Transparency Directive – the EU’s blueprint for corporate disclosure

The European Commission’s ESC has published its working document on the implementation of the Transparency Directive. It proposes – and seeks comments on – among other things, what a half yearly report should contain, disclosure of major shareholdings, and the mechanics of news dissemination.

As a reminder of where we are; the (level 1) principles of TOD were adopted in December 2004. The Committee of European Securities Regulators was asked to provide its advice on how to flesh out the detail, which it did in June 2005. The next stage is for the Commission to define how national member states should implement TOD, and its early thinking is in this proposal.

The Commission has decided that many of the areas on which CESR provided advice do NOT need to written in binding text, rather they should be written as recommendations. In the UK, the FSA has indicated that TOD will be implemented on the 20th January 2007, and will probably consult on how this will all work in March next year.

2 key areas for IRO’s:

Major shareholding disclosures. This is a significant part of the Directive, and will potentially have a substantial impact on the 198 disclosures made - reactively - to issuers, and hence on the shareholder analysis that issuers can undertake. In the UK, TOD is running parallel with the Company Law Review, which has reviewed the current - proactive - section 212 rules.

Since TOD will be implemented by the FSA, and the new Company Law by Parliament, it is possible/ likely that different definitions of "shareholder interest" will be adopted and therefore that different disclosures will be made for each. Neither will (currently) include synthetic shareholder interests, such as Contracts for Difference - a real problem for issuers to manage.

To make this more complex, the Panel on Takeovers and Mergers has included synthetics, which means that an issuer may find itself wrestling with 3 sets of disclosures - takeover related, reactive and proactive - all with different definitions of interest. And on different forms, as TOD has gone to the trouble of defining in some detail a form that should be used in making reactive disclosures.

o News dissemination. The ESC has adopted into its working document many of the recommendations of CESR. News will have to be disseminated, fast, as close to simultaneously as possible and to media across the EU (which will be a change for UK issuers).

A major change is that all regulated information will be disseminated; ie that will include not only real time inside information, but also documents such as annual reports, circulars, prospectuses, etc.

Many of the “provider” items are not proposed as binding rules, but as recommendations – leaving room for interpretation by member states. These include ensuring that fair competition should exist between providers. And there is no requirement to use a dedicated service provider, but there are very specific requirements to meet, in terms of reporting, which many will decide are too wearisome to do themselves.

Transparency Matters will look another time at the other reporting requirements.