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



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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




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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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simmons-simmons.com elexica.com

Jochen Kindermann Partner T +49 69 9074 5443 E [email protected]

Lennart Dahmen Associate T +49 69 9074 5428 E [email protected]

This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name “Simmons & Simmons” or one or more of those practices as the context requires. The word “partner” refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP’s affiliated practices. For further information on the international entities and practices, refer to simmons-simmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address.

voting rights disclosure: current status under td2 · td2 brought substantial changes to the german...

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