The Transparency Directive, Transparency Obligations Directive or Directive 2004/109/EC is an
EU Directive issued in 2004, revising an earlier Directive 2001/34/EC. The Transparency Directive was amended in 2013 by the Transparency Directive Amending Directive (Directive 2013/50/EU).
The Transparency Directive improves the harmonisation of information duties of
issuers, whose
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
are listed at a
regulated market
A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions. This can include tasks s ...
at a
stock exchange within the European Union, and further market participants. The aims of these amendments are to establish minimum requirements regarding the financial information distribution all over the European Union and an increase in transparency at the
capital markets and in investor protection to meet information deficits in a developing financial market environment.
[Gutzy, Jochen/Märzheuser, Michael (2007): Praxishandbuch Ad-hoc-Publizität, p. 49]
The term ''Transparency Obligations Directive'' is used in the UK
Companies Act 2006
The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law.
The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely ...
, which implemented the Directive within
UK company law
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...
.
History
The Transparency Directive of 2004
The process, which resulted in the 2004 version of the EU Transparency
Directive, passed several years, consultations and revisions. The first step towards the EU Transparency Directive of 2004 took place in July 2001 when the
Commission of the European Union announced the first consultation regarding the transparency on publicly traded companies. This first consultation period lasted from 17 July 2001 until 30 September 2001. During that time interested parties were able to contribute comments on the proposals, which the Commission drafted in its own consultation paper, regarding the new regime on disclosure requirements. Interested parties could be the issuers themselves, national agencies and associations, state authorities and European authorities, such as
CESR. The consultation paper of the Commission suggested a division of disclosure duties, in periodic and ongoing obligations, for example for financial reports (periodical) and ad hoc notifications (ongoing), and a focus on the publications of those information through a medium on a Europe-wide basis
as well as the control of these duties by the national supervisory authorities. Until the end of the consultation period the Commission received 90 contributions from market participants all over Europe, whereas most of the answers came from British and German interest groups. Mostly these answers complied with the suggestions, which were made up by the Commission.
However there have also been some amendments:
* Reducing the lowest threshold regarding notifications of major voting rights
* Introducing
International Accounting Standards
International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fina ...
into financial reports
* Publication of information via newspaper and internet
* Responsibility of state authorities for supervision (in cooperation with
stock exchanges
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for the ...
)
After the first consultation the
Commission revised its consultation paper to present it to the public another time. In May 2002 the
Commission launched a second and final consultation period, which lasted from 8 May 2002 until 5 July 2002. The
Commission specified the information requirements regarding
issuers, listed in a regulated market at a
stock exchange, especially in terms of financial reporting, voting rights, directors’ dealing, stock options, employee shares schemes and equal treatment of shareholders.
In detail, those suggestions were:
* Financial reporting requirements based on the annual turnover
* Equal treatment of
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
by admitting proxy voting rights and electronic voting
* Lower initial threshold for notifications of voting rights at 5%
* Introducing further thresholds at 15% and 30%
* Time limit for filing such notification: 5 calendar days
* Publication of such notifications on the
issuer
Issuer is a legal entity that develops, registers, and sells securities for the purpose of financing its operations.
Issuers may be governments, corporations, or investment trusts. Issuers are legally responsible for the obligations of the issu ...
’s homepage, in a newspaper and further information/news providers
These suggestions were basically confirmed by the interested parties.
On 26 May 2003 the
Commission proposed its draft for the
Directive to the
European Parliament
The European Parliament (EP) is one of the legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it adopts ...
and to the
Council of the European Union
The Council of the European Union, often referred to in the treaties and other official documents simply as the Council, and informally known as the Council of Ministers, is the third of the seven Institutions of the European Union (EU) as ...
. About one year later, on 30 March 2004, the
European Parliament
The European Parliament (EP) is one of the legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it adopts ...
approved the
Directive, whereby the unofficial version of the
Directive was published on 11 May 2004. This unofficial version covered all of the topics discussed in the former consultation process, such as periodical financial reporting, transparency in shareholder structure and publication of information.
The final version of the Directive 2004/109/EC of the
European Parliament
The European Parliament (EP) is one of the legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it adopts ...
and of the
Council on the harmonisation of transparency requirements in relation to information about
issuers whose
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
are admitted to trading on a regulated market was adopted on 17 December 2004. After the announcement of the Directive in the
Official Journal of the European Union
An official is someone who holds an office (function or mandate, regardless whether it carries an actual working space with it) in an organization or government and participates in the exercise of authority, (either their own or that of their su ...
the
Member State
A member state is a state that is a member of an international organization or of a federation or confederation.
Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign state ...
should transform the regulations, agreed on in the Directive, into national law within the next two years, not later that 20 January 2007.
The Transparency Directive Amending Directive of 2013
The Transparency Directive was amended in 2013 by the Transparency Directive Amending Directive (TDAD), Directive 2013/50/EU. The final date for member states to implement the TDAD was 26 November 2015. The TDAD contains these elements:
* Issuers are no longer obliged to publish interim reports (unless a Member State chooses to still impose it as an obligation)
* Issuers who have activities in the extractive or logging of primary forest industries should disclose in a separate report, on an annual basis, payments made to governments in the countries in which they operate
* Notification of major holdings of voting rights should include cash-settlement financial instruments with similar economic effect to holding shares and entitlements to acquire shares
* Issuers should prepare their annual financial reports in the European single electronic reporting format (ESEF) (from 1 January 2020 on)
* ESMA should develop and operate a web portal serving as a European electronic access point (EEAP) for regulated information
Regulations
The Directive specifies a range of regulations which have to be transformed into national law by the
Member State
A member state is a state that is a member of an international organization or of a federation or confederation.
Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign state ...
, whereas the
Directive only sets minimum standards.
Member State
A member state is a state that is a member of an international organization or of a federation or confederation.
Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign state ...
have the possibility to set up stricter rules.
Scope
This
Directive is directed to
issuers whose
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
are admitted to trading on a regulated market situated or operating within a
Member State
A member state is a state that is a member of an international organization or of a federation or confederation.
Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign state ...
and regulates requirements regarding the disclosure of periodic and ongoing information.
Definitions
The
Directive defines several terms, which are used in the new regulations, either by referring to other
Directives or by its own definition.
Periodic information
Annual financial reports
The
issuer
Issuer is a legal entity that develops, registers, and sells securities for the purpose of financing its operations.
Issuers may be governments, corporations, or investment trusts. Issuers are legally responsible for the obligations of the issu ...
has to publish its annual financial report not later than four months
[Hutter, Dr. Stephan/Kaulamo, Dr. Katja (2007): Das Transparenzrichtlinie-Umsetzungsgesetz: Änderungen der Regelpublizität und das neue Veröffentlichungsregime für Kapitalmarktinformationen, in: NJW 2007, p. 551] after the end of the
fiscal year
A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ...
and has to ensure that this report is accessible for at least five years. The annual financial report has to include the audited financial statements, a management report and a statement by officials that the financial statements were set up in compliance with the applicable accounting standards. In addition to the annual financial report the audit report should be published, as well.
Half-yearly financial reports
The
issuer
Issuer is a legal entity that develops, registers, and sells securities for the purpose of financing its operations.
Issuers may be governments, corporations, or investment trusts. Issuers are legally responsible for the obligations of the issu ...
has to publish a financial report covering the first half of the
fiscal year
A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ...
after the end of this relevant period. This report has to include the financial statements for the first half of the
fiscal year
A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ...
, an interim management report (including major events in the first half-year, a forecast for the next half-year and their possible impacts and further financial statements) and a statement by officials that the financial statements were set up in compliance with the applicable accounting standards. In case this half-yearly report gets audited, the audit report has to be published as well.
Ongoing information
Major Holdings of voting rights
A
shareholder, acquiring or selling
shares, has to notify the
issuer
Issuer is a legal entity that develops, registers, and sells securities for the purpose of financing its operations.
Issuers may be governments, corporations, or investment trusts. Issuers are legally responsible for the obligations of the issu ...
of such transactions, as soon as the acquisition or disposal of shares results in an amount of voting rights, that exceeds, falls below or reaches the threshold of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of the total amount of voting rights issued.
This notification requirement can also be based on the following cases:
* Acting in concert with other
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
* Voting rights are held by a third party and will be transferred temporarily to a different
shareholder
*
Shares are lodged as
collateral
Collateral may refer to:
Business and finance
* Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan
* Marketing collateral, in marketing and sales
Arts, entertainment, and media
* ''Collate ...
* Life interest
* Voting rights being held by a controlled undertaking
* Voting rights be deposited with a third person (whereas the third person is allowed to exercise the voting rights on its own discretion)
* Holding voting rights in behalf of the legal owner
* Exercising voting rights as proxy
This notification has to include the amount of voting rights held after acquisition/disposal, the day on which the event took place, the chain of controlled undertakings or the name of the (directly invested)
shareholder from which the notifying party gets attributed the voting rights.
Furthermore a notification is required when a natural person or legal entity holds
financial instruments
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form ...
, which result in the entitlement to acquire voting rights, whereas the acquisition is based on the holder's initiative.
These regulations should not apply for
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
, holding the
shares as
market makers
A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The benefit to the firm is that i ...
, for
clearing and settlement purposes and credit institutions, holding the
shares in their trading book, and holding less than 10% of the total amount of voting rights issued.
Information requirements for issuers
Issuers are obliged to treat those
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
equally, which are in the same position. Furthermore
issuers have to make all available all kinds of information that are necessary for the
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
to ensure the exercise of their rights.
[Hutter, Dr. Stephan/Kaulamo, Dr. Katja (2007): Das Transparenzrichtlinie-Umsetzungsgesetz: Änderungen der anlassabhängigen Publizität, in: NJW 2007, p. 477]
person to exercise their voting and/or financial rights, either in paper or electronic form. After the
annual general meeting the issuer has to publish decisions made at the
annual general meeting, if applicable, which are: payment of
dividends and issue of new
shares, including allotment-, subscription-, cancellation- and conversion rights of the new
shares.
General obligations
As long as
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
or
issuers have to provide information to each other, e.g. disclose the holding of voting rights, this information has to be filed with the state authority at the same time as well. The same applies for issuers, who propose the annual meeting to change their articles of incorporation.
Competent authorities and their power
Each
Member State
A member state is a state that is a member of an international organization or of a federation or confederation.
Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign state ...
of the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
has to designate a state authority, which should be responsible for carrying out the obligations regarding
shareholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
and
issuers. Therefore the
Member States have to empower the authorities to achieve the aims of the
Directive. Especially the authorities should be able to require involved parties to provide them with information and documents regarding each single case or require the
issuers and
shareholder to disclose such information, which is necessary to fulfill their requirements. Additionally the authorities shall be empowered to carry out on-site inspection, to verify compliance with the statutory requirements.
References
{{Reflist
External links
Full text of the Directive
European Union directives
Corporate governance