Report from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - Operation of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market SEC(2010)611
Date: 2010-05-27
Institutions: European Commission
Subjects: approximation of laws, consumer information, dissemination of information, financial legislation, investment, official market, securities

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EUROPEAN COMMISSION 

Brussels, 27.5.2010 
COM(2010)243 final 

REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN 
PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND 
THE COMMITTEE OF THE REGIONS 

Operation of Directive 2004/109/EC on the harmonisation of transparency requirements 
in relation to information about issuers whose securities are admitted to trading on a 
regulated market 

SEC(2010)611 

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REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN 
PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND 
THE COMMITTEE OF THE REGIONS 

Operation of Directive 2004/109/EC on the harmonisation of transparency requirements 
in relation to information about issuers whose securities are admitted to trading on a 
regulated market 

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INTRODUCTION 

This report reviews the operation of Directive 2004/109/EC1 on the harmonisation of 
transparency  requirements  in  relation  to  information  about  issuers  whose  securities 
are  admitted  to  trading  on  a  regulated  market  (hereinafter  the  "Transparency 
Directive"), in accordance with Article 33 of that Directive.  

The Transparency Directive requires issuers of securities in regulated markets within 
the  EU  to  ensure  appropriate  transparency  for  investors  through  the  disclosure  of 
regulated  information  and  its  dissemination  to  the  public  throughout  the  EU.  Such 
information  consists  of  financial  reports,  information  on  major  holdings  of  voting 
rights and information disclosed pursuant to Article 6 of the Directive 2003/6/EC on 
insider dealing and market manipulation (market abuse)2. 

The  objectives  pursued  by  the  Transparency  Directive  are  important  to  financial 
markets and recognised by international standard setting  bodies, such as IOSCO or 
the OECD. The current financial crisis demonstrates that the disclosure of accurate, 
comprehensive and timely information about securities issuers is essential in order to 
allow  an  informed  assessment  of  their  business  performance  and  assets  and 
consequently to build sustained investor confidence in capital markets. 

This report describes the impact of the Transparency Directive and how it has been 
complied with (section 2); identifies the main issues emerging from the application 
of  the  Transparency  Directive  (section  3)  and  draws  a  number  of  conclusions 
(section  4).  This  report  is  completed  by  a  Commission  staff  working  paper  which 
provides  further  detail  on  the  issues  described  as  well  as  on  how  information  has 
been collected. 

IMPACT OF AND COMPLIANCE WITH THE TRANSPARENCY DIRECTIVE  

The  External  Study  on  the  application  of  the  Transparency  Directive  conducted  on 
behalf  of  the  Commission3  (hereinafter  "the  External  Study")  reflects  that  a  strong 

Directive  2004/109/EC  of  the  European  Parliament  and  of  the  Council  of  15  December  2004  on  the 
harmonisation of transparency requirements in relation to information about issuers whose securities are 
admitted  to  trading  on  a  regulated  market  and  amending  Directive  2001/34/EC,  OJ  L  390  of 
31.12.2004, p.38. See: www.ec.europa.eu/internal_market/securities/transparency/index_en.htm 
OJ L 96, 12.4.2003, p.16. 
Mazars (December 2009), Study on the application of selected obligations of directive 2004/109/EC on 
the  harmonisation  of  transparency  requirements  in  relation  to  information  about  issuers  whose 

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the  stakeholders  who  participated 

majority  of 
the 
Transparency  Directive  to  be  useful  for  the  proper  and  efficient  functioning  of  the 
market.  Stakeholders  generally  consider  that  regulated  information  disclosed  by 
issuers  reaches  investors,  except  perhaps  for  the  case  of  information  disclosed  by 
smaller listed companies.  

the  survey  consider 

in 

In  terms  of  economic  impacts  of  the  Transparency  Directive  on  financial  markets, 
research  conducted  so  far  is  not  conclusive.  It  seems  rather  that  the  Transparency 
Directive  is  neutral:  while  perceived  as  a  simplifying  factor  for  primary  market 
issuance, there is a lack of empirical evidence to back up this perception.  

A  review  of  issuers'  practices  shows  that  issuers  generally  comply  with  financial 
reporting  obligations  and  that  this  is  also  the  perception  of  stakeholders.  Financial 
information  disclosed  is  considered  useful  and  sufficient  for  investment  purposes. 
Also,  the  simplification  of  language  requirements  for  disclosure  of  financial 
information introduced in 2004 has been particularly welcome.  

The cost of compliance with the obligations of the Transparency Directive4 does not 
appear,  prima  facie,  particularly  high5.  This  is  also  the  perception  of  issuers, 
although  small  and  medium  sized  listed  companies  are  more  concerned  about  the 
cost of  compliance. The introduction of  the "Home Member State rule"6 as well as 
the simplification of the language regime for financial disclosures in 2004 should, in 
principle,  have  contributed  to  reducing  issuers'  costs.  However,  there  are  increased 
costs  for  cross-border  investors  resulting  from  the  insufficiently  harmonised 
requirements of the Transparency Directive.  

THE REVIEW OF THE OPERATION OF THE DIRECTIVE: EMERGING ISSUES 

A  number  of  issues  emerge  from  the  review  of  the  operation  of  the  Transparency 
Directive (see the Commission staff working document accompanying this report for 
further detail).  

First and foremost, the debate is raised as to whether the transparency rules should be 
specifically adapted to smaller listed companies with a view to maintaining and also 
increasing the attractiveness of regulated markets for this category of issuers7. While 

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trading 

admitted 

regulated  market.  Available 

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securities 
http://ec.europa.eu/internal_market/company/ecgforum/index_en.htm  
It should be noted that the bulk of the requirements on the content (e.g. accounting standards) of annual 
and half-yearly financial reports are not contained in the Transparency Directive. 
See  Europe  Economics  (2008),  Study  on  the  cost  of  compliance  with  selected  FSAP  measures. 
Available at: www.ec.europa.eu/internal_market/finances/actionplan/index_en.htm 
According  to  the  "Home  Member  State  Rule"  (cf.  Article  3(1)),  issuers  are  only  subject  to  the 
obligations set out by their Home Member State (normally the one of incorporation) but not to those of 
the  Host  Member  State.  This  "Home  Member  State  Rule"  should  avoid  the  dual  (or  multiple) 
application of rules to issuers.  
It should be underlined that there are alternative markets to the 'regulated markets' (within the meaning 
of the Transparency Directive) where issuers may have their securities traded. Those alternative markets 
qualify  as  multilateral  trading  facilities  (MTFs)  within  the  sense  of  Directive  2004/39/EC.  The 
Transparency  Directive  rules  do  not  apply  to  those  alternative  markets  and  according  to  the  External 
Study,  there  is  no  stakeholder  support  for  extending  the  application  of  this  directive  to  those  non-
regulated markets. The Commission does not intend at this stage to propose extending the scope of the 

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therefore  achieving  savings, 

the  scope  for  simplification  of  the  Transparency  Directive  rules  for  smaller  listed 
there  are  specific 
companies,  and 
simplification  measures  which  could  be  envisaged,  without  undermining  investor 
protection,  such  as  for  instance:  (i)  providing  for  more  flexible  deadlines  to  the 
disclosure  of  financial  reports;  (ii)  alleviating  the  obligation  to  publish  quarterly 
financial  information;  (iii)  harmonising  the  maximum  content  of  reports;  or  (iv) 
facilitating  cross  border  visibility  of  smaller  listed  companies  towards  potential 
investors  and/or  information  intermediaries  such  as  financial  analysts8,  therefore 
increasing their attractiveness.  

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Secondly,  although  the  requirement  to  produce  quarterly  financial  information 
introduced in 2004 by the Transparency Directive could contribute to a certain short-
term  vision  of  the  issuers'  performance  by  investors9,  it  is  generally  well  perceived 
by  market  participants.  Also,  alleviating  the  obligation  to  disclose  quarterly 
information would most likely only benefit smaller listed companies, since the large 
companies  would  presumably  continue  to  publish  quarterly  information.  On  the 
contrary,  there  is  market  demand  for  more  detailed  rules  regarding  the  content  of 
interim  management  statements  so  as  to  facilitate  issuers'  compliance  and  to  allow 
for predictability of the information to be disclosed.  

Thirdly, the minimum harmonisation character of the Transparency Directive allows 
Member States to adopt more stringent requirements10. Thus the transposition of the 
Transparency Directive is relatively uneven as a result of different national regimes. 
More  stringent  national  requirements,  in  particular  regarding  the  notification  of 
major holdings  of voting rights, are perceived as problematic by stakeholders.  This 
results  in  real  and  costly  implementation  problems.  This  raises  the  question  as  to 
whether  the  current  regime  (i.e.  minimum  harmonisation)  is  appropriate  to  achieve 
an effective level of harmonisation of transparency requirements in the EU.  

Fourthly, it appears that the Transparency Directive's obligations need to be adapted 
to innovation in financial markets and increased transparency requirements should be 
introduced  with  regard  to  certain  types  of  instruments.  In  particular,  insufficient 
disclosure  of  stock  lending  practices  seem  to  have  increased  the  risk  of  "empty 

Transparency  Directive  to  MTFs.  A  more  detailed  explanation  is  proposed  in  the  Commission  staff 
working document attached to the present report. 
See  for  instance,  F.  Demarigny,  An  EU-Listing  Small  Business  Act,  March  2010,  available  at: 
www.eurocapitalmarkets.org.  According  to  this  report,  "on  average,  93%  of  trading  volumes  on 
regulated markets are concentrated on 7% of the total number of companies listed in the EU".  
Such short-term effect is at odds with recent Commission initiatives encouraging financial institutions 
and issuers to establish incentives for a longer-term vision. The European Commission has, for instance, 
recommended that remuneration of directors in issuers and financial institutions takes into account the 
long  term  behaviour  of  companies:  see  European  Commission  Recommendation  2009/384/EC  of 
30.4.2009  on  remuneration  policies  in  the  financial  services  sector  (OJ  L  120,  15.5.2009,  p.  22)  and 
Commission  Recommendation  2009/385/EC  of  30.4.2009  complementing  Recommendations 
2004/913/EC  and  2005/162/EC  as  regards  the  regime  for  the  remuneration  of  directors  of  listed 
companies (OJ L 120, 15.5.2009, p. 28).  
The  Commission  staff  examined  the  question  of  more  stringent  national  requirements  in  2008  and 
produced a specific document with detailed information on this matter, which should be regarded as a 
complement to this report. See Commission staff working document, Report on more stringent national 
measures  concerning  Directive  2004/109/EC  on  the  harmonisation  of  transparency  requirements  in 
relation to information about issuers whose securities are admitted to trading on a regulated market, 
SEC(2008)3033, 10.12.2008. 

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voting" and lack of disclosure regarding cash-settled derivatives has led to increased 
problem  of  "hidden  ownership".  Concerning  the  disclosure  of  information  for 
corporate  governance  purposes,  associations  representing  issuers  in  the  EU  are 
favourable  to  the  introduction  of  mechanisms  allowing  issuers  to  identify  the 
ultimate investor so as to be able to engage into real shareholders-issuers dialogue. 
Additionally, even when shareholders with major holdings of voting rights are well 
known,  calls  are  being  made  to  enhance  the  disclosure  requirements  for  significant 
holdings.  In  some  Member  States,  large  investors  are  already  requested  to  disclose 
their intentions as regards their holdings and how they financed their acquisition. The 
question of whether large (in particular institutional) investors should disclose their 
voting policies in listed companies is related to this issue too. 

Fifthly, in addition to the disclosure of financial reports required by the Transparency 
Directive, EU law also requires (or, as appropriate, recommends) listed companies to 
make  some  periodic  non-financial  (but  corporate  governance-related)  disclosures, 
generally  in  connection  with  the  annual  financial  report,  such  as  the  so-called 
Corporate  Governance  Statement11.  The  issue  has  been  raised  as  to  whether  the 
disclosure  of  non-financial  information  should  be  integrated  into  the  Transparency 
Directive regime in order to simplify the existing requirements.  

A  related  issue  concerns  disclosure  of  Environmental,  Social  and  Governance 
(ESG)12  data  made  by  listed  companies.  Some  stakeholders  (non-governmental 
organisations,  some investor organisations) are regularly requesting to improve and 
strengthen  European  legislation  regarding  ESG  disclosure.  In  their  view,  the 
Transparency Directive could be an appropriate vehicle to integrate such disclosures 
alongside financial reporting obligations of listed companies, and to address some of 
the perceived short-comings of current ESG disclosure rules and practice. 

Sixthly, the progress towards the establishment of a pan-European system of storage 
of regulated information, with a view to facilitate investors' access to information, is 
slow13  and  the  impact  of  the  Directive  in  this  area  has  been  insufficient:  interested 
parties need to go through 27 different national databases and the electronic network 
interconnecting them is only at an initial stage with rather modest results so far. This 
raises  the  question  as  to  whether  the  Directive  storage  mechanisms,  as  currently 
designed,  are  able  to  fulfil  the  role  of  "gate"  to  historical  financial  information  on 
listed companies at pan-European level.  

Article 46a of Fourth Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain 
types of companies, as amended by Directive 2006/46/EC (OJ L 224, 16.8.2006, p.1).  
There is neither a precise definition of ESG for regulatory purposes, nor a clear delineation of its scope. 
It  appears  nevertheless  that  ESG  disclosures  would  fit  within  the  larger  debate  on  Corporate  Social 
Responsibility  (CSR).  CSR  has  been  defined  by  the  Commission  as  "a  concept  whereby  companies 
integrate social and environmental concerns in their business operations and in their interaction with 
their  stakeholders  on  a  voluntary  basis."  See  Communication  from  the  Commission  to  the  European 
Parliament,  the  Council  and  the  European  Economic  and  Social  Committee  –  Implementing  the 
Partnership  for  Growth  and  Jobs:  Making  Europe  a  Pole  of  Excellence  on  Corporate  Social 
Responsibility, COM(2006) 136 final, 22.3.2006. 
See the Commission Recommendation 2007/657/EC of 11 October 2007 on the electronic network of 
officially appointed mechanisms for the central storage of regulated information referred to in Directive 
2004/109/Ec of the European Parliament and of the Council, OJ L 267, 12.10.2007, p.16.  

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Finally, while there are no major compliance problems, the review of the operation 
of the  Transparency Directive shows that some  technical  adjustments  to  the  text  of 
the Directive would be beneficial in the interest of improved clarity.  

CONCLUSIONS 

This review of the operation of the Transparency Directive shows that there are areas 
where the regime created by this Directive could be improved, notably in relation to 
the simplification of the rules applicable to smaller listed companies with a view to 
making  capital  markets  more  attractive  to  them.  The  cross-border  visibility  of 
smaller  listed  companies  towards  potential  investors  and  analysts  also  needs  to  be 
improved with a view to ultimately achieve higher levels of trading on the securities 
of  these  smaller  issuers.  There  are  possible  measures  in  the  framework  of  the 
Transparency Directive which could contribute to this goal: e.g. providing for more 
flexible  deadlines  to  the  disclosure  of  financial  reports  by  small  issuers  would 
enhance their visibility since they would no longer inform about their performance at 
the same time as large issuers; harmonising the maximum content and presentation 
of  reports  would  facilitate  reading  and  comparability  by  investors  and  analysts.  In 
this  context,  the  review  of  the  operation  of  the  Transparency  Directive  also  shows 
that  it  would  be  desirable,  in  order  to  increase  the  visibility  and  attractiveness  of 
smaller  listed  companies,  to  further  facilitate  access  by  potential  investors  and 
information intermediaries at a pan-European level to financial information disclosed 
by small issuers and stored in the officially appointed mechanisms for the storage of 
regulated information. 

Additionally,  the  review  of  the  operation  of  the  Transparency  Directive  shows  the 
need  for  greater  convergence  of  the  rules  on  the  disclosure  of  major  holdings  of 
voting  rights  and  of  financial  instruments  giving  access  to  voting  rights  (including 
cash-settled  derivatives)  as  well  as  the  opportunity  to  simplify  the  reporting 
requirements  for  issuers  in  the  broader  corporate  governance  context.  In  this 
connection,  this  report  also  identified  the  concerns  of  some  stakeholders  regarding 
the disclosure of environmental and social information. 

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