Which countries have the toughest shareholding disclosure obligations?
In the first part of this three-part blog series,we discovered the toughest regulations when it comes to deadlines. Now, our Content team presents the toughest regulations across the globe when it comes to holding calculations.
Determining what percentage of an issuer’s shares a person or legal entity holds might be the most crucial task in major shareholding compliance. Ultimately, this is the value on which shareholding thresholds are based, and getting it even slightly wrong can result in hefty sanctions (which we’ll dive into in our next blog).
1. United States of America
Schedule 13(d), 13(g) and 13(f) of the Exchange Act are, without a doubt, one of the more complicated regulations when it comes to shareholding disclosure disclosure requirements. The task of completing Form 13(f) alone has proven to be a tedious endeavour.
A critical part of calculating holding percentages for Schedule 13(d) and 13(g) is selecting the securities that are in scope of the US regulations. The shareholding limits apply to any class of voting equity securities of any issuer (U.S. or non-U.S.) that is registered under Section 12 of the Exchange Act. But in certain circumstances holdings of issuers must be reported under one regime, but excluded in the other. For example, if a shareholder has 5% or more of a class of voting equity securities before the class is registered under Section 12, the holder is not required to file a Schedule 13D when the issuer registers the class of securities.
However, the shareholder must file a Schedule 13G (pursuant to Rule 13d-1(d)) after the end of the calendar year in which the Section 12 registration becomes effective. Furthermore, the denominator used in the calculation must include not only the number of outstanding shares of the reportable class, but also any unissued shares for which an option, convertible, warrant, convertible preference share or subscription right will provide entitlement to within 60 days.
2. European Union
Besides the principle of horizontal aggregation, the Transparency Directive Amending Directive (TDA) also requires other complex calculations for ascertaining shareholding percentages. Article 4 of the Commission Delegated Regulation (2015/761) (RTS) provides that the voting rights of financial instruments referenced to a share basket or index must be included in the calculation if the following conditions are present:
1. The voting rights in an issuer held through financial instruments referenced to a basket or index represent 1% of the voting rights of the issuer; and
2. The shares in the basket or index represent 20% or more of the value of the securities in the basket or index.
In practice, this means that a calculation of the percentage of voting rights and the value of the shares of a specific issuer, must be calculated for each individual basket or index, only to determine if those shares should be included in the overall shareholding calculation.
When it comes to complex calculations in the EU, it is worth noting that regulations in the Netherlands and Denmark also require that the threshold calculation is made based on an issuer’s total issued nominal share capital.
3. Brazil
Similar to the horizontal aggregation principle found in the TDA, the major shareholding regulation in Brazil stipulates that holdings must be aggregated into baskets, or in this case ‘groups’. However, in contrast to the TDA, the Brazilian regime uses a different principle to aggregate securities. The separation is based on whether the owner of the securities holds the shares, or has the capacity to eventually hold shares referenced to a derivative instrument. In this way, the first bucket of securities, known as ‘Group 1’, includes shares, whether voting or non-voting or of a specific class; and shares referenced in contracts representing physically settled financial derivative instruments. And the second bucket, or ‘Group 2’ includes solely cash settled financial derivative instruments.
Knowing the intricacies of each regime, and understanding how calculations must be done in order to correctly determine shareholding percentages is no easy task. Here at Fundapps, we have a whole team dedicated to doing exactly that, so our clients can rest assured that or major shareholding calculations are accurate. We remove the risk of human error by automating these complex calculations and eliminating the need for complicated spreadsheets.
