voteholders under transparency rules. Subsection (1) specifies that notification can be required to be made to the issuer or to the public or to both. Under subsection (2), rules may provide for such information to be notified at the same time to the Authority.
1613.Subsection (5) sets out the circumstances in which voteholders may be required to notify of a change in the proportion of voting rights (i.e. when a proportion crosses above or below, or reaches, a proportion designated in the rules).
New Section 89C: Provision of information by issuers of transferable securities
1614.New section 89C sets out provisions for issuers of transferable securities to provide information under transparency rules. Subsection (1) clarifies that information can be required to be given to the public or the Authority or both.
1615.The rules cover annual financial reports (both financial statements and management reports) and, for certain issuers, half-yearly financial reports and interim management statements, as required by the Transparency Directive. The rules can also require issuers to disclose certain other information relating to voteholder information, information about the different classes of share they have issued and the total number of voting rights attached to each class, their own voteholdings, their capital, and information about new loan issues.
New Section 89D: Notification of voting rights held by issuer
1616.New section 89D enables the rules to provide for issuers to make notification of the proportion of voting rights they hold in respect of their own voting shares. Subsection (1)(a) permits rules to set the initial notification period in accordance with the requirements of the Transparency Directive at Article 30.2. Subsections (1)(b), (2) and (3) set out the circumstances under which issuers of transferable securities must notify of a change in the proportion of voting rights (i.e. when a proportion crosses above or below, or reaches, a proportion designated in the rules).
New Section 89E: Notification of proposed amendment of issuer’s constitution
1617.New section 89E enables the rules to provide that an issuer of transferable securities admitted to trading on a regulated market must notify a proposed amendment to its constitution to the Authority and the market.
New Section 89F: Transparency rules: interpretation etc
1618.New section 89F defines a number of terms used in the sections 89A to 89G.
New Section 89G: Transparency rules: other supplementary provisions
1619.New section 89G sets out further supplementary provisions relating to the transparency rules. Subsection (1) enables the Authority to make rules imposing the same obligations on a person who has applied for the admission of transferable securities to trading on a regulated market without the issuer’s consent as they impose on an issuer of transferable securities. Subsection (2) enables the Authority to make rules to allow it to make public information that voteholders or issuers are required to make public, where they fail to do so themselves. Subsection (3) will enable the Authority to make public information notified to it in accordance with transparency rules.
1620.There is some overlap between notifications required by the Panel on Takeovers and Mergers in the rules made under Part 28, and notifications required by the Transparency Directive. Subsection (4) enables transparency rules to cross-refer to rules made by the Panel under Part 28, which will enable greater alignment between the two sets of rules.
