C 80/128 EN 30.3.2004 Official Journal of the European Union
Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the
European Parliament and of the Council on the harmonisation of transparency requirements
with regard to information about issuers whose securities are admitted to trading on a regulated
market and amending Directive 2001/34/EC’
(COM(2003) 138 final — 2003/0045 (COD))
(2004/C 80/31)
On 8 April 2003 the Council decided to consult the European Economic and Social Committee, under
Article 262 of the Treaty establishing the European Economic Community, on the above-mentioned
proposal.
The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 26 November2003. The rapporteur was Mr Simon.
At its 404th plenary session on 10 and 11 December 2003 (meeting of 10 December) the European
Economic and Social Committee adopted the following opinion by 110 votes in favour, with oneabstention.
1. The Commission’s objectives
1.1. The proposed Directive on Transparency in publicly
traded companies is one of the priority actions in the FinancialServices Action Plan (FSAP), endorsed by Heads of State and
Government at the Lisbon European Council in March 2000.
The proposal is part of the programme launched by theEuropean institutions to make publicly traded companies more
transparent and to improve their financial and accounting
reporting standards. As well as this proposal for a directive,the programme also includes the European Regulation obliging
listed companies to apply the International Accounting Stan-
dards (IAS/IFRS) from 1 January 2005; the Directive on MarketAbuse, which introduces new, more demanding requirementsfor the publication of inside information and addresses the
issue of price manipulation; and the Prospectus Directive
which provides for a European passport and also at the sametime strengthens disclosure requirements in cases of public
issue and offers of securities or requests for the admission of
securities to trading on a regulated market.
1.2. The proposed directive under discussion here deals
with periodic disclosure by issuers and the periodic provision
of information on changes to major holdings in companies.Its declared aim is to improve investor protection and boostmarket efficiency. To that end, it also seeks to ensure greater
openness to the world of international finance in terms of
use of languages and the more widespread use of moderntechnologies to disseminate information. Lastly, the proposal,
although drawn up from 2000 onwards, seeks to offer a
response to US laws and regulations introduced following thescandals that shook the financial markets two years ago,
including the Sarbanes-Oxley Act, in order to promote Euro-
pean capital markets.
1.3. As for the timetable involved, the Council is seeking
adoption under the co-decision procedure in April 2004.2. Key provisions of the draft directive
2.1. The first thing to note is that the proposed directive is
based on the recommendations of the Lamfalussy report,
which advocates a four-level approach to regulation using theco-decision procedure. Level 1, which is the subject of thisdraft text, should focus on essential principles and options.
The Commission, assisted by a regulatory committee, the
European Securities Committee, then adopts technicalimplementing rules (level 2). Coordinated implementation of
these measures is a matter for the Committee of European
Securities Regulators (level 3) and enforcement of Communitylaw by the European Commission is also being strengthened
(level 4).
2.2. Thus, the proposed directive contains only the essential
provisions and, where appropriate, refers detailed questions of
enforcement to the Commission’s implementation measures.
2.3. It is important to note that, although the proposed
procedure allows regulators to be responsive and flexible, it
does mean, as a result, that the texts have to provide for a
periodic review of the effective convergence of financial marketregulation in the Member States.
2.4. The main points of the proposed directive are as
follows:
2.4.1. Scope: The proposed directive covers issuers whose
securities are already admitted to trading on a regulated market
situated or operating within a Member State (and no longeronly issuers of securities admitted to official listing on suchmarkets).
30.3.2004 EN C 80/129 Official Journal of the European Union
2.4.2. Deadline for the publication of the annual report:
The companies concerned must disclose their annual report at
the latest three months after the end of the financial year.
2.4.3. Publication of a half-yearly report: The proposed
directive requires issuers to disclose a detailed half-yearlyreport for the first six months of the year, at the latest twomonths after the end of the relevant period; the proposal also
specifies the content of that report.
2.4.4. Publication of quarterly information: Issuers whose
shares are admitted to trading on a regulated market must also
disclose, for the first and third quarter, their consolidated net
turnover figures, and the profit or loss before or after deductionof tax, together with an explanatory statement. Such issuers
may, if they choose, also provide an indication of the likely
future development of their activities at least for the remainingfinancial year. This information must be published at the latest
two months after the end of the quarter concerned.
2.4.5. Notification of changes to major holdings: The
proposed directive increases the number of thresholds aboveor below which security holders are obliged to notify the issuer
of the proportion of voting rights and capital they hold as a
result of the threshold having been crossed, and the issuer isobliged to disclose that information.
2.4.6. Dissemination of information to security holders by
electronic means: Home Member States must allow issuers theuse of electronic means to convey information to shareholders,
provided, in particular, that such a decision is taken in a
general meeting.
2.4.7. Simplification of reporting requirements in terms of
number of languages to be used: Where securities are admitted
to trading on a regulated market both in the home MemberState and in one or more host Member States, informationmust be disclosed in a language accepted by the competent
authority in the home Member State and, depending on the
choice of the issuer, either in a language accepted by thecompetent authority in the host Member State(s) or in a
language customary in the sphere of international finance. A
language customary in the sphere of international financemay also be selected by the issuer in all cases where the
denomination per unit of the issued securities amounts to at
least 50 000 EUR, and by security holders when notifying anybreach of the thresholds.
2.4.8. Timely access to regulated information: Under the
proposed directive, the home Member State must requireissuers to use media that ensure the dissemination of regulatedinformation throughout its national territory and abroad. A
host Member State may not impose any requirements regard-
ing the use of any particular media, other than the issuer’sInternet website.2.5. Moreover, it must be borne in mind that the proposed
directive seeks not maximum, but minimum harmonisation.
A home Member State may impose additional reporting
requirements on issuers, but a host Member State may not.We feel that this is one stage in the process but the goalmust continue to be maximum harmonisation. Minimum
harmonisation has some serious drawbacks in its biased
treatment of issuers and investors. So that the idea does notremain mere wishful thinking, the Commission should, within
three years at the most, submit an action plan for achieving
this objective.
3. Issues raised by the proposed directive
3.1. The proposal for a directive is by and large a technical
document and the European Economic and Social Committee
endorses its objectives. Improving the financial and accounting
transparency of publicly traded companies is a key element forconfidence in financial market operations. Moreover, greater
harmonisation of obligations incumbent on companies in this
regard is vital for the integration of European financial markets,which is a goal of the Financial Services Action Plan. However,the proposed directive does raise a number of issues, some on
matters of principle, other of a technical nature.
3.1.1. Publication of quarterly information (Article 6): This
is a key issue of principle for the functioning of the financialmarkets. The Commission feels that some degree of quarterlyfinancial and accounting disclosure is essential so that investors
are able to make appropriate choices and have equal access to
information. Moreover, the required information would belimited since it would not include an income statement and a
balance sheet but simply data on turnover and profit or
loss before or after deduction of tax, thereby significantlycontaining the costs involved. What is more, the Commission
does not feels that the disclosure of quarterly profit and loss
information would a priori increase volatility on the financial
markets.
3.1.1.1. This issue is, however, the subject of genuine
debate. Companies, and especially the UNICE, are strongly
opposed to the mandatory publication of quarterly infor-
mation. Some institutional investors have stated that they hadnot requested information of this kind. On the whole, investors
would prefer to see improvements in the quality rather than
an increase in the quantity of the tremendous flow ofinformation they already have to deal with.
3.1.1.2. The mandatory publication of quarterly infor-
mation would also have a genuine cost impact on issuers, not
least SMEs. Above all, the widespread practice of quarterlyprofit and loss reporting is liable to encourage investors toadopt a more short-term approach. This might increase market
volatility and would also hamper the application of any long-
term strategy by companies required to justify their resultsevery three months. Such reporting would all too frequently
C 80/130 EN 30.3.2004 Official Journal of the European Union
divert managers from their operational responsibilities in order
to deal with communication matters, and would, as a result,
act as a disincentive for SMEs to have recourse to the market.
That would run counter to one of the goals of the Lamfalussyplan.
3.1.1.3. In the light of all these objections, it would be
prudent to adopt a gradual approach, with an obligation only
to publish information on trends in turnover and activities forthe first and third quarters. The Commission would review the
situation after three years.
3.1.2. Monitoring information by the regulatory authorities
(Article 20): There are no plans at this stage to harmonise therole of home Member States’ regulatory authorities with regard
to the reporting requirements under the proposed directive.
The regulatory authorities merely have to ensure that therequired information is disclosed within the appropriate
timeframes. The extent of regulatory authorities’ input varies
from Member State to Member State; some regulatory auth-orities monitor the consistency or even the accuracy of the
information that has to be disclosed. As a result, there may be
a considerable degree of unequal treatment of issuers andinvestors between Member States.
3.1.3. Consistency of the definition of the home Member
State with the existing definition in the proposed Prospectus
Directive (Article 2) (
1): Establishing the home Member State is
important both for issuers and investors, since it determines
the rules applicable to the issuer.
3.1.3.1. The definition adopted in this proposed Directive
on Transparency is not wholly consistent with the definitionadopted in Article 2 of the Prospectus Directive. The threshold
for allowing debt securities issuers to select their home Member
State is set at a denomination of 5 000 EUR in the currentproposal, but at 1 000 EUR in the Prospectus Directive. For
the rules to make sense, however, the threshold in the
Transparency Directive should be aligned with the thresholdin the Prospectus Directive.
3.1.4. Inclusion of derivatives in the notification obligation
(Art. 2): Including derivative securities (warrants, convertible
or exchangeable bonds) in the system for reporting theproportion of voting rights and capital leads to difficulties in
calculating the proportion. In the case of warrants, a disclosure
obligation is not possible if the rights have not yet beenexercised. In the case of convertible bonds, this leads to
difficulties if the related rights have not yet been exercised and
hence the underlying shares do not yet exist. In this case it willbe (a) impossible to determine a proportion for the relevant
instruments and (b) unclear to what extent such shares which
will only be issued in the future are to be taken into
(1) Directive of the European Parliament and of the Council on the
prospectus to be published when securities are offered to thepublic or admitted to trading and amending Directive 2001/34/
EC — 2001/0117 (COD), adopted on 15 July 2003.consideration in determining the total capital and the total
voting rights and hence the proportion of voting rights and
capital held by other parties subject to the notification
obligation. Therefore the inclusion of derivatives, whatevertheir nature, in the notification obligation for major sharehold-ings is not compatible with the system and should be deleted.
3.1.5. Deadline for the publication of the annual financial
report (Article 4): Under Article 4, the issuer must disclose its
annual financial report to the public at the latest three monthsafter the end of the financial year. This deadline may proveproblematic given the requirement to publish the full audit
report alongside the annual report. This means publishing the
accounts as they have to be presented to the general share-holder meeting. Many companies are unable to do that within
three months.
3.1.6. Deadline for the publication of the half-yearly report
and the mandatory nature, or otherwise, of the audit of that
report (Article 5): Under Article 5, a half-yearly report must bedrawn up in line with international standards (IAS 34) within
two months of the end of the relevant six-month period.
However, this deadline is incompatible with an audit of thehalf-yearly accounts for issuers who publish audited accounts.
For the record, the IASB recommends such a deadline only for
non-audited accounts. Moreover, Article 5(5) specifies that anaudit of the report might be made mandatory under thecommittee procedure. Home Member States may also require
an audit. Such a potentially onerous obligation should not be
subject to the committee procedure.
3.1.6.1. Furthermore, as regards the content of the half-
yearly report, a more precise definition would be required ofthe term ‘management report’ which does not mean the same
thing in all Member States. In practice, it would be advisable
to require an update of the financial data contained in the lastmanagement report in order to avoid making the obligations
for companies excessively cumbersome.
3.1.7. Notification of the acquisition or disposal of major
holdings (Article 9): In practice, notification of this kind may
prove problematic for certain types of players, most notablyinstitutional investors. One issue, for instance, is the level,
within a particular group, at which the holdings of the various
asset management subsidiaries should be consolidated —which, moreover, raises questions about the ‘Chinese walls’
that these players are supposed to put in place.
3.1.8. Additional information to the public (Article 12):
Under this article, the issuer is obliged to inform the public
without delay of any changes in the rights of security holdersand any new loan issues. In the interest of legal certainty forissuers, it would be a good idea to define what exactly is meant
by ‘without delay’, given that such questions are subject to a
general assembly decision. Whatever the timeframe, it mayonly start following the decision of the competent body.
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3.1.9. Timely access to regulated information (Article 17):
This is a key article highlighting the importance of timelyand efficient access to information at both national andinternational level. However, under Article 17(2), the hostMember State may require issuers ‘to alert any interestedperson, without delay and free of charge, to any new disclosureor any change to regulated information which has alreadybeen published’. Such a requirement is too loose and, hence,goes too far. For instance, even if it were done by Internet, theobligation to alert any person on request could make itnecessary for companies to keep inordinately large, and costly,data files. That would also open the door to acts of malice thatmight jam up the system.
PROPOSALS
Chapter I — Article 2 (1)(e)(iv)
Inclusion of derivative securities in the notification obligation
1(e)(iv) derivative securities entitling a natural person 1(e)(iv) Deleted
or legal entity to acquire, on its initiative, orto dispose of, on the sole initiative of a thirdparty, shares to which voting rights with the
issuer are attached;
Chapter 1 — Article 2.1
Harmonisation of the definitions of home Member State between the Prospectus Directive and the current proposed
directive
1. i) ‘home Member State’ means
i) in the case of an issuer of debt securities i) in the case of an issuer of debt securities
the denomination of which does not exceed the denomination of which does not exceed5 000 EUR or an issuer of shares: EUR 1 000 or an issuer of shares:
—— where the issuer is incorporated in the where the issuer is incorporated in the
Community, the Member State in which Community, the Member State in whichit has its registered office; it has its registered office;
—— where the issuer is incorporated in a where the issuer is incorporated in a
third country, the Member State in which third country, the Member State in whichit is required to file the annual infor- it is required to file the annual infor-mation with the competent authority mation with the competent authorityin accordance with Article 10 of the in accordance with Article 10 of theProspectus Directive; Prospectus Directive;
ii) for any issuer not covered by i), the Member ii) Unchanged
State chosen by the issuer from among those
Member States which have admitted its securi-ties to trading on a regulated market ontheir territory, provided that those securitiescontinue to be admitted to trading on thatregulated market for three financial years, thatbeing the period of validity of the issuer’schoice;3.1.10. Sanctions (Article 24): Under Article 24, Member
States are required to impose administrative sanctions in thecase of non-compliance with the provisions of this directive,without prejudice to their right to impose penal sanctions. Onthe face of it, however, this raises a fundamental difficulty inrespect of the European Convention on Human Rights, since,given the similar nature of administrative and penal sanctions,applying them both together violates the ne bis in idem
principle.
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Chapter II — Article 4
Extending the publication deadline for the annual financial report to four months
1. The issuer shall disclose its annual financial report 1. The issuer shall disclose its annual financial report
to the public at the latest three months after the to the public at the latest four months after the
end of each financial year and shall ensure that it end of each financial year and shall ensure that itremains publicly available. remains publicly available.
Chapter II — Article 5
Extending the publication deadline for the half-yearly annual report and clarifying the information to be updated in
the management report
1. The issuer shall disclose to the public a half-yearly 1. The issuer shall disclose to the public a half-yearly
financial report covering the first six months of the financial report covering the first six months of thefinancial year as soon as possible after the end of financial year as soon as possible after the end of
the relevant period, but at the latest two months the relevant period, but at the latest three months
thereafter. The issuer shall ensure that the half- thereafter. The issuer shall ensure that the half-yearly report remains available to the public. yearly report remains available to the public.
2. The half-yearly financial report shall comprise:
a) the condensed set of financial statements; a) Unchanged
b) an update of the last management report as b) an update of the financial data contained
provided for in Article 4 (5); in the last management report as provided
for in Article 4(5);
c) statements made by the persons responsible
within the issuer, whose names and functions c) Unchanged
shall be clearly indicated, to the effect that
the information contained in the half-yearlyfinancial report is, to the best of theirknowledge, in accordance with the facts andthat the report makes no omission likely toaffect its import.
Chapter II — Article 6
Limiting the mandatory quarterly publication to net turnover
1. An issuer whose shares are admitted to trading on 1. An issuer whose shares are admitted to trading on
a regulated market shall disclose to the public a regulated market shall disclose to the public atquarterly financial information covering the first least its net turnover for the first and third quartersand third quarter, respectively, of the financial year, of the financial year as soon as possible after the
as soon as possible after the end of the relevant end of the relevant three-month period, but at
three-month period, but at the latest two months the latest two months thereafter .
thereafter. The same issuer shall ensure that thequarterly financial information remains available
to the public.
30.3.2004 EN C 80/133 Official Journal of the European Union
2. Quarterly financial information shall contain at
least:
a) consolidated figures, presented in table form, a) Deleted
indicating, for the relevant three-month per-iod, the net turnover, and the profit or lossbefore or after deduction of tax; and
b) an explanatory statement relating to the b) An explanatory, statement relating to
issuer’s activities and profits and losses during activities;
the relevant three-month period; and
c) if the issuer so chooses, an indication of the c) If the issuer so chooses, an indication of
likely future development of the issuer and the likely future development of the issu-
its subsidiaries at least for the remaining er and its subsidiaries at least for the
financial year, including any significant remaining financial year.
uncertainties and risks which may affect thatdevelopment.
3. Where the quarterly financial information, or any 3. Deleted
quarterly financial report, has been audited, the
audit report, and any qualifications thereto orreferences to any matters by way of emphasisto which the auditors draw attention withoutqualifying their report, shall be reproduced in full.The same shall apply in the case of an auditors’review. If the quarterly financial information hasnot been audited or reviewed by auditors, theissuer shall make a statement to that effect.
4. The Commission shall, in accordance with the 4. Unchanged
procedure referred to in Article 23(2), adoptimplementing measures, in order to take accountof technical developments on financial marketsand to ensure the uniform application of para-graphs 1, 2 and 3 of this Article.
The Commission shall, in particular:
a) specify the period of time throughout which a) Deleted
published quarterly financial information isto remain available to the public, as well asany other conditions to be complied with bythe issuer in that connection
b) clarify, if necessary, the terms ‘net turnover’ b) clarify, if necessary, the term ‘net turn-
and ‘profit or loss before or after deduction over’ in relation to specific types of
of tax’ in relation to specific types of issuers, issuers, such as credit institutions;
such as credit institutions;
c) specify the information to be given in the c) Unchanged
explanatory statement, as referred to in para-graph 2(b), and in the indication of theissuer’s likely future development, as referredto in paragraph 2(c);
d) clarify the nature of the auditors’ review, d) Deleted
referred to in paragraph 3.
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Chapter IV — Article 17
Clarifying the provisions for the dissemination of regulated information by the issuer
2. A host Member State may not impose on issuers 2. Unchanged
any requirements regarding the media to be usedfor the dissemination of regulated information.However, a host Member State may require issuers:
a) to publish regulated information on their a) Unchanged
Internet sites, in which case the host Member
State shall keep the public informed asregards the Internet sites of issuers; and
b) to alert any interested person, without delay b) to alert any visitor to these sites, without
and free of charge, to any new disclosure or delay, to any new disclosure or any change
any change to regulated information which to regulated information which has alreadyhas already been published, such communi- been published.cation to be effected by electronic means or,upon request, on paper.
Chapter V — Article 20
Minimum harmonisation of checks by the competent authorities
1, 2, 3 1, 2 + 3 Unchanged
4. Each competent authority shall have all the rights 4. Each competent authority shall have all the
necessary for the performance of its functions. rights necessary for the performance of its
functions. It shall ensure that the informationIt shall at least be empowered to:provided by issuers under this directive is
consistent and intelligible.
It shall at least be empowered to:
(a), (b), (c), (d), (e), (f), (g) and (h) (a), (b), (c), (d), (e), (f), (g) and (h): unchanged
5 and 6 5 and 6: Unchanged
Brussels, 10 December 2003.
The President
of the European Economic and Social Committee
Roger BRIESCH