COMMISSION STAFF WORKING PAPER IMPACT ASSESMENT
Date: 2011-10-25
Institutions: European Commission
Subjects: consumer information, dissemination of information, investment, official market, securities, simplification of formalities, stock-exchange listing

EUROPEAN COMMISSION 

Brussels, 3.2.2012 
SEC(2011) 1279 final/2 

REPORT FROM THE COMMISSION COMMISSION STAFF WORKING PAPER 

IMPACT ASSESMENT 

{COM(2011) 683 final} 
{SEC(2011) 1280 final} 

EN 

   EN 

 
 
 
 
  
 
TABLE OF CONTENTS 

1. 

INTRODUCTION .......................................................................................................3 

2.  PROCEDURAL  ISSUES  AND  CONSULTATION  OF  INTERESTED 

PARTIES .....................................................................................................................3 

3.  POLICY CONTEXT AND PROBLEM DEFINITION ..............................................6 

4.  BASELINE SCENARIO, SUBSIDIARITY AND PROPORTIONALITY..............22 

5.  OBJECTIVES ............................................................................................................26 

6.  POLICY OPTIONS, ANALYSIS OF IMPACTS AND COMPARISON ................27 

7.  TRANSPOSITION 

COMPLIANCE 
ADMINISTRATIVE BURDEN................................................................................41 

ASPECTS 

AND 

AND 

8.  MONITORING AND EVALUATION .....................................................................43 

REFERENCES ..................................................................................................................45 

ANNEX 1...........................................................................................................................49 

ANNEX 2...........................................................................................................................78 

ANNEX 3...........................................................................................................................82 

ANNEX 4...........................................................................................................................86 

ANNEX 5...........................................................................................................................88 

ANNEX 6...........................................................................................................................91 

ANNEX 7...........................................................................................................................93 

ANNEX 8...........................................................................................................................93 

ANNEX 9...........................................................................................................................93 

ANNEX 10.........................................................................................................................93 

ANNEX 11.........................................................................................................................93 

2

 
 
 
 
 
  INTRODUCTION 

1. 
The  Transparency  Directive1  requires  issuers  of  securities  traded  on  regulated  markets 
within  the  EU  to  ensure  appropriate  transparency  through  a  regular  flow  of  regulated 
information  to  the  markets.  Regulated  information  consists  of:  yearly,  half-yearly  and 
quarterly  financial  information2;  on-going  information  on  major  holdings  of  voting 
rights; and ad hoc information disclosed pursuant to the Market Abuse Directive3.  

Article  33  of  the  Transparency  Directive  requested  the  Commission  to  review  the 
operation  of  this  Directive  within  four  and  half  years  of  its  adoption.  The  Commission 
report  on  the  operation  of  the  Directive  of  May  20104  shows  that,  overall,  issuers 
generally  comply  with  financial  reporting  obligations  and  that  the  transparency 
requirements  of  the  Directive  are  considered  to  be  useful  for  the  proper  and  efficient 
functioning of the market. 

Nevertheless,  the  review  of  the  operation  of  the  Transparency  Directive  showed  that 
there  are  areas  where  the  regime  created  by  this  Directive  could  be  improved.  In 
particular,  evidence  that  has  been  gathered  demonstrates  the  need  to  provide  for  the 
simplification  of  certain  issuers'  obligations  with  a  view  to  making  regulated  markets 
more attractive to small and medium-sized issuers raising capital in Europe. Furthermore, 
the effectiveness of the existing transparency regime needs to be improved, notably with 
respect to the disclosure of corporate ownership. 

2. 

  PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

The  impact  assessment  is  the  result  of  an  extensive  dialogue  and  consultation  with  all 
major  stakeholders, 
including  securities  regulators,  market  participants  (issuers, 
intermediaries  and  investors),  and  consumers.  It  is  built  upon  the  observations  and 
analysis  contained  in  the  Commission  report  on  the  operation  of  the  Transparency 
Directive  (see  Annex  11)  and  the  more  detailed  Commission  staff  working  document 
which  accompanied  it.  This  report  describes  the  impact  of  the  Transparency  Directive 
and how it has been applied; and presents the main issues emerging from the application 
of the Directive. It draws on the findings of a study conducted in 2009 by Mazars5 for the 

1  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.  

2  Either quarterly financial reports or interim management statements as referred to in Article 6 of the 

Transparency Directive: also referred generally as quarterly financial information.  

3  Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  of  28  January  2003,  on  insider 

dealing and market manipulation. OJ L, 12 April 2003, p 16. 

4  COM (2010) 243 final of 27 May 2010. This report is accompanied by a more detailed Commission 

staff working document (SEC(2010)61).  
See: www.ec.europa.eu/internal_market/securities/transparency/index_en.htm 

5  Mazars (2009). 

3

 
 
 
 
                                                 
 
Commission on the application of selected obligations of this Directive, which includes 
evidence gathered  from market participants through a survey. The report also draws on 
reports  published  by  the  Committee  of  European  Securities  Regulators  (CESR)  (now 
ESMA)6  and  by  the  European  Securities  Markets  Expert  Group  (ESME)7  in  this  area. 
CESR (ESMA) and ESME reports have been particularly valuable to identify areas of the 
Transparency Directive with unclear provisions and/or which could be improved. 

Comments received from stakeholders participating in the public consultation launched 
from  28  May  2010  to  23  August  2010  were  also  taken  into  account.  The  Commission 
services  issued  a  public  consultation  document  explaining  the  problems  found  and 
suggesting options for the way forward. The Commission services received 111 replies to 
the consultation. The non-confidential contributions can be consulted in the Commission 
website8. The feedback statement is included in Annex 10. 

Three  main  issues  were  submitted  for  comments  by  stakeholders:  the  attractiveness  of 
regulated  capital  markets  for  small  and  medium-sized  issuers;  ways  to  improve  the 
transparency regime for holdings of voting rights and the problems encountered with the 
application  of  the  Directive  because  of  diverging  national  measures  and/or  unclear 
obligations in the Directive.  

About  half  of  the  respondents  to  the  public  consultation  believe  that  the  margin  of 
manoeuvre  for  reducing  the  requirements  without  lowering  transparency  standards  was 
limited and, consequently, changes to the Transparency Directive could not significantly 
reduce costs for small and medium-sized issuers. The other half believed that some cost 
reductions  could  be  achieved  without  necessarily  affecting  the  level  of  transparency 
necessary  to  protect  investors.  The  following  ideas  were  for  example  advanced: 
streamline  disclosures;  allow  for  more  flexible  deadlines  for  publication  of  financial 
reports;  abolish  the  obligation  to  produce  quarterly  financial  information  either 
definitively or during the first three years of listing. 

The majority of respondents to the consultation would be in favour of increasing the level 
of  harmonisation  concerning  the  notification  by  the  investors  of  the  holdings  of  voting 

6  CESR  was  an  independent  advisory  group  to  the  European  Commission  composed  by  the  national 
supervisors of the EU securities markets. See the European Commission's Decision of 23 January 2009 
establishing  the  Committee  of  European  Securities  Regulators  2009/77/CE.  OJ  L25,  23.10.2009,  p. 
18). The role of CESR was to improve co-ordination among securities regulators, act as an advisory 
group  to  assist  the  EU  Commission  and  to  ensure  more  consistent  and  timely  day-to-day 
implementation  of  community  legislation  in  the  Member  States.  It  has  been  replaced  by  European 
Securities and Markets Authority: ESMA as from 1 January 2011: see Regulation No 1095/2010 of the 
European Parliament and of the Council of 24 November 2010: OJ L 331/84 of 15 December 2010. 
7  ESME  was  an  advisory  body  to  the  Commission,  composed  of  securities  markets  practitioners  and 
experts.  It  was  established  by  the  Commission  in  April  2006  and  operated  on  the  basis  of  the 
Commission  Decision  2006/288/EC  of  30  March  2006  setting  up  a  European  Securities  Markets 
Expert Group to provide legal and economic advice on the application of the EU securities Directives 
(OJ L 106, 19.4.2006, p. 14–17). 
http://ec.europa.eu/internal_market/securities/transparency/index_en.htm 

8 

4

 
 
 
 
                                                 
rights  and  including  the  disclosure  of  cash-settled  derivatives  into  the  notification 
requirements. In addition, some technical adjustments and clarifications were welcomed 
by  the  respondents  in  order  to  create  a  better  implementation  framework  for  the 
Directive. These possible adjustments are presented in the Annex 3.  

As part of the consultation process, the Commission services organised on 11 June 2010 
a public conference with the participation of several stakeholders. Discussion focused on 
the  attractiveness  of  regulated  markets  to  small  and  medium-sized  issuers  and  the 
possible  enhancement  of  the  transparency  obligations  regarding  corporate  ownership 
disclosures.  The  outcome  of  this  conference  has  also  been  considered  in  this  impact 
assessment9. 

In March 2010, a Steering Group was set up by Directorate General Internal Market and 
Services  to  monitor  the  progress  of  the  impact  assessment  report.  The  Steering  Group 
comprised representatives of a number of services of the European Commission, namely 
the  Directorate  General  Internal  Market  and  Services,  the  Directorate  General 
Competition,  the  Directorate  General  Economic  and  Financial  Affairs,  the  Directorate 
General  Enterprise,  the  Directorate  General  for  Health  and  Consumers,  the  Directorate 
General  for  Information  and  Society  and  Media,  the  Directorate  General  for  Trade,  the 
Legal  Service  and  the  Secretariat  General.  The  Steering  Group  met  3  times  (23  March 
2010, 17 March 2011 and 7 April 2011). In accordance with the rules for the elaboration 
of impact assessments, the minutes of the final meeting of the steering group have been 
submitted to the Impact Assessment Board together with this impact assessment. 

The  Impact  Assessment  Board  delivered  its  opinion  on  10  June  2011.  Following  the 
Board's opinion, several changes were made to this IA, in particular the following:  

– 

– 

– 

– 

9 

the report better explains the context and the scope of the initiative, in particular the 
link  with  the  overall  Commission  polices  to  simplify  legislation,  improve  capital 
market  access  for  small  and  medium  companies  and  make  financial  market  more 
stable; 

the analysis of problems arising from quarterly information has been strengthen and 
now  includes experience of third countries, provides greater evidence of excessive 
administrative  burden,  short-timer  pressure,  overlaps  with  other  EU  legislative 
requirements and nuances the stakeholders' views on this issue;  

the justification of some of the policy options has been improved, namely the shift 
from  minimum  to  maximum  harmonisation  and  the  changes  in  the  sanctioning 
regime; 

the  report  provides  a  more  comprehensive  analysis  of  cost  changes  implied  by  all 
policy  options,  explains  why  the  standards  cost  model  has  not  been  used  and 

See http://ec.europa.eu/internal_market/securities/transparency/index_en.htm 

5

 
 
 
 
                                                 
discusses to greater extend the efficiency and effectiveness of the preferred options 
and their impact on the international attractiveness of EU markets; 

– 

– 

– 

the  presentation  of  the  problem  definition  and  policy  options  with  regard  to  major 
holdings of voting rights is improved, the exemptions envisaged  to the requirement 
to notify major holdings of voting rights are discussed in greater depth;  

an  annex  including  the  Commission  report  on  the  operation  of  the  Transparency 
Directive has been added; 

other  technical  comments  transmitted  by  the  Impact  Assessment  Board  have  been 
incorporated in the report.  

Agenda planning or WP reference: initiative listed in the Commission Work Programme 
for 2011 - Annex III (initiative number 28). 

This  report  does  not  prejudge  the  final  form  of  any  decision  to  be  taken  by  the 
Commission. 

3. 

  POLICY CONTEXT AND PROBLEM DEFINITION  

3.1.  Overview of legislative framework 

The  following  legislative  texts  provide  the  framework  for  transparency  rules  regarding 
securities traded on regulated markets: 

The Transparency Directive contains rules on disclosure of periodic financial information 
and ongoing information on major holdings of voting rights (such as deadlines, content, 
formats,  language  etc);  dissemination  of  information  to  the  public  and  the  competent 
authorities;  storage  of  disclosed  information;  liability  of  issuers  regarding  disclosed 
information; supervision by competent authorities and penalties for lack of compliance. 
The  Transparency  Directive  was  completed  by  Commission  Directive  2007/14/EC10 
which  contains 
is  further 
supplemented by soft-law. This notably includes: (i) the Commission recommendation on 
storage of regulated information11; (ii) the standard form developed by the Commission 
services  for  the  notification  of  major  holdings;  and  (iii)  the  interpretative  work 
undertaken by CESR (ESMA) to align the exercise of supervisory powers by the national 
competent authorities. 

implementing  measures.  The  Transparency  Directive 

10  Commission Directive of 8 March 2007 laying down detailed rules for the implementation of certain 
provisions 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;  OJ  L  69, 
9.3.2007, p. 27. 

11  Commission  Recommendation  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 L267, 12.10.2007, p.16. 

6

 
 
 
 
                                                 
The  Transparency  Directive  obligations  are often closely  connected to  requirements  set 
out in other Community texts, either in the corporate governance/company law field or in 
the  financial  markets/securities  field.  In  particular,  the  Prospectus  Directive12  includes 
disclosure requirements that are very close to the core area of the Transparency Directive 
obligations. The Prospectus Directive requires companies offering shares to the public in 
the EU to issue a prospectus that complies with the detailed rules under the Directive. It 
also  allows  companies  to  issue  a  prospectus  in  one  EU  country  that  would  cover 
subsequent offers of securities to the public or admission to trading throughout Europe, 
with minimal translation obligations. 

In  addition,  the  Transparency  Directive  is  the  instrument  for  implementing  disclosure 
obligations under other directives, such as the Market Abuse Directive, which prohibits 
abusive  behaviour  on  regulated  markets  (e.g.  insider  dealing  and  market  manipulation) 
and requires issuers to disclose inside information. 

Finally, on 22 September 2010, the Commission agreed with the European Parliament, to 
evaluate  the  feasibility  of  requesting  certain  companies  to  disclose  key  financial 
information  regarding  their  activities  in  third  countries13.  A  separate  impact 
assessment on this issue was drafted and submitted to the Impact Assessment Board. This 
impact  assessment  concluded  that  the  Transparency  Directive  and  the  Accounting 
Directives should include a new requirement in this respect.  

3.2.  Problem definition 

The  problems  and  their  drivers  are  illustrated  by  the  following  problem  tree  and  are 
discussed  in  detail  below.  They  can  be  grouped  in  two  main  categories:  (i)  problems 
identified  in  relation  to  small  and  medium-sized  issuers  and  (ii)  problems  identified  in 
relation to notification of major holdings of voting rights. 

Figure 1: Problem tree

12  Directive  2003/71/EC  of  the  European  Parliament  and  of  the  Council  of  4  November  2003  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  and 
amending Directive 2001/34/EC, OJ L 345, 31.12.2003, p. 64. 

13  http://register.consilium.europa.eu/pdf/en/10/st15/st15650-ad01.en10.pdf 

7

 
 
 
 
 
                                                 
8

 
 
 
 
3.2.1.  Problems identified in relation to small and medium-sized issuers  

Following the Commission report and the results of the public consultation, the problems 
indentified  in  relation  to  small  and  medium-sized  issuers  linked  to  the  requirements  of 
the  Transparency  Directive  are:  (1)  high  costs  of  compliance;  (2)  focus  on  short-term 
results; and (3) lack of visibility of small and medium-sized issuers towards analysts and 
investors, especially cross-border.  

3.2.1.1.  Background and context 

Political background 

(1) 
The  improvement  of  the  regulatory  environment  for  small  and  medium-sized  issuers14 
and  their  access  to  capital,  as  well  as  reduction  of  administrative  burden  and 
simplification15,  are  high  political  priorities  for  the  Commission.  The  Transparency 
Directive requirements should therefore be analysed in this more general context. 

The Commission presented end October 2010 a policy Communication on the relaunch 
of the Single Market16. In this Communication, the Commission stated that "Poor access 
to capital is one of the main problems which SMEs face in expanding their business. […] 
The  reasons  for  this  are  manifold:  often  SMEs  are  not  sufficiently  visible  to  potential 
investors,  or  may  find  the  listing  requirements  on  capital  markets  disproportionately 
complex. Improving SME access to finance is a key political priority and rendering the 
SME segment of capital markets more dynamic is a central part of this."17  

Against  this  background,  the  Commission  committed  to  adopt  an  action  plan  for 
improving SME access to capital markets in 2011 (proposal No 12). Small Business Act 
for  Europe18  also  pledged  to  evaluate  the  impact  on  SMEs  of  all  proposals  for  the 
regulation of financial services and to calibrate them appropriately. As a consequence, in 
the Communication of April 2011, entitled "Working together to create new growth"19, 
the  Commission  stated  "The  Transparency  Directive,  the  Regulation  implementing  the 
Prospectus Directive and the Market Abuse Directive should also be revised in order to 
make the obligations applicable to listed SMEs more proportionate, whilst guaranteeing 
the  same  level  of  investor  protection"20.  This  communication  also  mentions  a  future 
action plan on SME financing.  

In  this  context,  certain  requirements  of  the  Transparency  Directive  deserve  to  be 
analysed  as  regards  their  proportionality  in  terms  of  costs  and  benefits  for  small  and 
medium-sized issuers and their investors. The impact assessment will therefore consider 
this  question  specifically  from  the  perspective  of  the  Transparency  Directive,  even  if 
poor access to capital of small and medium-sized issuers is due to many different factors. 

14  See below for definition of small and medium size issuer. 
15   See  Commission  Communication  of  8  October  2010  on  smart  regulation  in  the  European  Union, 
COM(2010)543  and  Commission  Communication  on  a  simplified  business  environment  for 
companies in the areas of company law, accounting and auditing, COM(2007) 394 final. 

16  COM(2010) 608 final.  
17   Idem, p. 15. 
18  COM (2011)78 . 
19  COM(2011) 206 final. 
20   Idem, p. 21. 

. 

9

 
 
 
                                                 
Difficulties to define small and medium-sized issuers 

(2) 
There  is  no  definition  of  a  small  and  medium-sized  issuer  in  the  EU21.  In  the  impact 
assessment accompanying the modification of the Prospectus Directive which allows for 
a  simplified  prospectus  for  small  companies,  a  small  quoted  company  is  defined  as  a 
company with a market capitalisation of less than €500 million22. In the final text of this 
modification,  a  "company  with  reduced  market  capitalisation"  is  defined  as  a  listed 
company with an average market capitalisation of less than €100 million (on the basis of 
end-year quotes for the previous three calendar years)23. There are two EU definitions of 
the  Small  and  Medium  Sized  Enterprise  encompassing  enterprises  which  are  limited  in 
size24. However, these latter definitions do not differentiate between listed and non-listed 
companies. 

The  results  of  the  public  consultation  confirm  the  difficulty  to  define  a  small  and 
medium-sized issuer at the EU level: what is considered to be a small listed company in 
one  Member  State  could  be  considered  as  a  large  company  in  another  Member  State. 
Therefore,  when  the  present  impact  assessment  refers  to  "small  and  medium-sized 
issuers", it refers to the existing national concepts in different Member States.  

3.2.1.2.  High  costs  of  compliance  for  small  and  medium-sized  issuers  with  the 

requirements of the Transparency Directive 

The  objective  of  the  Transparency  Directive  is  to  ensure  appropriate  and  adequate 
information  of  investors.  It  aims  to  reduce  information  asymmetries  between  investors 
and issuers, thus providing a more accurate assessment of market value of shares. Issuers 
are  prepared  to  incur  the  costs  involved  in  providing  this  information  because  they 
understand the benefits it will bring them, in particular, access to capital at a fair price. 
Small and medium-sized issuers often argue that, for them, the costs of compliance with 
transparency  requirements  are  disproportionate25.  They  consider  this  is  the  case  both 
compared to the relative costs borne by larger companies, and in relation to the benefits 
they obtain from being listed.  

Indeed,  the  smaller  issuers  do  not  benefit  from  increase  in  investment  volumes.  In 
absolute terms, they make up the majority of listed companies on financial markets but 
they  represent  only  a  small  part  of  total  market  capitalisation  and  of  total  trading 

21 

In the US, for the definition of "small reporting company", the SEC uses a $75 million public equity 
float threshold.  

22  See European Commission (September 2009), Annex VI, p.70. 
23  See Directive 2010/73/EC introducing a new Article 2(1) (t) in the Prospectus Directive. 
24  See Recommendation 2003/361/EC where SME is defined as a company which employs fewer than 
250 persons and which either has an annual turnover not exceeding 50 million euro or a balance sheet 
not  exceeding  43  million  euro.  See  also  Articles  11  and  27  of  the  Directive  78/660/EEC  on  annual 
accounts of certain types of companies where an SME is defined as a company which employs fewer 
than 250 persons and which either has an annual turnover not exceeding 35 million euro or a balance 
sheet not exceeding 17,5 million euro. 

25  See  for  instance  replies  from  EuropeanIssuers,  QCA  and  Middlenext  to  consultation  on  the 
Modernisation of the Transparency Directive (the question of disproportionate costs was not asked as 
such  in  this  consultation).  This  view  is  also  supported  by  Demarigny  (2010).  According  to  Mazars 
(2009), 34, 6 % of mid-cap companies and 38,1% of small listed companies consider that compliance 
with the Transparency Directive has been onerous for them: see section 2.3.5, p. 71. 

10 

 
                                                 
volumes. This is particularly the case on Regulated Markets26, as illustrated by the Figure 
2 below. 

Figure 2: Relative importance of listed companies on EU regulated markets by size 

0.0%
0.5%
1.0%

5.2%

0.0%
2.6%
2.2%

9.6%

0.0%
0.3%
0.4%

3.4%

93.3%

85.7%

96.0%

N/A

XS

S

M

L

0.8%

50.7%

15.9%

19.0%

13.6%

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Number

Market Cap

Trades

Turnover

Source: FESE (2009). (Federation of European Securities Exchanges) which establishes four categories of companies: micro caps (XS 
≤  €50M)),  small  caps  (S:  between  €50M  and  €150M),  mid caps  (M:  between  €150M  and  €1b)  and  large  cap  (L: ≥  €1b).  The  first 
column  presents  the  relative  importance  (%)  by  number  of  listed  companies  (equity  issuers);  the  second  column  by  market 
capitalisation; the third column shows the trades, in numbers, while the fourth column shows the turnover, in volume. 

Low  trading  volumes  mean  lower  market  liquidity  and  more  difficulties  for  small  and 
medium-sized  companies  to  raise  capital  on  regulated  markets,  compared  to  larger 
companies.  However,  small  and  medium-sized  listed  companies  still  bear  the  full  costs 
associated  with  the  listing27.  According  to  recent  research28,  the  explosion  of  private 
equity market in the last twenty-five years suggests that for some firms, especially small 
firms in R&D intensive sectors, disclosure costs are substantial. 

In  this  context,  calls  are  made  to  review  legislation  and  to  eliminate  unnecessary 
administrative  burden  for  companies  by  focusing  on  what  is  actually  essential  for 
investor protection rather than only desirable for some investors.  

Whilst there is a consensus that yearly and half-yearly reports are necessary for investor 
protection, this is not the case for quarterly information and a number of voices call to 
alleviate  the  requirement  to  publish  it  (see  point  1  below  and  Section  3.2.1.3).  Annual 
and  half-yearly  reports  are  prepared  according  to  the  accounting  standards.  Therefore, 
they  provide  an  accounting  guidance  and  assurance  for  investors,  including  though 
statutory  audit  (for  the  yearly  reports  and  for  the  half-yearly  reports  in  many  Member 
States). In contrast, the Directive does not provide for any quality standards for quarterly 
reports. Therefore, quarterly information is not standardised, is not prepared according to 
common standards and is not subject to any audit. As a consequence, it does not provide 
assurance or allow for comparability of information for investors.  

26  See Glossary Annex 4. 
27  Many aspects of these costs do not directly result from the requirements of the Transparency Directive 
but are linked to national additional measures or other legislative texts (e.g. obligation to publish all 
regulated  information  in  the  printed  press,  accounting  rules),  which  are  particularly  problematic  for 
smaller companies. However, these costs are out of the scope of this impact assessment. 

28  Zingales (2009) p.18.  

11 

 
 
  
 
 
                                                 
In addition, narrative parts of the financial reports29 are considered as complex as regards 
the  content  and  type  of  information  to  be  disclosed,  which  result  in  significant 
costs/operational complexity for small listed companies.  

Finally,  certain  costs  such  as  the  workload  of  boards  and  senior  management  linked  to 
the  short  publication  deadline  for  half-yearly  financial  statements  are  considered  as 
problematic. By contrast, the deadline for publication of the annual reports does not seem 
to create any problems for issuers30. According to the Mazars study, some issuers even 
argue that the 4 months deadline is in fact too long.  

(1) 

Requirement to publish quarterly financial information 

The  requirement  that  all  issuers  of  shares  must  provide  quarterly  financial  information 
was  introduced  through  the  revision  of  the  Transparency  Directive  in  2004  in  order  to 
provide for more frequent updates on a company’s progress31. Article 6 of Transparency 
Directive  imposes  a  minimum  requirement  to  publish  Quarterly  Interim  Management 
Statements32  with  limited  content.  However,  in  implementing  this  Article  in  their 
national legislation, many Member States have required additional items to be disclosed 
(See Annex 5). 

During  the  negotiations  of  the  proposal  of  the  Transparency  Directive  and  before  its 
adoption in 2004, the requirement to publish quarterly financial information was fiercely 
debated.  At  that  time,  many  voices  opposed  any  form  of  mandatory  quarterly  financial 
information  as  leading  to  short-termism  (see  Section  3.2.1.3.  below).  Its  relevance  was 
also  questioned.  It  was  argued,  for  instance,  that  “quarterly  reporting  is  not  a  high 
priority. It has not helped to prevent corporate scandals in the US, and there is a risk that 
mandatory  quarterly  reports  will  encourage  short-termism  as  management  becomes 
overly focused on the next reporting deadline33.”  

In this context, it was agreed that the European Commission would evaluate the impact 
of the requirement to publish quarterly information by 20 January 2010 (see Article 6.3 
of the Transparency Directive). It results from the Commission report on the operation of 
the  Transparency  Directive  that  it  could  contribute  to  the  short  termism  (concerning 
short-termism see further Section 3.2.1.3).  

Also, quarterly information is not a necessary tool in order to ensure investor protection. 
In fact, all material information that is likely to have a significant effect on the price of 
financial  instruments  listed  on  regulated  markets  has  in  any  case  to  be  disclosed  as 
quickly as possible to the market according to the Market Abuse Directive34. One could 
question  whether  other  information,  which  does not need to be disclosed to the market 

29  See Glossary Annex 4. 
30  Mazars (2009) section 2.5.1 p.79 
31  As  explained  in  recital  16  the  objective  was  to  provide  more  timely  and  more  reliable  information 

about issuers' performance. See Annex 5 for an overview of some jurisdictions outside the EU. 

32  See Glossary Annex 4 
33  See  Financial  Times  from  27  January  2003  which  published  a  letter  from  Pierre  Bollon,  Director 
General AFGASFFI (Association Française de la Géstion Financière) and Peter Montagnon, Head of 
Investment Affairs Association of British Insurers. 

34   See Article 6(1) MAD which requires issuers of financial instruments to inform the public as soon as 
possible  of  inside  information  which  directly  concerns  the  said  issuers.  The  inside  information  is 
defined  in  the  MAD  as  information  is  likely  to  have  a  significant  effect  on  the  prices  of  financial 
instruments. 

12 

 
                                                 
immediately, should necessarily be disclosed quarterly. It could as well be disclosed in 
the yearly or the half-yearly financial statements, which are prepared in accordance with 
the accounting standards and give high quality and comparable information to investors.  

However,  the  requirement  of  the  Transparency  Directive  to  publish  quarterly  financial 
information  entails  direct  and  indirect  costs  for  listed  companies35.  The  average  direct 
monetary  costs  to  produce  quarterly  information  linked  to  editing,  printing  and 
translating the reports could be estimated as varying from 2 k€ per year/ per issuer to 60 
k€ a year/ per issuer for small and medium-sized issuers (see Annex 2).  

Other  direct  costs  are  related  to  the  staff  involved  in  the  preparation  of  these  reports. 
According  to  an  external  study,  these  costs  are  much  higher  than  the  costs  linked  to 
editing,  printing  and  translating36.  However,  these  costs  could  not  be  estimated  in 
monetary  terms  for  small  and  medium  seize  issuers:  they  are  varying  per  issuer  from 
eight man-days per year to prepare these reports to 30 man-days per a year37. The costs 
of  preparation  of  full  quarterly  reports  according  to  the  accounting  standards  would  be 
much  higher  as  underlined  by  the  respondents  to  the  public  consultation.  A  report 
estimated, for example, that the total cost of producing and disclosing periodic financial 
information  as  well  as  compliance  with  other  rules  applied  to  public  companies  ranges 
from  €150  k€  to  €500  k€  a  year  for  small  issuers  (below  €150  million  of  market 
capitalisation)38. Recently, the Deputy of the Central Chamber of Commerce of Finland 
pointed out that "reporting four times a year is too often for small listed companies and 
the reporting costs quite much"39. 

The  indirect  costs  linked  to  the  requirement  to  publish  quarterly  reports  were  also 
identified; they are the so called "opportunity costs", i.e. management spending time to 
check quarterly reports instead of devoting their time to more useful tasks.  

Therefore,  quarterly  information  is  a  source  of  high  administrative  burden  for  issuers 
while its relevance can be questioned.  

(2) 

Complexity of the content and type of information to disclose 

Around  half  of  the  respondents  to  the  relevant  question  in  the  public  consultation 
considered that the various rules requiring the disclosure by listed companies of narrative 
reports40  were  causing  high  costs  for  the  small  and  medium-sized  issuers41.  The 
opportunity  cost  related  to  the  time  spent  by  boards  and  senior  management  was 
particularly highlighted, since there was little scope to delegate this task to more junior 

35  The issues described in point 1 for the reports of narrative nature also apply to quarterly information. 
36  Europe Economics (2009), p. 110, table 5.18. See also Annex 2. 
37   The  standard  cost  model  was  not  used  to  estimate  the  total  costs  because,  as  explained  in  Annex  2, 
concerning existing costs, it was decided to ask the issuers themselves to provide an estimate on costs 
of quarterly information. As the issuers were not able to provide such full estimates, it was decided to 
provide  information  received  rather  than  give  a  theoretical  estimate  that  would  result  from  the 
application of the standard cost model.  

38   Demarigny (2010). 
39   km-DNS-FI Thursday, April 7, 2011. 
40  See Glossary Annex 4. 
41  Such  a  view  is  confirmed  by  a  survey  done  by  the  UK  Association  of  Chartered  Accountants 
"ACCA": 71% of the survey participants consider the main challenges in producing a narrative report 
to  be  the  number  of  requirements  placed  on  it  and  the  cost  and  time  involved  in  preparing  it.  See 
ACCA (2010) p.8. 

13 

 
                                                 
staff.  The  bulk  of  the  cost  seems  to  consist  of  understanding  what  each  requirement 
meant, how much text was required, what should be the content and what degree of detail 
was required. Narrative reports need also to be checked, proofread and compared to other 
narrative  reports,  which  generates  a  significant  amount  of  work  for  companies. 
Additionally, it was mentioned during the public consultation that auditors and lawyers 
were  increasingly  involved  in  the  preparation  of  narrative  reports  due  to  their  growing 
complexity, which contributed to increase the related costs.  

(3) 

Short deadline to publish half-yearly financial statements 

The  Transparency  Directive  sets  a  two-month  deadline  for  the  publication  of  the  half-
yearly financial report. Small and medium-sized issuers have difficulties respecting this 
deadline42  since  they  are  less  equipped  and/or  can  devote  fewer  resources  to  the 
production  of  financial  information  as  compared  to  larger  companies43.  Meeting  this 
requirement is even more difficult and costly when half-yearly accounts should also be 
audited by an external auditor, as required by some Member States44.  

3.2.1.3.  Focus on short-term results 

Recent research related to risk-taking and compensation schemes in the financial sector 
suggests  that  short-term  investors  (including  institutional  investors)  put  pressure  on 
management  using  short-term  incentives  (such  as  compensation  schemes)  adopt  risky 
strategies  with  a  view  to  meeting,  inter  alia,  quarterly  targets45.  Whilst  remuneration 
structures are out of the scope of this impact assessment, publication of quarterly results 
exacerbates the run for short-term profit, leading to excessively risky business strategies 
and incentivises investors to focus on short-term performance of companies.  

Another  recent  research  shows  that  issuers  criticize  the  demand  for  frequent  reporting 
due  to  the  pressure  for  short-termism  that  it  may  create46.  Recently,  the  report  of  the 
Reflection  Group  on  the  Future  of  EU  Company  Law  stated  that  "transparency  and 
reporting  rules  should  be  reconsidered  and  reviewed  to  see  whether  and  where  those 
rules  focus  too  much  on  a  short-term  perspective.  An  example  is  quarterly  reporting, 
which  could  be  considered  to  be  made  subject  to  an  opt-out  by  listed  companies"47. 
Another example is provided by Paul Polman, Unilever's CEO, stating in 2010 that in an 
ideal world the company would not report quarterly results: ‘a lot of problems the world 
has found itself in are because people were chasing quarterly targets"48.  

42  See Mazars (2009), section 2.5 and Annex 5. 
43  This deadline was shorten following the revision of the Directive in 2004, previously the deadline was 

four months. 

44  Additionally, the cost of such audit is presumably higher considering the short deadline. 
45  Cheng, Hong & Scheinkman (2009), section IV.E. 
46  Brunzell,  Liljeblom  and  Vaihekoski  (2009).  Results  of  a  questionnaire  directed  to  the  Chairpersons, 
CEOs,  and  CFOs  of  all  listed  companies  on  five  Nordic  stock  exchanges  indicates  that  they  very 
strongly believe that quarterly reporting creates more short time pressure and that it requires too much 
effort compared to the benefits realized. Stock exchanges concerned are: Denmark, Finland, Iceland, 
Norway,  and  Sweden.  The  survey  was  realized  in  2007  and  early  2008.  See  also  FC  expert  blog 
(2010),  which  states:  "Under  pressure  from  the  market  and  from  the  Board,  the  quarterly  focus 
devalues the investment in people-based initiatives ". 

47  Reflection Group On the Future of EU Company Law (2011). 
48  Accountancy Magazine 6 August 2010. 

14 

 
                                                 
In the US, there is also a debate on quarterly reporting, even if this debate takes place in 
a  different  context49:  there,  investors  put  pressure  on  issuers  to  publish  quarterly  earning 
guidance that is used as a reference point by the analysts to build their forecasts.  

Issuers feel themselves under pressure to meet these quarterly targets. Many stakeholders 
are  opposed  that  companies  should  provide  such  guidance  as  this  exacerbates  the 
obsession  with  the  short-term  results  for  both  investors  and  issuers.  In  this  respect,  an 
important  report  by  Centre  for  Financial  Market  Integrity  argues  that  management  is 
prevented  from  focusing  on  the  long-term  health  of  the  business  for  fear  of  missing 
quarterly targets50. This report states that "Short-termism refers to the excessive focus of 
some  corporate  leaders,  investors,  and  analysts  on  short-term,  quarterly  earnings  and  a 
lack of attention to the strategy, fundamentals, and conventional approaches to long-term 
value  creation.  An  excessive  short-term  focus  combined  with  insufficient  regard  for 
long-term strategy can tip the balance in value-destructive ways for market participants, 
undermine  the  market’s  credibility,  and  discourage  long-term  value  creation  and 
investment. Such short-term strategies are often based on accounting-driven metrics that 
are  not  fully  reflective  of  the  complexities  of  corporate  management  and  investment. 
Warren  Buffett,  the  widely  respected  and  emulated  CEO  of  Berkshire  Hathaway  Inc., 
addressed  the  issue  in  his  letter  to  shareowners  in  2000  by  encouraging  management 
teams to place their attention and focus on long-term strategy, not quarterly earnings"51. 

Consequently,  it  could  be  argued  that  an  obligation  to  issue  quarterly  reports  place 
companies  under  a  perceived  obligation  to  produce  "positive  results"  each  and  every 
quarter.  Strategies  to  deliver  short  term  "good  results"  may  imply  adoption  of  riskier 
strategies  by  issuers  which  will  try  to  find  business  strategies  with  fast  returns  (and 
follow  bubbles,  trends),  whereas  many  models  would  deliver  returns  not  gradually  and 
linearly but on the longer term.   

Short-termism is arguably counter-productive even in the case of larger companies, but it 
is  clearly  totally  inappropriate  in  the  case  of  the  small  and  medium-sized  companies 
which  have  a  vocation  to  growth  and  therefore  need  longer-term  investment.  Short-
termism  contributes  to  difficulties  of  small  and  medium-sized  issuers  to  raise  capital: 
dominant  business  model  today  mainly  focuses  on  short-term  performance  and  high 
liquidity. Investors do not have the time to consider the promising long-term stories that 
small companies may offer.  

Although interim management statements are perceived as providing less focus on short-
term results than more elaborated quarterly reports containing more quantitative data (in 
the  US  full  quarterly  reports  prepared  according  to  the  accounting  standards  are 
published), both forms could be seen as a regulatory incentive contributing to the general 
culture of short-termism in financial decision-making. In this context, some respondents 
to the public consultation underlined the links between quarterly information and short-

49  For example, a testimony from a senior scholar before a Senate Committee during a hearing entitled 
"Short-termism in Financial Markets" stated "one cause of short-termism is the federal securities laws, 
which  encourage  Wall  Street’s  quarterly  earnings  fixation.  This  is  an  example  of  the  unintended 
consequences  of  regulation,  as  the  quarterly  reporting  requirements  of  the  Securities  laws  actually 
make  the  problem  worse.  Analysts  predict  quarterly  earnings,  and  companies  feel  pressure  to  meet 
those predictions": see J.W. Verret ( 2010). 

50   CFA (2006). 
51   CFA (2006), p.3. 

15 

 
                                                 
termism. However, the Mazars study finds that "The balance achieved by the Directive to 
avoid the “short-termist” effect of the publication of full quarterly reports is supported by 
stakeholders"52. 

3.2.1.4.  Lower  visibility  of  small  and  medium-sized  issuers  towards  analysts  and 

investors 

Coverage of small and medium-sized issuers does not fit in the business model of most 
equity analysts which tend to be integrated into structures providing broking services and 
are financed by brokerage commissions. A lack of turnover in small and medium-sized 
companies makes it difficult for analysts to generate such commissions. According to a 
recent report, “analysts get paid on generating commissions. If there is no trade, they’re 
not going to write the research note”53.  This feature  contributes to the vicious circle of 
illiquidity: since the cost of information collecting and processing on small caps cannot 
be  covered  by  earning  commissions54,  brokerage  research  and  trading  resources  are 
dedicated  to  small  and  medium-sized  issuers  only  sporadically  or  such  companies  are 
simply  neglected55.  This  further  reduces  turnover  and  hence  the  attractiveness  of  these 
companies56. 

Some rules of the Transparency Directive appear to also contribute to this low visibility 
problem.  

(1) 

Bottlenecks  of  financial  information  caused  by  short  deadline  for  the 
publication of the half-yearly financial report 

The  Transparency  Directive  required  issuers  to  publish  half-yearly  reports  at  the  latest 
two  months  after  the  end  of  the  reporting  period.  This  short  deadline,  in  addition  to 
causing additional costs to companies, leads to an unintended bottleneck of information 
at  the  end  of  the  second  month  –  in  particular  for  most  European  issuers  whose 
accounting year corresponds to the calendar year (end June + 2 months = late August). 
This bottleneck disrupts the market by overloading the capacity of investors and analysts 
to digest this information within a short period of time ("the half-yearly release season") 

52   See Mazars (2009), p. 68. 
53   PWC (2010), p.9. 
54   Rasch (1994) explains that this fact is a direct consequence of the information paradox described by 
Grossman/Stieglitz  (1980).  If  information  is  costly,  an  equilibrium  evolves  in  which  the  cost  of 
information  will  equal  the  marginal  benefit  of  that  additional  piece  of  information.  The  additional 
benefit,  however,  depends  on  the  stock's liquidity: the higher the volume that can be traded without 
influencing the market price, the higher the potential return on research activities. The extent to which 
company information is collected and processed and, therefore the degree of informational efficiency 
depends directly on the marketability and liquidity of a company's share. Thus, event the twentieth or 
fiftieth research study of a standards stock may be profitable whereas no even the first study of many 
smaller companies will cover its costs. See Rasch (1994), p. 24. 
Interestingly,  Grant  Thornton  (2009)  also  adds  that  in  the  US,  the  best  sell-side  analysts  fled  to  the 
buy-side  in  search  of  better  compensation.  This  would  have  resulted  in  lower  quality  of  sell-side 
analysis. See Grant Thornton (2009), p.22. 

55   The CBI reported that small caps below £100 million had on average fewer than 2 analysts covering 
their performance, compared to 12-16 analysts for companies between £500 million to £5 billion. See 
CBI (2001), p.16. This trend has not improved. 

56   In the UK, the CBI reported in 2001 that the lack of interest of the fund management industry in the 
small  caps  “has  made  it  increasingly  uneconomic  to  stakeholders  and  banks  to  produce  in-depth 
research  on  smaller  quoted  companies,  leading  to  a  vicious  circle  of  ‘no  research,  no  liquidity,  no 
investment, no research’.  See CBI (2001) p. 6, 8 and 16. 

16 

 
                                                 
 
and the financial media to process the information being produced. This accentuates the 
inherent  tendency  to  focus  exclusively  on  the  market-leading  large  cap  companies  to 
optimise  the  time  devoted  to  analyse  the  information  as  this  first  tier  concentrates  the 
transactions flow. This effect also contributes to poor cross-border visibility for smaller 
listed companies (sometimes referred to as the “black hole” problem)57. 

(2) 

Difficult access to financial information 

In addition, access to financial information on listed companies on a pan-European basis 
is  burdensome:  interested  parties  need  to  go  through  27  different  national  databases  in 
order to produce even the most basic intra-sectoral comparisons58. The original objective 
of  current  European  legislation  was  to  ensure  easy  access  for  investors/information 
intermediaries  to  regulated  information  that  was  already  disclosed,  but  the  result  is  far 
from  satisfying  this  initial  objective  and  the  level  of  interconnection  between  the  27 
national storage mechanisms is insufficient. Lack of a centralised storage system is thus a 
major  barrier  to  the  functional  integration  of  European  securities  markets,  and  the 
creation of an effective pan-European marketplace for capital.  

3.2.1.5.  Conclusion 

Small  and  medium-sized  issuers  perceive  themselves  as  paying  a  high  price  for  a  poor 
return:  from  their  perspective,  listing  on  regulated  capital  markets  is  increasingly 
unattractive  on  a  cost-benefit  basis  and  they  are  forced,  whether  they  like  it  or  not,  to 
consider other means of financing. In addition, the requirement for quarterly information 
contributes to the culture of short-termism, having negative consequences for all issuers 
but in particular for the small caps.  

3.2.2. 

Issues linked to notification of major holdings of voting rights 

The Commission report as well as the results of the public consultation have identified 
the  following  problems  linked  to  notification  of  major  holdings  of  voting  rights:  (1) 
possibility of hidden ownership and (2) divergent notification rules across the EU.  

3.2.2.1.  Background and context 

Article  9  of  Transparency  Directive  requires  shareholders  who  acquire  or  dispose  of 
shares admitted to trading on a regulated market and to which voting rights are attached, 
to notify the issuer of the proportion of voting rights held when that proportion reaches, 
exceeds or falls below the thresholds of 5 %, 10 %, 15 %, 20 %, 25 %, 30 %, 50 % and 
75  %.  Article  13  of  Transparency  Directive  refers  to  Article  9  and  specifies  that  the 

57  While  large  investors  seem  to  consider  that  the  Directive  has  facilitated  access  to  information 
disclosed  by  smaller  listed  companies,  many  smaller  listed  companies  generally  complain  about  the 
lack  of  interest  by  foreign  investors.  Investors  and  analysts  are  considered  to  concentrate  on  major 
companies.  As  outlined  by  the  external  study,  “market  players  seem  to  be  in  a  “catch 22” situation: 
SMEs regret the low level of cross-border interest of analysts and investors and therefore are reluctant 
to  spend  money to ensure wider dissemination (translation into English in particular). On their side, 
analysts  and  investors  believe  that  they  do  not  receive  sufficient  information  from  non  domestic 
SMEs, and therefore are reluctant to invest in those companies.” See Mazars (2009), section 4.3.2.5. 
In  the  Directive,  these  databases  are  referred  to  as  "officially  appointed  mechanism  for  the  central 
storage  of  regulated  information"  (cf.  Article  21(2)).  Additionally,  according  to  Mazars  (2009), 
stakeholders complain about the lack of harmonisation on the practical functioning of these databases 
(see section 1.8.1 of that Study). 

58 

17 

 
 
                                                 
notification requirements also apply to holdings of financial instruments that result in an 
entitlement  to  acquire,  on  holder's  own  initiative  alone,  under  a  formal  agreement, 
already issued shares to which voting rights are attached. 

The  Commission  Report  on  the  operation  of  the  Transparency  Directive  as  well  as  the 
results of the public consultation show that the rules of the Directive do not, currently, 
guarantee  that  issuers  and  investors  have  full  knowledge  of  relevant  information 
concerning major holdings of voting rights, primarily because of financial innovation i.e. 
increased  use  of  cash-settled  derivatives59  to  acquire  economic  exposure  to  shares 
without acquiring voting rights. The figure 3 below shows the considerable growth of the 
market for equity derivatives.  

Figure 3: Equity derivatives trading: trends since 1998, May 2009 

Source: International Options Market Association, Derivative trading: trends since 1998, May 2009 

A cash-settled derivative is a contract where a counterparty, often a financial institution, 
sells  to  the  holder  of  the  instrument  an  economic  exposure  to  changes  in  price  of  the 
share without the right for the holder to acquire such share. On the maturity date (the date 
of  expiration  of  the  contract)  this  counterparty  will  pay  the  difference  in  price  of  the 
share to the holder of the instrument.  

Despite the fact that several recent cases have demonstrated that these derivatives can be 
used in order to acquire and exercise potential influence in a listed company or build a 
secret stake in such a company bypassing the disclosure requirements, disclosure of cash-
settled  financial  instruments  is  not  currently  required  by  the  Directive60.  These  cases 
(described  in  Annex  8)  illustrate  the  limits  of  the  current  disclosure  obligations  with 
respect  to  these  financial  instruments.  Such  cases  cause  distortion  of  the  European 

59  See Glossary Annex 4. 
60  There  are  views  that  Article  10  g  of  Transparency  Directive  already  requires  disclosure  of  such 
instruments. This article provides for disclosure of voting rights attached to shares in which a person 
or entity has the life interest. However, interpretations of this provision are divergent in the EU: see in 
particular, Zetzsche (2009). CESR also considers that if the holder of cash settled instrument is able to 
exercise  influence  on  voting  rights  and  bears  the  economic  risks,  it  could  in  some  cases  fall  under 
Article  10  g.  CESR  considers  however  that  there  should  be  a  general  requirement  to  disclose  such 
instruments:  see  CESR  (January  2010).  In  its  opinion,  ESME  states  that  Article  10  (g)  "was  not 
introduced for large positions in cash settled derivatives, but for the market practice of custodians or 
for situations of “at arms length” investment management. The provision is rather narrowly framed to 
support a widening of disclosure rules to cash settled financial instruments": See ESME (November 
2009). 

18 

 
 
                                                 
market as they affect investors from all the Member States. However, it should be noted 
that the majority of cash-settled derivatives are used only to gain an economic exposure 
to the issuer's shares. Only the small minority is used to acquire or influence the exercise 
of  the  voting  rights.  However,  if  these  derivatives  are  used  for  the  purpose  to  acquire 
hidden ownership, the consequences for the European capital markets are very negative 
as illustrated in Section 3.2.2.2 below.  

3.2.2.2.  Hidden  ownership:  possibility  to  built  secret  in  companies  due  to  gaps  in 

current notification regime 

Under the current transparency regime, holdings of cash-settled equity derivatives do not 
trigger notification to the extent that they do not entitle the holder of the instrument  to 
acquire  the  underlying  shares.  But,  in  practice,  the  holder  will  acquire  an  economic 
exposure to such shares and thus be directly concerned by the changes in their price. This 
leads  to  the  situations  of  "hidden  ownership":  according  to  Hu  and  Black,  “hidden 
(morphable) ownership” describes  the combination of undisclosed economic ownership 
plus probable informal voting power61. This raises some transparency concerns.  

(1) 

Possibility of market abuse situations: price manipulation to avoid a take-over 
premium 

The  counterparty  to  the  derivative  contract  which  sells  the  economic  exposure  to  the 
shares and will have to pay the difference in share price to the holder of the derivative 
instrument, usually will hold throughout the duration of the contract a matching number 
of physical shares to hedge62 its position and being able to pay the difference in price of 
the share to the holder if this price goes up. When the contract expires, these shares need 
to be sold. If the holder of the cash-settled derivative instrument wants to acquire these 
shares, he will be in a privileged position to do this. Consequently, although there is no 
formal right of the holder to acquire the underlying shares, it can be the case in practice. 

The  holder  of  a  cash-settled  derivative  can  thus  benefit  from  the  surprise  effect  of 
acquiring  a  major  holding  in  a  company  without  having  ever  disclosed  his  intentions. 
This makes it easier for such holder, for instance, to succeed in a takeover attempt, and it 
also could make the take-over bid less expensive. Indeed, as it allows building up hidden 
stakes  without  other  investors  becoming  aware,  the  share  price  is  likely  to  remain 
stable63,  thus  eliminating  or  reducing  any  take-over  premium64.  In  this  way,  lack  of 
transparency harms the interests of minority shareholders, and prevents competitors from 
making a fair alternative offer65.  

(2) 

Empty voting: de facto control over the voting rights  

The holder of a cash-settled derivative, although not directly holding voting rights, could 
potentially influence the exercise of the voting rights attached to the underlying shares. 

61  Hu & Black (2006). 
62  See Glossary Annex 4. 
63  Corporate Governance Research (2010). 
64 
65  CESR (January 2010). 

It will cause a lower mandatory bid price according to the Takeover Bid Directive. 

19 

 
 
                                                 
The counterparty that holds the physical shares for hedging purposes does not have a real 
interest in the underlying company and could use such "empty" voting66 rights in a way 
which  suits  the  holder  of  the  economic  interest  by  following  the  holder's  voting 
instructions.  A  survey  carried  out  in  the  UK67  suggests  that  holders  of  contracts  for 
difference68  do  sometimes  approach  financial  institutions  holding  shares  for  hedging 
purposes  in  order  to  influence  voting  strategies.  Even  if  general  policy  of  investment 
banks  is  not  to  vote  shares  in  accordance  with  holders'  wishes,  it  cannot  be  absolutely 
excluded  that  such  situations  do  arise  in  practice.  This  potential  "empty  voting" 
represents  a  threat  to  other  shareholders'  rights  and  their  long-term  interests. 
Furthermore, lack of transparency makes it difficult for companies to ascertain not only 
who owns them but also who holds potentially significant voting power69.  

(3) 

Lack of efficient pricing of the underlying shares 

According  to  the  Transparency  Directive,  disclosure  of  major  holdings  of  voting  rights 
allows  investors  "to  acquire  or  dispose  of  shares  in  full  knowledge  of  changes  in  the 
voting structure"70.  

Without full ownership disclosure, investors are unable to make an informed assessment 
of how the ownership structure of a particular firm may over time come to influence the 
value  of  the  shares.  Ownership  disclosure  also  creates  transparency  of  trading  interest, 
which  in  turn  means  that  shares  are  priced  more  efficiently.  Without  such  disclosure, 
shareholders may be unable to analyse share price movements correctly, which may lead 
them to make investment decisions that are sub-optimal, or even lead to loss of capital71. 

Without  transparency  with  regard  to  important  capital  movements,  the  market  cannot 
estimate the size of the free float, i.e. the proportion of the total outstanding shares that 
are actually available for trading. When real ownership levels are concealed, the market's 
perception  of  the  size  of  the  free  float  may  be  distorted.  And  this  in  turn,  through  its 
impact on liquidity, can lead to shares being mis-priced72. 

(4) 

Conclusion 

The  transparency  is  essential  for  investment  decisions  and  efficiency  of  the  market. 
Existing gaps in information linked to lack of disclosure of cash-settled derivatives lead 
to  a  possible  inefficiency  of  the  price  formation  mechanism,  potential  market  abuse 
situations and empty voting. As a result, the level of investors' confidence is suboptimal 
and  investors'  intentions  and  long-term  interests  of  companies  are  misaligned.  Some 
Member  States  have  already  reacted  to  the  risks  described  above  by  introducing 
legislation  requiring  disclosure  for  cash-settled  derivative  instruments  and  other  are  in 
the process of doing so (see Annex 7). Lower level of transparency is also due to lack of 
maximum  harmonisation  of  the  rules  for  notification  of  major  holdings  as  explained 
below.  

66  See Commission staff working document (SEC(2010)61) p.83. 
67  See FSA 07/20 (November 2007). 
68  See Glossary Annex 4. 
69  Corporate Governance Research (2010). 
70  See Recital 18 of the Transparency Directive. 
71  Schouten (2010) and Corporate Governance Research (2010). 
72  Schouten (2010); See also the case Porsche versus Volkswagen in Annex 8. 

20 

 
                                                 
3.2.2.3.  Diverging  transposition  of  the  Directive  requirements  by  Member  States 

concerning the disclosure of major holdings 

Transparency  Directive  does  not  put  in  place  maximum  harmonisation  regime  for 
notification  of  major  holdings  of  voting  rights.  This  uneven  implementation  of 
Transparency  Directive  requirements  results  in  compliance  difficulties  for  cross-border 
investors.  More  stringent  and  additional  rules  at  national  level  as  well  as  provisions  in 
the  Directive  allowing  for  derogations/discretion  at  national  level  also  result  in  a 
fragmented internal market for financial services. 

(1) 

Aggregation of holdings of shares with those of financial instruments 

Lack of harmonisation concerning aggregation of major holdings is considered to be the 
most problematic issue according to the perception of stakeholders and the legal analysis 
made by Mazars73.  

In fact, Member States have taken different views on whether investors must aggregate 
their holdings of voting rights (within the meaning of Articles 9 and 10 TD) with their 
holdings of financial instruments giving access to shares (within the meaning of Article 
13  TD)  for  the  purposes  of  evaluating  whether  the  relevant  thresholds  referred  to  in 
Article  9  of  the  Transparency  Directive  are  reached  or  crossed  and  therefore  the 
notification obligation triggered (See Annex 9).  

Parallel compliance with different national requirements faced by investors seems to be 
an important source of costs and burden74. On this issue, ESME indicated that "a major 
complaint among investors is the cost to investigate and report according to 27 systems 
across Europe (and around 60 systems internationally) with different approaches to what 
holdings are required to be reported as well when." 75  

An external study76, looking at costs of complying with the Transparency Directive for 
the asset managers, showed that the results for cross-border asset managers compared to 
those  that  largely  operate  in  just  one  Member  State  are  markedly  different.  The  latter 
consistently  had  a  lower  cost  of  compliance  with  the  Transparency  Directive.  The 
additional  costs  for  cross-border  asset  managers  are  mainly  due  to  the  fact  that  the 
notification process can not be fully automatic and that manual entries are necessary due 
to the existing divergences in national requirements.  

In  addition  to  increased  costs  for  cross-border  investors,  lack  of  harmonisation 
concerning  aggregation  of  holdings  of  financial  instruments  with  holdings  of  shares 
creates an uneven level of transparency across the EU. In the Member States where there 
is no aggregation and the initial threshold of 5% was retained (see Annex 9), an investor 
holding,  for  example,  4,5%  in  voting  rights  and  4,5%  in  financial  instruments  in  a 
company can artificially avoid the disclosure, although this investor cumulatively holds 
9% of economic interest in a company. 

(2) 

Different thresholds for disclosure of major holdings across the EU 

73  See Mazars (2009), section 3.1. 
74  Europe Economics (2009), page 76. 
75  ESME (December 2007) p.5, in fine. 
76  Europe Economics (2009), p. 76. 

21 

 
                                                 
The Transparency Directive allows Member States to adopt more stringent requirements 
as  regards  the  thresholds  for  notification  of  major  holdings.  As  a  consequence,  several 
Member  States  have  adopted  lower  initial  thresholds  (and  additional  thresholds)  in 
addition to the minimum thresholds required by the Directive (see Annex 9). Although 
such  differences  could  result  in  potential  difficulties  for  cross-border  investors,  the 
question of divergence of thresholds was considered as secondary by many respondents 
to the public consultation, as compared to the divergence of the method to calculate the 
thresholds. 

(3) 

Conclusion 

The  existing  regime  lacks  consistency  regarding  the  conditions  for  triggering  the 
disclosure obligations. Insufficient harmonisation leads to higher cost and administrative 
burden  for  cross-border  investors  in  the  EU.  Lack  of  harmonisation  increases  liability 
and regulatory risk as it is sometimes difficult for investors to correctly identify the rules 
applicable in each Member State. 

4. 

  BASELINE SCENARIO, SUBSIDIARITY AND PROPORTIONALITY 

4.1.  Baseline scenario, expected development if no EU action is taken 

(1) 

Small and medium-sized issuers 

It is predicted that market developments, on their own, will not be able to improve access 
of the small and medium-sized issuers to regulated markets and make the investment in 
their equity more attractive.  

The  trend  over  recent  years  is  for  fewer  small  and  medium-sized  companies  to  access 
regulated markets, as companies prefer to raise funds in other, less demanding ways, or 
are simply unable to proceed with their business development plans for lack of investor 
support. As shown in the table below, small and medium-sized issuers are even delisting 
from  Regulated  Markets:  either  completely  or  preferring  to  list  on  a  MTF  (See 
Glossary)77.  

77 

In  France,  a  new  law  in  2009  established  the  rules  for  the  transfer  of  companies  from  Euronext  to 
Alternext. See Middlenext (2009). Since then, several companies have taken this option. 

22 

 
                                                 
Figure 4: Number of newly listed and de-listed companies in major EU exchanges 

Stock 
Exchange 

Borsa Italiana 
Deutsche Börse 
London SE 
Nasdaq OMX 
NYSE 
Euronext 

Newly listed companies (domestic 
companies only) 
2009 
8 
4 
47 
11 
9 

2008 
9 
43 
143 
31 
24 

De-listings (domestic companies only) 

2009 
11 
53 
287 
38 
37 

2008 
16 
31 
318 
58 
55 

Source:  data  from  World  Federation  of  Exchanges:  domestic  companies  are  small  and  medium-sized 
issuers.  

A realignment of incentives between investors and company's management towards long-
term investment strategies is not likely to happen in the absence of a regulatory action to 
deal with the existing potential regulatory biases in EU legislation encouraging the focus 
on short-term results. If no action is taken concerning the lowering of disclosure costs for 
small and medium-sized issuers, costs of compliance for these issuers will remain high 
and  perceived  as  disproportionate  given  the  benefits.  Investment  levels  in  such 
companies are likely to continue to be low if nothing is done to improve the visibility of 
small  and  medium-sized  issuers.  Such  an  environment  is  not  favourable  for  both 
innovation and competition. Companies with growth potential will not be appropriately 
funded and therefore will not grow as much as they could potentially do.  

Furthermore,  inefficient  functioning  of  capital  markets  for  small  and  medium-sized 
issuers has negative impacts on employment levels. For instance, research conducted in 
the  US78  points  at  the  fact  that  92%  of  the  job  growth  occurs  after  a  company  goes 
public79.  In  a  UK  2002  report,  it  was  estimated  that  small  listed  companies  in  the  UK 
(defined as those  quoted  in  the  London Stock Exchange but outside the FTSE 350 and 
those quoted on AIM80) accounted for 5% of the total market capitalisation of all quoted 
companies but 13% of their total sales and, importantly, 18% of total employment81 (see 
figure 5). 

78  NVCA (2009). 
79  Grant Thornton (November 2009) estimated that a lack of a functional IPO market may have cost the 

US 22 million jobs over the last decade. See Grant Thornton (November 2009), p. 26. 

80  Alternative Investment Market. 
81  Kearns and Young (2002), p.26. 

23 

 
 
 
                                                 
Figure 5: Comparative statistics of large and small caps: UK (2002) 

In some Member States national authorities and stock exchanges have taken measures to 
lower  the  compliance  costs  for  the  majority  of  listed  companies  in  Regulated  Markets. 
Recent  changes  in  the  UK  regarding  the  standard  listing  and  the  premium  listing 
segments, ensuring that no gold plating to EU directives is imposed on companies within 
the standard listing82 is an good example. A proportionate corporate governance code for 
small caps in France is the other one83. However, these measures remain isolated and a 
number of more stringent national requirements remain in place in many Member States. 
Additionally, the EU minimum rules constitute a minimum floor for costs of compliance.  

It has to be noted that different actions are being undertaken to address these issues: in 
particular, there is a plan to modify the MIFID84 in order to create a Multilateral Trading 
Facility for small and medium-sized issuers, which should increase the attractiveness of 
small  and  medium-sized  issuers  in  non-regulated  markets.  In  addition,  the  proposed 
review  of  the  accounting  directives85  would  allow  a  significant  reduction  of  financial 
reporting  costs  and  harmonisation  of  accounting  rules  at  the  EU  level  for  the  SMEs. 
There  will  be  also  an  action  plan  in  order  to  promote  access  to  finance  for  the  SMEs. 
These  initiatives  address  different  problems  encountered  by  small  and  medium-sized 
issuers.  Any  changes  to  the  Transparency  Directive  should  therefore  be  seen  in  this 
context, as alone these changes would only have a limited impact on the problems faced 
by the small and medium-sized issuers, as these problems have multiple causes and the 
rules  of  the  Transparency  Directive  are  in no case the most important drivers for  these 
problems.  However, the problems described in Section 3 linked to the requirements of 
the  Transparency  Directive  would  persist  if  no  action  were  taken  at  the  level  of  this 
directive.  

82  The  distinction  between  premium  and  standard  listing  exist  in  other  Member  States  too  (e.g.  DE). 
Premium  listing  is  addressed  mainly  to  the  biggest  listed  companies  which  accept  to  follow  stricter 
rules in order to benefit from the "premium" listing label.  

83  Corporate Governance Codes prepared by Middlenext applicable to small and mid caps 
84   Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council:  "Markets  in  Financial 

Instruments Directive".  

85   The  Fourth  Council  Directive  78/660/EEC  on  annual  accounts  and  the  Seventh  Council  Directive 

83/349/EEC on consolidated accounts. 

24 

 
 
 
                                                 
(2) 

Notification of major holdings 

Concerning  disclosure  of  cash-settled  derivatives,  if  no  action  is  taken,  a  significant 
loophole  in  the  notification  regime  of  the  Transparency  Directive  would  continue  to 
exist.  One  of  the  goals  of  the  Directive  which  is  to  ensure  efficient  pricing  in  capital 
markets will not be achieved. This is likely to undermine investor confidence. The issues 
of  creeping  control  and  hidden  ownership  will  also  continue  to  pose  problems.  Cases 
such  as  those  described  in  the  Annex  8  (LVMH/Hermes,  Porsche/VW,  Schaeffler/ 
Continental…..)  are  likely  to  happen  again.  Some  Member  States  have  already  taken 
actions to address the current gap in the legislation86. However, given the interrelatedness 
of financial markets, without an EU action there would be no common approach at the 
EU level and no harmonised view on this question, which is likely to result in regulatory 
arbitrage and distort competition within the EU.  

If  no  action  is  taken  to  increase  the  level  of  harmonisation  of  the  notification 
requirements, the regime of disclosure of major holdings will lack consistency regarding 
the  conditions  for  triggering  the  disclosure  obligations.  Lack  of  harmonisation  will 
continue to generate higher costs and administrative burden for cross-border investors in 
the EU, which may deter cross-border investment. 

In the absence of EU action, further convergence might be achieved through cooperation 
by  national  competent  authorities  in  the  new  ESMA  authority.  ESMA  could  issue 
recommendations,  guidelines  and  adopt  common  standards.  However,  the  problems 
described in Section 3 linked to lack of harmonisation and gaps in the current disclosure 
requirements  can  only  be  addressed  through  the  modification  of  the  Transparency 
Directive.  

4.2. 

Subsidiarity and proportionality 

Subsidiarity: The existing Directive is based on Articles 50 and 114 of the Treaty on the 
Functioning of the European Union which give the European Commission the right to act 
in this area. The problems detected in Section 3.2.1 concerning small and medium-sized 
issuers  stem  both  from  EU  and  national  legislation  and  can  only  be  addressed  through 
changes in the EU legislation. In addition, the issue of small and medium-sized issuers 
concerns the EU capital markets as a whole and should therefore be addressed at the EU 
level.  Concerning issues identified in Section 3.2.2, only an action at the EU level would 
ensure that all Member States apply the same regulatory framework based on the same 
principles.  Again,  the  issue  of  holding  of  voting  rights  is  of  a  cross  border  nature  and 
should  therefore  be  addressed  at  the  EU  level.  The  creation  of  ESMA  also  opens  the 
possibility  to  deal  with  the  technical  aspects  of  the  proposed  new  provisions  by 
empowering ESMA to develop draft binding technical standards in some areas.  

Proportionality:  The  principle  of  proportionality  will  be  examined  for  each  proposed 
option. 

86  UK  and  Portugal  (see  Annex  7).  Germany  and  Italy  are  planning  to  introduce  a  requirement  to 
disclose cash settled derivatives. France has introduced a limited notification obligation which proved 
to be inefficient (see Annex 7). 

25 

 
 
                                                 
5. 

OBJECTIVES 

The objectives of this review are presented in the following table: 

General objectives 

Specific Objectives: 

Operational 
Objectives: 

Drivers: 

Discourage  focus  on  short-
term  results  and  encourage 
long-term 
sustainability/performance 

the 

Increase 
towards 
analysts of SMIs 

investors 

visibility 
and 

the 

Allow  for  more  flexibility 
regarding  the  frequency 
and 
of 
publication  of  periodical 
financial  information  for 
SMIs 

timing 

the  compliance 
Decrease 
costs 
SMIs  with 
disclosure  requirements  of 
Transparency Directive 

for 

the  narrative 
Simplify 
parts  of  financial  reports 
for SMIs 

Requirement  for  SMIs  to 
publish  quarterly  financial 
information 

in  costs 

Short  deadline  to  publish 
half yearly reports leads to 
to  a 
increase 
bottleneck  of  information 
and  to  a  lack  of  attention 
of 
and 
investors 
intermediaries for SMIs 

Complexity  of content and 
type  of 
to 
disclose 

information 

Increase the  

attractiveness of  

regulated markets  

to small and  

medium-sized issuers  

(SMIs) 

Increase the legal  

Increase  the  transparency 
of corporate ownership 

the  gaps 

in 
Eliminate 
for 
requirements 
notification 
concerning 
major  holdings  of  voting 
rights 

Gaps in requirements for 
notification concerning 
major holdings of voting 
rights 

Divergent rules for 
aggregation of holdings of 
shares with holdings of 
financial instruments 

Decrease  the  liability  and 
regulatory  risk  as  well  as 
high  compliance  costs  for 
cross-border investors  

Eliminate  divergences  in 
notification  requirements 
of major holdings 

Divergent 
notification 
holdings 

rules 
for 
of  majors 

clarity  

and effectiveness of 

the existing 

transparency regime 

for disclosure of 

major holdings of 

voting rights 

The  problem  concerning  difficult  access  by  investors  to  financial  information  due  to 
insufficient  interconnection  of  national  storage  mechanisms  is  identified  in  the  present 
impact  assessment  but  improving  the  current  storage  mechanism  is  not  one  of  its 
objectives.  Indeed,  a  separate  impact  assessment  would  be  needed  in  the  future,  to 
consider  possible  options  to  improve  the  current  situation.  The  European  Commission 
has already received in this respect a technical advice from CESR (ESMA)87 and it has 
also  commissioned  an  external  study  in  this  field  which  is  currently  under  preparation. 

87  CESR (December 2010). 

26 

 
 
 
 
                                                 
Drafting  an  impact  assessment  on  this  point  would  need  to  cover  technical  aspects, 
different from the ones described in the present impact assessment and it is unclear when 
an action concerning this point should be taken (depending on the results of the external 
study  it  could  be  concluded  that  more  time  is  necessary  to  assess  the  capacity  of  the 
national  storage  mechanisms  to  create  a  working  network  at  the  EU  level).  As  a 
consequence,  the  Transparency  Directive  should  be  modified  to  include  delegating  or 
implementing  measures  for  the  European  Commission  in  order  to  address  in  the  future 
the problem identified.  

6. 

  POLICY OPTIONS, ANALYSIS OF IMPACTS AND COMPARISON  

In this Section, options will be identified and analysed for policies which could target the 
problems  described  in  Section  3  and  could  realise  the  objectives  set  out  in  Section  5. 
Then the choice of instrument will be discussed. 

For  the  purposes  of  the  discussion,  the  options  will  be  analysed  according  to  the 
operational  objectives.  Within  each  group,  the  options  will  be  measured  against  the 
following criteria: 

Impact on effectiveness 

The options should achieve the operational objectives 

Impact on efficiency 

The options should be efficient in terms of costs 

Impact on investor protection 

The  options  proposed  should  maintain  and,  when 
necessary,  enhance  the  level  of  investor  protection 
achieved  by  the  Directive.  The  disclosures  that  are 
necessary for the investors' decisions should be required. 

Where relevant, other additional criteria will be used:  

•  For  the  policy  options  aiming  to  increase  the  attractiveness  of  regulated  markets  to 
small  and  medium-sized  issuers:  impact  on  reducing  disclosure  costs  for  small  and 
medium-sized issuers, impact on visibility of small and medium-sized issuers (level of 
interest  of  investors)  and  impact  on  short-termism  (excessive  focus  of  issuers, 
investors and analysts on short term results). 

•  For  the  policy  options  aiming  to  increase  the  legal  clarity  and  effectiveness  of  the 
existing transparency regime for disclosure of major holdings of voting rights: impact 
on  market  liquidity  and  efficiency,  impact  on  the  market  for  ownership  control, 
impact  on  costs  for  cross-border  investors and impact on the transparency regarding 
corporate ownership of issuers of shares. 

A  detailed  description,  analysis  and  comparison  of  the  options  is  provided  in  Annex  1 
together  with  the  reasons  why  some  of  the  options  have  been  rejected.  The  costs  are 
presented in Annex 2. 

6.1.  Comparison  of  policy  options  to  increase  the  attractiveness  of  regulated 

markets to small and medium-sized issuers  

The following tables show the options aimed to increase the attractiveness of regulated 
markets  to  small  and  medium-sized  issuers  as  well  as  their  impacts.  These  options  are 
classified according to operational objectives they aim to achieve. The preferred options 
are in bold characters. 

27 

 
6.1.1.  Options to achieve the first operational objective: allow for more flexibility 
regarding  the  frequency  and  the  timing  of  publication  of  periodical 
financial information for small and medium-sized issuers  

Options 

Effectiveness 
to achieve 
the 
operational 
objective 

on 

Impact 
reducing 
disclosure 
costs 
small 
medium-
sized issuers 

for 
and 

Impact  on 
visibility  of 
small  and 
medium 
sized-
issuers  

Impact 
on 
reducing  the 
on 
focus 
short-term 
results 

Impact  on 
investor 
protection 

Cost savings 

Efficiency  

for 

costs 
the 
EU 

(global 
savings 
whole 
regulated 
market) 

Option 1: No new action 

Option  2:  Abolishing 
the obligation to present 
quarterly 
financial 
reports  and/  or  interim 
management  statements 
(IMS) 
for  small  and 
medium-sized issuers 

Option  3:  Abolishing 
the obligation to present 
quarterly 
financial 
reports  and/  or  IMS  for 
small  and  medium-sized 
issuers  during  an  initial 
period  of  3  years  after 
admission to trading 

Option  4:  Abolishing 
to 
obligation 
the 
present 
quarterly 
financial  reports  and/ 
or  IMS  for  all  listed 
companies  

= 

= 

= 

++ 

++ 

=/- 

= 

+ 

= 

- 

+ 

+ 

=/- 

= 

- 

++ 

++ 

= 

++ 

= 

= 

+ 

+ 

++ 

= 

About 487 M€ per 
year plus staff cost 
savings which are 
difficult to 
estimate but which 
are relatively 
higher 
? Difficult to 
estimate as the 
number of newly 
listed companies 
varies in time. 
Average cost 
saving per issuer  
should amount to 
47 725 € 
573 M€ per year 
for publication, 
plus staff cost 
savings which are 
difficult to 
estimate but which 
are relatively 
higher  

+ 

+ 

n.a. 

++ 

Option  5:  Extending 
the 
for 
deadline 
publishing  half  yearly 
reports  to  3  months 
after  the  end  of  the 
reporting 
respective 
period  for  all 
listed 
companies  
Option  6:  Extending  the 
deadline  for  publishing 
half  yearly  reports  to  3 
months  after  the  end  of 
the  respective  reporting 
period  for  small  and 
medium-sized issuers 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

? opportunity cost 
savings, extra 
hours cost savings 
for all listed 
companies  

? opportunity cost 
savings, extra 
hours cost savings 
only for small 
issuers 

=/- 

++ 

++ 

n.a. 

= 

+ 

++ 

+ 

The  preferred  policy  options  to  achieve  this  objective  are  Options  4  and  5.  While  the 
main  target  of  the  these  objective  are  small  and  medium-sized  issuers,  the  majority  of 
respondents  to  the  public  consultation  believe  that  it  is  not  desirable  to  have 
differentiated regimes for companies listed on regulated market according to their size, as 
this could be confusing for the investors. It is therefore preferable to adapt the standard 
regime  to  make  it  better  suited  to  the  needs  of  smaller  companies,  rather  than  to 
introduce a separate regime based on market capitalisation. That is why Options 2, 3 and 
6 have been rejected.  

(1) 

Option 4 

28 

 
 
Option  4  would  consist  in  abolishing  the  requirement  for  quarterly  information  for  all 
listed  companies.  It  will  effectively  achieve  the  objective  of  more  flexibility  regarding 
the frequency of publication of financial information for small and medium-sized issuers 
without  creating  double  reporting  standards  on  regulated  markets  which  could  be 
potentially  harmful  to  these  issuers  and  have  a  negative  impact  their  visibility.  This 
Option  will  have  a  strong  positive  impact  on  reducing  administrative  burden  and  other 
costs linked to disclosure of financial information as well as on reducing focus on short-
term  results.  However,  this  positive  impact  could  be  mitigated  by  the  possibility  of 
"coordination  failure",  i.e.  small  and  medium-sized  issuers  may  wait  for  each  other  to 
modify the frequency of their reporting. Nevertheless, the proposed Option should send a 
strong signal to the market and stimulate a debate which should encourage behavioural 
changes. Also, Option 4 should not have a negative impact on investor protection.  

It  should  be  noted  from  the  start  that  although  quarterly  financial  information  is 
considered useful by a number of stakeholders, the results of the public consultation are 
non  clear-cut  on  this  point.  The  majority  of respondents to  the public consultation find 
quarterly  financial  information  valuable.  In  this  respect,  59%  of  respondents  to  the 
relevant  question  in  the  public  consultation  believed  that  waiving  the  obligation  to 
disclose  quarterly  financial  reports  or  interim  management  statements  for  small  listed 
companies  would  result  in  a  diminution  of  transparency  and  would  therefore  reduce 
investor protection and confidence. However, 100 % of issuers and 50% of investors who 
have responded to this question were of the view that this requirement could be abolished 
for small and medium-sized issuers without negative impact on transparency.  

Those respondents that opposed the abolishment of quarterly information for small and 
medium-sized  issuers  were  the  stock  exchanges  (100%),  public  authorities  (90%)  and 
auditors and accountants (100%). One important argument of these respondents was that 
a differentiate transparency regime according to the size of the issuer would confuse the 
investors.  As  the  question  on  the  abolishment  of  mandatory  quarterly  reporting  for  all 
companies was not asked in the public consultation, it is not possible to conclude what 
would have been the reaction of these stakeholders to this option.  

According  to  Mazars,  the  majority  of  stakeholders  in  the  EU  (68,8%)  consider  that 
publication  of  quarterly  information  is  useful  for  the  transparency  and  the  efficient 
functioning of the market. However, a different result comes from three important capital 
markets in the EU: 66,7% of the stakeholders from the UK, 50 % from Luxembourg and 
44% from France consider that this information is not useful88. 

Nevertheless,  the  fact  that  quarterly  financial  information  is  considered  as  useful  by  a 
number  of  investors  does  not  mean  that  it  is  necessary  for  investor  protection.  In  fact, 
Market Abuse Directive already requires issuers to disclose inside information as soon as 
possible to the market. This inside information includes all information that is likely to 
have  a  significant  effect  on  the  prices  of  financial  instruments  listed  on  regulated 
markets.  In  addition,  Prospectus  Directive  requires  issuers  of  securities  admitted  to 
trading on regulated markets to publish a prospectus for each new share issuance which 
increases issuer's capital, subject to some exceptions. This prospectus contains financial 
information,  including  the  management's  explanation  of  factors  that  have  affected  the 
company's financial condition and results of operations for the historical periods covered 

88   See Mazars (2009) section 2.6.3 and Annex 5. 

29 

 
                                                 
by the financial statements, and management's assessment of factors and trends which are 
expected  to  have  a  material  effect  on  the  company's  financial  condition  and  results  of 
operations  in  future  periods.    Therefore,  investors  should  be  duly  informed  about 
important  events  and  facts  that  could  potentially  influence  the  price  of  the  underlying 
shares independently of the quarterly information currently required by the Transparency 
Directive.  

In addition, interim management statements are not prepared according to the accounting 
standards and therefore the information they provide might not offer adequate quality nor 
give sufficient assurance to investors. Information disclosed in this kind of reports is also 
not  easily  comparable.  Therefore,  information  which  does  not  need  to  be  immediately 
disclosed to the market could be better disclosed in the yearly or the half-yearly financial 
statements  which  are  prepared  under  the  accounting  standards,  are  subject  to  statutory 
audit and therefore give high quality information to the investors.  

Finally,  consequently,  it  seems  possible  not  to  require  the  mandatory  disclosure  of 
quarterly information but to leave it to the market. Each issuer then will decide whether 
there  is  a  market  demand  for  such  information  and  whether  the  publication  of  such 
information  is  cost-efficient  compared  to  derived  benefits.  In  addition,  removing  the 
requirement for quarterly information would allow companies to redirect their resources 
to other channels and methods of informing investors and intermediaries of events they 
deem important (press releases, ad hoc reports, meetings with analysts and investors, site 
visits, media coverage,…), and to focus their energy on other means they deem best able 
to ensure maximum visibility for their operations. 

Option 4 will also eliminate an inappropriate legislative incentive encouraging the focus 
on short-term results. Emphasis on short-term financial performance has multiple causes, 
but the obligation to provide quarterly information is a regulatory incentive exacerbating 
this  culture.  By  making  quarterly  reporting  voluntary,  this  option  would  contribute  to 
reducing  this  pressure  even  if  the  issue  of  short-termism  is  much  larger  and  cannot  be 
solved only by this measure89.  

(2) 

Option 5 

Option 5 would consist of extending the deadline for publishing half-yearly reports to 3 
months  after  the  end  of  the  respective  reporting  period  for  all  listed  companies.  This 
Option  will  effectively  achieve  the  underlying  objective  of  leaving  flexibility  to  the 
issuers  to  publish  their  half-yearly  reports  at  the  time  that  they  consider  as  the  most 
suitable,  within  the  limits  of  the  extended  deadline.  This  option  would  have  a  positive 
impact on costs reduction for smaller issuers at it would give issuers extra time to draft 
their reports which could in turn reduce the bottleneck of financial information, improve 
the quality of the output and reduce costs linked to external advice and the opportunity 
costs.  Moreover, this Option would avoid that the publication of the reports falls in the 
month  of  August  where  the  market  activity  is  reduced,  which  is  now  the  case  for  the 
majority of listed companies, as explained in Section 3. Therefore, it would leave more 
time for  analysts and investors to look  at and analyse the half-yearly results of issuers, 

89   A  wider  picture  concerning  this  issue  is  presented  in  the  European  Commission  Green  Paper 
"Corporate  governance  in  financial  institutions  and  remuneration  policies"  COM(2010)  284  from  2 
June  2010  and  European  Commission  Green  Paper  "The  EU  corporate  governance  framework" 
COM(2011) 164 from 5 April 2011. 

30 

 
                                                 
including  the  smaller  ones.  This  option  would  also  have  a  positive  impact  on  the 
visibility  of  small  and  medium-sized  issuers,  as  they  will  be  able  to  adjust  more  easily 
the  timing  of  publication  of  their  reports  so  as  not  to  fall  at  the  same  time  as  the 
disclosure of the reports by large listed companies.  

This  option  should  not  have  any  negative  impact  on  investors'  protection  as  all 
information  that  has  to  be  taken  into  account  by  the  investors  immediately  is  already 
provided to them according to the Market Abuse and Prospectus Directives as explained 
above. 

(3) 

Options 4 and 5: maximum harmonisation.  

In order to be effective, Options 4 and 5 should include a provision to prevent Member 
States  from  imposing  more  stringent  requirements  at  national  level.  Currently,  many 
Member States impose stricter disclosure requirements than the minimum foreseen in the 
Directive. Therefore, preventing Member States from gold plating is proportionate to the 
objective to eliminate unnecessary administrative burden for companies. In order to meet 
this objective, it has to be ensured that Member States do not require more than what is 
necessary concerning the issues indentified in the present impact assessment. Maximum 
harmonisation  will  also  ensure  that  all  listed  companies  in  the  EU  benefit  from  equal 
treatment and that the administrative burden is effectively reduced.  

6.1.2.  Options to achieve the second operational objective: simplify the narrative 

parts of financial reports for small and medium-sized issuers 

Options 

Effectiveness 
to achieve 
the 
operational 
objective 

Impact  on 
visibility  of 
small 
and 
medium-
sized issuers 

Impact  on 
reducing 
disclosure 
for 
costs 
small  and 
medium-
sized 
issuers 

Impact  on 
short-
termism 

Impact  on 
investor 
protection 

Cost 
savings  

Efficiency 

Option 1: No new action 

the 
Option  2:  Harmonising 
maximum  narrative  content  of 
financial  reports  at  the  EU  level 
for 
small  and  medium-sized 
issuers 

= 

- 

= 

- 

= 

n.a. 

++ 

n.a. 

= 

- 

= 

? costs 
savings 
linked to 
opportunity 
costs and  
cost of  
external 
advice 

++ 

++ 

++ 

Option  3:  Requiring  ESMA  to 
prepare  non  binding  guidance 
(templates) 
narrative 
on 
content  of  the  financial  reports 
for all listed companies 
Option  4:  Requiring  Member 
States 
to  prepare  non-binding 
templates  or  guidance  at  national 
level  on  the  narrative  content  of 
financial  reports  for  all  listed 
companies 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

? Idem 

? Idem 

n.a. 

++ 

++ 

n.a. 

= 

+ 

+ 

Option  3  has  been  chosen  as  a  preferred  policy  option  to  achieve  the  underlying 
objective as it is the most efficient and proportionate as compared to other options. Under 
Option  3,  ESMA  would  be  required  to  design  non-binding  guidelines  (templates)  for 

31 

= 

+ 

++ 

+ 

 
 
narrative  reports  for  different  categories  of  listed  companies.  When  preparing  the 
guidelines, ESMA should take into account in particular the capacities of the small and 
medium-sized  issuers.  This  Option  would  effectively  facilitate  the  drafting  of  narrative 
parts  of  financial  reports  for  these  issuers  and  therefore  spare  the  external  legal  and 
compliance  advice.  It  should  therefore  have  a  positive  impact  on  cost  reduction  for 
smaller companies. On the other hand, as the templates would not be binding, the issuers 
not willing to use them would not be required to do so.  

Indeed,  maximum  harmonisation  across  Europe  of  the  content  of  narrative  reports 
(Option  2)  could  lead  to  an  increase  in  financial  reporting  obligations,  and  hence  in 
compliance  costs,  for  those  small  and  medium-sized  issuers  which,  for  the  time  being, 
have  to  provide  a  limited  number  of  information  in  these  narrative  reports.  Maximum 
harmonisation could also have a negative effect on investors' protection. Whilst it would 
allow for more comparability of information for cross border investors and thus facilitate 
their  investment  decisions,  respondents  to  the  public  consultation  highlighted  that  the 
quality  of  the  narrative  reporting  was  crucial  for  investors.  If  the  threshold  at  the  EU 
level for the content of the narrative reports were set too low in the hope of saving costs, 
this may have negative implications for investors. Option 2 is therefore discarded.  

In addition, Option 3 could increase the visibility of small and medium-sized issuers at 
the EU level as the information disclosed would be more comparable throughout the EU 
and  could  therefore  be  more  easily  analysed  by  cross  border  investors.  More 
comparability of information should also facilitate investor decisions. This is the reason 
why  Option  3  is  preferable  to  Option  4  which  provides  for  elaboration  of  templates  at 
national level.  

6.2. 

  Comparison of policy options to increase the legal clarity and effectiveness 
of  the  existing  transparency  regime  for  disclosure  of  major  holdings  of 
voting rights 

The  following  table  shows  the  options  aimed  to  increase  the  legal  clarity  and 
effectiveness  of  the  existing  transparency  regime  for  disclosure  of  major  holdings  of 
voting rights. These options are classified according to operational objectives they aim to 
achieve. The preferred options are in bold characters. 

32 

 
6.2.1.  Options  to  achieve  the  third  operational  objective:  eliminate  the  gaps  in 

requirements for notification concerning major holdings of voting rights 

Options 

Effectiveness to 
achieve the 
operational 
objective  

Impact on 
market 
liquidity and 
efficiency 

Impact on and 
on the market 
for ownership 
control 

Impact on 
investor 
protection 

Option 1: No new action  = 

= 

= 

= 

2: 

Broad 
Option 
regime: 
disclosure 
regime  extended  to  all 
instruments  of  similar 
economic 
to 
holding 
shares  and 
entitlements to acquire 
shares 

effect 

++ 

=/+ 

= 

++ 

Option  3:  Limitative 
approach: disclosure not 
required  in  case  "safe 
harbor" criteria are met. 

+ 

= 

= 

+ 

Associated costs   Efficiency 

= 

+ 

++ 

= 
One-off costs of 
100 to 600 k€  
(below 0,1 % of 
average 
operating costs),  
ongoing cost is 
difficult to 
estimate and will 
depend on the 
increase of the 
number of 
disclosures/per 
holder in 
practice 
One-off costs 
should not be 
significant, 
ongoing cost is 
difficult to 
estimate and will 
depend on the 
increase in the 
number of 
disclosures/per 
holder in 
practice 

Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

Option 2 has been chosen as a preferred policy option. Option 2 would include a general 
provision in the Transparency Directive that would require notification of all instruments 
of similar economic effect to holdings of shares and entitlements to acquire shares. The 
intention  would  be  to  cover  all  instruments  that  could  be  used  to  create  an  economic 
interest  in  shares  listed  on  regulated  markets.  It  would  capture  the  cash-settled 
derivatives  as  well  as  any  other  similar  financial  instruments  not  yet  available  on  the 
markets to take account of fast financial innovation. This option is supported by the vast 
majority  of  respondents  to  the  public  consultation  (81%  of  respondents  to  the  relevant 
question)  which  considered  that  the  disclosure  of  holdings  of  cash-settled  derivatives 
would be beneficial to the market. A broad approach similar to the one proposed in this 
option  was  adopted  by  the  UK  in  2009  and  more  recently  by  Portugal.  Germany  is 
planning  to  adopt  a  similar  approach.  Italy  is  considering  also  such  an  approach  (see 
Annex 7).   

This  general  principle  should  be  subject  to  exemptions  in  order  to  avoid  providing  the 
market with irrelevant information and spare notification costs for market players which 
by  definition  should  not  exercise  any  influence  on  voting  policies  or  acquire  a  secret 
stock  in  the  underlying  company.  These  exemptions  should  at  least  cover  instruments 
held by market makers and instruments held on the trading book of financial institutions, 
which already apply to notifications of financial instruments. The UK experience shows 
that these exemptions are in general sufficient and should cover the bulk of unnecessary 
notifications.  However,  to  take  account  of  market  developments,  it  is  envisaged  to 

33 

 
 
empower ESMA to develop draft technical standards to adapt the existing exemptions if 
necessary, for instance, with regard to the notification of instruments linked to a basket 
of shares or for aggregation of instruments held by a financial institution on behalf of a 
client.  In  developing  these  draft  technical  standards,  ESMA  should  take  account  of 
possible  misuse  of  additional  exemptions  to  circumvent  notification  requirements. 
Finally,  is  it  envisaged  to  harmonise  the  existing  exemptions,  so  that  the  same 
exemptions apply in all Member States.  

Option  2  appears  to  be  the  most  effective  and  would  have  a  strong  positive  impact  on 
investor protection and investor confidence as compared to the baseline scenario, as well 
as have a positive impact on issuers. This option would enhance transparency, reducing 
the possibility of hidden ownership and creeping control, and therefore improve market 
efficiency, as further explained in Section 6.3.2 below. It may have a potential negative 
impact  on  market  liquidity  and  on  the  market  for  ownership  control,  as  described  in 
Annex  1.  However,  according  to  UK  experience,  these  potential  negative  impacts  have 
not realised in practice.  

Option 2 , although entailing one-off costs estimated at 100 k€ to 600 k€ per holder of 
significant  number  of  cash  settled  derivatives,  should  nevertheless  be  efficient  and 
proportionate  to  address  the  problems  described  in  Section  3.2.2.2,  and  should  have 
limited  on-going  costs  for  companies  linked  to  processing  and  making  additional 
disclosures to the market. Option 3 would be less costly but its effectiveness seems to be 
limited as it would be easy to circumvent the disclosure obligation. Therefore, Option 2 
will be the preferred option to achieve the operational objective and other options should 
be discarded. 

34 

 
6.2.2. 

 Options  to  achieve  the  fourth  operational  objective:  eliminate  divergences 
in notification requirements for major holdings 

Options 

Effectiveness 
to achieve 
the 
operational 
objective 

Impact on 
the 
transparency 
regarding 
corporate 
ownership of 
issuers of 
shares 

Impact on 
investor 
protection 

Impact on 
costs for 
cross-
border 
investors 

Cost savings  

Associated 
costs 

Efficiency 

Option 1: No new 
action 

= 

= 

= 

= 

= 

= 

= 

2: 
Option 
the 
Harmonising 
regimes 
of 
disclosure  of  major 
holdings  of  voting 
rights  by  requiring 
aggregation 
of 
holdings  of  shares 
with 
of 
financial 
instruments  giving 
access to shares 

those 

+ 

++ 

++ 

++ 

An average of 
2M€/operator 
for 
one-off 
incremental 
costs  for  new 
cross-border 
investors  and 
77k€/year/per 
on 
operator 
average 
in 
ongoing costs  

? costs 
difficult to 
estimate, 
should be 
linked to 
necessity to 
adapt the IT 
systems and 
to the 
potential 
increase in 
the number  
of 
notification
s 

+ 

- 

- 

+ 

for 

++ 

idem 

rights 

Option 
3: 
the 
Harmonising 
regime  of  disclosure 
of major holdings of 
by 
voting 
requiring 
three 
separate  regimes  of 
disclosure:  one  for 
holdings  of  shares, 
one 
financial 
instruments  giving 
access  to  shares  and 
the  cash 
one 
settled derivatives. 
4: 
Option 
Harmonising 
the 
regime  of  disclosure 
of major holdings of 
by 
voting 
the 
harmonising 
thresholds 
for 
disclosure 
Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

Idem, but 
the potential 
increase in 
the number 
of 
notification
s should be 
lower 

? costs 
difficult to 
estimate, 
should be 
linked to 
necessity to 
adapt the IT 
systems 

rights 

idem 

++ 

++ 

for 

+ 

- 

- 

- 

Option  2  is  the  preferred  policy  option.  Option  2  will  harmonise  the  method  of 
calculation of thresholds for disclosure of major holdings by introducing the requirement 
to  aggregate  holdings  of  shares  with  holdings  of  financial  instruments  (including  cash 
settled derivatives). It will also provide for the method of such aggregation. Option 2 is 
the  most  effective  as  compared  to  the  baseline scenario and to Option  3 to achieve the 
result  of  uniform  application  of  EU  rules  and  increased  transparency  of  corporate 
ownership,  as  explained  further  in  Annex  1.  It  will  eliminate  divergences  in  Member 
States  concerning  the  way  to  calculate  the  thresholds  triggering  notification,  which  is 
seen as a major problem by the cross-border investors. Whilst it may seem less effective 
than  Option  4,  as  it  will  not  harmonise  the  thresholds  for  notification,  it  is  more 
proportionate  as  it  leaves  sufficient  flexibility  to  Member  States  to  take  account  of  the 
existing national differences in ownership concentration, which are quite significant. In 

35 

 
 
 
 
 
addition, the majority of investors do not consider different national thresholds as being a 
major  source  of  additional  costs.  It  is  therefore  the  best  option  in  terms  of  impacts  on 
transparency and on investor protection and in terms of proportionality.  

Although  Option  2  could  be  a  source  of  costs  for  investors  linked  to  additional 
disclosures  in  Member  States  where  there  is  currently  no  aggregation  requirement,  the 
exact  amount  of  these  costs  is  difficult  to  estimate  as  it  would  vary  depending  on  the 
increases of the number of disclosures in practice. Nevertheless, investors are in favour 
of more harmonisation and seem to consider these costs as lower compared to the spared 
administrative  burden  linked  to  the  introduction  of  a  uniform  regime  for  aggregation. 
This option should therefore be efficient in achieving the underlying objective. 

6.3. 

  Expected impacts of the preferred policy options  

6.3.1.  Policy  options  to  increase  the  attractiveness  of  regulated  markets  to  small 

and medium-sized issuers 

This  Section  summarises  that  main  impacts  of  the  preferred  options  on  different 
stakeholders  and 
impacts  (impact  on  environment  and 
employment) are analysed in Annex 1. 

third  countries.  Other 

(1) 

Abolishing  the  obligation  to  present  quarterly  financial  reports  and/or  interim 
management statements for all listed companies  

Impact  on  issuers:  This  option  would  enable  all  listed  companies  to  reduce  the  costs 
associated  with  listing  on  regulated  markets  by  making  the  publication  of  quarterly 
financial  information  voluntary  rather  than  mandatory.  Those  companies  which  do  not 
estimate useful to publish such information could therefore omit quarterly reporting, and 
redeploy the resources made available elsewhere. The average estimated cost reduction, 
excluding costs linked to preparation of the quarterly information, is varying from 2 k€ to 
60 k€ per year/per issuer for the small and medium-sized issuers and from 35 k€ to 250 
k€  per  year/per  issuer  for  large  issuers.  The  reduction  in  costs  concerning  the  staff 
employed to prepare this information could not be estimated in monetary terms for small 
and medium seize issuers: this reduction is varying, per issuer, from 8 man/days/a year to 
30 man/days/ a year. For large issuers, the maximum total cost reduction (including costs 
linked to the staff involved in preparation of these reports) could be estimated as being 2 
M €/ a year/per issuer.  

It is expected that larger companies will continue to publish quarterly information if there 
is  a  demand  from  analysts,  investors  and  the  stock  exchanges  and  in  order  to  maintain 
their 'brand' image. Therefore the estimated cost reduction would be particularly relevant 
for small and medium-sized issuers.  

This  option  is  not  expected  to  have  negative  impact  on  the  visibility  of  small  and 
medium-sized issuers as there will be no differentiation of rules applicable to the issuers 
according to their size. Also smaller issuers would be able to redirect their resources in 
order to publish information of more interest to investors. 

By  making  quarterly  information  voluntary,  this  option  would  eliminate  an  existing 
regulatory  incentive  contributing  to  the  short  term  pressure  on  issuers,  particularly  the 
small and medium-sized ones. This will help to create an investment environment more 

36 

 
favourable to securing long-term support for ambitious and innovative projects based on 
an in-depth understanding of the underlying business model. 

Impact  on  investors:  As  explained  in  Sections  3.2.1.2  and  6.1  above,  quarterly 
information  does  not  appear  necessary  for  investor  protection.  Investor  protection  is 
already  sufficiently  guaranteed  through  the  mandatory  disclosure  of  half-yearly  and 
yearly  results,  as  well  as  through  the  disclosures  required  by  the  Market  Abuse  and 
Prospectus  Directives.  If  there  is  no  mandatory  requirement  to  publish  quarterly 
information, small and medium-sized issuers will be free to publish whatever information 
they consider will be most useful for their investors and analysts, who in turn will be able 
to engage in a dialogue with them about what information they most need, and to “vote”, 
via  their  capital  allocation  decisions,  against  those  companies  which  do  not  take  their 
criteria  into  account.  Larger  issuers  are  expected  to  continue  publish  quarterly 
information, especially if their investors consider it as useful.  

This option would not entail costs for regulators. 

(2) 

  Extending the deadline for publishing half yearly reports to 3 months after the 

end of the respective reporting period for all listed companies 

Impact  on  issuers:  This  option  would  have  a  limited  monetary  cost  reduction,  which  is 
however, difficult to precisely estimate. This cost reduction should especially benefit the 
small  and  medium-sized  issuers.  Some  non-monetary  advantages  are  also  expected:  in 
particular,  greater  flexibility  that  would  enable  the  issuers  to  better  organise  the 
necessary  work,  relieve  administrative  complexities,  improve  the  quality  of  the  output 
and  secure  the  services  of  auditors.  Again,  this  action  should  benefit  mainly  the  small 
and  medium-sized  issuers  who  have  difficulties  to  respect  the  current  deadline  of 
publication of the half-yearly reports. 

This  option  would    also  have  a  positive  impact  on  the  visibility  of  small  and  medium-
sized issuers, as they will be able to adjust more easily the timing of publication of their 
reports so as not to fall at the same time as the disclosure of the reports by large listed 
companies. 

Impact  on  investors:  some  stakeholders  expressed  negative  views  on  the  possibility  of 
extending  the  deadline  for  publication  of  financial  information  as  being  damageable  to 
investor protection. According to them, late publication of financial reports could lead to 
the  circulation  of  outdated  information  which  is  less  valuable  to  the  market  and  would 
increase the risk of market abuse. However, information that could lead to market abuse 
has  in  any  event  to  be  disclosed  according  to  the  Market  Abuse  Directive.  In  addition, 
any  new  issuance  of  listed  securities  has  to  be  accompanied  by  updated  financial 
information  according  to  the  Prospectus  Directive.  Therefore,  investors  should  be 
provided with all necessary information that has to be taken into account in a short period 
of time to make investment decisions. This option also gives issuers extra time to draft 
their reports which could in turn improve the quality of the output. 

This option will allow the analysts to devote more time to the analysis of the half yearly 
results  of  small  and  medium-sized  issuers.  Also  in  the  Member  States  where  the  half 
yearly reports need to be audited, auditors will have more time to provide their opinion.  

This option should not entail any additional costs for regulators.  

37 

 
(3) 

  Requiring  ESMA  to  prepare  non  binding  guidance  (templates)  on  narrative 

content of the financial reports for all listed companies 

Impact  on  issuers:  This  option  would  allow,  for  all  the  issuers,  for  some  reduction  in 
costs  of  preparing  financial  reports,  although  these  costs  could  not  be  estimated.  The 
savings achieved should be particularly beneficial for the small and medium-sized issuers 
as  these  issuers  have  more  difficulties  in  preparing disclosures of  narrative nature. The 
use  of  templates  prepared  at  the  EU  level  could  increase  the  visibility  of  small  and 
medium-sized issuers in the EU as the information disclosed would be more comparable 
and could be more easily analysed by the cross border investors. 

Impact  on  investors:  This  option  should  not  have  negative  effects  on  investors' 
protection.  The  templates  should  find  a  good  balance  between  regulatory  requirements 
and  needs  of  the  investors.  The  templates  should  also  be  adapted  to  the  size  of  the 
issuers,  thus  providing  investors  with  tailor-made  information  and  giving  a  minimum 
guarantee  as  to  the  quality  of  such  information.  This  option  should  also  improve  the 
comparability  of  information  for  cross  border  investors  and  thus  facilitate  their 
investment decisions.  

This option should not entail any additional costs for regulators.  

6.3.2. 

 Policy options to increase the legal clarity and effectiveness of the existing 
transparency regime for disclosure of major holdings of voting rights 

The impacts of the preferred options are: 

(1) 

Disclosure  regime  extended  to  all  instruments  of  similar  economic  effect  to 
holding shares and entitlements to acquire shares 

Impact  on  issuers:  This  option  would  enhance  transparency  of  holdings  of  economic 
interest  in  shares,  therefore  reducing  the  possibility  of  hidden  ownership  and  creeping 
control as companies and the market would have a clearer idea of who holds key interests 
in listed companies. It would help issuers to identify their potential shareholders, leading 
to more effective communication of issuers with investors, shareholders and the market. 
This option will also lead to less information asymmetry, reducing the volatility of share 
price and lowering cost of capital. On the other hand, it will improve market efficiency, 
reducing the possibility for holders of cash-settled derivatives to benefit from not having 
to  pay  a  premium  on  the  share  price  in  case  of  a  future  take-over.  This  option  should 
have  limited  impact  on  ongoing  costs  for  companies  linked  to  processing  and  making 
additional disclosures to the market.  

Impact  on  investors:  The  new  disclosure  regime  covering  all  types  of  financial 
instruments equivalent to share ownership might cause an increase of the organizational 
and compliance costs for holders of these instruments (the maximum estimated one off 
costs  are  from  100  k€  to  600  k€  per  holder  of  cash  settled  derivatives,  but  they  would 
concern only investors who hold significant number of these instruments). It is estimated 
that  the  most  significant  holders  that  would  mainly  incur  the  one-off  costs  should  be 
essentially the hedge funds and the investment banks which will need to update their IT 
systems. For the investment banks, the one off costs could be higher as they will need to 
put in place a more sophisticated internal process.  

38 

 
The  ongoing  costs  of  the  requirement  to  disclose  the  holdings  of  the  cash  settled 
derivatives  could  not  be  estimated  as  they  would  vary  depending  on  the  increase  per 
holder of the number of disclosures in practice.  

This option will be beneficial for investors as the new regime will have a strong positive 
impact on investor protection. It will decrease information asymmetry and contribute to 
protect  investors  from  market  price  manipulation  by  hidden  stock-building.  Minority 
shareholders will also benefit in case of a take-over as potential bidders will have to pay 
the take-over premium for the shares of the underlying company.  

No material costs are expected for the regulators. 

(2) 

Harmonise  the  regimes  of  disclosure  of  major  holdings  of  voting  rights  by 
requiring aggregation of holdings of shares with those of financial instruments 
giving access to shares  

Impact on issuers: This option would have a positive effect on issuers as the principle of 
aggregation  would  improve  the  transparency  and  reduce  the  possibility  to  circumvent 
disclosure  requirements  by  investors  who  would  otherwise  acquire  holdings  of  shares 
and  financial  instruments  with  the  aggregate  economic  position  well  beyond  the 
threshold for notification without disclosing it to the market.  

Impact on investors: This option will have a positive impact on investor protection as it 
would provide for an uniform and more transparent regime across the EU and inform the 
market of the real economic position of the investors. This option could be a source of 
costs linked to additional disclosures in some Member States where there is currently no 
aggregation  requirement.  These  ongoing  costs  could  not  be  estimated  as  they  would 
depend  on  the  number  of  additional  disclosures  that  would  take  place  in  practice. 
However,  investors  are  in  favour  of  a  harmonised  regime  for  disclosure  of  major 
holdings as they consider it would bring a cost reduction. The estimated cost reduction in 
on-going  cost  is  of  77  k€/year/  per  operator  for  the  cross  border  investors.  This  option 
will  also  reduce  legal  uncertainty  for  cross  border  investors  as  it  will  harmonise  the 
method of calculation of the thresholds. 

No material costs are expected for the regulators.  

6.4. 

  Impact  on  third  countries  and  on  international  attractiveness  of  EU 

markets 

As  the  third  countries  issuers  are  also  listed  in  the  EU  stock  exchanges,  they  would 
benefit  from  the  new  measures  reducing  their  administrative  burden  and  the  European 
markets  should  therefore  become  more  attractive  for  third  countries  issuers.  The 
attractiveness  of  European  capital  markets  to  third  countries'  investors  should  not  be 
affected.  In  particular,  it  is  not  expected  that  there  exist  a  reputational  risk  for  the 
perceived  standards  of  EU  markets  relative  to  third  countries'  markets  linked  to  the 
removal of the obligation to publish quarterly information.  

As  explained  in  Annex  5,  some  other  jurisdictions  require  publication  of  quarterly 
information.  However,  contrary  to  the  EU,  they  do  not  require  interim  management 
statements but full quarterly reports. In the US, for example, there are no specific half- 
yearly  reports  but  three  quarterly  statements  established  according  to  the  accounting 
standards.  In  the  EU,  imposing  full  quarterly  financial  reporting  was  not  considered  as 

39 

 
necessary  for  the  purpose  of  investor  protection  on  the  occasion  of  the  revision  of  the 
Transparency Directive in 2004. Therefore, quarterly information currently required for 
companies listed on the regulated markets in the EU is already less elaborated than what 
is  for  example  required  in  the  US  and  there  are  no  voices  criticizing  European  capital 
markets in this respect.  

Equally,  Switzerland  does  not  require  quarterly  financial  information  at  all  on  its 
regulated markets. However, there is nor evidence that Swiss standards are considered as 
not providing sufficient protection to investors. 

In  addition,  the  EU  stakeholders  are  not  alone  in  questioning  the  requirement  for 
quarterly information. In the US, there is also a debate on quarterly reporting even if this 
debate takes place in a different context as explained in Section 3.2.1.3 above.  

Finally,  the  new  regime  of  disclosure  of  major  holdings  of  voting  rights  should  have 
positive  effects  for  international  attractiveness  of  EU  markets  for  both  issuers  and 
investors  (the  impacts  will  be  similar  to  the  ones  identified  for  these  categories  in  the 
EU). 

6.5.  Choice of instrument 

Concerning  the  issues  linked  to  the  small  and  medium-sized  issuers,  only  a  binding 
instrument  can  modify  the  current  minimal  requirements  at  the  EU  level  and  prevent 
Member States from re-imposing similar obligations at the national level. A binding legal 
instrument  should  also  ensure  that  all  Member  States  applied  the  same  regulatory 
framework based on the same principles, thereby ending the current fragmentation of the 
regulatory response concerning the regime of notification of major holdings. However, it 
is necessary to define whether the appropriate legal instrument should be a Directive or a 
Regulation. 

(1) 

Partial modification of the current Directive  

A Directive has the advantage of being a legally binding instrument which at the same 
time  leaves  to  Member  States  the  flexibility  to  adapt  some  measures  to  their  legal  and 
economic  environment.  This  option  would  therefore  provide  an  opportunity  to  aim  for 
maximum harmonisation concerning the regime of notification of major holdings while 
leave,  (with  exception)  the  current  nature  of  minimum  harmonisation  Directive  for  the 
part  on  periodic  disclosure  of  financial  information.  This  principle  of  minimum 
harmonisation on periodic disclosure of financial information will have some exceptions 
as  discussed  in  Section  6  above  and  in  Annex  1.  Also  concerning  the  objective  of 
harmonisation of the regime of notification of major holdings, the analysis of the impacts 
concluded  that  the  maximum  harmonisation  would  not  apply  to  all  the  provisions.  For 
example Member States would be able to adopt lower thresholds for disclosure of major 
holdings  of  voting  rights.  Therefore  a  Directive  seems  an  appropriate  instrument  to 
achieve the operational objectives.  

(2) 

Introduce a Regulation as a new instrument in this field  

In  this  option,  the  revised  Directive  would  be  transformed  into  a  directly  applicable 
Regulation. While a Directive requires national implementing provisions to be adopted, 
leaving  scope  for  interpretation,  the  direct  applicability  of  a  Regulation  would  offer 
greater legal certainty for those subject to the legislation across the EU. Furthermore, a 

40 

 
Regulation would offer the highest degree of harmonisation and any subsequent changes 
to  it  would  be  directly  applicable  without  transposition  delay.  Once  in  force,  it  would 
override incompatible provisions in domestic legislation. 

However,  maximum  harmonisation  is  not  considered  as  the  best  option  for  some 
provisions  of  the  Transparency  directive.  For  example  the  part  of  the  current  directive 
concerning  periodic  financial  information  could  not  be  fully  harmonised.  Also 
concerning major holdings, some flexibility has to be left to the Member States.  

On  this  basis,  the  Commission  services  concluded  that  replacing  the  existing 
Transparency  Directive  by  a  Transparency  Regulation  is  not  the  most  proportionate 
option.  The  most  proportionate  option  to  achieve  the  objectives  would  be  to  partially 
modify the current Directive.  

7. 

  TRANSPOSITION AND COMPLIANCE ASPECTS AND ADMINISTRATIVE BURDEN 

7.1.  Transposition and Compliance 

In  order  to  ensure  a  better  implementation  of  the  Directive  and  following  the 
Commission's communication from December 2010 "Reinforcing sanctioning regimes in 
the  financial  services  sector"90,  the  existing  framework  for  sanctions91  should  be 
improved as explained in Annex 3.  

In particular, the following changes are envisaged in the Transparency Directive:  

a) Give all competent authorities the power to suspend the exercise of voting rights: 
certain  sanctioning  powers  are  particularly  important  to  respond  adequately  to  key 
violations  of  the  Transparency  Directive.  It  should  be  therefore  ensured  that  all 
competent  authorities  have  at  their  disposal  those  powers.  In  particular,  suspend  the 
exercise of voting rights seems the most effective sanction for an issuer who had violated 
the notification requirements for disclosure of major shareholdings of voting rights.  

b) Automatic publication of sanctions: publication of sanctions is considered to be one 
of the most deterrent tools to prevent violations, particularly because of the reputational 
damage that the author of the violation will incur. While almost all competent authorities 
are allowed to publish sanctions, this does not ensure that sanctions are published on a 
systematic  basis  in  all  Member  States.  This  could  be  achieved  by  the  introduction  of  a 
general obligation to publish sanctions. 

c) Introduce criteria to determine the sanctions to be imposed in a particular case: 
some  criteria  are  particularly  important  to  adapt  the  sanction  to  be  imposed,  and 
particularly the level of the administrative fine, to the seriousness and the consequences 
of the violation and to the personal conditions of the author of the violation, which would 
help ensuring effectiveness, proportionality and dissuasiveness of the sanctions actually 
applied. 

90  European Commission (December 2010). 
91  CESR  (2009)  presented  an  overview  of  the  different  sanctions  applicable  in  the  Member  States 
concerning the violations of the provisions of the Transparency Directive. See also ESMA (2011).  

41 

 
                                                 
d) Set a minimum level of the maximum amount of administrative fines: the amount 
of  fines  which  can  be  applied  to  violations  of  the  Transparency  Directive  should  be 
sufficiently high to ensure that the fine has a deterrent effect.  

The  levels  of  fines  provided  for  in  national  legislation  vary  across  Member  States  and 
may be too small in some Member States compared to the benefits that could be realised 
by infringing the rules, for example concerning lack of notification of major holdings of 
voting rights. 

The  following  fundamental  rights  of  the  EU  Charter  are  of  relevance  for  these 
measures:  the  right  to  an  effective  remedy  and  fair  trial  (Art.  47),  presumption  of 
innocence  and  right  of  defence  (Art  48),  freedom  to  conduct  a  business  (Art  16),  data 
protection  (Art  8),  consumer  protection  (Art  38),  and  –  even  though  Art.  49  on  the 
legality  and  proportionality  of  criminal  offences  and  penalties  may  not  be  directly 
applicable  to  all  of  the  administrative  sanctions  envisaged  –  the  general  principles  of 
legality and proportionality underpinning the Charter.  

In  relation  to  these  fundamental  rights,  the  envisaged  measures  would  ensure  that  a 
violation of reporting and notification requirements would be subject to the same type of 
administrative  sanctions  across  the  EU.  These  uniform  rules  would  particularly  ensure 
that  the  types  and  levels  of  administrative  sanctions  that  can  be  imposed  are 
proportionate  to  each  specific  violation  across  all  Member  States.  This  option  will  not 
harmonise  the  national  liability  regimes  and  will  not  affect  the  procedure  for  the 
imposition  of  administrative  sanctions.  Therefore,  it  will  preserve  Member  States’ 
current arrangements ensuring compliance with procedural rights such as the right to an 
effective remedy and to a fair trial (Art. 47), the presumption of innocence and the right 
of defence (Art.48). The obligation to publish sanctions may have a negative impact on 
the  right  to  protection  of  personal  data  (Art.  8)  in  regard  individuals  concerned. 
However,  publication  of  sanctions  is  an  important  element  in  ensuring  that  sanctions 
have a dissuasive effect on the addressees and is necessary to ensure that sanctions have 
a dissuasive effect on the general public. 

7.2.  Administrative burden 

Abolishing  the  requirement  for  quarterly  reports  and  prolongation  of  deadline  for 
publication  of  the  half  yearly  reports  would  bring  a  significant  reduction  of 
administrative burden for all the issuers as explained in Section 6 above and would not 
entail any additional costs for regulators. Taking into account that there is about 12 000 
listed  companies  in  Europe92,  waiving  the  obligation  to  present  quarterly  information 
would bring a potential global cost reduction of about 573 M€, considering only the costs 
of  editing,  printing  and  translating  the  information  and  not  including  the  potential  cost 
reduction  linked  to  preparation  of  such  information,  which  is  difficult  to  numerically 
estimate  but  which,  according  to  Annex  2,  should  be  largely  superior  to  other  costs 
linked  to  disclosure  of  quarterly  information.  Requiring  ESMA  to  prepare  templates  or 
guidance at national level on the narrative content of financial statements would bring a 
cost reduction for issuers. 

92  Source : European Issuers. 

42 

 
                                                 
The  requirement  to  disclose  cash  settled  derivatives  together  with  the  principle  of 
aggregation  of  holdings  of  shares  with  those  of  the  financial  instruments  would  entail 
additional costs on off for investors as explained in Section 6 above. The ongoing costs 
could  not  be  estimated.  However,  maximum  harmonisation  regarding  rules  for 
calculation of thresholds and other rules for notification of major holdings should reduce 
the ongoing administrative costs for about 77 k€/year/ per operator for the cross border 
investors.  

The  implementation  of  the  framework  on  sanctions  will  not  create  an  administrative 
burden  on  companies,  which  are  already  today  subject  to  sanctioning  regimes  in  all 
Member States. More uniform sanctioning regimes throughout the EU may in fact lead to 
reduced compliance costs for market participants through the simplification of the legal 
framework for cross-border financial institutions.  

The total additional resources for ESMA for the tasks that would be conferred to it by the 
proposal  are  estimated  to  be  less  than  one person  a  year  and  should  be  covered  by  the 
reallocation of the existing staff. The resources for the European Commission that would 
arise  from  exercising  its  implementing  powers  and  monitoring  tasks  would  also  be 
covered by the reallocation of the existing staff.  

8. 

  MONITORING AND EVALUATION  

The Commission is the guardian of the Treaty and therefore will monitor how Member 
States have implemented the changes of the Transparency Directive. Where needed, the 
Commission  services  will  offer  assistance  to  Member  States  for  the  implementation  of 
the legislative changes in the form of transposition workshops with all the Member States 
or bilateral meetings at the request of any of them. When necessary, the Commission will 
pursue the procedure set out in Article 258 of the Treaty in case any Member State fails 
to respect its duties concerning the implementation and application of Community Law. 

The  Commission  will  be  monitoring  the  application  of  the  Transparency  Directive,  as 
amended,  through  ESMA  and  an  extensive  and  continuous  dialogue  with  all  major 
stakeholders,  including  market  participants  (issuers,  investors).  It  may  also  use  of  the 
findings of studies carried out by stakeholders. The main indicators that would be used 
during the evaluation would be the following: 

– 

– 

Impact  of  abolition  of  the  requirement  to  publish  quarterly  information  on 
issuers and investors; 

Impact  of  the  new  disclosure  regime  for  major  holdings  on  transparency  of 
corporate ownership given in particular the possibility that the market develops 
new financial instruments. 

The evaluation of the consequences of the application of the revised Directive could take 
place  six  years  after  the  entry  into  force  of  the  legislative  measure  in  the  form  of  a 
Commission report to the Council and the European Parliament. Indeed, the period of 4 
and half years left for evaluation of the current Transparency Directive proved to be too 
short to obtain informative quantitative figures measuring the impact of the Directive in 

43 

 
all the areas concerned93. In order to measure efficiently the impacts mentioned above, 6 
years  period  seems  also  appropriate  as  it  is  necessary  to  take  into  account  the  possible 
progressive modification of behaviour of the different stakeholders (progressive abandon 
of quarterly information) and the possible development of new financial instruments over 
time.   

ESMA can be usefully involved in the evaluation process by providing information to the 
Commission on the supervisory practice, the number of infringements, actions taken, and 
on any undesired effects the Directive might have on market liquidity or trading. 

93   That was one of the conclusions of the Mazars study: see for example the executive summary p. XI. 

44 

 
                                                 
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IOSCO  (February  2010),  Technical  Committee  of  the  International  Organisation  of 
Securities  Commissions,  Principles  for  Periodic  Disclosure  by  Listed  Entities  –  Final 
Report, February 2010. Available at: www.iosco.org. 

Kearns  and  Young  (2002),  "Provision  of  finance  to  smaller  quoted  companies:  some 
evidence  from  survey  responses  and  liaison  meetings,  Bank  of  England".  Quarterly 
Bulletin (2002). 

Kirchmaier et al. (2009), Kirchmaier, Grant and Kirshner, "Financial Tunnelling and the 
Mandatory Bid Rule", FMG Discussion Paper No. 536, January 2009. 

Lemos-Stein (2008), "Poison Pills Target Derivatives", WALL ST. J., June 18, 2008.  

Mazars (2009), Transparency Directive Assessment Report, external study conducted for 
the European Commission. 

Middlenext (2009), Transfert Euronext vers Alternext: synthèse des éléments distinctifs 
significatifs. 

NVCA  (2009),  National  Venture  Capital  Association  releases  Recommendations  to 
Restore Liquidity in the U.S. Venture Capital Industry. 

PWC (2010), "Securing AIM’s future". Available at: 
http://www.pwc.co.uk/eng/publications/aim_research.html 

Rasch (1994), "Special Stock Market Segments for Small Company Shares in Europe – 
What  Went  Wrong?,"  Discussion  Paper  No  94-13,  Zentrum  für  Europäische 
Wirtschaftsforschung GmbH. 

Report of the Reflection Group On the Future of EU Company Law (2011), April 2011. 
Available at: 
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CIMA,  PWC,  Tomorrow's  Company  (2011),  "Tomorrow's  Corporate  Reporting:  A 
critical 
at: 
Available 
http://www.pwc.co.uk/eng/publications/tomorrows-corporate-reporting-a-critical-
system-at-risk.html 

system 

2011. 

risk", 

April 

at 

47 

 
Schiller  and  de  Vegt  (2010),  "Interim  Reporting  and  Accounting  Quality"  August  19, 
2010. Available at SSRN: http://ssrn.com/abstract=1661592 

Schouten (2010), "The Case for Mandatory Ownership Disclosure", 15 Stanford Journal 
of Law, Business & Finance 127-182. 

Verret  (2010),  Assistant  Professor,  George  Mason  University  School  of  Law,  Senior 
Scholar,  Mercatus  Center  at  George  Mason  University,  Hearing  before  the  Senate 
Committee on Banking, Housing, and Urban Affairs, Subcommittee on Economic Policy, 
hearing  entitled  “Short-termism  in  Financial  Markets”,  April  29,  2010.    Available  at: 
http://mercatus.org/sites/default/files/publication/JW%20Testimony%20-%20Short-
termism%20-%204%2028%202010.pdf 

Zetzsche  (2009)  "Hidden  Ownership  in  Europe:  BAFin's  decision  in  Schaeffler  v. 
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Network 

Paper 

48 

 
ANNEX 1 

Detailed analysis: impacts of the policy options   

1.  POLICY OPTIONS WITH REGARD TO SMALL AND MEDIUM-SIZED ISSUERS 

1.1.  Description, analysis and comparison of policy options to allow for more 
flexibility  regarding  the  frequency  and  the  timing  of  publication  of 
periodical financial information for small and medium-sized issuers 

The  options  described  and  analysed  in  this  Section  are  not  mutually  exclusive  and 
preferred  option  could  be  a  combination  of  different  options.  In  addition  to  the  criteria 
presented in Section 6 of the impact assessment document, there is a need to assess the 
impact of the options in this Section, on visibility of small and medium-sized issuers, on 
reduction of costs for the small medium issuers and the impact on short-termism.  

1.1.1.  Option 1 – No new action 

This option would result in no change to the present situation as described in the first part 
of the baseline scenario in the impact assessment document, Section 4.1. This option will 
not achieve the objective. 

1.1.2.  Option 2 - abolish the obligation to present quarterly financial reports and/ or 

interim management statements for small and medium-sized issuers 

(1) 

Effectiveness 

This option would be effective to achieve the operational objective at the level of the EU 
legislation.  However,  removing  the  requirement  for  quarterly  information  in  the 
Transparency Directive would not, under the actual regime, prevent Member States from 
maintaining an obligation at national level to publish such information for the small and 
medium-sized issuers.   

Indeed, already today Member States often go far beyond the minimum requirements of 
the Directive and introduce their own additional obligations at national level (see Annex 
5). In order to be effective, therefore,  this option should include a provision to prevent 
Member States from re-imposing an analogue reporting requirement at national level for 
small  and  medium-sized  issuers.  Also,  as  one  of  the  objectives  of  the  review  is  to 
eliminate  unnecessary  administrative  burden  for  companies,  it  has  to  be  ensured  that 
Member  States  do  not  require  more  than  necessary  i.e.  "gold  plate".  Maximum 
harmonisation concerning this provision will then ensure that all the listed companies in 
the EU benefit in an equal manner from the reduction of the administrative burden. 

However, 69% of the respondents to the public consultation that provided an answer to 
the  relevant  question  were  not  in  favour  of  a  maximum  harmonisation  approach  if  a 
differentiated  regime  for  small  listed  companies  were  added  to  the  Transparency 
Directive.  Some  of  the  respondents  underlined  that  if  such  maximum  harmonisation 
approach was implemented, the issuers should be free to publish quarterly information. 

Under  this  option,  even  if  there  is  no  mandatory  requirement  to  publish  quarterly 
information, small companies that find it useful to do so or because they are pressured by 

49 

 
 
their investors or the stock exchanges they chose to list on, would be able to provide the 
same information as the large companies. 

Therefore, this option would avoid over-regulation, and at the same time allow issuers to 
adapt their disclosure to the investors' and markets' needs. 

(2) 

Impact on reducing disclosure costs for small and medium-sized issuers 

This option would enable smaller companies to reduce the costs associated with listing 
on  regulated  markets  by  making  the  publication  of  quarterly  financial  information 
voluntary  rather  than  mandatory.  Those  companies  which  do  not  estimate  useful  to 
publish  such  information  could  therefore  omit  quarterly  information,  and  redeploy  the 
resources made available elsewhere.  

Preparing  financial  information  has  costs  in  terms  both  of  additional  expenditure  for 
printing and editing the reports and allocation of human resources within the company to 
prepare these reports (these costs are further explained in Annex 2).  

The  average  estimated  cost  reduction,  excluding  costs  linked  to  preparation  of  the 
quarterly information, is varying from 2 k€ to 60 k€/per year/per issuer for the small and 
medium-sized  issuers.  The  reduction  in  costs  concerning  the  staff  employed  to  prepare 
this  information  could  not  be  estimated  in monetary  terms  for  small  and  medium  seize 
issuers: this reduction is varying, per issuer, from 8 man-days/a year to 30 man-days/ a 
year.  The  costs  of  preparation  of  full  quarterly  reports  according  to  the  accounting 
standards  would  be  much  higher  as  underlined  by  the  respondents  to  the  public 
consultation. 

Opportunity  costs  for  the  management  and  the  Board  which  have  to  spend  time  to 
approve  the  quarterly  information  should  also  be  reduced.  Smaller  companies,  by 
definition,  have fewer  staff  than  larger companies, and their management resources are 
generally  stretched  already.  Removing  the  obligation  of  quarterly  financial  information 
will  free  up  management  time  for  other  more  useful  tasks  and  therefore  reduce  the 
“opportunity costs” associated with listing the company's shares on a regulated market. 

(3) 

Impact on visibility of small and medium-sized issuers   

Some  stakeholders  consider  that  reducing  the  amount  of  mandatory  public  information 
for small and medium-sized issuers would have the effect of diminishing their visibility 
even  further.  Just  because  these  companies  are  considered  as  more  risky  by  investors 
than larger companies, they need to provide as much periodic information as possible in 
order  to  counteract  this  perception  and  reassure  the  market.  It  is  also  argued  that  if  a 
lighter  disclosure  regime  is  established  for  small  and  medium  issuers,  it  will  have  a 
negative impact on their visibility.  

However,  the  potential  benefit  to  be  derived  from  disclosure  of  quarterly  financial 
information  is  controversial,  and  is  often  considered  by  the  actors  themselves  as 
negligible.  Quarterly  financial  reports  and  interim  management  statements  rarely  serve 
the purpose of disclosing market-sensitive information which can change perceptions of 
fundamental  value  or  trigger  price  movements,  since  any  material  information  will 
already  have  been  announced  to  the  market  under  on-going  disclosure  requirements  as 
laid down by the Market Abuse Directive. 

50 

 
Smaller  companies  have  fewer  shareholders  and  free  float,  and  their  investors  are 
generally  located  in  the  market  where  the  company  has  its  operations.  As  a  result,  for 
many small  and medium-sized  issuers, first-hand knowledge of a company's operations 
plays a far greater role in determining investment decisions than access to more formal 
sources of financial information. This explains why these companies are among the most 
vocal in denouncing the disproportional cost of compliance with the current provisions of 
the Transparency Directive94.  

In  addition,  removing  the  requirement  for  quarterly  information  would  allow  small 
companies  to  redirect  their  resources  to  other  channels  and  methods  for  informing 
investors  and  intermediaries  of  events  they  deem  important  (press  releases,  ad  hoc 
reports,  meetings  with  analysts  and  investors,  site  visits,  media  coverage,…),  and  to 
focus their energy on other means they deem best able to ensure maximum visibility for 
their operations. 

Nevertheless,  although  the  benefits  for  quarterly  information  are  questionable,  investor 
community could perceive a differentiated transparency regime for these companies as a 
wrong signal to the market and thus such a differentiated regime could negatively impact 
the visibility of smaller issuers. 

(4) 

Impact on short-termism 

The  emphasis  on  short-term  financial  performance  has  multiple  causes,  but  is  the 
obligation  to  provide  quarterly  information  is  a  regulatory  incentive  exacerbating  this 
culture.  By  making  quarterly  reporting  voluntary,  this  option  would  contribute  to 
reducing this pressure on small and medium-sized issuers, and help create an investment 
environment more favorable to securing long-term support for ambitious and innovative 
projects based on an in-depth understanding of the underlying business model. Not only 
small issuers would not be required to disclose their quarterly financial position but they 
will  be  also  able,  if  they  wish  so,  to  redirect  their  resources  in  order  to  develop 
communications about their long term strategy and values95.  

(5) 

Impact on investor protection 

This  option  would  not  have  a  negative  impact  on  investor  protection.  When  the  interim 
management statements were introduced in 2004, it was decided that full quarterly reporting 
would not be necessary for investor protection in the EU: full quarterly reports are also more 
costly in terms of burden imposed on listed companies; especially the smaller ones and they 
could  be  even  a  bigger  inventive  for  the  short  termism  than  the  interim  management 
statements  are.  Investor  protection  is  already  sufficiently  guaranteed  through  the 
mandatory disclosure of half yearly and yearly results, as well as through the disclosures 
required  by  the  Market  Abuse  and  Prospectus  Directives.  In  fact,  Market  Abuse 
Directive already requires issuers to disclose inside information as soon as possible to the 
market.  This  inside  information  includes  all  information  that  is  likely  to  have  a 
significant  effect  on  the  prices  of  financial  instruments  listed  on  regulated  markets.  In 
addition,  Prospectus  Directive  requires  issuers  of  securities  admitted  to  trading  on 
regulated  markets  to  publish  a  Prospectus  for  each  new  share  issuance  which  increases 
issuer's  capital,  subject  to  some  exceptions.  This  Prospectus  contains  financial 
information,  including  the  management's  explanation  of  factors  that  have  affected  the 

94  Mazars (2009), section 2.3.5. 
95    Such form of communication is for example envisaged by CFA Institute: see CFA (2006). 

51 

 
                                                 
company's financial condition and results of operations for the historical periods covered 
by the financial statements, and management's assessment of factors and trends which are 
expected  to  have  a  material  effect  on  the  company's  financial  condition  and  results  of 
operations in future periods.  

Therefore, investors should be duly informed about important events and facts that could 
potentially  influence  the  price  of  the  underlying  shares  independently  of  the  quarterly 
information  as  foreseen  in  the  Transparency  Directive.  Other  information,  which  does 
not  need  to  be  disclosed  to  the  market  urgently,  is  better  disclosed  in  the  yearly  or  the 
half yearly financial statements which are prepared under the accounting standards and 
give  high  quality  information  to  the  investors.  In  contrast,  interim  management 
statements  are  not  prepared  according  to  the  accounting  standards  and  therefore  the 
information they provide might be of lower quality. Information disclosed in this kind of 
reports is also not easily comparable. 

Lack of comparability of information contained in the interim management statements is 
in  particular  relevant  for  the  small  and  medium  sized  issuers.  Indeed,  investors  (and 
intermediaries)  often  consider  that  the  kind  of  information  small  and  medium-sized 
issuers disclose is not sufficiently focused and streamlined for it to be easily comparable, 
thus leading to a discouragingly high research burden in order for it to be made usable96. 
There is also a general perception that the total amount of information communicated to 
the markets is currently too high97. Investors often underline that what matters most is the 
quality  of  information,  not  the  quantity.  Recent  research  shows  that  there  are  many 
circumstances  in  which  interim  reporting  does  not  improve  accounting  quality, 
sometimes, it even reduces it98. Thus, it does not seem necessary to mandate disclosure 
of interim management statements in legislation. 

On the other hand, quarterly financial information is considered to be useful by a number 
of stakeholders. The results of the public consultation are non clear cut on this point. The 
majority  of  respondents  to  the  public  consultation  find  quarterly  financial  information 
valuable and believe that it enhances the transparency and efficiency of the markets. In 
this  respect,  59%  of  respondents  to  the  relevant  question  in  the  public  consultation 
believed  that  waiving  the  obligation  to  disclose  quarterly  financial  reports  or  interim 
management  statements  for  small  listed  companies  would  result  in  a  diminution  of 
transparency and would therefore reduce investors' protection and confidence.  However, 
100 % of issuers and 50 % of investors who have responded to this question were of the 
view  that  this  requirement  could  be  abolished  for  small  and  medium-sized  issuers 
without negative impact on transparency. Those respondents that opposed to abolishment 
of  quarterly  information  for  small  and  medium-sized  issuers  were  the  stock  exchanges 
(100%),  public  authorities  (90%)  and  auditors  and  accountants  (100%).  One  important 
argument of the respondents to this question, opposed to the removal of the obligation to 
publish quarterly information for small and medium-sized issuers, was that a differentiate 
transparency regime according to the size of the issuer would confuse the investors.  

According to the external study performed by Mazars, the majority of stakeholders in the 
EU  (68,8%)  consider  that  publication  of  quarterly  information  is  useful  for  the 
transparency  and  the  efficient  functioning  of  the  market.  However,  a  different  result 

96  Such  views  were  for  example  expressed  during  the  public  conference  from  June  2010: 

http://ec.europa.eu/internal_market/securities/transparency/index_en.htm 

97  See for example: Tomorrow's Corporate Reporting (2011). 
98   Schiller and de Vegt (2010). 

52 

 
                                                 
comes from three important capital markets in the EU: 66,7% of the stakeholders from 
the UK, 50 % from Luxembourg and 44% from France consider that this information is 
not useful99.  

Whereas  quarterly  information  could  be  useful  for  a  number  of  investors,  it  does  not 
seem necessary to guarantee investor protection, as explained above. Therefore, it seems 
possible to leave to the market and to issuers themselves to decide on whether it is useful 
to provide such information on the market or not.  

If  there  is  no  mandatory  requirement  to  publish  quarterly  information,  small  and 
medium-sized issuers will be free to publish whatever information they consider will be 
most  useful  for  their  investors  and  analysts,  who  in  turn  will  be  able  to  engage  in  a 
dialogue  with  them  about  what  information  they  most  need,  and  to  “vote”,  via  their 
capital allocation decisions, against those companies which do not take their criteria into 
account. 

However, 60% of respondents to the public consultation that have provided an answer to 
the  relevant  question  believe  that  a  differentiated  regime  for  small  listed  companies 
would result in a perceived gap in investor protection.  

(6) 

Efficiency 

This option would entail costs for regulators linked to the need to periodically check the 
size of the companies which do not publish quarterly financial reports to ensure that they 
remain  eligible  for  this  exemption.  These  costs  could  not  be  estimated  as  they  would 
depend of the method retained to define a small and medium-sized issuer.  

1.1.3.  Option 3 – abolishing the obligation to present quarterly financial reports and/ 
or interim management statements for small and medium-sized during an initial 
period of 3 years after admission to trading  

In  his  report,  Demarigny100  proposed  that  the  publication  of  Quarterly  Interim 
Management Statements should become compulsory for small and medium-sized issuers 
only after three years of admission to trading on a regulated market. Such an option was 
also put forward by some respondents to the public consultation.  

(1) 

Effectiveness 

This option would be less effective to achieve the operational objective as it would only 
temporarily alleviate the requirement to publish quarterly reports. Similarly to Option 2, 
in order to be effective, this option should include a provision to prevent Member States 
from re-imposing an analogue reporting requirement at national level.  

(2) 

Impact on reducing disclosure costs for small and medium-sized issuers 

This option would allow cost savings only during the first three years after admission to 
trading. Therefore its impact to reduce costs for small and medium-sized issuers will be 
limited.  However, the first three years of listing are the most critical for issuers in terms 

99   See Mazars (2009) section 2.6.3 and Annex 5. 
100  Demarigny (2010) p. 26, Recommendation Number 9. 
53 

 
                                                 
of  burdens  and  therefore  it  is  especially  important  to  reduce  costs  for  the  newly  listed 
companies.  

(3) 

Impact on visibility of small and medium-sized issuers   

The  same  impacts  as  these  described  for  Option  2  apply  for  this  option.  It  could  be 
argued  that  newly  listed  companies  need  to  provide  even  more  information  than  the 
others  in  order  to  increase  their  visibility.  However,  as  for  Option  2,  their  operational 
transparency  could  be  more  appropriately  ensured  through  information  and  material 
event disclosure  requirements, rather than through a further layer of financial reporting 
obligations. Nevertheless, creating a differentiate regime for these companies could have 
a negative impact on their visibility. 

(4) 

Impact on short-termism 

This option would, compared to the other options, have a more limited impact on short-
termism as it would apply to limited number of listed companies and for a limited period 
of time. 

(5) 

Impact on investor protection  

The  same  impacts  as  these  described  for  Option  2  would  apply.  Nevertheless, 
introducing a different transparency regime according to the size and the age of an issuer 
operating in the same regulated market could potentially be confusing for investors. Also 
some  stakeholders  argue  that  quarterly  information  is  mostly  necessary  during  the  first 
three years after admission of trading. Before introduction of quarterly information in the 
Transparency Directive, in the UK, quarterly reporting was for example required only for 
companies with a listing track record of less than three years. 

(6) 

Efficiency 

This option would entail costs for regulators linked to the need to periodically check the 
size  and  the  age  of  the  companies  which  do  not  publish  quarterly  financial  reports  to 
ensure that they remain eligible for this exemption.  

1.1.4.  Option  4  –  abolishing  the  obligation  to present quarterly  financial reports for 

all listed companies  

(1) 

Effectiveness  

This option would be as effective as Option 2 in achieving the operational objective. In 
addition,  if  the  requirement  for  quarterly  information  is  abolished  for  all  listed 
companies,  there  will  be  less  pressure  on  small  listed  companies  to  produce  quarterly 
reports.  

However,  as  for  Option  2,  simply  abolishing  this  obligation  at  EU  level  would  not 
prevent  Member  States  from  maintaining  an  obligation  at  national  level  to  publish 
quarterly  financial  information.  In  order  to be  effective,  Option  4  should  therefore  also 
prevent Member States from re-introducing such a requirement at the national level.  

This option would, however, leave it open for the companies themselves to publish this 
information if they deem it useful for their investors or analysts. 

54 

 
For larger companies, it can be considered that, whatever their legal obligations are, the 
majority would continue to publish quarterly financial information as at present if there is 
a demand from analysts, investors and stock exchanges on which they chose to list101 and 
in order to maintain their 'brand' image.  

(2) 

Impact  on  reducing  disclosure  costs  for  small  and  medium-sized 
issuers 

Option 4 would produce the same cost reductions for small and medium-sized companies 
as  under  Option  2  described  above.  The  average  estimated  cost  reduction,  excluding 
costs  linked  to  preparation  of  the  quarterly  information,  is  varying  from  35  k€  to  250 
k€/per  year/per  issuer  for  large  issuers.  The  maximum  total  cost  reduction  (including 
costs  linked  to  the  staff  involved in  preparation  of  these reports)  could  be  estimated as 
being maximum 2 M €/per year/per issuer (See Annex 2). Although, if larger companies 
continue  to  publish  quarterly  financial  information  in  practice  (as  described  under  (1) 
above), this cost reduction would only concern minority of large issuers. 

The positive impact for the small and medium-sized issuers could also be mitigated by 
the possibility of "coordination failure": i.e small and medium-sized issuers may wait for 
each other to modify the frequency of their reporting. Nevertheless, the proposed Option 
should send a strong signal to the market and stimulate a debate which should encourage 
behavioural changes. 

(3) 

Impact on the visibility of small and medium-sized issuers  

Option 4 would have the same effect in this respect as would Option 2 described above.  

However,  Option  4  would  avoid  the  possible  negative impact on the  visibility  of small 
and medium-sized issuers that could be identified under Option 2: the same rules would 
apply to all listed companies, irrespective of their size, avoiding the risk that the visibility 
of small and medium-sized issuers is hampered by a lighter transparency regime applied 
to them. 

(4) 

Impact on short-termism   

Option  4  would  produce  the  same  results  as  would  Option  2,  described  above.    Short-
term  performance  pressure  on  management  and  investment  strategies  has  negative 
consequences for small as well as for large issuers, even if it is particularly harmful for 
smaller emerging companies. Consequently, the benefits described under Option 2 above 
would also potentially extend to a far larger number of companies. Removing mandatory 
quarterly  information  for  all  issuers  would  thus  be  coherent  with  recent  Commission 
initiatives  encouraging  financial  institutions  and  issuers  to  establish  incentives  for  a 
longer-term vision102. 

101  There  is  for  example  a  distinction  between  premium  and  standard  listing  for  example  in  UK  or 
Germany.  Premium listing is addressed mainly to the biggest listed companies which accept to follow 
stricter rules in order to benefit from the "premium listing" label.   

102   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 
55 

 
                                                 
(5) 

Impact on investor protection   

Option  4  will  potentially  produce  the  same  impact  on  investor  protection  as  described 
under  Option  2,  although  the  number  of  companies  to  which  Option  4  would  apply 
would be greater. However as the same rules will apply to all issuers irrespective of their 
size, there is no risk of confusion of investors as identified under Option 2 and 3.  

(6) 

Efficiency  

Option 4 should have the same impact on efficiency as described under Option 2 above. 
However, Option 4 would avoid the need for supervisors to periodically check the size of 
the  companies  which  are  allowed  not  to  publish  quarterly  financial  information,  as  all 
companies  will  be  exempted  from  such  requirement.  Consequently,  Option  4  will  be 
more  efficient  as  compared  to  Options  2  and  3  with  regard  to  related  costs  for 
supervisory authorities. 

1.1.5.  Option  5  –  extending  the  deadline  for  publishing  the  half  yearly  reports  to  3 
months after the end of the respective reporting period for all listed companies  

(1) 

Effectiveness  

This  option  leaves  flexibility  to  the  issuers  to  publish  their  half  yearly  rapports  at  the 
time that they consider to be the most suitable, within the limits of the extended deadline. 
In  order  to  be  effective,  this  option  should  not  allow  Member  States  to  shorten  the 
deadline of publication of half yearly reports.  

(2) 

Impact in reducing disclosure costs   

A quarter of respondents to the relevant question in the public consultation believed that 
extending  the  deadline  of  publication  of  financial  reports,  in  particular,  half-yearly 
reports,  would  result  in  a  reduction  in  costs  for  issuers.  The  following  types  of  costs 
which could be reduced were mentioned: the burden on boards and senior management 
(opportunity  cost);  accounting  costs  (e.g.  less  need  to  hire  external  staff/consultants  in 
certain periods for accounting needs because workload of internal staff would be better 
spread throughout the year, less overtime paid); auditing costs (e.g. easier for auditors to 
cope with the work); extra hours (both of in-house staff and of external auditors).  

However, it seems that the monetary cost reduction linked to the extension of deadline 
for  publication  of  half-yearly  reports  would  be  marginal  (about  half  of  the  respondents 
did  not  believe  that  an  extension  of  the  deadline  for  publication  of  financial  reports 
would result in any significant cost reduction). 

Nevertheless, some of the respondents to the public consultation were enthusiastic about 
the  non-monetary  advantages,  in  particular  greater  flexibility  that  could  result  from  an 
extension  of  the  deadline  for  the  publication  of  half-yearly  reports  from  two  to  three 
months.  This  would  enable  the  issuers  to  better  organise  the  necessary  work,  relieve 

for  the  remuneration  of  directors  of  listed  companies,  OJ  L  120,  15.5.2009.  See  also  European 
Commission Green Paper "Corporate governance in financial institutions and remuneration policies" 
COM(2010)  284  from  2  June  2010  and  European  Commission  Green  Paper  "The  EU  corporate 
governance framework" COM(2011) 164 from 5 April 2011. 

56 

 
                                                                                                                                                 
administrative complexities, improve the quality of the output and secure the services of 
auditors. 

(3) 

Impact on visibility of small listed companies 

This option would contribute to solve the issue of visibility described in Section 3.2.1.4. 
Indeed, this Option would avoid that the publication of the reports falls in the month of 
August where the market activity is reduced, which is now the case for the majority of 
listed  companies,  as  explained  in  Section  3.  Therefore,  it  would  leave  more  time  for 
analysts and investors to look at and analyse the half-yearly results of issuers, including 
the smaller ones. In addition, small and medium-sized issuers will be able to adjust more 
easily the timing of publication of their reports so as not to fall at the same time as the 
disclosure of the reports by large listed companies. 

This option goes also into the direction indicated by the respondents to the consultation: 
it provides for the same rules for all listed companies. It avoids the risk that visibility of 
smaller listed companies would be hampered by lighter transparency regime applicable 
to them. 

(4) 

Impact on short termism   

This option should not have any impact on short termism. 

(5) 

Impact  on investor protection  

Some  stakeholders  express  negative  views  on  the  possibility  of  extending  the  deadline 
for  publication  of  financial  information  as  being  damageable  to  investor  protection. 
According  to  them,  late  publication  of  financial reports could  lead  to the circulation of 
outdated information which is less valuable to the market and would increase the risk of 
market abuse.  

However, this argument is not convincing. Information that could lead to market abuse 
has  in  any  event  to  be  disclosed  according  to  the  Market  Abuse  Directive.  In  addition, 
any  new  issuance  of  listed  securities  has  to  be  accompanied  by  updated  financial 
information  according  to  the  Prospectus  Directive.  Therefore,  investors  should  be 
provided with all necessary information that has to be taken into account in a short period 
of time. This option also gives issuers extra time to draft their reports which could in turn 
improve  the  quality  of  the  output  and  therefore  could  be  beneficial  for  investors' 
protection. 

Again,  as  previously  described,  the  majority  of  respondents  to  the  public  consultation 
call for a single set of rules for disclosure, irrespective of the size of issuers. A single set 
of rules would better insure investor protection. This option is on line with this approach. 

(6) 

Efficiency 

This  option  should  not  entail  any  additional  costs  for  issuers  or  supervisory  authorities 
and is therefore cost-efficient. 

57 

 
 
1.1.6. 

 Option 6 - extending the deadline for publishing half yearly reports to 3 months 
after  the  end  of  the  respective  reporting  period  for  small  and  medium-sized 
issuers 

(1) 

Effectiveness 

This  option  would  extend  the  current  deadline  for  the  publication  of  the  half-yearly 
financial  reports  for  small  and  medium-sized  issuers  and  leave  the  current  deadline  of 
two  months  unchanged  for  larger  companies.  The  suggestion  of  having  different 
deadlines  for  smaller  listed  companies  has  been  recommended  by  IOSCO103  and  is 
currently practiced in the US104. It is also recommended in the External Study in order to 
enhance  market  efficiency105.  This  option  will  be  efficient  to  achieve  the  operational 
objective if Member States are not allowed to shorten the deadline of publication of half-
yearly reports for small and medium-sized issuers. 

(2) 

Effectiveness in reducing disclosure costs  

The  same  as  for  Option  5.  However,  the  cost  reduction  will  concern  a  more  limited 
number of companies.  

(3) 

Impact on visibility of small listed companies 

This option is expected to have a positive impact on the visibility of small and medium-
sized  issuers:  as  the  half  yearly  reports  will  not  be  issued  at  the  same  time  for  all  the 
companies, this will avoid the bottleneck of the financial reports and users would be able 
to  devote  more  time  to  analyse  the  results  of  the  small  and  medium-sized  issuers. 
However,  as  explained  above,  a  similar  result  could  be  achieved  by  extending  the 
deadline for all issuers.  

(4) 

Impact on short-termism   

This option should not have any impact on short-termism. 

(5) 

Impact on investor protection  

The  impact  on  investor  protection  should  be  the  same  as  for  Option  5.  However,  this 
option  introduces  a  differentiation  of  rules  according  to  the  size  of  an  issuer.  Such 
different rules could be confusing to the investors.  

(6) 

Efficiency 

This  option  entails  a  cost  for  the  regulators  linked  to  the  need  to  check  the  size  of  the 
company subject to the extension of the deadline for publication of financial reports on 
regular basis. As compared to Option 5, this option would therefore be less cost-efficient. 

1.1.7.  Conclusion 

Given that quarterly information is not necessary in order to ensure investor protection, 
that this requirement has relatively high costs and the fact that it makes a non-negligible 

 IOSCO (February 2010), p.23. 
 See Annex 5. 

103 
104 
105   See Mazars (2009), Possible Improvement n°4. 

58 

 
                                                 
contribution  to  the  short-term  pressure  on  all  issuers,  it  does  not  appear  desirable  to 
maintain a legal obligation on issuers at EU level to publish such information (Option 4).  

While the main target of this action are small and medium-sized issuers, the majority of 
respondents  to  the  public  consultation  believe  that  it  is  not  desirable  to  have 
differentiated regimes for company listed on regulated market according to their size, as 
this could undermine investors' protection. It would therefore be preferable to adapt the 
standard regime to make it better suited to the needs of smaller companies, rather than to 
introduce a separate regime based on the size of the issuer.  

There is also some evidence that the deadline of publication of half yearly reports could 
be  prolonged  for  all  listed  companies.  Option  5  should  have  a  positive  impact  on 
visibility  of  small  and  medium-sized  issuers.  It  will  also  reduce  costs  for  all  the  listed 
companies  but  specifically  for  the  small  and  medium-sized  issuers  without  having 
negative impact on investor protection.  

In addition, Options 4 and 5, which foresee a single voluntary regime for all companies, 
regardless  of  size,  represent  the  most  efficient  options  as  compared  to  related  costs. 
These options are also proportionate to achieve the operational objectives as they bring 
significant benefits for small and medium-sized issuers without creating a specific set of 
rules for disclosure of periodic information according to the size of the issuers that could 
have negative effects on investor protection and that could entail costs for regulators. 

It would therefore seem that Options 4 and 5 are the best policy option, Options 1, 2, 3 
and 6 should therefore be rejected. 

59 

 
Table  1:  Impact  of  options  to  allow  for  more  flexibility  regarding  the  frequency  and  the 
timing of publication of periodical financial information for small and medium-sized issuers 

Options 

Effectiveness  

Impact on 
reducing 
disclosure 
costs for small 
and medium-
sized issuers 

Impact on 
visibility of 
small and 
medium-sized 
issuers   

Impact on 
short-termism 

Impact on 
investor 
protection 

Efficiency 

Option 1:  

No new action 

Option 2: 

present 

Abolishing    the  obligation 
to 
quarterly 
financial  reports  and/  or 
management 
interim 
statements  (IMS)  for  small 
and medium-sized issuers 

Option 3:  

Abolishing the obligation to 
present  quarterly  financial 
reports  and/  or  IMS  for 
small  and  medium-sized 
initial 
issuers  during  an 
period  of  3  years  after 
admission to trading 

Option 4:  

present 

Abolishing  the  obligation 
to 
quarterly 
financial  reports  and/  or  
IMS 
listed 
for 
companies 

all 

Option 5:  

Extending the deadline for 
publishing  half 
yearly 
reports  to  3  months  after 
the  end  of  the  respective 
reporting  period  for  all 
listed companies 

Option 6: 

half 

Extending  the  deadline  for 
yearly 
publishing 
reports to 3 months after the 
end 
respective 
the 
reporting  period  for  small  
and medium-sized issuers 

of 

= 

= 

= 

++ 

++ 

=/- 

= 

+ 

= 

- 

= 

+ 

+ 

+ 

=/- 

= 

- 

+ 

++ 

++ 

= 

++ 

= 

++ 

++ 

+ 

+ 

n.a. 

= 

++ 

++ 

+ 

++ 

n..a 

=/- 

+ 

Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

60 

 
 
1.2. 

Description,  analysis  and  comparison  of  policy  options  to  simplify  the 
narrative parts of financial reports for small and medium-sized issuers 

In addition to the criteria presented in Section 6, there is a need to assess the impact of 
the options on visibility of small and medium-sized issuers and on reduction of costs for 
the small medium issuers. 

1.2.1.  Option 1 – No new action 

This option would result in no change to the present situation as described in the first part 
of the baseline scenario in the impact assessment document, Section 4.1. This option will 
not achieve the objective. 

1.2.2.  Option  2  -  Harmonising  the  maximum  content  of  narrative  parts  of  financial 

reports at the EU level for small and medium-sized issuers 

The  following  disclosure  requirements  were  identified  (in  addition  to  the  obligation  to 
publish  quarterly  reports  as  described  above)  by  the  respondents  to  the  public 
consultation  as  particularly  complex  for  small  listed  companies  with  regard  to  the 
narrative  content  of  financial  reports:  compliance  with  the  corporate  governance 
requirements and corporate social responsibility disclosures. The obligations that fall on 
small listed companies could be made simpler if the narrative part of the annual financial 
report and of half-yearly were subject to maximum harmonisation at EU level.  

(1) 

Effectiveness 

This  option  would  be  effective  to  achieve  harmonised  standards  for  narrative  reporting 
which could simplify the current obligations for small and medium-sized issuers in some 
Member  States.  However,  it  could  make  the content of these  reports more complicated 
for  the  small  and  medium-sized  issuers  located  in  the  Member  States  where  currently 
only a limited amount of information has to be provided.  

(2) 

Impact  on  reducing  disclosure  costs  for  small  and  medium-sized 
issuers 

Some respondents to the public consultation considered that a measure of cost reduction 
could  be  achieved  by  this  means.  In  particular,  internal  administrative  costs  could  be 
reduced because it would be possible to partly automate the process of preparing reports. 
Still,  most  respondents  could  see  no  scope  for  cost  reductions  arising  from  maximum 
harmonisation of narrative reports for small and medium-sized issuers. On the contrary, 
according to these respondents, maximum harmonisation across Europe of the content of 
narrative reports could lead to an increase in financial reporting obligations, and hence in 
compliance  costs,  for  those  small  and  medium-sized  issuers  which  for  the  time  being 
have to provide a limited number of information in these narrative reports. 

(3) 

Impact on visibility for small and medium-sized issuers 

Maximum  harmonisation  at  the  EU  level  could  increase  the  visibility  of  small  and 
medium-sized  issuers  at  the  EU  level  as  the  information  disclosed  would  be  more 
comparable and could be more easily analysed by the cross border investors.  

(4) 

Impact on investor protection  

61 

 
On the other hand, whilst maximum harmonisation at the EU level would allow for more 
comparability  of  information  for  cross  border  investors  and  thus  facilitate  their 
investment decisions, respondents to the public consultation highlighted that the quality 
of the narrative reporting was crucial for investors. If the threshold at the EU level for the 
content were set too low in the hope of saving costs, this may have negative implications 
for investors. 

(5) 

Efficiency  

Harmonising  the  content  of  narrative  reports  should  not  entail  any  additional  costs  for 
supervisory authorities. However, as described above, this option could entail additional 
costs for some small and medium-sized issuers as compared to the current situation and 
thus not be cost-efficient and even be contrary to its objective.  

1.2.3.  Option 3 - Require ESMA to prepare non binding guidance (templates) on the 

narrative content of the financial reports for all listed companies 

(1) 

Effectiveness  

Instead of harmonising the content of the narrative reports in the EU legislation for small 
and  medium-sized  issuers,  ESMA  could  be  required  to  design  non-binding  guidance 
(templates) for such reports for different categories of listed companies. When preparing 
the guidelines, ESMA should take into account in particular the capacities of the small 
and  medium-sized  issuers.  Most  respondents  to  the  relevant  question  in  the  public 
consultation  saw  some  value  in  the  possible  preparation  of  ready-to-use  templates  for 
narrative disclosures, provided they were not mandatory. This option would be therefore 
effective to achieve the operational objective.  

(2) 

Impact  on  reducing  disclosure  costs  for  small  and  medium-sized 
issuers 

This  option  could  achieve  cost  savings  for  all  the  categories  of  issuers  which  would 
decide to use such templates. The cost savings should be higher for small and medium-
sized  issuers  which  do  not  have  internal  capacities  to  prepare  such  reports  and  which 
normally  have  to  outsource  this  task,  including  the  legal  review  for  compliance.  These 
companies  could  use  the  template  which  will  facilitate  the  drafting  of  the  reports,  and 
therefore  spare  the  external  legal  and  compliance  advice.  On  the  other  hand,  as  the 
templates would not be binding, the issuers not willing to use them because they would 
consider that they increase their costs, would not be required to do so.  

(3) 

Impact on visibility for small and medium-sized issuers 

The use of templates prepared at the EU level could increase the visibility of small and 
medium-sized issuers in the EU as the information disclosed would be more comparable 
and could be more easily analysed by the cross border investors.  

(4) 

Impact on investor protection  

Some  respondents  to  the  public  consultation  considered  templates  for  narrative 
disclosures  as  likely  to  result  in  box-ticking  disclosures.  However,  it  seems  that  well 
designed  non  mandatory  templates  could  streamline  the  narrative  reporting  in  order  to 
make it better suited to the investors' needs.  ACCA in its report on narrative reporting 
underlines that even though 88% of the respondents to its survey "considers shareholders 

62 

 
to  be  the  most  important  audience,  legal  and  regulatory  requirements  are  considered 
equally  important  drivers  of  narrative  reporting"106.  It  is  therefore  important  that  the 
templates  find  a  good  balance  between  regulatory  requirements  and  needs  of  the 
investors.  The  templates  should  therefore  be  adapted  to  the  size  of  the  issuers,  thus 
providing investors with tailor-made information and giving a minimum guarantee as to 
the  quality  of  such  information.  As  underlined by  ACCA, the  globalisation of  business 
has led to calls for greater consistency in the information provided to stakeholders across 
jurisdictions107.  This  option  should  respond  to  this  call  as  it  would  improve  the 
comparability  of  information  for  cross  border  investors  and  thus  facilitate  their 
investment decisions. 

(5) 

Efficiency 

Developing the templates for the content of narrative reports could entail some costs for 
ESMA. These costs are on-off costs of preparing the template and are not expected to be 
significant.  This  option  should  reduce  costs  for  issuers  as  compared  to  the  current 
situation. It seems therefore to be proportionate and cost-efficient.   

1.2.4.  Option  4  –  Require  Member  States  to  prepare  non  binding  templates  or 
guidance  at  national  level  on  the  narrative  content  of  financial  reports  for  all 
listed companies 

(1) 

Effectiveness  

Each Member State will be able to adapt the templates to its internal market, taking into 
account the local legal requirements. This option would therefore be effective to achieve 
the objective of simplifying the preparation of reports of narrative nature for small and 
medium-sized issuers. 

(2) 

Impact  on  reducing  disclosure  costs  for  small  and  medium-sized 
issuers 

National  templates  should  achieve  cost  reduction  and  they  will  be  adapted  to  local 
market conditions. The savings achieved should be particularly beneficial for the small 
and medium-sized issuers as these issuers have more difficulties in preparing disclosures 
of narrative nature.  

(3) 

Impact on visibility for small and medium-sized issuers 

The use of national templates could increase the national visibility of small and medium-
sized issuers but will not help solving the issue of lack of cross border visibility for this 
category of issuers.  

(4) 

Impact on investor protection  

This  option  should  not  have  a  negative  impact  on  investor  protection.  Member  States 
would  be  in  good  position  to  prepare  templates  or  guidelines  that  are  adapted  to  their 
legal environment and that ensure the same level of information for users. The templates 
would be adopted taking into account the size of the issuers and the local particularities. 

106   ACCA (2010). 
107    ACCA (2010). 

63 

 
                                                 
For example special guidelines are available in France for small and medium-sized listed 
companies108.    However,  under  this  option,  there  will  be  no  more  comparability  of 
information  than  there  is  a  case  today  and  therefore  cross  border  investment  decisions 
will not be facilitated. 

(5) 

Efficiency  

Costs linked to the establishment of such templates will be borne by Member States. The 
total costs across the EU should be higher as compared to Option 5. 

1.2.5.  Conclusion 

Option 3 requiring ESMA to prepare non-binding guidance for narrative reporting is the 
best  option  to  achieve  the  operational  objective,  it  could  help  improving  cross  border 
visibility of small and medium-sized issuers without undermining the investor protection. 
This option is also the most proportionate option to achieve the objective and it respects 
the principle of subsidiarity.  

Table 2: Impact of options to simplify the narrative parts of financial reports for small and 
medium-sized issuers 

Options 

Effectiveness 

Impact on 
reducing 
disclosure costs 
for small and 
medium-sized 
issuers 

Impact on 
visibility of small 
and medium-
sized issuers 

Impact on 
investor 
protection 

Efficiency 

Option 1: 

No new action 

Option 2: 

Harmonising 
the  maximum 
financial 
narrative  content  of 
reports  at  the  EU  level  for  small 
and medium-sized issuers 

Option 3: 

binding 

Requiring  ESMA  to  prepare 
non 
guidance 
(templates) on narrative content 
of  the  financial  reports  for  all 
listed companies 

Option 4: 

Requiring  Member  States 
to 
prepare  non-binding  templates  or 
guidance  at  national  level  on  the 
narrative  content  of 
financial 
reports for all listed companies 

= 

- 

= 

- 

= 

++ 

++ 

++ 

++ 

++ 

++ 

+ 

= 

- 

+ 

= 

= 

+ 

++ 

+ 

Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable  

108   In France there is a supplementary Corporate Governance Codes prepared by Middlenext applicable to 

small and mid caps. 

64 

 
                                                 
2. 

2.1. 

POLICY  OPTIONS  TO  IMPROVE  THE  REGIME  FOR  NOTIFICATION  OF  MAJOR 
HOLDINGS  

Policy  options  to  eliminate  the  gaps  in  requirements  for  notification 
 concerning major holdings of voting rights  

In addition to the criteria presented in Section 6, there is a need to assess the impact of 
the options on market liquidity and efficiency and on the market for ownership control. 

2.1.1.  Option 1 - No new action  

This option would result in no change to the present situation as described in the second 
part of the baseline scenario in the impact assessment document, Section 4.1. This option 
will not achieve the objective. 

2.1.2.  Option  2  –  Broad  regime:  disclosure  regime  extended  to  all  instruments  of 
similar economic effect to holdings of shares and entitlements to acquire shares  

This option would include a general provision in the Transparency Directive that would 
require  notification  of  all  instruments  of  similar  economic  effect  to  holdings  of  shares 
and entitlements to acquire shares. The intention would be to cover all instruments that 
could  be  used  to  create  an  economic  interest  in  shares  listed  on  regulated  markets.  It 
would capture cash-settled derivatives as well as any other similar financial instruments 
not  yet  available  on  the  markets  to  take  account  of  financial  innovation.  This  general 
principle  should  be  subject  to  exemptions  (see  Annex  6  for  the  possible  list  of 
exemptions) in order to avoid providing the market with irrelevant information and spare 
notification  costs  for  market  players  which  by  definition  should  not  exercise  any 
influence on voting policies or acquire a secret stock in the underlying company.  

This  option  is  supported  by  the  vast  majority  of  respondents  to  the  public  consultation 
(81%  of  respondents  to  the  relevant  question)  which  considered  that  the  disclosure  of 
holdings of cash-settled derivatives would be beneficial to the market. A broad approach 
similar  to  the  one  proposed  in  this  option  was  adopted  by  the  UK  in  2009  and  more 
recently  by  Portugal.  Germany  is  planning  to  adopt  a  similar  approach.  Italy  is 
considering also such an approach (see Annex 7).   

(1) 

Effectiveness  in  enhancing  the  transparency  regarding  corporate 
ownership  

The  benefits  of  such  disclosure  are  underlined  by  many  respondents  to  the  public 
consultation  and  by  CESR  (ESMA)  in  its  proposal  to  extend  major  shareholding 
notifications  to  instruments  of  similar  economic  effect  to  holdings  of  shares  and 
entitlements  to  acquire  shares109.    Benefits  similar  to  those  described  below  were  also 
identified  by  the  British  regulator:  the  Financial  Services  Authority  (FSA)  in  the 
Consultation  and  draft  Handbook  text  concerning  "disclosure  of  contracts  for 
difference"110.  

According  to  the  Commission  services  analysis  and  to  the  results  of  the  public 
consultation, this option would enhance transparency of holdings of economic interest in 
shares,  therefore  reducing  the  possibility  of  hidden  ownership  and  creeping  control  as 

109   CESR, (January 2010). 
110   FSA 07/20 (November 2007). 

65 

 
                                                 
companies and the market would have a clearer idea of who holds key interests in listed 
companies. It would help issuers to identify their potential shareholders, leading to more 
effective  communication  of  issuers  with  investors,  shareholders  and  the  market.  This 
option will also lead to less information asymmetry, reducing the volatility of share price 
and  lowering  cost  of  capital.  On  the  other  hand,  it  will  improve  market  efficiency, 
reducing the possibility for holders of cash-settled derivatives to benefit from not having 
to pay a premium on the share price in case of a future take-over. 

In  addition,  it  will  help  address  the  practice  of  empty  voting111,  provide  useful 
information  to  the  market  on  free  float  of  the  issuer  and  improve  legal  certainty  as  to 
which  instruments  need  to  be  notified  across  the  EU.  This  option  will  therefore 
efficiently address the problems described in Section 3.2.2.2. and help preventing cases 
described in the Annex 8 (e.g. LVMH/Hermes, Porsche/VW, Schaeffler/ Continental). 

However, it also has been argued by some respondents to the public consultation that the 
introduction  of  a  disclosure  regime  for  cash-settled  derivatives  could  jeopardize  the 
efficiency of the current transparency regime. Cash-settled derivatives are in most cases 
used  for  their  primary  purpose  of  hedging  strategy  and  not  in  order  to  acquire  hidden 
ownership. The latter are isolated cases and do not represent the common situation on the 
market.  Requiring  systematic  disclosure  of  such  derivative  positions  would  have  as  a 
result to overwhelm the market with useless information, which will not help to form a 
correct view of the real economic ownership of the underlying shares. 

Also,  according  to  the  FSA  consultation  paper112,  too  much  disclosure  can  cause 
problems for market participants in their understanding of the true position in relation to 
control  of  companies  and  can,  therefore,  harm transparency. Specifically  the disclosure 
could lead to: (i) confusing the investor community as to who holds underlying interests 
and  the  motives  behind  acquisitions  and  disposals;  (ii)  complex  situations  where  the 
community  tries  to  second  guess  potential  shareholdings  creating  a  false  feeling  of 
interest/disinterest in the market; (iii) increasing volatility in the market.  

However, in its response to the public consultation, the FSA underlined that "the UK has 
not  witnessed  a  dramatic  increase  in  announcements  and  the  market  has  adapted 
efficiently  to  the  additional  obligations  placed  on  them".  Also,  the  potential  negative 
effects  can  be  mitigated  by  providing  for  exemptions  in  cases  where  the  use  of  cash-
settled derivatives is a common market practice. In the UK, for example, the number of 
announcements was mitigated by the fact that the UK has implemented a Client Serving 
Intermediary  exemption  that  allowed  writers  of  CFDs  to  disapply  the  aggregation 
requirement in certain specific circumstances.  

(2) 

Impact on market liquidity and efficiency 

Requiring notification of cash-settled derivatives could in theory have a negative impact 
on market liquidity.  

111   By better informing the market on the actual holders of economic interest in shares, this  option would 
help  identify  holders  of  voting  rights  which  do  not  hold  the  corresponding  economic  interest  in  the 
shares ("empty voting") and therefore could use their votes in the detrimental manner to the invested 
company.  

112   FSA 07/20 (November 2007). 

66 

 
                                                 
According to AIMA, which represents the hedge fund industry, disclosure of holdings of 
all  types  of  financial  instruments  would  reveal  to  the  market  the  strategies  of  hedge 
funds, allowing other actors to replicate the trading strategies of leading players113.   This 
would  reduce  the  incentive  for  hedge  funds  to  undertake  fundamental  research  and 
engage in activism, both of which carry with them considerable costs. Hedge funds will 
low their participation in companies below the threshold for notification in order to avoid 
disclosure  and  thus  reduce  their  trading  activity,  which  may  in  turn  have  an  adverse 
impact on market liquidity. 

Since  it  would  appear  that  hedge  fund  activism  benefits  existing  shareholders  and 
increases market efficiency, new disclosure requirements which would discourage hedge 
fund activism may have a negative impact on the underlying objective114. These possible 
negative impacts were considered by the UK FSA the Consultation and draft Handbook 
text concerning "disclosure of contracts for difference" (CfD).  

FSA  recognised,  that  "increased  disclosure  of  all  significant  CfD  positions  potentially 
has impacts on  the  activity of  hedge funds  and other investors who seek to profit from 
undertaking 
research  and  exploiting  arbitrage  opportunities.  New  disclosure 
requirements could influence investment strategy, causing hedge funds to take holdings 
below  the  disclosable  thresholds  in  order  that  other  investors  do  not  observe  and  copy 
their  investment  decisions  and  strategies.  This  could  reduce  hedge  fund  activity  and 
profitability.  More  importantly  this  could  reduce  the  incentives  of  market  participants 
such as hedge funds to undertake research and arbitrage activities. In turn this could have 
a  negative  impact  on  market  efficiency.  This  is  because  the  research  and  arbitrage 
activities of hedge funds generally improve market efficiency. 115" 

FSA  considered  also  that  "a  drop  in  demand  for  CfDs  may  reduce  demand  for  the 
underlying  shares.  This  could  in  theory  reduce  liquidity  in  the  underlying  share  and 
therefore increase the cost of capital"116. However, information we have further received 
from the FSA proves that in the UK there were no voices from market participants about 
any  experienced  negative  impact  on  liquidity.  Therefore,  there  is  no  reason  to  believe 
that the regime implemented in the UK had a negative impact in this area.  In addition, 
this  option  would  improve  market  efficiency  by  reducing  information  asymmetry  and 
thus contributing to a formation of a fair price for underlying shares. 

(3) 

Impact on the market for ownership control 

Imposing disclosure of holdings of cash-settled derivatives could have an adverse impact 
on  contestability  of  control  of  listed  companies  and  could  outweigh  the  benefit  of  an 
increased transparency. It has been argued, for instance, that during a takeover bid, the 
obligation  to  disclose  interests  in  derivatives  at  an  early  stage  could  detrimentally 
increase the price of shares in the target company, rendering it unviable, and, if the target 
company is on notice, it may wish to defend the bid. 

The  management  of  listed  companies  may  also  use  enhanced  information  on  stake-
building through derivatives to protect its own interests, rather than those of the company 

113   Schouten  (2010),  Letter  from  the  Alternative  Investment  Management  Association  (AIMA)  to  the 

FSA (Feb. 12, 2008). 

114   Schouten (2010), Hu and Black (2006). 
115   FSA 07/20 (November 2007), Annex 1 p.9. 
116   Ibid 

67 

 
                                                 
and  its  shareholders.  For  instance,  some  US  companies  explicitly  include  derivatives 
when  calculating  the  level  of  beneficial  ownership  that  triggers  the  "poison  pill"117.    A 
"poison  pill"  is  a  type  of  defensive  tactic  used  by  the  management  of  a  company  to 
prevent  takeover  bidders  from  negotiating  a  price  for  sale  of  shares  directly  with 
shareholders,  and  instead  forcing  the  bidder  to  negotiate  with  the  board.  This  typically 
involves  a  scheme  whereby  shareholders  will  have  the  right  to  buy  more  shares  at  a 
discount, if one shareholder buys a certain percentage of the company's shares. The plan 
could be triggered, for instance, when any one shareholder buys a certain percentage of 
the company's shares  (or derivative instruments), at which point every shareholder will 
have the right to buy a new issue of shares at a discount. 

Such  poison  pills  are  controversial  because  they  hinder  an  active  market  for  corporate 
control  and  allow  management  to  enrich  themselves  as  management  may  have  to  be 
compensated  for  the  price  of  consenting  to  a  takeover.  However,  some  stakeholders 
consider,  on  the  opposite,  that  the  practice  of poison pills would rather increase  due to 
the  current  lack  of  disclosure  of  cash  settled  derivatives. According to this view, if  the 
uncertainty over the notification of economic ownership remains at European level, listed 
companies  will  be  encouraged  to  extend  the  control  and  economic  ownership  rules  in 
their articles of association to include the use of cash–settled derivatives or seek short-
term  approval  form  shareholders  to  implement  poison  pills  that  capture  derivative 
positions as a best available solution to the problem of hidden ownership118.   

Also,  according  to  our  information,  FSA  does  not  believe  that  the  disclosure  of  cash 
settled instruments have had any negative impact on takeovers in the UK.  

(4) 

Investor protection 

Increased  transparency  of  corporate  ownership  will  have  a  strong  positive  impact  on 
investor  protection.  It  will  decrease  information  asymmetry  and  contribute  to  protect 
investors  from  market  price  manipulation  by  hidden  stock-building.  Minority 
shareholders will also benefit in case of a take-over as potential bidders will have to pay 
the take-over premium for the shares of the underlying company.  

(5) 

Efficiency  

The new disclosure regime covering all types of financial instruments equivalent to share 
ownership  might  cause  an  increase  of  the  organizational  and  compliance  costs  for 
holders of these instruments. As explained in Annex 2, the maximum estimated one off 
costs  are  from  100  k€  to  600  k€  per  holder  of  cash settled derivatives  (but  they  would 
concern only investors who hold significant number of these instruments). It is estimated 
that  the  most  significant  holders  that  would  mainly  incur  the  one  off  costs  should  be 
essentially the hedge funds and the investment banks.  For the investment banks, the one 
off costs could be higher as they will need to put in place a more sophisticated internal 
process. The ongoing costs of the requirement to disclose the holdings of the cash settled 
derivatives  could  not  be  estimated  as  they  would  vary  depending  on  the  increase  per 
holder of the number of disclosures in practice. It has to be noted that these costs would 
only apply for holders located in the Member States where there is not yet a requirement 
to disclose the cash settled derivatives.  

117  Schouten (2010),  Lemos-Stein (2008). 
118   Corporate Governance Research (2010). 

68 

 
                                                 
2.1.3.  Option  3  -  Limitative  approach:  disclosure not required in case "safe harbor" 

criteria are met 

Such an alternative approach is considered by CESR (ESMA) in its proposal to extend 
major shareholding notifications to instruments of similar economic effect to holding of 
shares and entitlements to acquire shares. However, it is not the preferred approach for 
ESMA.  This  option  would  mean  that  all  instruments  that  potentially  give  access  to  the 
underlying voting rights would require disclosure unless 'safe harbour' requirements are 
met, such as, for instance: 

(a)  The  agreement  with  the  writer  of  the  financial  instrument  explicitly  precludes  the 
holder from exercising or seeking to exercise the underlying voting rights;  

(b)  The  agreement  excludes  any  arrangements  or  understandings  in  relation  to  the 
potential sale of the underlying shares;  

(c)  An  explicit  statement  is  made  by  the  holder  that  there  is  no  intention  to  use  the 
financial instrument to seek access to the voting rights.  

A similar approach was analysed by the UK FSA in the Consultation and draft Handbook 
text concerning "disclosure of contracts for difference"119.  

(1) 

Effectiveness  in  enhancing  the  transparency  regarding  corporate 
ownership  

If correctly implemented, this option should be as effective as Option 2 described above. 
However,  the  effective  implementation  of  this  option  could  be  problematic.  Even  if 
robust  contractual  agreements  were  created  regarding  explicit  influence  over  voting 
rights  and  disposal  of  shares,  it  would  be  possible  to  circumvent  the  purposes  of  the 
disclosure  obligation120  simply  by  changing  the  contract  terms  of  the  instrument 
immediately  prior  to  the  contract  being  closed121.  Also,  such  a  regime  would  be  partly 
based on the disclosed initial intention of the holder of the instrument. This means that (i) 
a  holder  may  change  its  initial  intention  and  (ii)  even  if  holders  might  comply  strictly 
with  the  terms  of  contractual  arrangements,  it  would  not  with  certainty  prevent  the 
building up of stakes on an undisclosed basis. 

CESR  (EMSA)  and  ESME  consider  in  their  respective  analyses  that  such  an  approach 
that  creates  a  ‘safe  harbour’  for  certain  types  of  contractual  agreements  would  be 
unworkable in practice122. FSA initially did not reject this approach. However, further to 
its public consultation, FSA concluded that this approach may be difficult to enforce and 
it may not deliver the expected benefits123. FSA also noted that disclosure requirements 
that would be more general in scope would be easier to comply with than specific rules 
which  are  based  on  the  structure  of  individual  contractual  arrangements  and  the 
underlying intentions of the parties involved.  

(2) 

Impact on market liquidity and efficiency 

119   FSA 07/20 (November 2007). 
120   Schouten (2009), p. 54. 
121   This was, for instance, the experience in the Fiat case described in the Annex 8. See Kirchmaier 

et al. (2009), p. 14. 

122   See CESR (January 2010) and ESME (November 2009). 
123   FSA 08/17 (October 2008). 

69 

 
                                                 
 
 
 
 
 
 
This  option  should  not  have  any  negative  impact  on  market  liquidity  and  efficiency  as 
the scope of disclosures would be very limited.  

(3) 

Impact on the market for ownership control 

This option should have the same impacts as Option 2 described above.  

(4) 

Impact on investor protection 

The impact on investor protection will be positive as compared to the baseline scenario 
and should potentially be similar to that described under Option 2. However, given that 
this  option  seems  to  be  difficult  to  implement  in  practice,  the  improvement  in  investor 
protection might in practice be lower compared to Option 2. 

(5) 

Efficiency  

This option will entail additional costs as compared to the baseline scenario. However, 
this option, if correctly implemented, would allow avoiding unnecessary disclosures and 
the  total  number  of  disclosures  would  potentially  be  lower  than  for  Option  2.  In 
consequence,  the  costs  of  this  option  would  be  lower.  However,  this  safe  harbour 
approach  might  entail  additional  legal  costs  for  market  participants  in  order  to  include 
the necessary contractual provisions in the agreements on cash-settled derivatives to fall 
under the safe harbour. 

2.1.4.  Conclusion   

The cost and benefit analysis seems to show that Option 2 would have a strong positive 
impact  on  investor  protection  and  investor  confidence  as  compared  to  the  baseline 
scenario, and  will also be efficient and proportionate to address the problems described 
in section 3.2.2.2. Option 3 would be less costly but its effectiveness seems to be limited. 
Therefore, Option 2 will be the preferred option to achieve the operational objective. The 
question  whether  holdings  of  derivatives  should  be  aggregated  with  holdings  of  shares 
will be treated in section below. 

Other  technical  issues,  such  as  exceptions  to  the  requirement  to  disclose  holdings  of 
financial  instruments,  could  be  left  to  ESMA,  which  would  be  in  the  best  position  to 
develop draft technical standards for all Member States. Also, in its proposal to extend 
major shareholding notifications to instruments of similar economic effect to holding of 
shares  and  entitlements  to  acquire  shares124,  CESR  (ESMA)  suggests  that  a  non 
exhaustive list of instruments that are in scope may serve as guidance to the market. Such 
a list might include convertibles (bonds exchangeable for shares), writing of put options 
(European  and  American,  in  and  out  of  the  money),  futures  and  forward  contracts, 
contracts for difference, equity swaps, warrants, baskets and shares indices. ESMA could 
be  required  to  draft  such  guidance.  Annex  6  explains  further  issues  for  which  ESMA 
should develop draft technical standards that would be further adopted by the European 
Commission.  

Table  3:  Impacts  of  options  to  eliminate  the  gaps  in  requirements  for  notification 
concerning major holdings of voting rights 

124 CESR (January 2010). 

70 

 
                                                 
Options 

 Effectiveness  

Impact on 
market 
liquidity and 
efficiency 

Impact on the 
market for 
ownership 
control 

Impact on 
investor 
protection 

Efficiency 

Option 1: 

No new action 

Option 2: 

regime: 
extended 
of 

disclosure 
Broad 
all 
to 
regime 
instruments 
similar 
economic  effect  to  holding 
shares  and  entitlements  to 
acquire shares 

Option 3: 

 Limitative approach: disclosure 
not 
in  case  "safe 
harbor" criteria are met 

required 

= 

= 

= 

= 

= 

++ 

=/+ 

+ 

= 

= 

= 

++ 

+ 

+ 

++ 

Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

2.2. 

Policy  options  to  harmonise  the  rules  for  disclosure  of  major  holdings  of 
voting rights 

In addition to the criteria presented in Section 6, there is a need to assess the impact of 
the options on the transparency regarding corporate ownership of issuers of shares and 
on costs for cross-border investors. 

2.2.1.  Option 1 - No new action 

This option would result in no change to the present situation as described in the second 
part of the baseline scenario in the impact assessment document, Section 4.1. This option 
will not achieve the objective. 

2.2.2.  Option  2  –  Harmonise  the  regimes  for  disclosure  of  major  holdings  of  voting 
rights  by  requiring  aggregation  of  holdings  of  shares  with  those  of  financial 
instruments giving access to shares. 

This option introduces the requirement to aggregate holdings of shares with holdings of 
financial  instruments  (including  cash  settled  derivatives)  in  order  to  calculate  the 
threshold  for  notification  of  major  holdings  and  provides  for  the  method  of  such 
aggregation.  In  its  advice  to  the  Commission,  CESR  (ESMA)  proposed  to  create  a 
notification  system  with  four  different  baskets  (holdings  of  voting  rights;  holdings  of 
financial  instruments  under  Article  13;  holdings  of  cash  settled  derivatives  and  total 
holdings).  The  obligation  to  disclose  the  major  holdings  should  be  triggered  when  the 
threshold for any of the four baskets is reached or crossed. Several replies to the public 
consultation supported such a notification system proposed by CESR (ESMA). Another 
possibility would be to create a notification system with three different baskets (holdings 
of voting rights, holdings of financial instruments  under Article  13 and total holdings). 
The two methods should achieve the same result; the choice between these two methods 
is of a pure technical nature and it does not imply policy choices: the two methods are 
further explained in Annex 6.   

71 

 
(1) 

Effectiveness  

This option is effective to harmonise the method of calculation of thresholds but not the 
thresholds  as  such.  However,  according  to  the  investors,  the  existence  of  different 
thresholds  does  not  pose  major  problems  to  investors.  In  order  for  this  option  to  be 
effective, the legislative proposal should also include a prohibition of netting of long and 
short positions (see Annex 6). For other issues, such as the list of exceptions or timing 
for  disclosure,  the  Commission  would  empower  ESMA  to  develop  draft  technical 
standards that would be further adopted by the Commission (See Annex 6). 

(2) 

Impact  on  the  transparency  regarding  corporate  ownership  of 
issuers of shares 

Respondents to the public consultation underlined that a uniform regime for disclosure of 
major  holdings  would  reduce  legal  uncertainty,  enhance  transparency,  simplify  cross-
border  investments  and  increase  attractiveness  of  EU  capital  markets.  The  principle  of 
aggregation  would  improve  the  transparency  and  reduce  the  possibility  to  circumvent 
disclosure  requirements  by  investors  who  would  otherwise  acquire  holdings  of  shares 
and  financial  instruments  with  the  aggregate  economic  position  well  beyond  the 
threshold for notification without disclosing it to the market. 

Almost all respondents to the public consultation were in favour of aggregating holdings 
of shares with holdings of financial instruments described in Article 13 of the Directive 
for  the  purposes  of  triggering  the  notification  obligation.  A  minority  of  respondents  to 
the  public  consultation  did  not  support  an  aggregation,  which  in  their  view  would 
confuse the market.  

(3) 

Impact on investor protection 

This option will have a positive impact on investor protection as it would provide for an 
uniform  and  more  transparent  regime  across  the  EU  and  inform  the  market  of  the  real 
economic position of the investors. 

(4) 

Impact on costs for cross-border investors 

Respondents to the public consultation mentioned different examples of divergent rules 
in  different  Member  States  for  calculation  of  major  holdings  and  underlined  that  these 
divergences implied difficulties and costs for companies with cross-border activities. In 
their  view,  a  uniform  regime  for  disclosure  of  major  holdings  would  reduce 
administrative  expenses  for  cross-boards  investors  linked  to  IT  infrastructure  and 
monitoring systems for equity positions of issuers based in different Member States.  

Potential  savings  are  directly  linked  to  the  scale  of  cross-border  activity.  The  cost 
reduction could reach an average of 2 M€/ per operator for one off incremental costs for 
new  cross  border  investors  and  77  k€/year/  per  cross  border  investor  on  average  for 
ongoing  costs.  This  option  will  also  reduce  costs  linked  to  legal  uncertainty  for  cross 
border investors as it will harmonise the method of calculation of the thresholds. 

(5) 

Efficiency  

As  compared  to  the  baseline  scenario,  this  option  could  be  a  source  of  costs  linked  to 
additional  disclosures  in  Member  States  where  there  is  currently  no  aggregation 

72 

 
requirement. However, these costs could not be estimated as they would very depending 
on the increases of the number of disclosures in practice. 

Nevertheless, investors are in favour of more harmonisation and seem to consider these 
costs as lower compared to the spared administrative burden linked to the introduction of 
a uniform regime for aggregation. 

2.2.3.  Option 3 - harmonise the regime of disclosure of major holdings of voting rights 
by requiring three separates regimes of disclosure: one for holdings of shares, 
one  for  financial  instruments  giving  access  to  shares  and  one  for  cash-settled 
derivatives. 

According  to  this  option,  notification  would  be  required  when  one  of  the  three  baskets 
(holdings  of  shares,  holdings  of  financial  instruments  giving  access  to  shares  and 
holdings  of  cash-settled  derivatives)  would  cross  the  relevant  threshold  and  only  this 
basket should be notified. Holdings in other baskets would not be taken into account.  

In  its  response  to  the  public  consultation,  CESR  (ESMA)  indicated  that  three  CESR 
members  do  not  agree  with  the  need  for  having  to  aggregate  holdings  of  shares  with 
holdings  of  financial  instruments  and  cash-settled  derivatives  to  trigger  notification. 
These  members  considered  that  sufficient  transparency  of  holdings  can  be  achieved 
requiring  three  separate  regimes  for  disclosure  for  the  three  baskets  of  holdings.  These 
members are of the view that a notification obligation in relation to total holdings would 
not be desirable because different types of holdings are in their view not comparable. The 
obligation  could  also  add  too  much  administrative  burden  for  investors  and  excessive 
flow of information to the markets. 

(1) 

Effectiveness  

Option  3  will  be  as  effective  as  option  2  in  order  to  achieve  a  uniform  regime  and  the 
same measures than these described for option 2 should be adopted in order to insure its 
effectiveness. 

(2) 

Impact  on  the  transparency  regarding  corporate  ownership  of 
issuers of shares 

This option could have a negative effect on transparency regarding ownership of issuers 
of  shares  as  it  could  reduce  the  level  of  transparency  in  the  Member  States  where  the 
principle  of  aggregation  of  holdings  of  voting  rights  with  holdings  of  financial 
instruments  already  exists.  In  fact,  the  cumulative  economic  interest  in  the  company 
would  not  be  taken  into  account  to  trigger  notification  if  the  holdings  in  each  basket 
remain just below the threshold. Consequently, the market will not be informed about the 
aggregate  holdings  of  different  instruments  which  in  practice  could  give  a  significant 
influence on the company's strategy to the holder of these instruments.  

Moreover,  the  three  CESR  (ESMA)  members  who  were  against  the  aggregation,  note 
that for this regime to be effective in informing the market about economic ownership, 
the  initial  threshold  for  notification  and  the  subsequent  increments  between  the 
thresholds for the three baskets would need to be lower than those currently in place in 
the Transparency Directive (5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%). Therefore 
this  option  would  only  be  effective  to  increase  the  transparency  if  it  was  decided  that 
these  thresholds  for  disclosure  should  be  harmonised  at  a  lover  level  that  current 
minimum thresholds (see Option 4). 

73 

 
(3) 

Impact on investor protection 

The  level  of  transparency  and  therefore  of  investor  protection  and  confidence  could  be 
negative compared to the baseline scenario as it could reduce the level of transparency in 
the Member States where the principle of aggregation of holdings of voting rights with 
holdings  of  financial  instruments  already  exists.  If  there  is  no  aggregation,  an  investor 
holding,  for  example,  4,5%  in  voting  rights  and  4,5%  in  financial  instruments  in  a 
company  could  artificially  avoid 
investor  would 
cumulatively  hold  9%  of  economic  interest  in  a  company  which  could  give  him  a 
significant influence on the company's strategy.  

the  disclosure,  although 

this 

(4) 

Impact on costs for cross-border investors 

The impact is the same as for Option 2. 

(5) 

Efficiency 

This  option  would  imply  additional  costs  for  investors  as  compared  to  the  baseline 
scenario  but  these  additional  costs  will  be  lower  than  for  Option  2  as  the  number  of 
disclosures will be lower. Option 3 will achieve the same costs savings for cross-border 
investors as Option 2. 

2.2.4.  Option 4: harmonise the regime of disclosure of major holdings of voting rights 

by harmonising the thresholds for disclosure.  

This  option  would  harmonise  the  thresholds for notification,  forbidding Member States 
to adopt lower thresholds. 

(1) 

Effectiveness  

The  question  of  the  harmonisation  of  thresholds  was  considered  as  secondary  by  many 
respondents to the public consultation, as compared to the harmonisation of the method 
to calculate the thresholds for notification. However, harmonising the thresholds would 
bring a higher level of harmonisation across the EU as compared to the baseline scenario 
and to the Options 2 and 3.  

(2) 

Impact  on  the  transparency  regarding  corporate  ownership  of 
issuers of shares 

As  compared  to  the  baseline  scenario,  this  option  could  have  a  negative  impact  on  the 
level of transparency of corporate ownership. It has been argued by many respondents to 
the  public  consultation  that  harmonising  thresholds  would  not  allow  taking  account  of 
the  specificities  of  national  regulated  markets  or  national  company  laws  and  could 
therefore  have  negative  effects  on  transparency.  In  fact,  in  some  Member  States  with 
dispersed  corporate  ownership,  such  as  UK,  the  first  threshold  for  notification  and  the 
subsequent  increments  need  to  be  relatively  low  to  provide  the  market  with  sufficient 
transparency  as  regards  potential  significant  influence  in  companies.  The  current 
minimum  threshold  for  notification  in  UK  is  3%.  For  other  Member  States  with 
concentrated  corporate  ownership,  such  as  Spain,  a  low  threshold  will  not  provide  the 
market with meaningful information as a shareholder can potentially exercise significant 
influence in a company only when it holds a relatively high percentage of voting rights. 
Consequently, if a uniform threshold is imposed in all the Member States, this threshold 
could be too high for some Member States and too low for others.  

74 

 
(3) 

Impact on investor protection 

As  compared  to  the  baseline  scenario,  this  option  would  not  take  account  of  the  local 
situation and could thus have a negative impact on investor protection in Member States, 
where the thresholds are currently very low. 

(4) 

Impact on costs for cross-border investors 

Impact should be similar to Options 2 and 3. 

(5) 

Efficiency  

In the view of many stakeholders, existence of different thresholds does not pose major 
problems  to  investors,  the  major  source  of  costs  being  the  way  these  thresholds  are 
calculated.  Moreover,  thresholds  for  notification  seem  to  be  difficult  to  harmonise 
because  of  the  differences  in  shareholding  population  in  Member  States.  Therefore, 
taking into account the costs and benefits, this option seems to be inefficient and it would 
not respect the principle of proportionality.  

2.2.5.  Conclusion  

Option  2  is  the  best  option  in  terms  of  impacts  on  transparency  and  on  investor 
protection. Indeed, this option would improve transparency and reduce the possibility to 
circumvent  disclosure  requirements.  This  option  could  be  a  source  of  costs  linked  to 
additional  disclosures  in  some  Member  States  where  there  is  currently  no  aggregation 
requirement. The one off costs are comprised in the estimation provided for option 2 in 
Section 2.1 (these costs could not be separated from the one off costs calculated for this 
option). The ongoing costs could not be estimated as they would depend on the number 
of  additional  disclosures  that  would  take  place  in  practice.  However,  investors  are  in 
favour of a harmonised regime for disclosure of major holdings as they consider it would 
bring  a  cost  reduction.    This  option  will  also  reduce  legal  uncertainty  for  cross  border 
investors as it will harmonise the method of calculation of the thresholds.  

75 

 
Table 4: Impact of options to eliminate divergences in notification requirements for major 
holdings 

 Effectiveness  

Impact  on  the 
transparency 
regarding 
corporate 
ownership 
of 
issuers of shares 

Impact 
investor 
protection  

on 

Impact  on  cost 
for cross- border 
investors 

Efficiency 

Options 

Option 1: 

No new action 

Option 2: 

rights 

Harmonising 
regimes  of 
the 
disclosure  of  major  holdings  of 
voting 
requiring 
aggregation  of  holdings  of  shares 
financial 
with 
instruments  giving  access 
to 
shares 

those 

by 

of 

Option 3: 

regime 

Harmonising 
of 
the 
disclosure  of  major  holdings  of 
voting  rights  by  requiring  three 
separate  regimes  of  disclosure:  one 
for  holdings  of  shares,  one  for  
financial  instruments  giving  access 
to  shares  and  one  for  cash  settled 
derivatives. 

Option 4: 

= 

+ 

+ 

regime 

Harmonising 
of 
the 
disclosure  of  major  holdings  of 
voting  rights  by  harmonising  the 
thresholds for disclosure 

++ 

= 

= 

= 

= 

++ 

++ 

++ 

+ 

- 

- 

- 

- 

++ 

+ 

++ 

- 

Magnitude of impact as compared with the baseline scenario: ++ strongly positive; + positive; – – strongly negative; 
– negative; = marginal/neutral; ? uncertain; n.a. not applicable 

3. 

IMPACT ON EMPLOYMENT AND ENVIRONMENT OF THE PREFERRED OPTIONS 

Measures  concerning  small  listed  companies  are  expected  to  have  a  positive  effect  on 
employment as the small listed companies are an important source of employment in the 
EU and the preferred options should encourage the growth of small listed companies and 
new listings of small companies. For instance, in a UK 2002 report, it was estimated that 
small listed companies in the UK (defined as those quoted in the London Stock Exchange 
but  outside  the  FTSE  350  and  those  quoted  on  AIM125)  accounted  for  5%  of  the  total 
market  capitalisation  of  all  quoted  companies  but  13%  of  their  total  sales  and, 
importantly, 18% of total employment126 (see the table below): 

125   Alternative Investment Market. 
126  Kearns and Young (2002), p.26. 

76 

 
 
 
 
                                                 
Comparative statistics of large and small caps: UK (2002) 

It is not expected that the preferred options are going to have any direct impact on the 
natural environment. Alleviating the obligation to publish quarterly reports could have an 
indirect positive impact on the issuance of paper documents and thus on the environment 
(there will be less printed information).  

77 

 
 
 
 
ANNEX 2 

Estimation of costs 

1.  COSTS OF QUARTERLY REPORTING 

1.1. 

 Methodology 

Figure  1  represents  the  conclusions  drawn  from  the  study  conducted  by  Europe 
Economics127. Figures 2 and 3 are based on the responses to a questionnaire sent by DG 
Internal  Market  and  Services  to  the  EuropeanIssuers  association  (EuropeanIssuers 
received  a  response  from  their  members  from  three  Member  States:  Austria,  Germany 
and  UK).  We  have  further  received  information  from  Middlenext128  that  the  costs  of 
preparation  of  quarterly  information  by  small  and  medium-sized  issuers  could  not  be 
separated from other costs and therefore could not be estimated.  

1.2. 

Results 

It appears that as far as transparency requirements are concerned, staff costs are the main 
costs drivers (see Figure 1 below). 

Figure 1: Drivers of ongoing costs – Transparency directive  

Type of costs 

Relative weight 

Staff 

IT 

Audit 

Other 

69% 

17% 

12% 

2% 

Figure  2:  Measuring yearly staff involvement in the preparation of quarterly information 
(per issuer) 

Small and medium-sized 
issuers 

Man Days 

Number of staff involved 

8 to 30 

5 to 15 

Large issuers 

Considerable  

Over 50 

127   Europe Economics (2009) page 110 table 5.18. 
128   A French association representing listed SMEs and midcaps. 

78 

 
 
 
                                                 
Figure 3: Measuring yearly costs per issuer linked to editing, printing, translating, etc129 . 

Small and medium issuers 

From  2 k€ to  60 k€ 

Large issuer 

From 35 k€ to € 250 k€ 

Taking into account that there is about 12 000 listed companies in Europe130, waiving the 
obligation to present quarterly information would bring a potential global cost reduction 
of  about  573  M€,  considering  only  the  costs  of  editing,  printing  and  translating  the 
information and not including the potential cost reduction linked to preparation of such 
information131, which is difficult to numerically estimate but which, according to Figure 
1, should be largely superior to other costs linked to disclosure of quarterly information. 
According  to  our  information,  some  companies  do  not  print  and  do  not  translate  their 
quarterly reports and therefore for such companies costs reduction would be potentially 
lower  than  for  others.  However,  the  costs  in  relation  to  the  staff  involved  in  the 
preparation of the reports are relatively higher in monetary terms (as shown in Figure 1) 
than  other costs estimated in Figure 3.  

These costs linked to staff involvement in preparation of quarterly information could not 
be precisely estimated in monetary terms. It has to be underlined that the amount of work 
and  the  number  of  staff  involved  in  preparation  of  quarterly  information  depends  on 
applicable  national  rules.  In  some  Member  States  quarterly  information  has  to  contain 
additional figures and therefore the costs of their preparation are higher (See Annex 5). It 
also  results  from  responses  to  the  public  consultation  that  preparation  of  full  quarterly 
reports  (with  full  financial  statements)  would  be  much  more  costly  than  preparation  of 
the interim management statements. Middlenext informed us that if full quarterly reports 
were  required,  each  small  and  medium-sized  issuer  would  need  to  allocate  one  or  two 
more persons a year, full time, in order to prepare this information132. 

As an example, one large issuer estimated that its total costs for preparation of quarterly 
information (including the costs of staff) could be as high as 2 M €/ a year. 

2. 

COSTS FOR HOLDERS OF CASH SETTLED DERIVATIVES IF THE REQUIREMENT TO 
DISCLOSE CASH SETTLED DERIVATIVES IS INTRODUCED

133 

129   The cost estimates are based on the available data, therefore a fair amount of uncertainty needs to 

be included in the numbers provided. 

130  Source: European Issuers. 
131   Considering  the  average  of  the  costs  disclosed  on  figure  3  (i.e.  31  000  and  142  500  €)  then 
weighted  by  the relative importance of each type of companies (85% of small and medium and 
15% of large companies) the average weighted costs amounts to 47 725 €. This amount multiplied 
by 12 000 equals 573 M€. 

132   The standard cost model was not used to estimate the total costs as concerning existing costs, it 
was  decided  to  ask  the  issuers  themselves  to  provide  an  estimate  on  costs  of  quarterly 
information.  As  the  issuers  were  not  able  to  provide  such  full  estimates,  it  was  decided  to  provide 
information   received rather than give theoretical estimates that would result from the application of 
the  standard cost model. 

133   The cost estimates are based on the available data, therefore and due to the qualitative nature of the 
measures  potentially  to  be  implemented,  a  fair  amount  of  uncertainty  needs  to  be  included  in  the 
numbers provided. 

79 

 
 
                                                 
 
 
 
 
 
 
 
 
 
Costs in relation to 

One-off 
per holder 

costs 

Recurrent  costs  per 
annum/per holder 

Remarks 

to 

Option 2: Broad regime 
  disclosure  regime 
- 
extended 
all 
instruments  of  similar 
to 
economic 
and 
holding 
entitlements  to  acquire 
shares  

shares 

effect 

100 to 600 k€  

(below 0,1 % of 
average operating 
costs)134 

of 

Will  depend  on  the 
the 
increase 
number 
of 
disclosures/per 
holder in practice  

This  option  would  imply  for  some  players  potentially 
significant systems upgrades that are the source of the one- 
off  costs.  One-off  cost,  however,  depends  on  the  current 
disclosure  arrangements  existing  in  Members  States,  for 
instance  whether  the  processes  to  disclose  cash  settled 
derivatives  already  exist  or  whether  they  need  to  be 
created. It is estimated that the most significant holders that 
would mainly incur the one off costs should be essentially 
the  hedge  funds  and  the  investment  banks.  For  the 
investment banks, the one off costs could be higher as they 
will  need  to  put  in  place  a  more  sophisticated  internal 
process. 

Concerning  the  ongoing  costs,  the  increase  of  costs  per 
the  number  of  cash-settled 
holder  will  depend  on 
derivatives  held  by  the  given  operator.  For  operators  not 
holding cash settled derivatives, the ongoing costs will not 
increase.  

to 

received 

information 

from  FSA, 

the 
According 
introduction  of  this  regime  in  the  UK  caused  an  average 
increase of around 6-8% in daily announcements. However, 
UK  has  introduced  much  lower  thresholds  that  what  is 
required  by  the  Directive  and  therefore  this  increase  is 
likely to be lower in average in other Member States.  

Option 
3:  Limitative 
approach:  disclosure  not 
in  case  "safe 
required 
harbor" criteria are met 

Non significant 

of 

Will  depend  on  the 
the 
increase 
number 
of 
disclosures/per 
holder in practice  

Under that approach only a limited number of transactions 
would have to be disclosed. 

However, this option may involve ex ante legal analysis to 
validate the intention associated to every transaction which 
would be more costly (but these costs cannot be estimated). 

The  preferred  option  should  also  have  limited  on  going  costs  for  companies  linked  to 
processing and making additional disclosures to the market.  

3. 

COST  SAVINGS  ON  TRANS-NATIONAL  PLAYERS  IF  MAXIMUM  HARMONISATION 
OF RULES FOR NOTIFICATION OF MAJOR HOLDINGS IS INTRODUCED 

The differentiated implementation of the rules on disclosure on major holdings across the 
European  Union,  notably  through  different  methods  to  calculate  the  thresholds  for 
notification,  is  source  of  additional  costs  for  cross-border  investors.  Lack  of 
harmonisation  implies  special  monitoring,  IT  developments  and  sometimes  even 
additional human analysis for players operating across the EU.  

134   The  ratio  is  calculated  by  comparing  estimated  "one-off"  costs  to  "normative"  operating  costs.  The 
"normative"  operating  costs  are  the  result  of  an  average between amounts associated to "Investment 
banks" on the one hand and "Banks and Financial conglomerates" on the other hand  in  the  "Study  on 
the cost of Compliance" released by the consultant "Europe Economics" following DG Markt request 
(p  95)  :  this  average  amounts  to  1294  M€  ((1558+1030)/2).  The  "one  off"  costs  are  based  on  FSA 
estimates (FSA 07/20-Annex 1 p7). 

80 

 
  
 
 
 
 
 
 
                                                 
Potential savings are thus directly linked to the scale of trans-national activity. The cost 
reduction could reach an average of 2 M€/operator for one-off incremental costs for new 
cross-border investors and 77135 k€/year/per operator on average in ongoing costs.  

The one-off costs for the preferred option (option 2) regarding the necessity to adapt the 
IT  systems  should  already  be  comprised  in  the  estimation  provided  for  option  2  in 
Section 2 above (these costs could not be separated from the one off-costs calculated for 
this  option).  The  ongoing  costs  could  not  be  estimated  as  they  would  depend  on  the 
number  of  additional  disclosures  that  would  take  place  in  practice.  However,  investors 
are in favour of a harmonised regime for disclosure of major holdings as they consider it 
would bring a cost reduction. 

135   In the "Study on the cost of Compliance" released by the consultant "Europe Economics", the median 
of ongoing costs on transparency issues assessed for transnational asset managers is 0.02%. This ratio 
applied to the normative operating costs (i.e. 385 M€) provides an amount of about 77 k€. 

81 

 
                                                 
ANNEX 3 

Improvements and clarifications that need to be introduced in the Transparency 
Directive 

1.  RULES  UNDER  THE  TRANSPARENCY  DIRECTIVE  THAT  REQUIRE  FURTHER 
IDENTIFIED  BY  THE  RESPONDENTS  TO  THE  PUBLIC 

CLARIFICATION  AS 
CONSULTATION AND THE COMMISSION' REPORT 

1.1. 

Home Member State rule 

–  Transparency  Directive  is  unclear  with  regard  to  which  country  is  the  home 
Member  State  for  issuers  who  have  to  choose  their  home  Member  State 
according to article 2, paragraph 1, sub (i), (ii), but who have not done so. In this 
respect, CESR (ESMA) suggests to amend the Transparency Directive to include 
an assumption of Home Member State for these issuers. Transparency Directive 
should ensure that the reporting of all listed companies is subject to enforcement 
in a Member State. It is important that the Transparency Directive in this matter 
in the future does not provide for any possibility to implement the rules in such a 
way  that  a  listed  company  can  operate  without  being  under  supervision  of  any 
Member State. 

–  According  to  Transparency  Directive,  the  choice  of  home  Member  State  for 
third  country  issuers  is  valid  for  3  years.  However,  this  leads  to  practical 
problems  when  such  issuer  is  no  longer  listed  in  the  regulated  market  of  the 
Home  Member  State  and  only  remains  listed  in  one  host  Member  State.  CESR 
(ESMA)  suggests  that  the  home  Member  State  rule  should  be  clarified  as 
follows: it should be stated that the three year period for the validity of issuer's 
choice  of  the  home  Member  State  no  longer applies if  shares or debt securities 
with denomination of less than EUR 1.000 of the same issuer are no longer listed 
in the chosen home Member State but remain  admitted to trading on a regulated 
market in another Member State. 

–  Communication  of  choice  of  home  Member  State:  it  should  be  considered 
whether  Article  2  of  the  implementing  Directive  would  need  to  be  amended  so 
that  EU  issuers  would  also  be  required  to  communicate  the  choice  of  home 
Member State to the competent authority of the Member State where the issuer 
has its registered office (if different). 

1.2. 

New loans 

–  The application of article 16, paragraph 3 of the Transparency Directive leads to 
the  question  of  which  additional  information  is  required  by  the  issuer  of 
securities admitted to trading on a regulated market when issuing a new loan. In 
this  respect,  CESR  (ESMA)  proposes  to  abolish  the  requirement  to  disclose  all 
new  loan  issues.  This  requirement  overlaps  partially  with  the  Prospectus 
Directive and Article 6 of the Market Abuse Directive. Reference to new loans is 
also  unclear,  as  new  loans  are  not  defined  in  the  Transparency  Directive.  For 
example, it is unclear whether issues of commercial papers or loans not admitted 
to  trading  on  a  regulated  market  should  be  disclosed.  Some  respondents 

82 

 
considered that Article 16.3 should be deleted: the implementation of article 16.3 
is unclear and complex notably due to the absence of any materiality clause. 

1.3. 

Exceptions to the notification of major holdings 

–  A broad and consistent "market maker" definition would be welcome (Article 2).  

–  Some  clarifications  would  be  welcome  concerning  the  scope  of  the  exceptions 
for  shares  acquired  for  the  purpose  of  clearing  and  settling  and  by  custodians 
(Article  9(4)).  For  example,  one  CESR  (ESMA)  member  stated  that  in  its 
Member  State  it  had  been  discussed  whether  the  exemption  also  applied  to 
positions acquired for a short period through underwriting. 

–  Clarification  to  the  trading  book  exemption  would  be  needed  (Article  9(6)):  It 
should  be  clarified,  inter  alia,  whether  the  5  %  threshold  is  calculated  at  group 
level or the level of an individual company. Moreover, it should be clarified how 
the  different  categories  of  holdings  are  aggregated  when  calculating  the 
threshold. CESR (ESMA) proposed the threshold to be calculated at group level 
where disaggregation exemptions set out in Articles 12(4) and 12(5) do not apply 
and  that  holdings  of  all  instruments  (Article  9,  10  and  13)  are  aggregated. 
Moreover,  further  clarification  to  subparagraph  (b)  should  also  be  considered. 
The  wording  of  the  subparagraph  should  be  more  definite  in  order  to  more 
clearly  prohibit  credit  institutions  and  investment  firms  applying  the  exemption 
from  exercising  voting  rights  held  in  their  trading  book  and  from  using  their 
shareholder positions to intervene in any way in the management of the issuer. 

1.4. 

Clarification of definitions 

–  Applicability  of  Transparency  Directive  to  depository  receipts  when  the 
underlying  shares  are  not  admitted  to  trading  on  a  regulated  market:  the 
applicability of different rules (especially Articles 9–13 and 16–18) to depository 
receipts and holders of depository receipts or holders of underlying shares should 
be clarified. 

–  Terms  used  in  Article  9  (2),  "as  a  result  of  events  changing  the  breakdown  of 
voting rights", should be clarified. For example, it could be clarified, as the FSA 
has done in the UK (see DTR5.1.2R(2)), that where there is a notifiable switch 
(e.g. 1% for UK issuers) from a soft shareholding to an absolute shareholding by 
the  exercise  of  entitlements  to  acquire  shares,  without  affecting  the  overall 
percentage of the holding, a new disclosure would be required. It could also be 
clarified  that  this  particular  provision  does  not  necessitate  a  disclosure  where  a 
person has disclosed its holding of voting rights, but then it subsequently changes 
the capacity in which it holds them. For example, where a person has disclosed 
its indirect holding of shares as a beneficiary (and these shares are held by a non-
discretionary nominee), the person would not be required to disclose a change if 
it  then  takes  those  shares  out  of  the  nominee  account  and  holds  the  shares 
directly itself. 

1.5. 

Other issues  

–  Article 19(1) (2nd paragraph) should be deleted: this article requires an issuer to 
communicate any amendment of its instrument of incorporation or statutes to the 

83 

 
in  order 

to  reduce  administrative  burden  for 

competent  authority.  This  requirement  may  result  in  some  confusion  about  the 
role  of  the  competent  authority.  CESR  (ESMA)  proposes  to  abolish  this 
requirement 
issuers.  The 
Shareholders' Rights Directive already requires issuers having shares admitted to 
trading on a regulated market to make the proposal and the invitation to general 
the 
meeting  of 
Shareholders’  Rights  Directive  does  not  apply  to  issuers  having  only  other 
securities  than  shares  admitted  to  trading  on  a  regulated  market,  the  Market 
Abuse Directive requires also these issuers to disclose information relating to the 
issuer  which  is  likely  to  have  a  significant  effect  on  the  price  of  the  securities 
admitted to trading. 

shareholders  publicly  available.  Moreover,  although 

–  Definition  of  an  issuer:  It  seems  that  in  some  Member  States  there  are  issuers 
other than legal persons with securities admitted to trading on regulated markets. 
The definition of an issuer should therefore be aligned with the situation. 

2. 

BETTER  TRANSPOSITION  AND  COMPLIANCE  OF  THE  TRANSPARENCY 
DIRECTIVE 

In  its  Communication  of  9  December  2010  "Reinforcing  sanctioning  regimes  in  the 
financial sector"136 the Commission presented policy actions and orientations on how to 
promote convergence and reinforcement of national sanctioning regimes in the financial 
services sector. In fact, the review of those regimes carried out by the Commission, along 
with  the  Committees  of  Supervisors  (now  transformed  into  European  Supervisory 
Authorities),  has  shown  a  number  of  divergences  and  weaknesses  which  may  have  a 
negative impact on the proper application of EU legislation, the effectiveness of financial 
supervision,  and  ultimately  on  competition,  stability  and  integrity  of  financial  markets 
and consumer protection. Therefore, the Communication suggested setting EU minimum 
common  standards  on  certain  key  issues  of  sanctioning  regimes,  to  be  adapted  to  the 
specifics of the different sectors and EU legislative acts in the financial services area.  

Concerning the Transparency Directive, the study carried out in 2009 by the Committee 
of European Securities Regulators (hereunder: CESR report)137 provided information on 
sanctions  laid  down  in  national  legislation  for  violations  of  that  Directive.  The  study 
shows  that  national  sanctioning  regimes  are  divergent  and  not  always  appropriate  in 
some of the key issues identified in the above mentioned Communication as essential to 
ensure  effectiveness  and  dissuasiveness  of  sanctions.  The  main  problems  which  can 
derive  from  this  situation  have  been  described  for  financial  services  in  general  in  the 
Impact  Assessment  for  the  Communication  "Reinforcing  sanctioning  regimes  in  the 
financial sector". 

In particular, the following key issues are relevant in field of the Transparency Directive:  

136   COM(2010)716 final. 
137  CESR  (2009)  Report  on  the  mapping  of  supervisory  powers,  administrative  and  criminal 
sanctioning  regimes  of  Member  States  in  relation  to  the  Transparency  Directive  (TD).  CEBS 
(2009):  "Mapping  of  supervisory  objectives,  including  early  intervention  measures  and 
sanctioning   powers",  March  2009/47,  available  on  <http://www.c-ebs.org/home.aspx>.  Information 
in  this  report  has  been  subsequently  updated  on  the  basis  of  the  contributions  received 
contained  
Member States. 
from  

84 

 
                                                 
 
 
 
 
a) powers available to competent authorities: certain sanctioning powers are particularly 
important  to  respond  adequately  to  key  violations  of  the  Transparency  Directive.  It 
should  be  therefore  ensured  that  all  competent  authorities  have  at  their  disposal  those 
powers. In particular, the power of suspension of the voting rights of the issuer who had 
violated  the  notification  rules  on  major  shareholdings  (currently  available  on  in  6 
Member  States,  p.  50  CESR  report)  can  help  ensuring  the  deterrent  effect  of  sanctions 
and thus better prevent future violations. 

b)  publication  of  sanctions:  publication  of  sanctions  is  important  to  enhance 
transparency and to maintain confidence in the financial market138 and is considered to 
be  one  of  the  most  deterrent  tool  (as  shown  by  the  results  of  the  consultation  on  the 
Communication  "Reinforcing  sanctioning  regimes  in  the  financial  sector"),  particularly 
because  of  the  reputational  damage  that  the  author  of  the  violation  will  incur.  While 
almost  all  competent  authorities  are  allowed  to  publish  sanctions,  this  does  not  ensure 
that  sanctions  are  published  on  a  systematic  basis  in  all  Member  States.  This  could  be 
achieved  by  the  introduction  of  a  general  obligation  to  publish  sanctions,  unless 
publication would seriously jeopardise stability in financial markets. 

c) criteria taken into account to determine the sanctions to be imposed in a particular 
case:  some  criteria  are  particularly  important  to  adapt  the  sanction  to  be  imposed,  and 
particularly the level of the administrative fine, to the seriousness and the consequences 
of the violation and to the personal conditions of the author of the violation, which would 
help ensuring effectiveness, proportionality and dissuasiveness of the sanctions actually 
applied. 

In  particular,  all  competent  authorities  should  take  into  account  at  least  the  following 
criteria: 
- the seriousness of  the violation  (taken  into account in 21 Member States, table 32, p. 
100 of CESR report); 
- the degree of intent (taken into account in 18 Member States, table 32, p. 100 of CESR 
report);  
- the financial strength of the author of the violation, (taken into account in 15 Member 
States, table 32, p. 100 of CESR report); 
- the benefits derived from the violation (taken into account in 15 Member States, table 
32, p. 100 of CESR report); 
-  cooperation  of  the  author  of  the  violation  (taken  into  account  in  16  Member  States, 
table 32, p. 100 of CESR report); 
- previous violations (taken into account in 18 Member States, table 32, p. 100 of CESR 
report). 

d) level of administrative fines: the maximum level of the administrative fines which can 
be  applied  to  violations  of  the  Transparency  Directive  should  be  sufficiently  high  to 
ensure  that  the  fine  has  a  deterrent  effect.  The  levels  of  fines  provided  for  in  national 
legislation  vary  across  Member  States  and  may  be  too  small  in  some  Member  States. 
They  are  at  over  1  million  euros  in  8  Member  States  while  in  4  Member  States  the 
maximum  level  is  lower  than  100.000.  This  level  may  be  too  small  compared  to  the 
benefits  than  could  be  realised  by  infringing  the  rules  for  example  concerning  lack  of 
notification of major holdings of voting rights. 

138   ESMA (2011) Mapping of the Transparency Directive –Options, Discretions and “Gold-plating”. 

85 

 
                                                 
ANNEX 4 

Glossary of terms 

 A  Cash  settled  derivative:  Cash-settled  equity  derivatives  refer  to  equity  linked 
transactions  settled  by  the  payment  of  cash  only  without  any  physical  delivery  of  the 
underlying  equity.  Such  transactions  can  include  options,  futures  and  swaps  over  a  single 
share, an index or a basket of shares. They are usually based on the difference between a pre-
agreed  settlement  price  and  the  then  prevailing  market  price  of  the  shares.  Thus,  without 
physically  buying  or  selling  the  underlying  shares,  the  contracting  parties  to  a  cash-settled 
equity  derivative  are  able  to  acquire  or  dispose  of  an  economic  interest  in  the  shares  (i.e. 
acquire exposure to equity price movements). 

A Contract for difference: is a contract between two parties where the buyer will receive 
from  (or  pay  to)  the  seller,  the  difference  between  the  value  of  a  company's  share  at 
expiry and its value at the time of the contract. The buyer could also have the option to 
buy the shares at the later date although the CfD does not confer a right to buy them. The 
holder of a CfD on a company's shares has an economic interest in the company, without 
direct ownership of shares in the company. 

Hedging : An investment made in order to reduce the risk of adverse price movements in a 
security. Normally, a hedge consists of taking an offsetting position in a related security, 
such as a futures contract. 

A  Multilateral  Trading  Facility  (MTF)  is  an  electronic  system  which  facilitates  the 
exchange  of  securities  between  counterparties.  The  securities  may  include  derivatives  and 
instruments which do not have a main market, as well as traditional securities.  

A Trading Venue is an official venue where securities are exchanged; it includes MTFs and 
regulated markets (e.g. typical stock exchanges).  

A Long Position refers to the buying of a security with an expectation that the security will 
rise in value.  

A Short Position refers to the selling of a security with an expectation that the security will 
fall in value.  

A Net Position is where a short position has been subtracted from a long position.  

Regulated  market:  regulated  market  is  a  multilateral  system  which  brings  together  or 
facilitates  the  bringing  together  of  multiple  third-party  buying  and  selling  interests  in 
financial  instruments  in  a  way  that  results  in  a  contract.  Examples  are  traditional  stock 
exchanges such as the Frankfurt and London Stock Exchanges. 

Interim management statement: Article 6 of the Transparency Directive requires that 
issuer  whose  shares  are  admitted  to  trading  on  a  regulated  market  shall  make  public  a 
statement by its management during the first six-month period of the financial year and 
another statement by its management during the second six month period of the financial 
year. Such a statement shall provide:  an explanation of material events and transactions 
that have taken place during the relevant period and their impact on the financial position 
of the issuer and its controlled undertakings, and  a general description of the financial 
position and performance of the issuer and its controlled undertakings during the relevant 
period.  

86 

 
 
Reports of narrative nature: Those reports are: 

- 

- 

- 

- 
-  

the annual management report (Article 4(5) TD), which refers to Article 46 of the 
Fourth Company Law Directive or to Article 36 of the Seventh Company Law 
Directive, and integrates disclosure obligations relating to environmental and 
social data;  
the corporate governance statement as referred to in Article 46a of the Fourth 
Company Law Directive and Article 36(2) of the Seventh Company Law 
Directive, to be included in the annual management report;   
the information requested in Article 10 of the Takeover bids Directive, to be 
included in the annual management report; 
the interim management report (Article 5(5) TD); and 
the interim management statement (Article 6(1) TD). 

87 

 
 
 
 
 
 
 
 
 
ANNEX 5 

Issues around periodic disclosure of financial information139 

1.  HALF YEARLY REPORTS 

1.1. 

Difficulties to respect the deadline of publication 

The following table indicates that 41,7% of small and medium listed companies consider 
that the deadlines for disclosure of financial information should be different for big and 
for small and medium issuers. 

1.2. 

 Requirements to audit half yearly financial statements 

139  Source: Mazars (2009), Transparency Directive Assessment Report, external study conducted for the 
European Commission: http://ec.europa.eu/internal_market/securities/transparency/index_en.htm  

88 

 
 
 
 
                                                 
2. 

QUARTERLY INFORMATION 

3. 

STRICTER  NATIONAL  RULES  CONCERNING  THE  CONTENT  OF  QUARTERLY 
REPORTS 

4. 

COMPARISON WITH OTHER JURISDICTIONS: 

A  comparison  with  the  systems  existing  in  the  other  jurisdictions  under  review  (US, 
Japan, China, India, Hong Kong and Switzerland) provides the following main results: 

-  Yearly,  half-yearly  and  quarterly  reports  are required in all reviewed  jurisdictions  for 
issuers  of  shares,  with  the  exception  of  Switzerland  regarding  quarterly  reports. 
Regarding issuers of debt securities, yearly financial reports are required in all reviewed 
jurisdictions,  half-yearly  financial  reports  are  required  in  China,  India  and  Japan  and 
quarterly reports are required in Hong Kong and the US. 

- Some jurisdictions provide for different regimes depending on two criteria: the size of 
the  issuer  (for  instance,  in  the  US,  the  time  to  file  the  annual  and  quarterly  reports  is 

89 

 
 
 
longer  for  smaller  issuers)  and  its  nationality  (for  instance,  foreign  issuers  have  more 
time to file annual reports in Japan). 

Concerning specific issue of the time period to publish half-yearly financial statements, it 
should  be  noted  that  the  US  provides  for  shorter  deadlines  (40  calendar  days  for  the 
standard  regime),  China  is  applying  the  same  rule  as  the  transparency    directive  and 
Hong Kong, Japan and Switzerland grant a longer period (three months). It should also 
be noted that, in the US, smaller issuers benefit from a slightly longer period to file (45 
days instead of 40 days). 

90 

 
ANNEX 6 

Issues linked to the notification of major holdings of voting rights. 

1.  METHOD OF AGGREGATION/CALCULATION OF THRESHOLDS  

 Although there was support for the aggregation of all financial instruments to trigger the 
notification requirement, in general respondents to the public consultation would prefer 
that  the  notification  itself  presented  a  breakdown  of  voting  rights  and  financial 
instruments according to their nature. 

CESR's (ESMA) proposal was to create a notification system with four different baskets 
(holdings of voting rights; holdings of financial instruments under Article 13; holdings of 
cash  settled  derivatives  and  total  holdings)  that  would  trigger  an  obligation  to  disclose 
the  holdings  of  the  four  baskets  when  the  threshold  for  any  of  the  four  baskets  was 
reached or crossed. 

Another possibility would be to create a notification system with three different baskets 
(holdings  of  voting  rights,  holdings  of  financial  instruments  under  Article  13  and  total 
holdings). This method would be more compatible with the preferred option consisting to 
have  a  large  definition  of  financial  instruments  in  Article  13  of  the  Directive 
corresponding  to  all  instruments  of  similar  economic  effect  to  holding  shares  and 
entitlements to acquire shares. 

2. 

NETTING OF LONG AND SHORT POSITIONS 

An investor can have both long positions and short positions on the same assets: a short 
position refers to entering into any contract under which the investor profits from a fall in 
the value of an asset and a long position refers to entering into any contract under which 
an investor profits from any increase in the price of the asset. CESR (ESMA) considers 
that  netting  of  long  and  short  positions  does  not  prevent  access  to  voting  rights  and 
therefore gives the possibility of hiding stakes. Netting should therefore not be allowed. 

These  2  questions  can  be  already  solved  in  the  proposed  modification  of  the 
Transparency directive.  

3. 

QUESTIONS TO BE DEALT WITH THROUGH BINDING TECHNICAL STANDARDS 

For  other  issues,  ESMA  should  be  empowered  to  develop  draft  binding  technical 
standards. Examples of these issuers include:  

•  Basket of securities 

Question of derivatives using a basket of securities: when the basket is a standard, well-
diversified  one,  there  is  no  issue:  no  notification  should  be  required.  However,  if  the 
basket includes only a limited number of securities, specific rules should be applicable. 

•  Nominal or delta adjusted approach 

91 

 
They  are  two  general  approaches  to  calculate the  equivalence  of instruments of similar 
economic effect with potential voting rights: 

Under  a  nominal  approach,  an  instrument  is  counted  as  the  number  of  shares  it  is 
referenced to. Voting rights are calculated based on the number of shares. For instance, a 
CfD  based  on  100,000  shares  would  result  in  the  holder  potentially  having  access  to 
100,000 shares. This allows a straightforward calculation to be undertaken by the holder, 
results  in  relatively  lower  costs,  and  the  holder  will  only  need  to  recalculate  if  the 
position  is  altered  or  the  denominator  changes.  The  current  Article  13  instrument 
disclosure works on a nominal basis.  

Under a delta adjusted approach, share equivalence is based on the delta. The delta of an 
equity derivative represents how the pay off from that instrument changes in relation to a 
change in the price of the underlying equity. A CfD for example would normally have a 
delta of 1 as it perfectly mirrors the change in the underlying share price. Options on the 
other  hand  have  a  delta  that  fluctuates.  Furthermore,  the  delta  of  a  cash-settled  option 
will change as the time to expiry shortens.  

Delta can be seen as a useful and relevant measure as it is representative of the number of 
shares the person writing the instrument would need to hold in order to perfectly hedge 
its exposure. However, the instrument holder may need to recalculate on a daily basis the 
delta-adjusted  holding  as  the  delta  will  generally  change  over  time  and  may  result  in 
thresholds being crossed passively.  

Example  

Company A has 1 Million shares or voting rights. 

A  CfD  for  100,000  shares  in  Company  A  has  a  delta  of  1.  Therefore  the  appropriate 
calculation  would  be  (100,000  x  1)  /  1,000,000  which  gives  a  position  of  10%  of 
Company A’s shares. This would trigger a disclosure obligation on the CfD holder.  

A cash-settled call option for a nominal 100,000 shares in Company A has (at transaction 
date)  a  delta  of  0.2.  Therefore  the  calculation  (100,000  x  0.2)  /  1,000,000  results  in  a 
delta-adjusted  position  of  2%  of  the  company’s  shares,  and  therefore  no  disclosure  is 
required. 

4. 

EXCEPTIONS FOR DISCLOSURE. 

According to CESR (ESMA), a general approach raises the issue of exemptions as it is 
likely  to  yield  a  large  number  of  disclosures.  Exemptions  would  seek  to  limit  that 
number.  ESMA  would  be  empowered  to  develop  draft  binding  technical  standards 
determining these exceptions. 

Below are listed the exceptions proposed by CESR (ESMA)140: 

140  See  CESR  proposal  to  extend  major  shareholding  notifications  to  instruments  of  similar  economic 

effect to holding shares and entitlements to acquire shares. Consultation Paper, January 2010.  

92 

 
                                                 
•  The  TD  currently  allows  member  states  not  to  require  investment  firms  and  credit 
institutions to count part of the holdings in their trading book for the purposes of the 
Directive. The voting rights held in the trading book under this exemption are not to 
exceed  five  percent  and  the  holder  needs  to  ensure  that  the  voting  rights  are  neither 
exercised nor used to intervene in the management of the issuer.  

•  The TD currently exempts the acquisition or disposal of a major holding reaching or 
crossing the 5% threshold by a market maker acting in its capacity of a market maker. 
In addition, the shareholder needs to be recognised as a market maker for the purpose 
of the Directive, and may neither intervene in the management of the issuer concerned 
nor exert any influence on the issuer to buy such shares or back the share price.  

Member  states  that  have  already  taken  action  have  included  or  are  planning  to  include 
additional  exemptions.  Examples  include  client  serving  positions,  and  transfers  for 
accounting purposes, which are set out below:  

•  Exemption  for  client-serving  transactions:  In  order  to  reduce  the  amount  of 
disclosures, positions where CfD writers are effectively acting as intermediaries and 
providing liquidity may be exempt. This would only be available for transactions done 
in  a  client-serving  capacity  (for  instance  fulfilling  a  client  order,  or  in  order  to 
facilitate filling a client order), and not for proprietary business. Those CfD positions 
taken  out  to  hedge  a  client  order  would  also  not  need  to  be  disclosed.  For  instance, 
when  writing  a  short  CfD  position  for  a  client  the  writer  will  effectively  take  out  a 
long CfD position itself. The principle underlying this exemption is that firms holding 
a position purely to facilitate a client position, with no interest in the performance of 
the underlying equity, should not be required to disclose their position.  

•  Exemptions  for  accounting  purposes:  Positions  created  by  intra-group  movements 
may also be exempt from the notification process as they may not be deemed to have 
similar economic effect to holding shares and entitlements to acquire shares providing 
such movement occurs purely for tax or accounting purposes. This would only be the 
case if the original transaction had either been disclosed if required (or included in the 
calculation for disclosure) or continues to benefit from an exemption notwithstanding 
this intra-group movement.  

93 

 
ANNEX 7 

Different regimes introduced by the Member States for disclosure of cash-settled 
derivatives 

The  United  Kingdom141  has  introduced  a  regime  that  requires  the  disclosure  of  (gross) 
long  positions  on  cash  settled  derivatives  from  1  June  2009  onwards142.  It  requires 
reporting  once  the  threshold  of  3%  has  been  reached,  aggregating  both  the  derivative 
transactions and any actual holdings of the voting shares.  

The UK FSA position on cash-settled derivatives 

In its consultation paper of 2007143, the UK regulator (Financial Services Authority, FSA) considered the 
question of whether the regime as set out in the Transparency Directive was open to abuse and whether 
specific rules should be introduced to legislate for the potential loopholes. The FSA considered that cash 
settled contracts for difference (CFD) and similar instruments were not disclosable under the terms of the 
Transparency Directive (as implemented by UK rules) given that they do not constitute a legal right to 
acquire the underlying share. 

The FSA noted the 2 main problems with this position being: 

1) The issuer of the CFD will almost always seek to hedge its position on the derivative by acquiring the 
underlying share; and 

2)  Those  with  a  pure  economic  interest  in  the  shares  of  a  company  may  still  seek  to  influence  its 
management. 

This resulted in the following potential problems for market transparency: 

• The situation where a CFD, although intended to be cash settled, is in fact physically settled. By this 
route  the  person  taking  the  derivative  could  instantly  take  ownership of a substantial percentage of the 
shares in the company with no disclosures having been made during the building of the stake. 

• The majority of issuers of CFDs claim that they do not exercise the votes attaching to the shares they 
hold for hedging purposes and, specifically, do not follow the instructions of those holding the relevant 
CFDs. However, there is widespread recognition that, where issuers have no real interest in the affairs of 
the company whose shares they hold, they can easily be influenced by the holder of the CFD. 

• Even if the issuer of the CFD does not vote its hedged shares, this can take a large proportion of the 
votes out of the voting pool, effectively increasing the significance of other holders. 

• The cost in management time of investigating enquiries and demands from those who claim to hold an 
interest in the company to verify their equity with little information.  

In  its  consultation  paper,  the  FSA  also  put  the  arguments  for  the  opposing  view,  that  the  rules  should 
remain unchanged. The principal points of this argument being: 

• The majority of issuers state that they do not settle CFDs by physical delivery of the shares; 

• The majority of issuers state that they do not vote shares which they hold in relation to hedge positions 
and do not allow themselves to be influenced in this regard by the holders of CFDs; 

141   In  the  United  Kingdom,  the  UK  Takeover  Code  already  required  the  disclosure  of  economic 
interest   during  the  offer  periods:  see  Rule  8(3).  In  Ireland,  similar  rules  were  contained  in  the 
Irish Takeover Code. 
142   See UK FSA (March 2009). 
143   UK FSA (2007). 

94 

 
                                                 
 
 
 
 
 
•  Too  much  disclosure  can  cause  problems  for  market  participants  in  their  understanding  of  the  true 
position  in  relation  to  control  of  companies  and  can,  therefore,  harm  transparency.  Specifically  the 
disclosure could lead to: 

-  confusion  of  the  investor  community  as  to  who  holds  underlying  interests  and  the  motives  behind 
acquisitions and disposals; 

- complex situations where the community tries to second guess potential shareholdings creating a false 
feeling of interest/disinterest in the market; 

- increasing volatility in the market; and 

- the additional costs associated with the extra disclosure burden. 

The FSA clearly saw the merit in many of these arguments. However, it was ultimately convinced by the 
view in the market that, whatever CFD issuers may imply about their practices, taking positions in CFDs 
is  an  effective  and  widespread  method  for  building  a  stake  in  a  company  without  the  burden  of 
disclosure. This was a clear loophole that the FSA sought to close. This resulted in the FSA revising the 
applicable rules to include CFDs and similar instruments in the obligation to notify interests. 

In France, rules on cash settled derivatives came into force on 1 November 2009. These 
rules require  that once a threshold has  been crossed by holdings of shares and options, 
gross  long  positions  held  through  financial  instruments  of  similar  economic  effect  to 
holding  shares  also  need  to  be  reported.  There  is  no  separate  threshold  for  financial 
instruments  of  similar  economic  effect  to  holding  shares.  A  recent  case  described  in 
Annex  8  below  proves  that  the  regime  in  place  was  not  efficient  to  avoid  hidden 
ownership. 

In Portugal, following a public consultation144, a Regulation (Regulation 5/2010) on the 
duty  to  disclose  long  positions  was  issued  by  the  CMVM  and  entered  into  force  in 
October  2010145.  According  to  the  regulation,  all  instruments  need  to  be  aggregated 
towards the existing thresholds. 

In  Germany,  the  Ministry  of  Finance  has  published  draft  legislation.  The  legislative 
procedure is still pending with enactment of the respective law to be expected in March 
2011 and, after a transition period, entering into force to be expected on 1 January 2012. 
The draft law establishes a new obligation of investors to make a disclosure if “they are 
holding  financial  instruments  or  other  instruments  which  due  to  their  structure  enable 
their  owner  to  acquire  existing  voting  shares  of  an  issuer  domiciled  in  Germany, 
provided that they reach, exceed or fall short of a relevant threshold. Relevant thresholds 
are  5,  10,  15,  20,  25,  30,  50  and  75%.  In  such  an  event,  the  holder  must  immediately 
make  the  necessary  notification  to  the  issuer and  the German regulator BaFin. The  bill 
lists two examples where instruments “enable” the holder to acquire shares, i.e. (i) when 
the counterparty to the instruments could hedge or reduce its risk by holding the relevant 
shares  or  (ii)  when  the  instruments  include  a  right  or  an  obligation  to  acquire  the 
shares146. 
In  the  Netherlands,  the  Ministry  of  Finance  has  published  draft  legislation  for 
consultation  in  2009.  The  draft  law  would  create  the  presumption  that  the  holder  of  an 

 http://www.cmvm.pt/NR/exeres/9ADECEA9-1A6C-47FD-9526-5A9E9664D7F8.htm  

144 
145   CMVM Regulation No. 5/2010 Duty to Disclose Long Positions on Shares. 
146   See http://blogs.law.harvard.edu/corpgov/2011/03/01/germany-to-ban-stealth-takeover-strategies/ 

95 

 
                                                 
 
instrument which creates an economic long position but is not settled in shares, controls 
the underlying shares. Such instruments would have to be aggregated to with shares and 
entitlements to acquire shares. 

In  Italy,  the  Department  of  Finance  is  in  the  course  of  preparing  analogous  disclosure 
requirements  for  Contracts  for  Difference  (CfD)  holders.  As  it  is  possible  to  divorce 
economic  interests  from  voting  rights,  the  introduction  of  additional  disclosure 
requirements in relation to CfDs is considered justified.  

Outside the EU, Switzerland, Hong Kong and Australia have also taken action 

–  The  Swiss  regulator  has  extended  the  scope  of  notification  rules  at  end  of 
2007. Disclosures on cash settled derivatives only are seldom, in many cases 
such  disclosures  are  done 
in  connection  with  disclosures  on  other 
participations  (shares)  in  the  respective  companies.  The  disclosures  have 
become  more  complex  by  expanding  the  disclosure  requirements  to  cash 
settled derivatives, but the disclosures contain more information. 

–  In Hong Kong, all types of equity instruments of similar economic effect to 
the  holdings  of  shares  are  in  scope  of  the  significant  holdings  regime.  A 
person  holding,  writing  or  issuing  instruments of similar economic effect  is 
taken  to  be  interested  in  the  underlying  shares.  These  interests  must  be 
aggregated with physical holdings on a gross basis. 

–  The  Australian  Treasury  has  started  a  consultation  to  determine  whether 
equity  instruments  of  similar  economic  effect  should  be  included  in  the 
definition  of  substantial  holding,  and,  if  so,  on  what  basis  they  should  be 
included.  It  considers  that  while  equity  instruments  of  similar  economic 
effect give economic interests but not voting rights, they may give a degree 
of effective control over the referenced shares. 

96 

 
ANNEX 8 

Recent cases in the European Union linked to the use of cash-settled derivatives 

Hermes/LVMH 
In  October  2010,  Louis  Vuitton  Moët  Hennessey  ("LVMH")  surprised  the  market  by  announcing, 
without having given any previous notice to the market that it had built up a 17.1% stake at a purported 
50% discount in Hermès International by using cash-settled equity swaps.   
LMVH built (progressively) its (hidden) stake by entering into several cash-settled equity swaps in 2008. 
In  September  2010  the  parties  altered  the  terms  of  the  equity  swaps  so  that  instead  of  cash,  the  swaps 
would  be  equity-settled.  This  action  enabled  LVMH  to  increase  its  holdings  and  as  cash-settled 
derivatives  are  excluded  from  the  French  disclosure  requirements  as  long  as  thresholds  of  shares  or 
options are not crossed, the disclosure for these cash settled positions was not required.  
However,  the  manner  in  which  the  shareholding  was  acquired  led  the  AMF  (the  French  regulator: 
Autorité des Marchés Finaciers) launching a review to determine whether LVMH violated the disclosure 
rules whilst building up its stake in Hermès.  The investigation is due to end in July 2011. 
Continental versus Schaeffler147 
July/August 2008: Schaeffler built an economic interest of 36% in Continental by entering equity swaps 
with some banks before it declared a public offering on the outstanding capital of Continental. Schaeffler 
was exempted from the lunch of a mandatory bid, since it made a voluntary public offering and wanted to 
pay a fair price. However, this fair price was lower than would have been the case if the control position 
was built by normal share acquisitions instead of by equity swaps. The German regulator BaFin ruled that 
the  build-up  of  an  economic  interest  by  cash  settled  financial  instruments  does  not  need  to  be  notified 
under current German law. It should be noted that none of the banks involved held more than 3% of the 
shares to hedge the equity swaps so as to avoid having to notify themselves under the rules on holding of 
shares. 
Porsche versus Volkswagen 
October  2008:  Porsche  announces  that  it  has  built  a  direct  share  interest  of  42,5%  in  its  competitor 
Volkswagen. Porsche discloses an additional economic interest of 31,5% by cash settled options. There 
were  discussions  if  the  “free  float’  in  shares  of  Volkswagen  was  effectively reduced to 5,8% since the 
land  of  Low  Saxony  held  an  interest  of  20,1%  in  Volkswagen  company.  Market  parties  had  not  taken 
into account the existence of such a large economic interest with only one party. They had speculated on 
a share price fall and were short for about 13% of outstanding shares. The closing of these positions led 
to a price explosion of the Volkswagen shares. In order to improve liquidity, Porsche settled 5% of its 
position into cash and thereby apparently profited from the market disorder caused by itself. 
SGL Carbon / Susanne Klatten / SKion GmbH 
March 2009: according to an ad hoc announcement pursuant to § 15 WpHG dated 16 March 2009, SGL 
Carbon  notified  that  the  “Board  of  Management  of  SGL  Carbon  SE  was  informed  that  SKion,  the 
investment company of Mrs. Susanne Klatten, has acquired an equity stake of 7.92% in SGL Carbon SE. 
According  to  their  notification,  SKion  is  interested  in  further  purchases  of  additional  SGL  Carbon  SE 
shares;  will  however  remain  below  the  threshold  of  25%  of  voting  rights.  SKion  has  built  positions 
within this percentage scope through derivative capital market instruments.” Different business journals 
(e.g.  Handelsblatt,  Manager  Magazin)  reported  that  SKion  had  followed  the  example  of  Porsche  by 
entering  into  cash  settled  equity  swaps.  On  8  April  2008,  SKion  notified  SGL  Carbon  that  the  voting 
interest in SGL Carbon AG has exceeded the thresholds of 10% and 15%. At this time the stake of SKion 
amounted to 16.48%. All voting rights of SKion are to be attributed to Susanne Klatten. 
Fiat148 
April 2005: EXOR, a company controlled by the Agnelli family (controlling, through IFIL, FIAT at the 
time  with  around  30%  of  the  voting  rights,  through  a  pyramid  structure)  enters  into  an  equity  swap 
agreement for around 7% of the shares, which remains undisclosed until executed. While the originally 
equity swap agreement would be settled in cash, the agreement was eventually modified in August 2005 
to allow physical settlement in shares. Physical delivery of the shares to the Agnelli family took place on 

147   See generally Zetzsche (2009). 
148   See also Kirchmaier et al. (2009), p.12. 

97 

 
 
                                                 
the date in which a group of banks were executing a convertible loan agreement not being repaid in cash 
by FIAT and therefore diluting the Agnelli's original stake to 23%. The equity swap allowed the Agnelli 
family to keep their shareholdings in FIAT constant at 30% and with it the attached control rights intact 
without having to launch a takeover bid for the remaining of the capital. For reporting obligations, Italian 
law takes into account the way financial derivatives may be settled: only in cash or possibly in underlying 
physical instruments.  

98 

 
 
 
 
  
ANNEX 9 

Thresholds and rules of aggregation for notification of major holdings in the 
Member States 

1.  DIFFERENT THRESHOLDS IN THE MEMBER STATES 

The  following  table  shows  the  extent  to  which  several  Member  States  have  adopted 
lower initial thresholds (and additional thresholds) in addition to the minimum thresholds 
required by the Directive149.  

149   Mazars (2009). 

99 

 
 
                                                 
2. 

DIFFERENT RULES IN THE MEMBER STATES FOR AGGREGATION OF HOLDINGS 
OF VOTING RIGHTS WITH THESE OF THE FINANCIAL INSTRUMENTS  

A minority of Member States (AT, BG, CY, ES, LU, IT and PL) considers that Article 
13  enacts  a  notification  obligation  which  is  independent  of  that  of  Article  9:  in  other 
terms, the notification obligation is triggered independently. On the contrary, in majority 
of Member States (BE, DE, DK, EE, EL, FI, FR, HU, IE, LT, MT, NL, PT, SE, SI, SK 
and UK), as well as in Norway and Iceland, investors must aggregate their holdings of 
voting rights with their holdings of financial instruments (within the sense of Article 13) 
for the purposes of evaluating whether the relevant threshold referred to in Article 9 is 
reached or crossed. 

100 

 
 
 
ANNEX 10 

STATEMENT: 

THE 
FEEDBACK 
CONSULTATION  BY  DG  INTERNAL  MARKET  AND  SERVICES  ON  THE 
MODERNISATION OF THE TRANSPARENCY DIRECTIVE (2004/109/EC) 

SUMMARY  OF  RESPONSES 

TO 

101 

 
 
 
Brussels, 17 December 2010 

FEEDBACK STATEMENT  

SUMMARY OF RESPONSES TO THE 
CONSULTATION BY DG INTERNAL 
MARKET AND SERVICES  

ON  

THE MODERNISATION OF THE 
TRANSPARENCY DIRECTIVE 
(2004/109/EC) 

102 

 
 
  
1.  GENERAL REMARKS ON CONSULTATION PROCEDURE AND FEEDBACK 

On 28 May 2010, the European Commission (DG Internal Market and Services) launched 
a  public  consultation  on  the  modernisation  of  Directive  2004/109/EC  (Transparency 
Directive)150. 

The  Commission  also  adopted  in  May  2010  a  Report  on  the  operation  of  the  Directive 
and a related staff working document on emerging issues151. This report (i) describes the 
impact of the Transparency Directive and how it has been complied with and (ii) presents 
the main issues emerging from its application.  

Five  years  after  the  entry  into  force  of  the  Transparency  Directive,  its  rules  are 
considered to be useful for the proper and efficient functioning of the financial markets 
and for making informed investment decisions. Despite this positive general perception 
of  the  Directive,  there  is  evidence  that  some  inefficiency  still  remains  that  hampers 
investment decisions and diminishes investor confidence.   

In this context, the public consultation launched by the Commission aimed at gathering 
quantitative  and  qualitative  evidence  on  impacts,  costs  and  benefits  resulting  from  the 
requirements of the Transparency Directive as well as views on possible amendments to 
these requirements. 

•  The issues which the Commission invited views and evidence on included: 

•  Attractiveness of regulated markets for smaller listed companies; 

•  Ways to improve the transparency regime of major holdings of voting rights;  

•  Possible  ineffective  application  of  the  Transparency  Directive  due  to  diverging 

national measures and/or unclear obligations in the Directive. 

The  deadline  for  responses  to  this  consultation  was  23rd  August  2010.  The  following 
contributions  have  been  received:  94  from  organisations,  17  from  public  authorities 
(including a European body and a private organisation entrusted with a public function) 
and none from individual citizens. 

150   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, 
31.12.2004, p. 38–57 

151   Report form the European Commission to the Council the European parliament, the European Social 
and  Economic  Committee  and  the  Committee  of  the  Regions  on  the  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. 

103 

 
                                                 
2.  OVERVIEW OF RESPONSES TO THE CONSULTATION 

The  consultation  was  launched  on  28  May  2010  and  closed  on  23  August  2010152. 
Responses  were  invited  from  all  interested  parties.  111  answers  were  received  from  a 
wide range of professional representatives and public authorities.  

Figure  1  shows  the  status  of  organisational  respondents,  classified  into  several 
categories. 

Figure 1 – Replies received, by type of institution 

Type of institution 

Replies  

Type of institution 

Replies  

Type of institution 

Replies 

6 

10 

5 

3 

1 

13 

111 

European Bodies 

1 

European Associations 

11 

National Public 
Authorities 

OAMs (officially 
appointed mechanism for 
the storage of regulated 
information) 

15 

1 

National Associations 
(professions only) 

National Associations 
(issuers only) 

7 

4 

Stock exchanges 
operators (Regulated 
Markets) 
Individual companies 
(issuers and investors) 

Individual companies 
(service providers) 

National Associations 
(investors only) 

National Associations 
(including both issuers 
and investors) 

International 
Associations/networks 

5 

Law firms & audit firms 

25 

4 

Academics 

Civil Society 
organisations 

Total 

Lawfirms & audit firms
3%

Individual companies 
(service providers)
5%

Individual companies 
(issuers and investors)
9%

Replies per type of institution

Civil Society organisations
11%

European Bodies
1%

Academics
1%

National Public 
Authorities
13%

OAMs (officially appointed 
mechanism for the 
storage of regulated 
information)
1%

European Associations
10%

National Associations 
(professions only)
6%

National Associations 
(issuers only)
4%

National Associations 
(including both issuers 
and investors)
22%

National Associations 
(investors only)
5%

Stock exchanges 
operators (Regulated 
Markets)
5%

International 
Associations/networks
4%

152   Replies received after that date have also been considered. 

104 

 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Figure 2 lists the 111 answers according to their nationality: 100 responses were received 
from  EU-domiciled  organisations  or  European  associations  representing  members  from 
different Member States, 3 answers were received from non-EU domiciled organisations 
(US, Norway) and 8 answers from international associations. 

Figure 2 – Replies received, by geographical origin 

Number of responses 

Country 

Number of responses 

1 
3 
1 
5 
29 

1 
14 
2 
1 

8 

2 
3 
1 
10 
6 
3 
4 
10 
1 
4 
1 
1 

LV 
NL 
PT 
SE 
UK 

Nordic 
EU 
NO 
US 

International 

 Total 

   111 

Replies by country

Countr
y 
AT 
BE 
CZ 
DE 
DK 
ES 
FI 
FR 
HU 
IE 
IT 
LU 

30

25

20

15

10

5

0

T
A

Z
E C
B

E
D

K
D

S FI
E

R H
F

U IE IT

L
LU LV N

T
P

E
S

K
U

ordic

N

U
E

S
O U
N

al

Internation

A  list  of  all  the  organisations  and  public  authorities,  who  have  accepted  that  their 
answers to the consultation be published, is attached in Annex 1153. 

153   One respondent requested a confidential treatment. 

105 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.  ANALYSIS OF RESPONSES 

3.1.  Methodological issues 

The feedback statement provides a broad summary of responses to each of the specific 
questions  raised  in  the  consultation  paper.  It  is  a  factual  document  which  presents  the 
results of the consultation and does not announce any policy options.  

During  the  analysis  of  the  responses,  opinions  have  been  categorized  into  'yes/no' 
categories  of  answers  where  possible.  The  majority  of  respondents  have  also  provided 
qualitative  commentaries  to  supplement  or  nuance  their 
'yes/no'  answers.  The 
explanations  have  been  grouped  under  a  number  of  sub-headings  to  enable  a  more 
detailed analysis of respondents' views. 

Some interpretation of the replies received has been necessary. A number of respondents 
did not provide replies to the questions but general statements on issues covered by the 
questions.  Those  contributions  have  been  interpreted  in  order  to  allocate  the  views 
expressed  to  the  relevant  questions.  When  replying  to  certain  questions,  some  answers 
were unclear as to the allocation of a "yes" or "no" and required interpretation. Replies to 
some questions were more relevant or also relevant for other questions. As a result, those 
views  have  also  been  taken  into  account  in  the  analysis  of  these  other  questions. 
Respondents  raised  similar  or  identical  issues  in  the  replies  to  more  than  one  question. 
Where possible, the analysis of these views has been grouped under only one question in 
order  to  facilitate  understanding.  This  is  particularly  relevant  for  the  following  issues: 
several respondents raised the subject of the identification of shareholders which, for the 
purposes  of  this  feedback  statement,  will  be  treated  under  question  18  (and  not  under 
questions  15  or  24);  many  respondents  raised  the  need  to  clarify  the  rules  on  stock 
lending which, for the purposes of this feedback statement, will be treated in the Annex 
2.  

It  is  noted,  however,  that  this  interpretation  may  not  reflect  fully  or  effectively  the 
opinion of the respondents. 

It also should be noted that, for the preparation of the statistics reflected in this paper, all 
responses  have  been  given  equal  weight.  In  addition,  some  respondents  who  provided 
individual  contributions  indicated  that  they  also  contributed  to,  or  supported  a 
submission by a professional association of which they were members.  

A number of respondents have answered only a limited number of questions which they 
considered  to  be  of  particular  relevance  and  did  not  provide  a  response  to  other 
questions. 

3.2.  Detailed analysis 

I. Attractiveness of Regulated Markets for small listed companies (questions 1 to 10) 

General issue. Is it desirable to enact a differentiated regime for small listed companies in 
the rules applying to regulated markets? 

The  consultation  paper  did  not  contain  a  specific  question  on  the  merits  of  enacting  a 
differentiated  regime  for  small  listed  companies  in  the  rules  applying  to  regulated 
markets.  However, nearly half of the respondents provided an opinion on this issue. One 
third  supported  the  possibility  to  enact  a  differentiated,  more  proportionate,  regime  for 

106 

 
small  listed  companies  regarding  the  rules  applying  to  regulated  markets  so  that  these 
markets  remain  attractive  for  small  listed  companies.  It  was  argued  that  the 
administrative burdens and associated costs for small listed companies could be reduced 
without  affecting  the  level  of  transparency  or  the  quality  of  the  information  disclosed. 
The  US  was  mentioned  as  an  example.  Some  respondents  supported  the  differentiated 
regime  provided  that  investor  protection  and  soundness  of  the  markets  were  not 
adversely affected.  

On the other hand, two thirds of the opinions provided opposed this idea on the basis that 
the  same  disclosure  requirements  should  apply  to  all  issuers  on  regulated  markets 
irrespective  of  their  size.  They  were  of  the  opinion  that  regulated  markets  were  a 
guarantee for certain quality standards, which must not be undermined with the creation 
of sub-markets or segments according to the size of issuers.  

Several  replies  mentioned  that  exchange-regulated  markets  (also  known  as  junior, 
alternative, growth or second-tier markets) were more suitable for smaller companies and 
that  regulatory  solutions  to  increase  the  attractiveness  of  this  type  of  market  would  be 
preferable.  Smaller  companies  should  have  the  choice  of  listing  first  on  these  smaller 
markets and then migrating to major markets as they grew.  

It  was  also  outlined  that  EU  legislation  should  recognise  that  there  are  and  should  be 
different  types  of  capital  markets  in  the  EU,  with  different  regulatory  intensity:  (i) 
exchange  regulated  markets  with  a  light-touch  regime;  (ii)  regulated  markets  with 
common standards for all issuers; and (iii) premium segments, within regulated markets, 
voluntarily joined by issuers, which may include regulatory add-ons defined by the stock 
exchanges.  

All  respondents  who  expressed  an  opinion  on  this  general  issue  called  on  the 
Commission to conduct a holistic review of the burdens for small listed companies and of 
the appropriate and beneficial solutions in terms of the regulatory approach for primary 
markets (both regulated markets and exchange-regulated markets). One respondent also 
indicated that the development of a more vibrant venture capital and private equity sector 
in  Europe  could,  in  many  cases,  represent  a  more  viable  source  of  funding  than  public 
equity markets for smaller companies.  

Question  1  –  Impact  of  the  Transparency  Directive  on  the  attractiveness  of  regulated 
markets  for  small  listed  companies.  Do  the  Transparency  Directive  obligations  for 
issuers (e.g. disclosure of annual and half-yearly financial reports, quarterly information 
etc.)  impact on the decisions of small listed companies to be listed on or to exit regulated 
markets (e.g. do they act as an entry barrier)?  

Respondents' views diverged on this issue.  

A number of respondents considered that the transparency requirements, while implying 
a certain burden, were not a critical consideration in a company's decision to get listed on 
a  regulated  market  or  a  barrier  to  entry.  In  their  view,  the  benefits  of  the  requirements 
provided by the Transparency Directive outweighed the related costs.  By requiring firms 
to  provide  more  complete,  clear  and  harmonized  financial  information,  comparability 
between issuers was facilitated and investor awareness and confidence increased. It also 
encouraged better organization of issuers, which was particularly relevant in the case of 
small listed companies. In addition, several respondents believed that the most significant 
costs were caused by legislative requirements other than the Transparency Directive. 

107 

 
On the other hand, some respondents were convinced that the cost of ongoing disclosure 
requirements  imposed  by  the  Transparency  Directive  created  an  incentive  for  smaller 
companies  to  avoid  listing  on  regulated  markets  unless  this  could  be  justified  by 
significant  benefits  in  terms  of  access  to  external  sources  of  funding,  which  were  not 
always achieved.  

Many  replies  pointed  out  that  an  increasing  number  of  issuers  had  recently  left  or 
considered  leaving  regulated  markets  in  order  to  decrease  their  compliance  costs. 
However, while the costs of the transparency obligations were often cited by small listed 
companies themselves as the main reason for delisting, other respondents underlined that 
a number of factors contributed to the delisting phenomenon:  small free float affecting 
the  trading  and  the  liquidity  of  the  equity  issued  by  smaller  companies,  insufficient 
performance, buy-out transactions, mergers etc.   

Finally, some respondents had difficulties to evaluate the real impact of the requirements 
of  the  Transparency  Directive  since  they  could  not  be  seen  in  isolation  from  other 
obligations to be complied with by issuers in order to be listed on regulated markets. 

Question 2 – Costs for smaller listed companies. Which are the most important costs for 
small  listed  companies  associated  to  compliance  with  the  Transparency  Directive  (e.g. 
cost  of  preparing  the  accounts,  auditing  costs,  legal  costs,  cost  of  making  public  the 
information etc.)? 

Most of the respondents provided qualitative answers. Some outlined that the main cost 
was  the  time  that  board  and  senior  management  spent  in  complying  with  transparency 
related  requirements  rather  than  in  directing  the  business  (opportunity  cost).  Others 
suggested  that  the  preparation  of  the  accounts  (IFRS)  and  the  related  auditing  costs 
resulted in a heavy burden for small listed companies because they often had limited in-
house  financial  expertise  and  it  was  more  difficult  for  them  to  comply  with  the  short 
publication deadlines of the Transparency Directive.  

In addition, legal compliance costs, translation (into English) costs and publication costs 
were  also  mentioned  as  important  as  well  as  other  requirements  (corporate  governance 
rules,  regular  reporting  obligations,  advertising,  financial  marketing,  disclosure  of 
management  transactions  and  shareholdings)  which  required  listed  companies  to  incur 
costs  linked  to  the  hiring  of  specialists  including  lawyers,  accountants  and  investor 
relation  teams,  often  in  amounts  well  beyond  those  associated  with  public  information 
reporting. 

Some respondents also underlined that important costs arose from national rules, such as 
the obligation to prepare quarterly financial reports or to publish regulated information in 
certain media. 

For  the  majority  of  respondents,  the  main  problem  appeared  to  be  the  level  of  costs  as 
compared to the turnover of the small issuers. 

In  addition,  some  respondents  considered  that  the  benefits  of  transparency  outweighed 
the costs and that the requirements were not disproportionate.  

It  was  mentioned  that  some  of  the  costs  would  have  been  incurred  anyway  even  if  the 
company  wanted  to  access  capital  without  being  listed  on  a  regulated  market  (e.g.  via 
private equity investment). 

108 

 
Question  3  –  Potential  diminution  of  cost  for  small  listed  companies.  What  changes  of 
the  Transparency  Directive  will  bring  important  reductions  in  costs  for  small  listed 
companies? [see also questions 7 and 8] 

Views of respondents were split. About half of those responding believed that the margin 
of  manoeuvre  for  reducing  the  requirements  without  lowering  transparency  standards 
was  limited  and,  consequently,  changes  to  the  Transparency  Directive  could  not 
significantly reduce costs for small listed companies. 

The  remainder  of  respondents  believed  that  some  cost  reductions  could  be  achieved 
without necessarily affecting the level of transparency necessary to protect investors. The 
following  ideas  were  advanced:  streamline  disclosures;  more  flexible  deadlines  for 
publication of financial reports; no obligation to produce quarterly financial information 
either  definitively  or  during  the  first  3  years  of  listing;  allow  issuers  to  decide  on  the 
optimal  interval  of  regular  reporting  (e.g.  two  or  three  times  a  year);  use  a  common 
standard  reporting  format  and  common  language  (XBRL);    use    non-binding  uniform 
templates  for  reports  (including  the  narrative  sections);  make  regular  annual  financial 
reports closer to prospectuses in format and content; avoid gold plating (e.g. in relation to 
the audit of half-yearly financial reports). 

Question  4  –  The  lower  visibility  of  smaller  listed  companies.  How  does  the  visibility 
problem  materialise  (e.g.  lower  attention  of  analysts,  lower  investment  levels,  lower 
trading etc.) for (objectively) well performing small companies?  

Respondents that provided an answer to this question in general agreed that there was a 
visibility  problem  for  small  listed  companies’  equity.  This  lack  of  visibility  generally 
resulted in lower investment levels, which remained very much national, lower trading,  
lower attention of analysts, in particular across borders, as well as lower attention from 
media. 

Concerning  the  low  investment  and  trading  levels,  investment  in  small  companies  was 
viewed as much riskier than in large ones due to the lower liquidity and therefore greater 
volatility  in  the  share  price.  Also,  information  asymmetries  resulted  in  higher  due 
diligence  costs  -  which  in  some  cases  may  exceed  return  on  investment  -  for  investors 
willing  to  invest  in  smaller  companies.  One  respondent  in  particular  explained  that 
investors  did  not  have  all  the  necessary  information  to  enable  accurate  assessment  of 
risks  and  make  optimal  investment  decisions,  as  it  was  harder  for  investors  to  obtain 
reliable information on smaller businesses. 

For  some  respondents,  however,  low  investment  and  trading  activity  could  also  be 
related to factors other than visibility. For instance, for large funds, investment in even 
strongly outperforming small listed companies was unlikely to make much of an impact 
on the fund's overall performance. In order to gain material exposure to small companies, 
their holdings would have to be relatively large. However, it could be difficult for fund 
managers  to  take  significant  positions  in  small  listed  companies  due  to  the  impact  that 
this  would  have  on  the  share  price.  This  also  carried  not  only  the  risks  that  can  be 
inherent  in  a  small  company  (earlier  stage  in  a  growth  cycle,  for  example)  but  also 
illiquidity risks (not being able to sell the holding easily). All of this had to be factored 
into the investment decision.  

One respondent indicated, however, that there were institutional investors specialised in 
investing in small listed companies. 

109 

 
Concerning the lower attention of equity analysts, respondents were of the opinion that 
lack of turnover in small listed companies stocks made it difficult to generate brokerage 
commissions. As a result, relatively few brokerage research and trading resources were 
dedicated  to  smaller  listed  companies.  This  resulted  in  a  vicious  cycle  and  raised  the 
question of the viability of the small caps equity research model. 

Several replies linked the question of visibility to how information is disseminated and 
raised the issue of the bottleneck of the half-yearly financial reports published at the end 
of August. 

Other  respondents  believed  that  current  provisions  of  the  Transparency  Directive  on 
dissemination/storage of regulated information were unsatisfactory, since they intensified 
or, at least, failed to address the problem of the low interest shown by EU investors in 
smaller listed companies. In their view, the Transparency Directive should facilitate, to 
the  maximum  extent  possible,  an  easy,  low  cost  and  non-discriminatory  access  to 
regulated  information  to  all  investors.  Currently,  small  issuers  were  reluctant  to  spend 
more  money  to  ensure  wider  dissemination  of  information  considering  the  low  cross-
border attention they received. 

Finally, some respondents called for a holistic review of the visibility problem, outside 
the Transparency Directive. Several respondents suggested that tax incentives should be 
applied  to  address  the  persistent  market  failures  associated  with  equity  investment  in 
smaller listed issuers. By adjusting the risk reward of investment in smaller listed issuers, 
funds could be attracted to primary and secondary markets, supporting market liquidity 
and lowering the cost of capital. 

Question  5  –  Other  cases  reflecting  low  benefits.  Are  there,  in  your  view,  other  cases 
reflecting  low  benefits  for  small  listed  companies  resulting  from  disclosure  obligations 
compared to larger listed companies? 

Few  replies  were  received  to  this  question.  For  some  respondents,  the  benefits  to  be 
gained  through  adequate  disclosure  were  higher  for  small  listed  companies  than  for 
larger companies. Reducing information may deter some investors and was a particular 
problem  for  smaller  companies,  which  may  not  have  a  well  recognised  track  record  or 
brand. 

For other respondents, there were additional cases reflecting low benefits for small listed 
companies.  

For  example,  most  of  the  competitors  of  small  listed  companies  were  not  listed  on 
regulated  markets.  Providing  too  detailed  information  can  have  negative  consequences 
and present competitive disadvantages for small listed companies.  

Question 6 – Definition of a small listed company. What would be the optimal definition 
of a "small listed company" in the context of regular (i.e. after the admission to trading of 
the securities) transparency requirements?  i) for issuers of shares, those companies with 

110 

 
threshold  such  as 

€100 Million 154, 
a  market  capitalisation  below  a  certain 
€250 Million 155  or  other  (please  specify  the  threshold);    ii)  for  issuers  of  shares,  those 
companies  with  a  market  capitalisation  below  a  certain  percentage  (e.g.  60%)  of  the 
average  capitalisation  of  a  company  in  the  regulated  market  where  the  company  is 
admitted  to  trading  (please  specify  the  percentage);  iii)  for  issuers  of  shares,  those 
companies  with  a  market  capitalisation  below  a  certain  percentage  (e.g.  60%)  of  the 
average  capitalisation  of  a  company  in  the  regulated  market(s)  of  the  home  Member 
State  of  the  company  (please  specify  the  percentage);  iv)  for  issuers  of  debt  securities 
only,  those  companies  having  outstanding  debt  securities  below  a  certain  threshold 
(please  specify  the  threshold);  v)  for  issuers  of  debt  securities  only,  those  companies 
having a turnover below a certain threshold (please specify the threshold); vi) other. 

There was no consensus among respondents to this question.   

Slightly  more  than  one  third  who  answered  supported  a  definition  of  small  listed 
company based on the market capitalisation. This criterion was considered to be simple 
and  straightforward,  although  some  kind  of  transitional  arrangements  for  companies 
crossing  the  thresholds  as  a  result  of  changes  in  capitalisation  would  need  to  be 
established.  Concerning 
itself,  views  were  split.  The  following 
capitalisation thresholds were mentioned: the Prospectus Directive156 threshold; €100M; 
€150 M; €250M; €400M; €750 M; €1 billion; the thresholds used by stock exchanges for 
the different market segments. 

threshold 

the 

About  one  fifth  of  the  replies  would  prefer  to  rely  on  a  relative  threshold,  either  by 
reference  to  the  average  (or  median)  capitalisation  in  the  home  Member  State  of  the 
issuer  or  on  the  regulated  market  where  the  company  is  or  intends  to  be  listed.  For 
example,  using  a  35%  threshold  of  the  average  capitalisation  in  Paris  would  allow  to 
capture in practice 75% of the issuers, which would otherwise represent only 4,4% of the 
total capitalisation in Paris. Several of these respondents suggested, however, leaving the 
question of the threshold to be decided at national level. 

Few respondents addressed the question of the issuers of debt. One expressed preference 
for  using  a  balance  sheet  threshold  and  another  respondent  for  a  mixture  of  the  two 
criteria  proposed  in  the  question.  Other  replies  expressed a preference  for not touching 
the question of issuers of debt. 

More  than  two  fifths  of  respondents,  however,  opposed  a  definition  of  small  listed 
company  and  provided  arguments  against  the  different  solutions  proposed  in  the 
question. They tool the view that the proposed definitions would be impractical because 
of  the  volatility  and  the  variations  in  the  capitalisation  of  companies,  which  in  turn 
resulted in legal uncertainty, investment confusion, increased costs for issuers related to 

154   See  the  definition  of  "company  with  reduced  market  capitalisation"  in  the  context  of  the  on-going 
review of the Prospectus Directive (for instance, in the Council's compromise text of February 4, 2010 
http://register.consilium.europa.eu/pdf/en/09/st17/st17451-re01.en09.pdf). 

155   See the External Study (section 1 of the executive summary) which refers to a threshold of between 

250 Million and 1000 Millions euros. 

156   Directive  2003/71/EC  of  the  European  Parliament  and  of  the  Council  of  4  November  2003  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  and 
amending Directive 2001/34/EC 

111 

 
                                                 
monitoring the relevant thresholds as well as enforcement burden. It was also argued that 
these  thresholds  would  not  capture  the  company  risk  profile  and  would  be  difficult  to 
apply to all markets, which could result in regulatory arbitrage.  

Finally,  some  respondents  suggested  that  if  there  were  a  definition  of  a  small  listed 
company which resulted in a different transparency regime, such listed companies should 
be allowed to “opt-out” from the differentiated regime and to continue applying normal 
standards.  Another  respondent  cautioned  against  the  possible  proliferation  of  different 
definitions of a small listed company in different EU directives. 

Question  7  –  Potential  diminution  of  cost  for  small  listed  companies  if  changes  to  the 
Transparency Directive were to be adopted. 

Question  7.1  –  If  a  differentiated  regime  for  small  listed  companies  is  added  to  the 
Transparency Directive with a view to reduce the compliance costs of those companies, 
would  it  be  desirable  to  prevent  Member  States/regulated  markets  from  imposing  in 
national  law/listing  rules  more  stringent  or  additional  obligations  on  small  listed 
companies?  

A  large  majority  of  respondents  that  provided  an  answer  to  this  question  were  not  in 
favour of a maximum harmonisation approach if a differentiated regime for small listed 
companies  were  added  to  the  Transparency  Directive.  These  respondents  considered 
desirable that Member States or regulated markets operators would be able to set more 
stringent or additional obligations to small listed companies, in particular because of the 
need  to  adapt  the  market  to  the  local  conditions.  In  their  view,  imposing  maximum 
harmonisation could result either in lowering the existing high level standards in certain 
regulated  markets  or  imposing  a  significant  new  burden  in  those  countries  that  were 
currently only applying the minimum requirements of the Transparency Directive. Some 
of these respondents however considered that only regulated markets operators, and not 
Member States, should enjoy the capacity to impose stricter requirements.  

Only  a  small  minority  of  respondents  favoured  a  maximum  harmonisation  approach 
because, in their view, the current regulatory burden was partly caused by national gold 
plating.  

Question  7.2  –  Do  you  think  that  an  extension  of  the  deadline  for  the  publication  of 
financial reports would imply a reduction in legal, auditing or other type of costs? Please 
provide  evidence  supporting  your  answers  (e.g.  how  much  the  cost  would  be  reduced 
depending on the extension of the deadline)?  

Respondents to this question provided qualitative rather than quantitative views on costs, 
with a small minority not providing any opinion on costs at all.  

About  half  of  the  respondents  did  not  believe  that  an  extension  of  the  deadline  for 
publication  of  financial  reports  would  result  in  any  significant  cost  reduction.  Some  of 
these  respondents,  however,  appreciated  the  flexibility  that  could  result  from  an 
extension  of  the  deadline  for  the  publication  of  half-yearly  reports  from  two  to  three 
months, so as to better organise the necessary work, relieve administrative complexities, 
improve the quality of the output and secure the services of auditors.  

Some  other  respondents  believed,  on  the  contrary,  that  extending  the  deadline  of 
publication of financial reports, in particular, half-yearly, would result in a reduction in 

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costs. The following types of costs which could be reduced were mentioned: the burden 
on boards and senior management (opportunity cost); accounting costs (e.g. less need to 
hire external staff/consultants in certain periods for accounting needs because workload 
of internal staff would be better  spread throughout the year); auditing costs (e.g. easier 
for  auditors  to  cope  with  the  work);  extra hours (both  of  in-house  staff and  of  external 
auditors).  

In  addition  to  the  cost  issue,  some  respondents  expressed  negative  views  on  the 
possibility  to  extend  the  deadline  for  publication  of  financial  information.  Late 
publication  of  financial  reports  could  lead  to  outdated  information  which  was  less 
valuable to the market and would increase the risk of market abuse. It was also argued 
that  a  better  way  for  issuers  to  better  allocate  internal  resources  was  to  adjust  their 
accounting year. 

Some other respondents considered that such extension of the deadline should benefit all 
listed companies, not just small ones. 

Question  7.3  –  Do  the  various  rules  requiring  the  disclosure  by  listed  companies  of 
reports of narrative nature157 bring significant costs/operation complexity for small listed 
companies (e.g. legal, account preparation, auditing, other type of costs)?  

Only a small number of respondents provided an answer to this question.  

Around  half  considered  that  the  various  rules  requiring  the  disclosure  by  listed 
companies  of  narrative  reports  brought  significant  costs/operation  complexity  to  small 
listed  companies.  The  opportunity  cost  related  to  the  time  of  boards  and  senior 
management was again particularly highlighted, since there was little scope to delegate 
the task to more junior staff. One reply mentioned that the bulk of the cost consisted of 
understanding what each requirement meant, how much text was required, what should 
be the content and what degree of detail was required. Narrative reports needed also to be 
checked,  proof-read  and  compared  to  other  narrative  reports,  which  generated  a 
significant amount of work for companies. Additionally, one respondent mentioned that 
auditors  and  lawyers  were  increasingly  involved  in  the  preparation  of  narrative  reports 
due  to  the  growing  complexity,  which  contributed  to  increasing  the  related  costs.  The 
following disclosure requirements were identified as complex for small listed companies: 
preparation  of 
the  corporate 
interim  management  statements,  compliance  with 
governance requirements, corporate social responsibility disclosures. 

157   Those narrative reports (see Annex to this questionnaire for the legislative references) are: 

-the annual management report (Article 4(5) TD), which refers to Article 46 of the Fourth Company 
Law  Directive  or  to  Article  36  of  the  Seventh  Company  Law  Directive,  and  integrates  disclosure 
obligations relating to environmental and social data;  
-the  corporate  governance  statement  as  referred  to  in  Article  46a  of  the  Fourth  Company  Law 
Directive  and  Article  36(2)  of  the  Seventh  Company  Law  Directive,  to  be  included  in  the  annual 
management report; 
-the information requested in Article 10 of the Takeover bids Directive, to be included in the annual 
management report; 
-the disclosure on remuneration of directors (provided it is not integrated in the corporate governance 
statement); 
-the interim management report (Article 5(5) TD); and 
-the interim management statement (Article 6(1) TD);  

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The other half of the respondents was not convinced nor had evidence of any significant 
costs/operation  complexity  for  small  listing  companies  arising  from  the  various  rules 
requiring  the  disclosure  by  listed  companies  of  narrative  reports  that  would  warrant  a 
reduction in the reporting requirements. Some respondents said that removing disclosure 
requirements  would  not  be  prudent  from  a  transparency  and  investor  protection 
perspective  and/or  that  the  benefits  of  transparency  outweigh  the  costs.  Others  pointed 
out that investors do not expect the same volume of disclosure from small companies as 
from  the  larger,  often  more  complex,  companies.  Some  replies  also  suggested  leaving 
this issue to national rules. 

Question  7.4  –  Would  you  see  benefits  from  integrating  in  the  Transparency  Directive 
the disclosure obligations mentioned in question (7.3158) which are currently in different 
directives?  

A slight majority of respondents to this question would see some benefits in integrating 
in the Transparency Directive the disclosure obligations concerning narrative reports that 
are currently dispersed in different directives. Some of the respondents pointed to the fact 
that one set of rules would be  more user-friendly for issuers and could make clear that 
the  responsibility  for  monitoring  the  disclosures would  remain with  a single competent 
authority. However, it was also argued that the perceived improvements might be limited 
and  that  everything  would  depend  on  how  Member  States  would  implement  the 
obligations. 

The  remaining  the  respondents  could  not  see  any  particular  benefit  in  integrating  all 
narrative disclosure obligations in the Transparency Directive. For some, it would not be 
appropriate  to  include  corporate-governance  related  disclosures  in  the  Transparency 
Directive,  except  for  the  corporate  governance  statement  which  is  part  of  the  annual 
financial  report.  For  others,  integration  of  all  narrative  disclosures  in  the  Transparency 
Directive  would  have  a  negligible  impact.  Such  "relocation"  could  confuse  market 
participants  rather  than  being  helpful:  overall,  the  “location”  of  an  obligation  was 
irrelevant as it was the content that causes compliance costs and not where the respective 
rule is codified. 

Finally,  one  respondent  mentioned  that  a  consultation  on  the  narrative  reporting 
framework had been recently launched in the United Kingdom. 

Question 7.5 – If the Transparency Directive provided for maximum harmonisation (no 
national add-ons) of the content of narrative reports referred to in question (7.3) for small 
listed companies, would this imply a reduction in legal, auditing or other type of costs?   

Few  respondents  provided  views  on  costs.  A  few  of  them  considered  that  some  cost 
reduction could be achieved. In particular internal administrative costs could be reduced 
because of the possibility to introduce more automation in the process. But most of the 
respondents  could  not  see  scope  for  cost  reductions  arising  from  maximum 
harmonisation  of  narrative  reports  for  small  listed  companies.  On  the  contrary,  one 
respondent  underlined  that  maximum  harmonisation  across  Europe  on  the  content  of 

158   The consultation paper wrongly referred to question 8.3 instead of 7.3. Some respondents expressed 
they were unable to reply to the question because of the wrong cross-reference. Others interpreted the 
cross-reference as referring to question 7.3, which as the intention of the consultation paper. 

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narrative  reports  would  increase  financial  reporting  obligations  and  hence  compliance 
costs for a large portion of small listed companies which were listed on those regulated 
markets  which  did  not  currently  impose  their  own  additional  reporting  obligations 
beyond the minimum EU requirements. 

Most  of  the  respondents  that  provided  views  on  the  merits  of  such  maximum 
harmonisation  opposed  the  idea.  It  was  highlighted  that  the  quality  of  the  narrative 
reporting was crucial for investors. If the threshold for the content were set too low in the 
hope of saving costs, this may have negative implications for investors, with subsequent 
long run negative effects on the share price and the cost of capital for the company. In 
this  context,  some  respondents  called  for  allowing  markets  to  maintain  their  premium 
listings. 

Question  7.6  –  In  case  you  think  maximum  harmonisation  regarding  the  content  of 
narrative reports referred to in question (7.5) is desirable, what do you think would be the 
best  way? 
these  narrative 
disclosures  (which  could  be  prepared  for  instance  by  CESR/ESMA);  ii)  more  detailed 
rules in European law, either in the Transparency Directive or in delegated acts adopted 
by the Commission; iii) a combination of both. 

i)  non-mandatory  ready-to-use 

templates  regarding 

Few respondents provided an opinion on this question.  

Most saw some value in the possible preparation of ready-to-use templates for narrative 
disclosures, provided they were not mandatory.  

Only one respondent supported more detailed rules in EU law (either in the Transparency 
Directive  or  in  implementing  acts  adopted  by  the  Commission).  Two  respondents 
supported  a  combination  of  both  options.  Two  replies  suggested  other  options  such  as 
guidance work of the IASB. 

Other respondents, however, were opposed to maximum harmonisation in this area. For 
instance, some considered templates for narrative disclosures to be particularly worrying 
and  likely  to  result  in  box-ticking  and  "boilerplate"  disclosures.  This  would  be  less 
informative  to  investors  and  contrary  to  the  objective  of  disclosing  comprehensive 
information. It was also argued that favouring form over content was not the best way to 
improve regulation. One respondent explained that more detailed rules in EU legislation 
could result in more regulation, less flexibility and higher costs of compliance. 

Question 7.7 – Concerning question (7.6), could you provide a specific reply regarding 
the  disclosure  of  environmental  and  social  data  requested  in  Article  46(1)(b)  of  the 
Fourth Company Law?  

Few respondents provided a reply to this question.  

Several respondents supported the view that the rules on disclosure of environmental and 
social  data  should  not  be  integrated  in  the  Transparency  Directive  or  that  such  rules 
should  not  be  changed.  Others  underlined  that  this  type  of  disclosure  was  often  sector 
specific and difficult to harmonise.  

Some  respondents,  however,  supported  the  idea  of  maximum  harmonisation  or  at  least 
non-mandatory  ready-to-use  templates,  in  particular  for  numeric  data.  Other  replies 
favoured more guidance. 

115 

 
One respondent underlined that sector-specific key performance indicators needed to be 
developed  in  order  to  ensure  that  issuers  disclose comparable data  on a broad  range of 
potential risks. 

Question  8  –  Diminution  of  cost  for  small  listed  companies  vs.  diminution  of 
transparency to the market.  

Question  8.1  –  Is  it  possible  to  apply  lighter  transparency  obligations  for  small  listed 
companies  without  a  corresponding  significant  diminution  of  transparency  provided  to 
the market?  

The  majority  of  respondents  that  provided  a  reply  to  this  question  believed  that  a 
differentiated regime for small listed companies would result in a significant diminution 
of transparency provided to the market and a perceived gap in investor protection. They 
notably  highlighted  that  reducing  the  frequency  and  the  amount  of  information  to  the 
market  could  result  in  lower  interest  from  investors  and  a  general  reduction  of 
confidence,  which  in  fine  would  be  detrimental  to  small  listed  companies.  Lighter 
transparency requirements could create a second-tier market which could be abandoned 
by  investors  seeking  higher  standards  of  quality.  A  minority  of  respondents  believed 
nevertheless  that  already  today  various  market  segments  with  different  reporting 
requirements  existed  without  necessarily  affecting  the  overall  level  of  transparency  to 
investors.  Different  levels  of  obligations  could  be  beneficial  provided  this  is  clear  to 
investors,  as  has  been  done  already  in  the  US.  It  would  allow  streamlining  disclosures 
and reducing the flood of information which is currently difficult to manage for analysts 
and investors. In any case, any price sensitive information had to be disclosed under the 
Market Abuse Directive, thus avoiding disclosure gaps. Also, lightening the obligations 
if 
did  not  prevent  small 
investors/stakeholders so requested. 

listed  companies  from  providing  more 

information 

Other  respondents  referred  to  the  need  to  look  at  the  methods  for  dissemination  of 
information:  some  supported  posting  information  on  websites  (which  allegedly  could 
result  in  savings  of  €5000/10000  per  issuer),  while  one  respondent  suggested  to  use 
regulatory information services to disseminate information.  

Question 8.2 – If the obligation to disclose quarterly financial information159 was waived 
for  small  listed  companies,  would  this  result  in  an  unreasonable  diminution  of 
transparency?  

The majority of respondents that provided a reply to this question believed that waiving 
the  obligation  to  disclose  quarterly  financial  reports  or  interim  management  statements 
(hereinafter quarterly financial information) would result in an unreasonable diminution 
of  transparency.  The  main  arguments  were  that:  (i)  quarterly  financial  information  was 
useful and valuable to the market and provided visibility to small listed companies; (ii) it 
was  not  too  difficult  to  comply  with  the  obligation  to  prepare  an  interim  management 
statement  which  was  a  proportionate  requirement;  (iii)  reducing  the  amount  of 
information to the  market  could  result in  less appetite from investors to invest in those 
companies  and  also  increased  the  risk  of  market  abuse;  (iv),  transparency  rules  in 
regulated  markets  should  not  be  determined  by  size  of  companies.  Some  respondents, 

159   Either quarterly financial reports or interim management statements as referred to in Article 6 TD. 

116 

 
                                                 
however,  could  support  some  flexibility  regarding  less  volatile  sectors  and/or  newly 
listed small companies (e.g. temporary waiver). 

A  minority  of  respondents  considered  that  the  publication  of  quarterly  financial 
information could be waived for small listed companies. The publication of this kind of 
information was rare in some EU markets before the implementation of the Transparency 
Directive in 2007 without there being a perception that securities markets suffered from a 
lack  of  transparency.  Moreover,  some  respondents  were  of  the  view  that  benefits 
resulting  from  disclosure  of  quarterly  financial  information  were  negligible  for  small 
listed  companies  and  that  such  disclosure  contributed  to  short-termism  in  company 
decision  making.  In  addition,  quarterly  financial  reports  or  interim  management 
statements would not disclose any sensitive information to the market in terms of price 
movements, since any material information should have been announced to the market in 
any event according to on-going disclosure requirements provided by the Market Abuse 
Directive.  Some  respondents  expressed  preference  for  giving  freedom  to  companies  to 
decide  whether  to  publish  quarterly  financial  information:  if  investors  demanded  this 
information, companies would publish it, if they did not, there was no point in obliging 
the issuer to produce it.  

Some  respondents  specifically  stated  that  quarterly  financial  reports  should  not  be 
imposed  (e.g.  they  contribute  to  short  termism)  and  that  issuers  should  be  allowed  to 
continue  publishing  interim  management  statements  instead.  In  this  regard,  one 
respondent outlined that issuers should maintain freedom and flexibility as to the content 
of interim management statements and that there was no need to clarify the requirements 
of Article 6 of the Transparency Directive. 

If  the  requirement  to  disclose  quarterly  financial  information  were  waived  in  EU  law, 
some respondents were of the view that regulated market operators should be allowed to 
require issuers to disclose such information, at least for the premium segments.  

Question 9 – Addressing the lower visibility of smaller listed companies  

Question 9.1 – Do you think that measures at EU level (including possible changes to the 
Transparency  Directive)  can  help  solving  the  lower  visibility  of  smaller  listed 
companies?  

The  majority  of  respondents  to  this  question  considered  that  measures  at  EU  level 
(including  possible  changes  to  the  Transparency  Directive)  could  not  really  help  solve 
the  problem  of  lower  visibility  of  smaller  listed  companies  or  would  do  so  only 
marginally. The primary obstacle to greater visibility of smaller listed companies was the 
structure and incentives of the institutional asset management industry. According to one 
respondent, small listed companies often operated within a single country which, coupled 
with the language barriers that exist between EU countries, often resulted in difficulties 
to  create  investor  appetite  across  Europe.  Another  respondent  argued  that  in  small 
countries,  companies,  even  if  small  in  absolute  terms,  are  sufficiently  attractive  on  the 
local market so that their capital issuances are over-subscribed.  

On the other hand, a minority of respondents considered that measures at EU level (and 
at national level) could improve visibility of small listed companies. Among those, one 
respondent suggested a role for EU agencies in addressing the issue of lower visibility of 
these  companies,  as  part  of  a  broader  strategy  for  small  listed  companies  in  the  EU. 
Another respondent expressed support for measures proposed in the Demarigny report, in 

117 

 
particular  regarding  the  use  of  special  IFRS  for  SMEs  as  an  accounting  standard  for 
small listed companies.  

One  reply  highlighted  that  any  EU  measure,  however,  should  be  without  prejudice  to 
other  market  driven  initiatives,  which  should  be  also  targeted,  preferably  as  a  primary 
approach.  For  instance,  issuers  should  use  all  possibilities  offered  by  the  current 
framework  to  enhance  their  visibility,  such  as  choosing  a  financial  year  different  from 
the calendar year.  

Finally,  one  respondent  expressed  a  negative  opinion  about  the  possible  creation  of  a 
pan-European trading platform for small listed companies. 

Question  9.2  –  What  type  of  measures  at  EU  level  could  help  solving  the  visibility 
problem  of  small  listed  companies?  i)  The  Transparency  Directive  should  contain 
differentiated rules for small listed companies regarding timing and/or methods for the 
disclosure  and  dissemination  of  information;  ii)  there  are  rules  in  other  EU  directives 
(e.g.  prudential  requirements)  and/or  national  law  (e.g.  tax  law)  which  discourage 
financial  analysts  and  intermediaries'  interests  in  small  listed  companies  which  should 
be  modified;  iii)  financial  analysts  and  intermediaries  should  get  incentives  to  interest 
themselves in small listed companies; iv) other. 

Several respondents provided a specific reply to this question.  However, there was some 
overlap  with  the  general  comments  that  many  respondents  provided  on  the  merit  of 
having a differentiated regime for small listed companies. The summary of the replies to 
question 9.2 therefore focus on whether some measures could help solving the visibility 
problem of small listed companies and not on the merit of adopting them. 

Concerning  possible  differentiated  rules,  many  respondents  supported  extending  time-
limits for publication of half-yearly reports to either 11 weeks or three months, instead of 
the  current  two-month  time-limit.  Some  respondents  would  support  such  extension 
provided  it  was  applied  to  all  issuers.  However  other  views  suggested  that  instead  of 
extending  the  deadline  for  publication,  issuers  should  adjust  their  financial  yearend  to 
avoid  disclosing  their  half-yearly  reports  all  at  the  same  time.  It  was  argued  that 
disclosure  of  financial  information  which  was  evenly  distributed  throughout  the  year 
would  encourage  users  of  financial  information  to  pay  more  attention  to  small 
companies, particularly if smaller companies were able to disclose regulated information 
at  times  when  larger  companies  were  not  also  disclosing  information.  This  would  also 
help  to  balance  the  workload  of  users  of  the  information,  the  burden  on  information 
systems  and  prevent  the  currently  recurring  disruptions  of  the  market.  Another 
suggestion  concerned  the  reduction  of  the  frequency  of  financial  reporting  to  2  times 
(every 6 months) or 3 times (every 4 months) a year. 

Respondents did not specifically address the  issue of the impact of the prudential rules 
and  tax  laws  on  investment  levels.  However,  some  respondents  agreed  that  it  was  of 
decisive importance to improve market conditions for investors focusing on small listed 
companies.  A  respondent  was  of  the  view  that  EU  efforts  should  be  directed  at 
identifying the factors that caused institutional and retail investors not to invest capital in 
smaller listed issuers and to assess whether a regulatory response at EU level would be 
appropriate or desirable to address this factors.  

Some  ideas  were  proposed.  One  respondent  supported  initiatives  that  would  foster  a 
network of investors who understood the needs of small listed companies. Support was 

118 

 
also expressed for the creation of dedicated investment funds or new types of investment 
funds  allowed  to  invest  more  in  smaller  issuers  listed  on  exchange  regulated  markets. 
The  need  to  provide  tax  incentives  in  order  to  encourage  investors  to  allocate  their 
investment  to  small  listed  companies  was  also  mentioned:  e.g.  providing  incentives  to 
existing  funds  to  invest  a  minimum  amount  in  small  listed  companies  would  increase 
investment.  

Dissenting  views,  however,  were  expressed  that  it  would  not  be  easy  to  transform  the 
perspective  of  institutional  investors  with  respect  to  investments  in  small  listed 
companies. The development of a more vibrant venture capital and private equity sector 
in  the  EU  was  considered,  a  more  viable  source  of  external  funding  than  public  equity 
markets for smaller companies. 

Some respondents were in favour of measures to incentivise brokers to conduct minimum 
research  into  small  listed  companies  although  the  question  of  who  should  pay  for  such 
incentives  was  also  raised.  However,  other  respondents  were  opposed  to  this  idea  and 
questioned  the  existence  of  any  market  failure.  It  was  explained  that  if  there  were 
demand for more detailed information on a specific small listed company, it was likely 
that  a  financial  analyst  would  provide  the  required  analysis.  It  was  also  argued  that 
incentives to analysts would lead to market distortions. Furthermore, a stronger focus of 
analysts and intermediaries on small listed companies based only on incentives would be 
detrimental to investors, as intermediaries would act on inappropriate considerations and 
therefore misallocate funds. 

Additionally,  some  respondents  provided  other  suggestions.  Some  requested  the 
Commission to undertake a more holistic review on this issue. One respondent explained, 
in  particular,  that  small  listed  companies  were  a  different  asset  class  as  compared  to 
deeply  liquid  and  frequently  traded  stocks.  This  should  be  taken  into  account  when 
developing  a  policy  to  promote  investment  in  these  companies.  This  respondent 
supported  a  role  for  the  EU  agencies  in  setting  a  pan-European  strategy  with  a  clear 
vision for the smaller listed company segment, taking into consideration the key areas of 
enterprise, finance and macroeconomic policy, and argued that there was a need to create 
a  "community"  for  the  small  listed  companies  sector  as  an  asset  class.  Another 
respondent explained that small listed companies should engage more with the investor 
community and their agents. 

Other respondents supported an EU legal framework for exchange- regulated markets. In 
their  view,  formalised  support  across  Member  States  for  markets  dedicated  to  smaller 
companies would increase the profile of such businesses and help them attract investors. 

Some  respondents  raised  the  question  of  the  need  to  simplify  the  information 
dissemination  model.  Some  of  them  suggested  that  publishing  regulated  information  in 
English could provide broader opportunities for investments in smaller issuers, and one 
suggested  allowing  small  listed  companies  to  publish  information  in  English  only.  One 
respondent thought that publishing regulated information on a website provided enough 
visibility  for  small  issuers,  although  this  view  was  not  necessarily  shared  by  other 
respondents  who  proposed  a  wider  use  of  specialised  service  providers  to  disseminate 
information. Other respondents were of the opinion that the dissemination model of the 
Transparency  Directive  did  not  work  well  and  that  other  solutions  needed  to  be  found: 
for  instance,  the  dissemination  system  in  Portugal  was  cited  as  an  example  by  a 
respondent. 

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Finally,  some  respondents  reiterated  their  view  that  the  type  of  measures  suggested  in 
question 9.2 would not have a positive impact. For instance, one respondent claimed that 
these proposals would not resolve the current structural bias towards larger firms and that 
the current situation reflected in general the true value of small listed companies. Where 
those  companies  were  undervalued,  they  would  be  more  interesting  to  analysts  and 
investors,  therefore  the  natural  balance  would  be  restored.  Another  respondent 
questioned  the  EU  competence  in  this  matter,  taking  into  account  limited  cross-border 
activity of many small listed companies. 

Question 9.3 – Do you think that the development of an EU database160 storing regulated 
information  on  all  issuers  of  securities  in  the  EU  will  facilitate  research  and  create 
interest/result  in  greater  attention  in  small  listed  companies  by  financial  analysts, 
financial intermediaries and investors?   

Respondents were split on this issue. 

Almost  half  of  respondents  generally  believed that the development  of an EU database 
for storage of regulated information on all issuers of securities in the EU could facilitate 
research and result in greater attention to small listed companies from financial analysts, 
financial  intermediaries  and  investors.  However,  (i)  this  should  not  be  a  stand  alone 
initiative,  but  a  part  of  a  wider  strategy  for  small  listed  companies;  (ii)  such  database 
would  need  wide  marketing,  and  be  well  organised  to  facilitate  research;  (iii)  no 
additional  cost  on  issuers  should  be  imposed;  (iv)  the  Commission  should  not  be  in 
charge of developing it; (v) push (media) systems would need to be maintained to reach 
investors;  (vi)  it  should  be  accompanied  by  a  convergence  of  substantive  disclosure  
requirements and by a common format; (vii) it should be accessible free of charge or at 
very low price. 

Another half of respondents conveyed the opposite message. They supported the existing 
situation with national databases or more disclosure of information on issuers' websites 
on the grounds that: (i) there was a significant risk that a pan-European project would be 
excessively  costly  and  would  duplicate  or  undermine  the  work  being  undertaken  at 
national level; (ii) costs/drawbacks linked to the quality of information provided would 
largely  outweigh  hypothetical  benefits;  (iii)  the  US  Edgar  system  which  is  similar  to  a 
pan-European database lacked flexibility; (iv) the development of research and analysis 
should be left to the market; (v) investors in small listed companies tended to be largely 
domestic  and  a  central  EU  database  may  not  help  to  increase  investment  into  this 
category  of  listed  companies;  (vi)  issuers  should  have  the  choice  regarding  ways  to 
disseminate regulated information. 

Some respondents thought nevertheless that, while a central storage database on all listed 
issuers  of  securities  in  the  EU  would  not  be  of  substantial  benefit  to  smaller  listed 
companies,  such  a  central  database  or  a  single  access  point  could  be  of  benefit  to  the 
investor and analyst community. 

One  respondent  suggested  that  it  may  be  worth  examining  in  a  separate  consultation  if 
the US SEC model could be adapted for use in the EU. 

160   It  could  be  a  single  EU  database  (such  as  an  improved  version  of  the  ECB  centralised  securities 
database) or a network of national databases (i.e. the national officially appointed mechanisms referred 
to in Article 22 TD) allowing for multi-country searches. 

120 

 
                                                 
Two  respondents  supported  the  use  of  XBRL  to  facilitate  the  analysis  of  financial 
information while a larger number of replies expressed opposition to its mandatory use 
and thought that more experience with this system is needed.   

Question 10 – Do you have any other views on regular transparency requirements which 
could make regulated markets more attractive to small listed companies?   

A respondent suggested that the language regime should be more flexible.  Article 20 of 
the Transparency Directive should be adjusted so as to allow small listed companies to 
disclose regulated information only in English. This would reduce translation cost. Also, 
the current lack of information in English could be an obstacle for investment decisions. 
This would also help the development of an EU network of national storage mechanisms.  

Another respondent suggested that there may  be opportunities for a private provider  or 
for a trade association to establish a facility funded jointly by small listed companies and 
users of financial information to showcase issuers by sector or by other metrics. 

II. Information about holdings of voting rights (questions 11 to 18) 

Question 11 – Disclosure of holdings of cash-settled derivatives. Would the disclosure of 
holdings of cash-settled derivatives be beneficial to the market? Please provide evidence 
supporting  your  answer  (e.g.  situations  in  which  lack  of  disclosure  of  cash-settled 
derivatives produced negative results). Please report about your experience, if any, with 
the  disclosure  of  cash-settled  derivatives  in  the  United  Kingdom161  and/or  in  other 
jurisdictions where cash-settled derivatives are disclosed (such as in Switzerland).  

The  vast  majority  of  respondents  to  this  question  considered  that  the  disclosure  of 
holdings  of  cash-settled  derivatives  would  be  beneficial  to  the  market  with  a  view  to 
avoid hidden ownership. While cash-settled derivatives are used in the vast majority of 
cases for their normal purpose which is to gain economic exposure to the issuer and not 
to  gain  access  to  voting  rights,  the  current  lack  of  disclosure  in  relation  to  cash-settled 
derivatives is causing market difficulties: the Takeover Bids Directive162does not apply 
or  applies  too  late  to  these  instruments,  so  that  a  fair  market  price  of  the  underlying 
shares is not guaranteed. Some respondents expressed support for a disclosure regime not 
simply  because  it  would  reveal  economic  exposure  to  shares  –  though  this  was 
fundamental-  but  also  because  it  would  make  the  market  more  transparent  generally. 
However,  most  respondents  considered  that  the  given  the  high  volume  of  derivatives 
trading  in  today’s  market,  there  was  a  need  for  a  threshold  at  which  the  ownership  of 
economic interest would become relevant not only for the impact on voting rights (and 
therefore on control) but also for the price formation in a particular security.  

Respondents  generally  favoured  a  well  targeted  and  proportionate  disclosure  system, 
avoiding  the  provision  of  useless  or  irrelevant  information  and  reducing  the  number  of 
notifications.  There  were  calls  to  clarify  what  should  be  disclosed  (e.g.  credit  default 
swaps,  or  cash-settled  OTC  products)  and  also  to  allow  for  exceptions  (e.g.  pure 
economic exposure; derivatives giving exposure to an index, banks/brokers serving client 

161   A disclosure regime on holdings of cash-settled derivatives was introduced in 2009 in the UK. 

162   Directive  2004/25/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on  takeover 

bids, OJ L 142, 30.4.2004, p. 12–23 

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transactions,  market  makers,  trading  books,  etc).  There  was  debate  as  to  whether  the 
thresholds  should  be  calculated  on  a  delta-adjusted  basis163  or  on  a  nominal  basis  and 
whether the netting of short and long positions in these instruments should be allowed.  
Some  of  the  respondents  supported  a  harmonized  disclosure  system  across  the  EU. 
Generally, many replies suggested learning from the UK experience. 

A small group of respondents, however, was not in favour of a disclosure regime for this 
type  of  instrument.  Another  small  group  of  respondents  did  not  take  a  firm  position. 
These  two  groups  expressed  concerns  about  possible  administrative  burden  of  a 
regulatory  response  to  a  problem  which  was  perceived  as  limited:  the  vast  majority  of 
cash-settled derivative instruments are bought for trading or hedging purposes and only 
in  exceptional  cases  these  instruments  have  been  used  to  secretly  build  a  stake  in  a 
company.  In  their  view,  these  cases  were  driven  by  a  very  small  number  of  take-over 
situations. One respondent in particular considered that a generalised disclosure regime 
for cash-settled derivatives would be ineffective and misleading. It was not possible, in 
fact,  to  distinguish  among  transactions  entered  into  in  order  to  acquire  and/or  hide 
positions  in  the  underlying  assets  from  those  transactions  which  were  entered  into  for 
purely speculative or hedging purposes. The introduction of a disclosure regime for such 
kinds of derivatives could jeopardize the efficiency of the entire transparency system and 
reduce  volumes  and  liquidity  of  cash-settled  derivatives.  In  addition,  such  a  disclosure 
regime would cause a significant increase of the organisational and compliance costs for 
intermediaries.  

Some  of  the  respondents  suggested  addressing  the  issue  of  cash-settled  derivatives 
through an anti-fraud provision (e.g. cash-settled derivatives should not be used to avoid 
applicable  notification  requirements),  through  the  "acting  on  behalf"  and  "acting  in 
concert" rules of the Transparency Directive or through other pieces of legislation, such 
as  the  Acquisitions  Directive164,  the  Takeover  Bids  Directive165  or  the  Market  Abuse 
Directive166.  Some  of  these  respondents,  however,  were  not  opposed  to  disclosure  of 
cash-settled derivatives provided it had a limited impact on investors with pure economic 
exposure and/or was fully harmonised to avoid complexity and regulatory arbitrage.  

In  answering  this  question,  some  respondents  highlighted  the  positive  experience  with 
the UK disclosure system of cash-settled derivatives. For them, disclosures had enhanced 
transparency  of  ownership  and  enabled  investors  and  issuers  to  determine  the  voting 
structure of an issuer's capital and potentially important capital movements. In particular, 
the  UK  had  not  witnessed  a  dramatic  increase  in  announcements  and  the  market  had 

163   If, for example, a call-option is significantly out-of-the-money, to add the nominal value of the shares 
that can be acquired under the option to the calculation of a disclosure threshold would apparently be 
futile for some respondents. 

164   Directive 2007/44/EC of the European Parliament and of the Council of 5 September 2007 amending 
Council Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC 
as  regards  procedural  rules  and  evaluation  criteria  for  the  prudential  assessment  of  acquisitions  and 
increase of holdings in the financial sector, OJ L 247, 21.9.2007, p. 1–16 

165   Directive  2004/25/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on  takeover 

bids, OJ L 142, 30.4.2004, p. 12–23 

166   Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  of  28  January  2003  on  insider 

dealing and market manipulation (market abuse), OJ L 96, 12.4.2003, p. 16–25 

122 

 
                                                 
adapted  efficiently  to  the  additional  obligations  placed  on  them.  One  respondent, 
however,  considered  that  the  UK  disclosure  system  was  costly  with  few  identifiable 
beneficial results.  

Concerning the experience in Switzerland, it was felt that the resulting disclosures were 
materially  less  meaningful  than  in  the  UK  because  they  were  not  on  a  delta-adjusted 
basis. Also, the reporting of cash-settled derivatives in Switzerland was very broad as it 
included in the “acquisition basket” the writing of put options. 

Question  12.1  –  If  the  Transparency  Directive  was  to  require  holders  of  cash-settled 
derivatives  to  disclose  their  positions,  should  holdings  of  cash-settled  derivatives  be 
aggregated  to  holdings  of  voting  rights167  and/or  of  financial  instruments  giving 
unconditional  access  to  voting  rights168  for  the  purposes  of  calculating  whether  the 
threshold triggering the disclosure obligation is reached or crossed?  

The very large majority of the respondents to this question supported the aggregation of 
cash-settled  derivatives  with  holdings  of  voting  rights169  and  of  financial  instruments 
already subject to the disclosure under Article 13. Many respondents expressed support 
for a system similar to that in the UK. Others would prefer different thresholds to apply 
to  cash-settled  derivatives.  Although  there  was  support  for  the  aggregation  of  all 
financial  instruments  to  trigger  the  notification  requirement,  in  general  respondents 
would  prefer  that  the  notification  itself  presented  a  breakdown  of  voting  rights  and 
financial instruments according to their nature.  

Some respondents specifically supported the disclosure regime extensively described in 
CESR's  reply  or  similar  systems.  CESR's  proposal  was  to  create  a  notification  system 
with  four  different  baskets  (holdings  of  voting rights; holdings of  financial instruments 
under  Article  13;  holdings  of  cash  settled  derivatives  and  total  holdings)  that  would 
trigger an obligation to disclose the holdings of the four baskets when the threshold for 
any of the four baskets was reached or crossed.  

A  minority  of  respondents  did  not  support  such  an  aggregation,  which  in  their  view 
would confuse the market. They preferred a specific and harmonised notification system 
for cash-settled derivatives such as the one proposed by the ESME advice. 

Question  12.2  –  If  the  Transparency  Directive  was  to  require  holders  of  cash-settled 
derivatives  to  disclose  their  positions,  and  if  such disclosure of cash-settled derivatives 
should be done independently of voting rights and of other financial instruments, which 
threshold should be applied? E.g. (i) the thresholds provided in Article 9(1) TD should be 
applied (5%, 10% etc); (ii) the lower/initial threshold for this kind of disclosure should 
be significant and higher than the 5% foreseen in Article 9(1) TD (e.g. at least 10% or 
higher); (iii) other).  

If cash-settled derivatives were to be subject to a separate disclosure regime independent 
from the notification of holdings of voting rights and financial instruments under Article 

167   See Articles 9 and 10 TD. 

168   See Article 13 TD. 

169   See Articles 9 and 10 TD. 

123 

 
                                                 
13, some replies suggested setting a sufficiently high notification threshold (e.g. 10%) to 
guaranteed meaningful disclosure and eliminate irrelevant information. This would also 
take  account  of  the  fact  that  cash-settled  derivatives  only  indirectly  influenced  the 
company.  

However,  some  respondents  supported  the  5%  threshold  or  other  lower  national 
thresholds (e.g. 3%) as initial thresholds for disclosure. For these respondents, even 3% 
could represent a significant investment in a listed company and therefore a significant 
influence within a general meeting. As attendance rates at general meetings often did not 
exceed 50% of the total holdings, the potential influence in general meetings might even 
be  higher  than  the  initial  holding.  However,  it  was  unclear  if  these  respondents  were 
referring to an aggregated disclosure or to a separate notification system for cash-settled 
derivatives, which was the purpose of this question. 

Question 13 – Transparency of holdings of voting rights after the record date in advance 
of  the  general  meeting  of  shareholders  (the  question  of  empty  voting).  Would  the 
establishment of a specific disclosure mechanism for holders of voting rights who do not 
hold shares between the record date and the shareholders meeting be useful/effective to 
prevent empty voting practices?  

A  majority  of  the  respondents  to  this  question  believed  that  a  specific  disclosure 
mechanism for holders of voting rights who do not hold shares after the record date for 
the shareholders general meeting would be neither useful nor effective to prevent empty 
voting practices. Such a disclosure requirement was seen as onerous, easy to circumvent 
and  difficult  to  enforce  as  well  as  providing  an  implicit  endorsement  of  empty  voting 
practices.  Also,  it  could  result  in  a  de  facto  share  blocking,  which  would  be 
counterproductive.  

Many respondents explained that the perceived problem (separation of voting rights and 
economic  exposure)  was  the  norm  and  wanted  consequence  of  the  record  date  and 
abandonment  of  the  share  blocking  system  in  EU  law.  In  their  view,  it  would  be 
preferable  to  have  shorter  intervals  (two/three  days)  between  the  record  date  and  the 
general meeting, as is the practice in UK and FR, to deal with the problem. Concerning 
securities  lending,  several  respondents  explained  that  market  practice  (e.g.  Securities 
Lending Association guidance) did not support borrowing of shares in order to vote and 
that  in  any  event  lenders  could  always  recall  shares.  However,  it  was  also  argued  that 
requiring  lenders  systematically  to  recall  shares  before  the  record  date  would  not  be 
useful,  as  this  would  result  in  volatility.  One  respondent  explained  that  the  recent 
Commission proposal on disclosure of short selling positions would also be helpful. 

Around a quarter of respondents supported a specific disclosure mechanism for holders 
of  voting  rights  who  do  not  hold  shares  after  the  record  date  for  the  shareholders 
meeting.  There  was  some  support  among  these  respondents  for  the  proposal  of  the 
European  Corporate  Governance  Forum  on  February  2010170  and  for  an  upcoming 
disclosure  obligation  in  France  which  would  require  disclosure  to  the  issuer  and  to  the 
supervisor  of  stock  lending  agreements  concerning  at  least  1%  of  the  voting  rights 
between the record date and the general meeting. 

170  EUCGF Statement - 20 February 2010: 

http://ec.europa.eu/internal_market/company/docs/ecgforum/ecgf_empty_voting_en.pdf 

124 

 
                                                 
Other  respondents  did  not  take  a  firm  position.  Some  considered  that  more  work  was 
needed to properly assess this issue and the need for specific measures.  Others believed 
that this issue should not be dealt with in the Transparency Directive. Reference was also 
made to the need to maintain contractual freedom.  

Many respondents, whether in favour or against the specific disclosure obligation linked 
to  the  record  date,  argued  the  need  to  improve  transparency  around  stock  lending 
practices in general. Views on stock lending practices are further detailed in Annex 2. 

There was no support for a ban on empty voting. 

Question  14.1  –  If  a  specific  disclosure  obligation  is  imposed  regarding  the  transfer  of 
voting  rights  independently  of  the  shares  between  the  record  date  and  the  general 
meeting,  which  threshold  of  voting  rights  should  be  applied  in  order  to  trigger  the 
obligation? E.g. 0,5%, 1%, 2%, other. 

A relatively small number of replies were received to this question. If such an obligation 
were  to  be  imposed,  the  majority  of  respondents  would  support  the  use  of  the  same 
thresholds  as  for  the  normal  notification  obligations:  i.e.  starting  at  5%  or  the  lower 
national threshold, where it exists. 

Many respondents called for further empirical study of empty voting practices.  

Question  14.2  –  If  a  specific  disclosure  obligation  is  imposed  regarding  the  transfer  of 
voting  rights  independently  of  the  shares  between  the  record  date  and  the  general 
meeting,  which  time-limit  for  the  disclosure  should  be applied for this disclosure to  be 
useful? E.g. immediate disclosure; no later than 1 day, other.  

A relatively small number of replies were received to this question. If such an obligation 
were  to  be  imposed,  respondents  were  divided  as  to  the  time-limit  for  the  notification: 
some  were  in  favour  of  immediate  disclosure,  others  were  in  favour  of  a  disclosure  no 
later than 1 day, and some respondents suggested keeping the existing time-limits in the 
Transparency Directive.  

One  respondent  suggested  that  this  information  should  be  disclosed  on  the  date  of  the 
general meeting or immediately before. 

Question  15  –  Intentions  with  holdings  or  voting  policies  disclosure. Which is the best 
way to make the investment process more transparent? i) requesting investors to disclose 
their  future  intentions  with  holdings;  ii)  requesting  investors  to  disclose  their  actual 
voting policies; iii) both; iv) none; v) other. 

Views  were  relatively  split  on  this  question.  A  slight  majority  of  respondents  were  not 
convinced that requiring investors to disclose their future intentions or to disclose their 
actual  voting  policies  should  be  the  way  forward.  they  argued  that  such  requirements 
would  lead  to:  (i)  the  unnecessary  dissemination  of  information  in  the  market;  (ii)  add 
little value to market participants; and (iii) increase compliance costs.  

Concerning the disclosure of intentions, arguments were further detailed under question 
16.    Concerning  the  disclosure  of  voting  policies,  in  practice  respondents  felt  that  it 
would not result in improved transparency, was not a matter of public interest and should 
therefore  be  left  to  institutional  investors  and  their  clients  to  agree  upon.  It  was  also 

125 

 
argued that the role of institutional investors was evolving in a very satisfactory manner 
through self-regulation and that it was unnecessary to address the issue at EU level. For 
other respondents, this was a corporate governance issue that should not be addressed in 
the Transparency Directive. 

Some respondents suggested establishing a system for the identification of shareholders: 
if  issuers  knew  their  shareholders  they  could  enter  into  dialogue  and  engagement  with 
them more easily. Others supported the UK Stewardship code for institutional investors 
which encourage institutional shareholders to proactively engage with companies.  

Other respondents supported the need for regulatory intervention. However, they did not 
agree  on  the  solution.  Among  these  respondents,  a  slight  majority  was  in  favour  of 
requesting  investors  to  disclose  their  actual  voting  policies  rather  than  requesting 
investors to disclose their future intentions with holdings. Only few respondents were in 
favour of combining both options.  

Those in favour of disclosing voting policies considered that such disclosure (as well as 
the  disclosure  of  engagement  policies  and  actual  voting  records)  would  render  fund 
managers  accountable  for  their  approach  to  corporate  ownership.  It  was  also  explained 
that transaction costs for issuers would be reduced with regard to the preparation of the 
general meeting but also with regard to the ongoing investor dialogue. Some respondents 
explained that Article 21 of Directive 2010/43 (UCITS IV) required UCITS management 
companies to determine a strategy on when and how voting rights attached to instruments 
held in managed portfolios are exercised. A summary description of the strategy must be 
made available to investors and details of actions taken must be made available to unit 
holders  upon  request.  One  respondent  replied  that  investment  managers  often  disclose 
their voting policies: this was a matter of corporate governance and fiduciary duties, and 
less related to creating transparency around voting rights. This respondent requested that 
violation of any disclosure obligations should not impact the exercise of voting rights as 
this  would  create  material  legal  uncertainty  for  issuers.  Other  respondents  also  echoed 
the  view  that  disclosure  of  voting  policies  was more  a  matter of corporate governance. 
Some also supported the establishment of a system for the identification of shareholders. 

Question  16.1  –  If  investors  were  required  to  disclose  to  the  market  which  their 
intentions are with regard to their investment, would such disclosure be useful? 

A large majority of respondents to this question were not convinced by the merits of such 
a  disclosure.  Different  reasons  were  advanced:  (i)  such  disclosure  would  provide  little 
added  value  as  statements  of  intention  were  not  helpful  and  could  be  misleading;  (ii) 
experience in the US, France  and Germany shows that such disclosures are meaningless; 
(iii)  too  much  transparency  renders  the  market  too  volatile  or  indeterminable;  (iv)  it 
would be difficult to enforce as intentions change rapidly; (v) it raises concerns from the 
market  abuse  perspective  because  intentions  change;  (vi)  it  may  be  dissuasive  for 
shareholders  wishing  to  engage  in  future  takeover  activity  and  could  facilitate  anti-
takeover  defences;  (vii)  it  may  trigger  the  application  of  takeover  legislation  in  certain 
cases;  (viii)  it  would  render  the  EU  market  unattractive;  (ix)  intentions  are  a  private 
matter  for  the  investors  and  such  disclosure  could  harm  them;  and  (x)  administrative 
burden and compliance costs would be high. 

A  minority  of  respondents,  on  the  contrary,  were  favourable  to  the  introduction  of  a 
disclosure  obligation  on  intentions  since  they  saw  it  as  beneficial  at  least  in  relation  to 
significant holdings: it would allow other investors (and issuers) to better understand the 

126 

 
background of a major shift in influence and to adjust their investment decisions, voting 
behaviour  and  investor  relations  strategy  accordingly  and  to  decide  whether  to  engage 
with investors. One respondent suggested that it would be worth considering whether to 
apply  the  respective  disclosure  requirements  also  to  large  positions  in  other  financial 
instruments  (including  certain  qualifying  derivatives).  Some  respondents  indicated  that 
the right balance between privacy/confidentiality and the market efficiency needed to be 
found:  it  should  not  be  too  burdensome  for  investors  while  at  the  same  time  providing 
reliable  insights  on  the  intentions  of  major  shareholders.  In  addition,  a  coordinated 
regime  with  the  takeover  rules  would  need  to be established. References were made  to 
the  positive  experience  with  the  French  system  but  calls  were  also  made  for  a 
harmonised  EU  regime  as  the  diversity  of  systems  currently  in  place  was  difficult  and 
costly to manage and lacked clarity for all parties concerned.  

Several  respondents  considered  that  the  real  problem  was  the  lack  of  shareholder 
identification (see question 18). 

Question  16.2  –  If  investors  were  required  to  disclose  to  the  market  which  their 
intentions  are  with  regard  to  their  investment,  which  should  be  the  minimum  threshold 
triggering  such  disclosure?  i)  the  thresholds  provided  in  Article  9(1)  TD  should  be 
applied  (5%,  10%  etc);  ii)  the  lower/initial  threshold  should  be  significant  and  higher 
than the 5% foreseen in Article 9(1) TD (e.g. at least 10% or higher); iii) the information 
should  only  be  requested  only  if  certain  threshold  are  crossed  and  provided  that  the 
investor is among the largest 3 investors in the issuer; iv) other.  

The  majority  of  the  respondents  to  this  question  supported  option  ii)  for  an  initial 
threshold  higher  than  5%  for  disclosure  of  intentions.  Most  proposed  10%  as  an  initial 
threshold,  with  few  respondents  opting  for  at  least  20%.  One  respondent  proposed  a 
mixed  system  with  10%  for  active  investors  seeking  control  and  20%  for  passive 
investors. 

Some  respondents  proposed  applying  the  thresholds  provided  for  in  Article  9(1)  of  the 
Transparency Directive or the national thresholds (the initial threshold being set at 3% in 
some Member States). One respondent suggested an initial threshold of 3%. 

One respondent opted for option iii) combined with a threshold of 20%. Two respondents 
proposed alternative solutions: e.g. the threshold should mirror a blocking minority stake 
at the annual general meeting; the threshold should follow the US system. 

Two respondents indicated that the takeover bids regime should not be undermined and 
that any obligation should only be set at 30%, which in any case triggered the mandatory 
bid.  

Question  16.3  –  If  investors  were  required  to  disclose  to  the  market  which  their 
intentions are with regard to their investment, should such disclosure consist in i) simple 
information on intentions (e.g. box ticking in a form: I intend to change/influence control 
of  the  issuer/I  do  not  intend  to  change/influence  control  of  the  issuer);  ii)  more 
substantial  information  on  intentions  (e.g.  narrative  explanations  on  purpose  of  the 
acquisition including any plans or proposals of the investor for future purchases or sales 
of  issuer's  stock  or  for  any  changes  in  the  issuer's  management  or  board  of  directors 
etc.); iii) information on source and amount of funds used to acquire the securities; iv) 
arrangements to which the investor is a party relating to issuer's securities;  v) other. 

127 

 
Respondents were relatively divided on this issue.  

Some  favoured  option  i)  with  a  simple  disclosure  obligation.  They  did  not  express 
support for requiring investors to provide a detailed narrative of investment intentions. It 
was  argued  that  a  more  extensive  obligation  to  disclose  intentions  would  represent  an 
intrusion to the freedom and ownership rights of investors and would raise the question 
of  how  the  accuracy  of  the  disclosure  can  be  reviewed  and  which  penalties  would  be 
linked  to  any  false  disclosure.  Some  respondents  supported  the  US  system  (declaring 
whether the investor is a passive investor or not). 

A similar number of respondents supported a narrative disclosure with more substantial 
information on intentions rather than a box-ticking form. Some combined option ii) with 
options iii) and option iv).  

One  respondent  was  not  in  favour  of  box  ticking  only,  supported  option  iii)  but  was 
careful  as  regards  option  ii);  the  disclosure  requirement  should  not  go  too  far  in  the 
direction  of  the  information  provided  in  connection  with  a  takeover  bid.  Another 
respondent explained that not all classes of investors should be required to disclose the 
same amount, or type, of information.  

Two  respondents  did  not  choose  any  of  the  options,  but  expressed  diverging  positions: 
one  in  favour  of  disclosure  of  intentions,  one  against.  Some  respondents  expressed 
support for the French regime. 

Question 17 – Aggregation of holdings and voting rights. Should holdings of shares and 
voting  rights171  be  aggregated  with  holdings  of  financial 
instruments  giving 
unconditional  access  to  voting  rights172  for  the  purposes  of  calculating  the  relevant 
thresholds that trigger the notification obligation?   

Almost all respondents to this question were in favour of aggregating holdings of shares 
and  voting  rights  with  holdings  of  financial  instruments  described  in  Article  13  of  the 
Directive  for  the  purposes  of  triggering  the  notification  obligation.  It  was  argued 
however  that  there  was  a  need  to  coordinate  with  takeover  bids  rules  and  that  a 
transitional  period  would  be  needed.  Several  respondents  considered  necessary  that  the 
notification identify the different categories of holdings. Several replies also supported a 
notification  system  similar  to  the  one  described  in  CESR  reply  (see  also  replies  to 
question 12.1).  

Two respondents expressed no preference but requested an EU harmonised system. The 
need  for  harmonisation  was  also  expressed  by  several  respondents.  For  further  details, 
see also question 19. 

Question  18  –  Other  cases  of  insufficient  transparency  regarding  corporate  ownership. 
Are  there  other  cases  of  potentially  insufficient  transparency  regarding  corporate 
ownership?  

171   Articles 9 and 10 TD. 

172   Article 13 TD. 

128 

 
                                                 
Several  respondents  supported  a  system  for  identification  of  shareholders  by  issuers 
through the central securities depositories (CSDs), similar to those in place in France or 
in  the  UK.  They  believed  however  that  shareholder  identification  data  via  CSDs  on  a 
cross-border basis faced many obstacles and that there was no information available on 
beneficial owner behind the nominees. Some respondents made reference to the current 
work within Target 2 Securities, which was considered to be an appropriate vehicle for 
identification of shareholders. In their view, without a harmonized EU-wide set of rules 
with  respect  to  the  disclosure  by  nominees  of  their  participants  (and  ultimately  the 
beneficial owner) there would be no common technical solution across the EU. Some of 
the  respondents  challenged  the  assessment  made  in  Annex  11  of  the  Commission  staff 
working document that accompanied the Commission report. 

However, there was a dissenting view which specifically requested not to enact a system 
for the identification of shareholders. 

Respondents also identified other issues that would need to be addressed: gaps regarding 
disclosure  of  stock  lending  and  repurchase  contracts  as  well  as  the  rules  on  acting  in 
concert.  One  reply  suggested  that  the  Transparency  Directive  needed  to  be  adapted  to 
capture  and  anticipate  future  innovation  in  financial  markets  so  that  transparency  was 
maintained.  

CESR suggested the need to revisit Article 12(1) of the Directive since Member States 
were already requiring more information than was listed in that Article. One respondent 
explained  that  XBRL  taxonomy  could  easily  be  developed  to  cover  major  holdings 
disclosures. 

Only  few  respondents  considered  that  there  were  no  cases  of  potentially  insufficient 
transparency regarding corporate ownership. 

III.  Ineffective  application  of  the  Directive  because  of  diverging  national  measures 
and/or unclear obligations in the Directive (questions 19 to 23) 

Question  19  –  Uniform  EU  Regime  or  maximum  harmonisation:  major  holdings  of 
voting  rights.  Would  it  be  desirable  to  set  up  a  uniform  EU  regime  (e.g.  by  a  directly 
applicable EU Regulation) for the notification of major holdings of voting rights?   

A  small  majority  of  respondents  to  this  question  supported  an  EU  Regulation  for  the 
notification  of  major  holdings  of  voting  rights.  In  their  view,  a  uniform  regime  would: 
avoid national differences; reduce administrative expenses linked to IT infrastructure and 
monitoring  systems  for  equity  positions  of  issuers  based  in  different  Member  States; 
reduce  uncertainty;  enhance  transparency;  simplify  cross-border  investments;  and 
increase attractiveness of EU capital markets. Such a regulation would be an important 
step towards the EU single rule book. 

Two  respondents  supported  a  uniform  “process”  for  the  submission  of  major  holdings 
notifications: it should be electronic, use a standard form and be submitted to one central 
EU  authority,  from  which  issuers/markets  would  then  receive  the  information  for  the 
purposes of dissemination.  

For  some  respondents,  the  uniform  notification  regime  should  encompass:  scope, 
exemptions, definitions, calculation methods (including aggregation), disclosure content, 
implementation methods, time-limits and sanctions. 

129 

 
The  question  of  the  thresholds  was  however  secondary  for  more  than  one  respondent. 
Some  replies  suggested  leaving  a  degree  of  flexibility  to  the  Member  State  in  setting 
thresholds  in  order  to  take  account  of  the  specificities  of  national  regulated  markets, 
national company laws or companies' articles of association. 

Some  however,  expressed  concerns  about  a  possible  levelling  down  of  notification 
requirements  to  the  lowest  common  denominator  in  a  Regulation.  One  respondent 
advocated working towards a common regime that would reflect the best aspects of the 
most developed ones. Others directly supported the UK system. 

A  number  of  respondents  were  not  in  favour  of  a  Regulation  for  notification  of  major 
holdings,  although  almost  of  all  them  recognised  the  need  for  further  harmonisation  in 
the  Transparency  Directive.  As  explained  in  replies  to  questions  12  and  17,  there  was 
some  support  for  a  harmonised  regime  based  on  CESR’s  proposal.  However,  several 
respondents  believed  that  full  harmonisation  was  not  feasible  nor  appropriate.  In  their 
view, thresholds could not be harmonised, because of the different national company law 
regimes.  Minimum  harmonisation  allows  national  regulators  to  tailor  disclosure 
requirements to national circumstances and individual countries should not be prevented 
from establishing an environment for transparency that goes beyond the regime of other 
Member States. Also, Member States should be free to react to market innovations in due 
time,  to  improve  and  adjust  models  to  their  own  market,  as  there  are  big  differences 
within  the  EU  as  regards  the  size  of  capital  markets,  market  capitalisation  of  listed 
companies and level of fragmentation of ownership.  

A  contribution  from  an  academic  respondent  developed  the  question  of  maximum  vs. 
minimum harmonisation. This respondent was not in favour of a uniform regime. First, 
imposing  a  uniform  rule  assumed  that  there  was  a  single  disclosure  threshold  which 
would be efficient for all securities markets across the EU. This may be so, but it was not 
obvious. Second, assuming there was a single efficient disclosure rule across the EU, the 
EU legislative process had to be able to identify it. Again, this was not obvious. Finally, 
a  uniform  rule  removed  from  Member  States  the  freedom  to  innovate,  experiment  and 
react quickly to evolving circumstances. For understandable and unavoidable reasons the 
EU legislative process is slower than national legislative mechanisms. Thus, there was a 
risk that, even if the EU could identify a uniform efficient rule, it would not be able to 
keep that rule up to date as circumstances changed. Consequently, the efficiency of EU 
legislation in this area would depend on the retention by Member States of the freedom 
to set more stringent rules where this was appropriate. 

Another respondent believed that new legislation would create new areas of uncertainty 
or would be unable to deal with the new situations that might arise in EU capital markets. 
This  respondent  suggested  that  identifying  the  issues  and  providing  guidance  (e.g. 
through CESR) would be preferable. 

Finally,  some  respondents  generally  supported  more  harmonisation  but  were  not  fully 
clear as to whether they are in favour of a uniform regime or not. 

Question  20  –  If  a  fully  uniform  EU  regime  is  not  possible  because  of  insurmountable 
legal  barriers,  should  Member  States  be  prevented  from  adopting  more  stringent 

130 

 
requirements than those of the Transparency Directive regarding the notification of major 
holdings of voting rights173?  

A small majority of respondents to this question considered that, if a fully uniform EU 
regime  were  not  enacted,  Member  States  should  not  be  prevented  from  adopting  more 
stringent  requirements  than  those  of  the  Transparency  Directive  regarding  the 
notification  of  major  holdings  of  voting  rights.  Several  respondents  would  like  to 
maintain the transparency levels - in particular lower thresholds or stricter time-limits for 
disclosure,-  in  their  countries174  and  feared  a  possible  reduction  of  transparency  that  a 
harmonised regime may entail. 

Several  UK  and  Irish  respondents  were  in  favour  of  maintaining  the  UK  regime 
regarding  identification  of  shareholders  and  Irish  and  UK  regimes  on  takeovers. 
Concerning  takeovers,  some  respondents  explained  that  if  the  Transparency  Directive 
were to become a maximum harmonisation directive, it should recognise the distinction 
between that regime and the takeover bids regime and that it should specifically state that 
the  maximum  harmonisation  measures  were  without  prejudice  to  the  Takeover  Bids 
Directive  and  to  the  power  of  supervisory  authorities  in  Member  States  to  regulate 
takeovers  under  national  law.  Otherwise,  there  would  be  a  risk  of  legal  uncertainty.  In 
addition,  the  Takeover  Bids  Directive  was  a  minimum  harmonisation  directive 
recognising the need for flexibility in supervising takeovers.  

An  important  minority,  however,  supported  maximum  harmonisation  within  the 
Transparency  Directive,  thus  preventing  Member  States  from  imposing  more  stringent 
requirements.  One  respondent  claimed  that  issuers  should  be  prevented  from  requiring 
more  onerous  disclosures  via  their  constitutional  documents.  Another  respondent 
requested that a database be created containing additional requirements that issuers add 
in  their  articles  of  associations:  currently,  this  information  was  difficult  to  find  out. 
Another  respondent  also  requested  that  stock  exchanges  be  prevented  from  adopting 
more stringent requirements. 

Some  made  clear,  however,  that  in  their  view  any  maximum  harmonisation  in  the 
Transparency Directive should not affect the takeover bids regime. 

Question  21  –  Uniform  EU  Regime  or  maximum  harmonisation:  disclosure  by  issuers. 
Would  it  be  desirable  to  set  up  a  uniform  EU  regime  (e.g.  by  a  directly  applicable  EU 
Regulation) regarding issuers' disclosures175?  

The  opinions  on  this  question  were  split.  A  large  number  of  respondents  were  not  in 
favour  of  setting  up  a  uniform  regime  regarding  issuers’  disclosures.  They  did  not  see 
any problem with current requirements nor a need for further harmonisation. Moreover, 
they felt that Member States should be allowed to set more stringent requirements when 
they had identified gaps in companies' disclosures or in their level of transparency. 

173   For instance, if the Transparency Directive was to reduce its initial disclosure threshold from 5% to 

3%, should the Member States that have set a 2% threshold be required to raise it to 3%? 

174   In particular in the UK, but also in Norway, France or Germany. 

175   Articles 4 to 8 TD. 

131 

 
                                                 
A  significant  number  of  respondents  were,  however,  in  favour  of  a  uniform  regime  on 
this issue. In their view, a uniform regime, with normalization/standardisation of types of 
regulated information, would reduce costs for issuers,  ensure that investors had a clear 
understanding  of  the  information  that  issuers  were  expected  to  provide  and  facilitate  a 
level playing field across EU financial markets.  For one respondent, the harmonization 
of the information available to investors in the market was a key point in the investment 
process:  in  order  to  avoid  any  potential  misunderstanding  stemming  from  different 
formats or channels used by issuers to disclose relevant information, it would be useful to 
fix,  at  European  level,  a  disclosure  process  directly  applicable  in  all  Member  States 
without any options/discretions in its implementation. 

Another group of respondents favoured a uniform regime regarding country-by-country 
disclosure  of  annual  accounts  and/or  specific  disclosure  requirements  for  companies 
active in the extractive industry regarding the publication of payments to governments.  

Question 22 – Divergent rules: calculation of holdings. Could you please explain in what 
way national rules implementing the Directive result in different methods for aggregating 
holdings of voting rights (and where applicable financial instruments) for the purposes of 
calculating  whether  the  relevant  thresholds  triggering  the  notification  obligation  are 
reached or crossed by investors?   

Respondents mentioned different examples of divergent rules for calculation of holdings 
and underlined that these divergences implied difficulties and costs for companies with 
cross-border activities.  

The  issues  mentioned  concerned  for  example  stock  lending,  aggregation  requirements, 
exemptions  and  differences  in  the  legal  entity  level  to  which  disclosure  duties  applied. 
More detailed presentation of the issues is included in Annex 2. 

Question 23 – Unclear rules. Could you provide evidence of cases where unclear rules in 
the Directive ought to be clarified176?   

Respondents  called  for  clarifications  regarding  most  of  the  issues  identified  in  the 
previous  question.  In  addition,  respondents  identified  other  potential  areas  where 
clarification of the Transparency Directive would be helpful, for example concerning the 
definition  of  "acting  in  concert".  Moreover,  respondents  underlined  the  need  to  ensure 
consistency  between  the  Transparency  Directive  and  other  EU  directives  such  as  the 
Shareholders  Rights  Directive177,  the  Market  Abuse  Directive  or  the  Prospectus 
Directive. Most areas where clarification was welcomed by the respondents are described 
in detail in Annex 2. 

IV. Other comments  (question 24) 

Question 24 – Do you have any other comments regarding the Transparency Directive? 

Financial reporting and Corporate Governance 

176   See section 2.8 and Annex 6 to the Staff Working Document. 

177   Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise 

of certain rights of shareholders in listed companies, OJ L 184, 14.7.2007, p. 17–24 

132 

 
                                                 
A group of respondents requested that the Transparency Directive require the disclosure 
of  annual  accounts  on  a  country-by-country  basis  and/or  of  payments  made  to 
governments by companies active in the extractive industry. They explained that recital 
14 of the Directive had not been implemented. These respondents identified the data to 
be disclosed and how this should be done (audited, comparable, interactive data). They 
referred  to  recent  US  and  Hong  Kong  legislation,  to  IASB  work  and  to  European 
Parliament  calls.  Some  described  the  possible  benefits  to  investors  from  these 
disclosures. 

One  respondent  suggested  a  comprehensive  business  reporting  framework  that  would 
enable corporate management to express their company's own way of using intellectual 
assets and other non-financial elements for the purpose of creating value, and by pointing 
out  also  how  the  past  and  future  financial  performances  connected  to  non-financial 
elements.  Economic  and  social  governance  (ESG)  was  just  a  part  of  critical  company 
non-financial  information.  The  latter  would  also  cover  information  on  technological 
competences,  organizational  capabilities,  human  assets,  business  networks,  risks  etc. 
Non-financial information should focus on "sustainability" and "value creation capacity".  

Some  respondents  mentioned  the  need  to  establish  a  shareholder  identification  system 
(see  also  replies  to  questions  15  and  18),  although  not  necessarily  in  the  Transparency 
Directive. 

Other  respondents  mentioned  that  corporate  governance  disclosures  should  not  be 
incorporated  in  the  Transparency  Directive  or  harmonized.  This  was  a  matter  for 
company law. The same was true regarding the transparency provisions in the Takeover 
Bids Directive.  

Some  respondents  also  mentioned  that  the  Transparency  Directive  should  not  be  the 
vehicle for ESG disclosure and that non-financial disclosures should not be harmonized. 

Dissemination and storage of regulated information  

Some  respondents  explained  that  they  were  not  in  favour  of  an  EU  OAM.  It  would  be 
preferable to inter-connect national storage systems.  Recital 8 of the Directive should be 
preserved  in order to  maintain an appropriate  level  of  transparency  in  listed companies 
but  also  to  ensure  that  all  investors,  whether  individual  or  professional  have  an  equal 
access to information without discrimination. 

Some  respondents  supported  the  use  of  XBRL  for  disclosures,  in  order  to  increase 
visibility and comparability and thereby encourage cross-border investment but also as a 
tool  to  deal  with  the  language  problem.  Other  respondents  however  opposed  this 
proposal. 

One  respondent  claimed  that  there  were  problems  in  the  way  the  dissemination  rules 
were  applied  in  some  countries.  For  instance,  regarding  Article  12(7)  in  Sweden,  the 
regulator  had  appointed  a  service  provider  which  owned  the  information.  For  this 
respondent,  this  would  not  be  in  conformity  with  Article  21.  This  respondent  also 
complained about the entrustment of stock exchanges with the OAM function (Finland, 
Norway), which allowed them to present themselves as "entrusted by the government" to 
handle  regulated  information  in  competition  with  service  providers.  In  other  cases, 
regulators  (Spain,  Portugal)  disseminated  the  information  themselves,  but  did  not  offer 
any  integration  path  for  service  providers.  This  had  the  negative  effect  of  blocking 

133 

 
competitors from entering the local market for distribution of regulatory information and 
would be in contradiction with recital 25 of the Transparency Directive and recital 16 of 
the implementing Directive178. This respondent requested that action should be taken to 
restore competition and avoid that OAMs abused their position.  

One  respondent  explained  that  issuers  either  wished  either  to  disseminate  regulated 
information  themselves  (e.g.  through  their  own  websites)  or  to  continue  to  use  the 
services of data disseminators, if the provisions of the Transparency Directive remained 
unchanged. Issuers did not necessarily believe that regulators should play an active role 
in disseminating regulated information disclosed by issuers. 

CESR also raised a number of issues that need to be addressed (see Annex 2) 

178 Commission Directive 2007/14/EC of 8 March 2007 laying down detailed rules for the implementation 
of  certain  provisions  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 

134 

 
                                                 
 
ANNEX 1 – LIST OF RESPONDENTS 

Action Solidarité Tiers Monde 
ABI 
ACCA 
AFEP 
AFG 
AFME 
AMAFI 
AMF 
Association of Foreign Banks in Germany 
Association of Investment Companies 
Assosim 
BBA 
BDI 
BNP Paribas 
Bond 
Business Wire Brussels 
BVI 
Central Chamber of Commerce of Finland 
CESR 

Christian Aid 
CMVM 
Concord Europe 
Confederation of Finnish Industries EK 
Confederation of Netherlands Industry and Employes (VNO-
NCW) 
Credit Agricole 
Czech Republic Ministry of Finance 
Danish Institute of State Authorized Public Accountants (FSR) 
Danish Insurance Association (DIA) 
Danish Shareholders Association (Dansk Aktionærforening) 
Danish Shipowners Association 
Dansk AMP 
Denmark Ministry of Economic and Business Affairs 
Deutsche Aktieninstitut (DAI) 
Deutsche Bank 
Deutsche Börse Group 
Dutch Ministry of Finance 
EAPB 
EBF 
ECODA 
EFAMA 
Emisores Españoles 
ENPA 
Equinity 
ESBG 
Eumedion 
Euroclear 
Eurodad 
EuropeanIssuers 
Eurosif 
FAR (Swedish Institute for the Accountancy Profession) 

135 

 
FEE 
Financial and Capital Market Commission of Latvia 

Finland Ministry of Finance 
France Treasury 
GC100 Group 
German Insurance Association (GDV) 
German Investor Relations Association (DIRK) 
Germany Ministry of Finance 
GlaxoSmithKline 
Global Witness 
Governance for Owners 
Grant Thornton 
Hermes Equity Ownership Services 
Hungary Ministry for National Economy 
ICAEW 

ICGN 
ICJCE (Instituto de Censores Jurados de Cuentas de España) 

ICMA 
ICSA 
IMA 
Inspiraction 
Institute of Directors 
International Securities Lending Association 
Investors Relations Society 

Irish Stock Exchange 
Irish Takeover Panel 
Law Society of England and Wales 
London Stock Exchange Group 
Matheson Ormsby Prentice 

Maurice Macartney (Beyond Skin Global) 
MEDEF 
Middlenext 
Nasdaq OMX 
NBIM (Norges Bank Invesment Management) 
Nordic Securities Association 
Norway Ministry of Finance 
NYSE Euronext 
OEKB 
Olvi Oyi 

ONE 
Oxfam International 
Professor P. Davies 
Publish what you pay 
PWC 
QCA 
Revenue Watch 
SIFA (Swedish Investment Fund Association) 
Smith & Nephew 
Société Générale 

Sweden Financial Supervisory Authority 
Swedish Bankers' Association  
Tax Research / Tax Justice Network 

The Hundred Group of Finance Directors 
Thomson Reuters 

136 

 
UK HM Treasury & FSA 

UK Takeover Panel 
WICI 
WKO - Austrian Chamber of Auditors 
XBRL Europe 
ZKA 
An additional respondent requested confidential treatment. 

137 

 
ANNEX 2 – DETAILED DESCRIPTION OF ISSUES THAT NEED CLARIFICATION/AMENDMENT 
ACCORDING TO REPLIES TO QUESTIONS 22, 23 AND 24. 

Divergent  rules  in  the  Member  States  concerning  calculation  of  holdings  (Question 
22) 

•  Different  thresholds trigger disclosure in the Member States: for example thresholds 

are fixed at 2%, 3% and 5% in different Member States. 

•  Differences in disclosure reporting deadlines. 

•  Differences 

in  determining 

the  denominator  (total  shares/voting  rights): 

the 
denominator  varies  in  the  different  national  implementations.  For  example,  the 
denominator consists of the total number voting rights in Germany; total share capital 
and total number of voting rights in France; total number of voting rights (including 
treasury  shares)  and  voting  rights  per  class  in  Greece;  total  number  of  voting  rights 
(excluding treasury shares) and voting rights per class in the UK. In Finland, both the 
percentage  of  shareholdings  as  well  as  voting  rights  is  required  to  be  notified  under 
article 9.   

•  Differences  in  determining  the  notified  holdings  (numerator)  (see  also  the  replies  to 

Q23 below): 

–  Financial  instruments  are  considered  differently  in  Member  States.  Some 
Member  States  require  aggregation  of  shares  with  physically  settled  derivative 
instruments; others  do not; some require reporting  of  these  products  by bucket; 
others do not. For derivatives, whether they are physically or cash-settled, there 
are two methods to take them into account: on a nominal or delta-adjusted basis; 

–  Differences in the legal entity level to which disclosure duty applies: depending  
on  the  Member  State,  thresholds  might  need  to  be  monitored  and  disclosed  at 
group and/or entity level; 

–  Differences in intra-group aggregation; 

–  Different treatment of stock lending in Member States as explained in Annex 10 

to the Commission Staff Working Document; 

–  Question the netting between long and short positions; 

–  Implementations differ in Member States concerning the treatment of holdings of 

asset managers; 

–  Different  definition  of  market  making  and  of  the  method  of  claiming  the 
exemption.  There  is  inconsistent  interpretation  of  definitions  across  Member 
States. 

•  The  events  triggering  a  crossing  of  thresholds  may  differ  from  Member  State  to 

Member State – for example due to property law differences. 

138 

 
 
Rules  under  the  Transparency  Directive  identified  by  the  respondents  that  require 
further clarification (Question 23): 

•  Home Member State rule 

–  There is a possible contradiction between the Home Member State rule and the 
wording  of  Article  8(2)  of  Directive  2001/34/EC  as  it  provides  for  additional 
obligations  and  disclosures  potentially  required  by  Host  Member  State. 
Moreover, CESR notes inconsistencies between Articles 19(1) and 21(3): Article 
19(1)  requires  issuers  to  file  information  with  the  competent  authority  of  the 
home Member State. Article 21(3) on the other hand requires issuers to disclose 
information in accordance with host Member State rules if the issuer's securities 
are  admitted  to  trading  only  in  one  host  Member  State  and  not  in  the  home 
Member State. 

–  Transparency  Directive  is  unclear  with  regard  to  which  country  is  the  home 
Member  State  for  issuers  who  have  to  choose  their  home  Member  State 
according to article 2, paragraph 1, sub (i), (ii), but who have not done so. In this 
respect,  CESR  suggests  to  amend  the  Transparency  Directive  to  include  an 
assumption of Home Member State for these issuers.  

–  In addition, some flexibility could be added to the home Member State rule for 
third country issuers of shares and debt securities with denomination per unit of 
less  than  EUR  1.000  for  situations  where  an  issuer  delists  from  a  regulated 
market  in  one  Member  State  and  later  applies  for  admission  to  trading  on  a 
regulated market in another Member State. 

–   CESR  also  suggests  that  the  home  Member  State  rule  should  be  clarified  as 
follows: it should be stated that the three year period for the validity of issuer's 
choice  of  the  home  Member  State  no  longer applies if  shares or debt securities 
with  denomination  of  less  than  EUR  1.000  of  the  same  issuer  are  admitted  to 
trading on a regulated market. 

–  There  should  be  a  list  established  by  CESR  and  available  online  of  non-EEA 

issuers who have chosen a home Member State.  

–  Further clarification would be helpful regarding issuers who are incorporated in 
one EEA state and have securities admitted to trading only in another EEA state. 
Currently  they  would  be  required  to  comply  with  the  requirements  of  their 
country  of  incorporation  and  announce  regulated  information  in  that  country 
rather than in the country where, arguably, their investors are likely to reside.   

–  A revision of the Transparency Directive should ensure that the reporting of all 
listed  companies  are  subject  to  enforcement  in  a  Member  State.  It  is  important 
that the Transparency Directive in this matter in the future does not provide for 
any  possibility  to  implement  the  rules  in  such  a  way  that  a  listed  company  can 
operate without being under supervision of any Member State. 

•  Accounting rules 

–  Applicability  of  Article  4(3)  to  third  country  issuers:  Article  4(3)  states  that 
where  issuers  are  not  required  to  prepare  consolidated  accounts,  the  audited 
financial statements shall comprise the accounts prepared in accordance with the 
139 

 
national  law  of  the  Member  State  in  which  the  company  is  incorporated. 
Clarification  is  required  for  cases  where  the  issuer  is  incorporated  in  a  third 
country but is listed on a regulated market in the EU.  

•  New loans 

–  The application of article 16, paragraph 3 of the Transparency Directive leads to 
the  question  of  which  additional  information  is  required  by  the  issuer  of 
securities admitted to trading on a regulated market when issuing a new loan. In 
this respect, CESR proposes to abolish the requirement to disclose all new loan 
issues.  This  requirement  overlaps  partially  with  the  Prospectus  Directive  and 
Article 6 of the Market Abuse Directive. Reference to new loans is also unclear, 
as  new  loans  are  not  defined  in  the  Transparency  Directive.  For  example,  it  is 
unclear whether issues of commercial papers or loans not admitted to trading on 
a  regulated  market  should  be  disclosed.  Some  respondents  considered  that 
Article 16.3 should be deleted: the implementation of article 16.3 is unclear and 
complex notably due to the absence of any materiality clause. 

•  Need for standard forms to disclose holdings 

–  Harmonized disclosure forms and wording would be useful in order to avoid, for 
example,  diverging  approaches  with  respect  to  the  disclosure  of  percentage  of 
voting rights and/or share capital. 

–  Some  respondents  would  favour  a  common  electronic  form  for  notifications  in 

the EU. 

•  Aggregation methods  

–  Clarity  is  needed  on  aggregation,  specifically  for  asset  managers  (of  the  assets 
held  on  behalf  of  their  clients  by  third  party  custodians,  but  controlled  by  the 
asset manager) and for groups of companies.  

–  Rules  on  aggregation  of  shares  with  derivatives  should  be  clarified.  The  delta 
adjusted method for aggregation seems to be preferred as it is representative of 
the  number  of  shares  the  person  writing  the  instrument  would  need  to  hold  in 
order to perfectly hedge its exposure. 

–  It would be necessary to have a clarified and harmonized regime on how baskets 

of shares and indexes are taken into account. 

–  Basket  and  index  instruments,  if  included  in  the  reporting  of  major  holdings, 
should only have to be reported if the relevant share has at least a weighting of 
1/3 in the basket or index (see also legislation in Switzerland and Hong Kong). 

–  The  treatment  of  stock  loans  and  repurchase  transactions  would  need  to  be 

clarified. 

–  Treatment of re-hypothecation of securities by agents, custodians and lenders as 

well as treatment of hedging by a market-maker need to be addressed. 

140 

 
 
•  Groups of companies 

–  The definition of “controlled undertakings” in Article 10 (e) of the Transparency 
Directive  should  be  clarified.  Currently,  Member  States  apply  different  control 
thresholds  which  may  lead  to  different  definitions  of  groups  of  companies,  and 
thereby to different aggregation perimeters.  

–  CESR  guidance  regarding  corporate  group  disclosures  would  be  desirable  as 
there is divergence across Member States as to whether (i) it is mandatory for a 
parent company to make an aggregated disclosure of both its own shareholdings 
and  those  of  its  controlled  undertakings,  and  (ii)  if  the  parent  does  so,  that  the 
controlled undertakings are exempt from making their own individual applicable 
disclosures. The divergence of approaches may be due, in part, to Article 12(3) 
of  the  Transparency  Directive  appearing  to  state  that  parent  aggregation  is 
permissive as opposed to mandatory.  

–  CESR  guidance  regarding  the  approach  on  netting  of  holdings  of  voting  rights 
would  be  desirable,  as  the  Transparency  Directive  is  silent  on  this  issue,  e.g. 
netting  intra-group  and  at  the  parent  level  (where  the  parent  is  making  a  group 
disclosure). 

•  Acting in concert  

–  There  should  be  a  common  definition  of  acting  in  concert  i.e.:  for  investors  to 
adopt,  by  concerted  exercise  of  the  voting  rights  they  hold,  a  lasting  common 
policy towards the management of the issuer. One respondent considered that the 
question of “acting in concert” which also has an impact on the determination of 
the  company’s  control  and  therefore  varies  across  the  European  jurisdictions, 
should  only  be  discussed  at  the  European  level  in  the  context  of  a  wider 
European  consultation  (for  instance  on  the  occasion  of  the  review  of  the 
implementation of the Takeover Bids Directive).  Another respondent considered 
that it may be useful to clarify the principle of ‘lasting common policy’ referred 
to in Article 10(a) of the Transparency Directive. However, this respondent was 
opposed to the creation of any terminology that relates to the definition of ‘acting 
in concert’ currently contained within the Takeovers Bids Directive, or employs 
the  terminology  of  ‘acting  in  concert’.  CESR  has  discussed  in  this  respect 
whether the concept of shareholders agreeing to adopt a lasting common policy 
towards  the  management  of  an  issuer  (Article  10(a))  should  be  clarified  in 
relation to major shareholding notification obligations. The purpose of this would 
be to provide clarity as to when the voting rights of shareholders would need to 
be  aggregated  as  an  indirect  holding.  CESR  considers  that  legal  certainty  for 
investors could be improved through amending the text at Level 1 and ensuring 
consistent application of major shareholding notification obligations at Level 3. 
However,  any  clarification  to  the  Transparency  Directive  should  not  lead  to 
loopholes being created nor interfere with the takeover rules. 

–  There is a need to clarify whether in a situation where the voting rights held by a 
third  party  with  whom  a  person  or  legal  entity  acts  in  concert  are  attributed  to 
that  person  or  entity  for  the  purpose  of  notification  requirements  according  to 
Art.  10  (a),  the  person  or  legal  entity  has  also  an  individual  notification 
obligation  (regarding  its  “own”  voting  rights),  and  whether  the  notification 

141 

 
obligation  is  triggered  as  well  by  transfers  of  voting  rights  within  the  group  of 
persons acting in concert. 

•  Stock lending 

–  There  is  a  need  for  a  harmonized  regime  concerning  stock  lending.  Some 
respondents  suggested  that  the  lender  should  not  be  required  to  report,  as  they 
have  replaced  the  holding  of  the  share  with  the  holding  of  a  right  to  recall  the 
share.  As  they  have  the  right  to  recall,  and  will  at  some  stage  do  so,  any 
disclosure  on  their  behalf  to  the  market  would  swamp  the  market  and  be 
potentially  misleading.  Another  respondent  was  in  favour  of  transparency  for 
both  the  lender  and  the  borrower  (subject  to  an  exemption  for  very  short-term 
transactions) as this would be the clearest way to ensure that no shares are double 
counted. A simple system could be possible if the same rule were to apply to all 
stock  lending  transactions,  irrespective  of  contractual  terms.  This  would 
eliminate  diverging  interpretations  in  different  jurisdictions  and  according  to 
deferring  contractual  arrangements  which  is  otherwise  problematic.  CESR  also 
suggested 
this  respect  further  harmonisation  of  major  shareholding 
notifications relating to securities lending (e.g. right to recall lent securities) and 
repurchase agreements. 

in 

•  Exceptions to the notification of major holdings 

–  A broad and consistent "market maker" definition would be welcome (Article 2).  

–  Some  clarifications  would  be  welcome  concerning  the  scope  of  the  exceptions 
for  shares  acquired  for  the  purpose  of  clearing  and  settling  and  by  custodians 
(Article 9(4) ). For example, one CESR member stated that in its Member State it 
had been discussed whether the exemption also applied to positions acquired for 
a short period through underwriting. 

–   Regarding  the  exception  foreseen  by  Article  12(4),  a  clarification  would  be 
welcome concerning the scope of this exception and the question as to whether 
the exception applies to funds that do not fall within the scope of application of 
the  UCITS-Directive  (85/611/EC).  Some  respondents  (including  CESR) 
suggested that the UCITS exemption contained in Article 12(4) should extend to 
non  UCITS  management  firms.  Moreover,  CESR  suggested  that  it  should  be 
made clear that in case the second subparagraph of Article 12(4) is applied, all 
holdings  managed  by  the  management  company  should  be  attributed  to  the 
holdings of the parent company (and not only the holdings of the fund where the 
parent company has invested in). 

–  Clarification  to  the  trading  book  exemption  would  be  needed  (Article  9(6)):  It 
should  be  clarified,  inter  alia,  whether  the  5  %  threshold  is  calculated  at  group 
level or the level of an individual company. Moreover, it should be clarified how 
the  different  categories  of  holdings  are  aggregated  when  calculating  the 
threshold.  CESR  proposed  the  threshold  to  be  calculated  at  group  level  where 
disaggregation exemptions set out in Articles 12(4) and 12(5) do not apply and 
that holdings of all instruments (Article 9, 10 and 13) are aggregated. Moreover, 
further clarification to subparagraph (b) should also be considered. The wording 
of  the  subparagraph  should  be  more  definite  in  order  to  more  clearly  prohibit 
credit institutions and investment firms applying the exemption from exercising 

142 

 
voting rights held in their trading book and from using their shareholder positions 
to intervene in any way in the management of the issuer. 

–  It  should  be  analysed  whether  the  scope  of  the  trading  book  (Article  9(6)) 
exemption  could  include  life  insurance  companies  on  an  even  footing.  The 
analysis  should  target  equivalent  regulation  of  such  insurance  companies  vis-a-
vis credit institutions and investment firms. 

–  In  Article  8  (1)  (b)  concerning  exemptions:  an  interpretation  of  the  word 

"exclusively" is needed. 

–  Modification of Article 8(1) would be welcome to ensure that issuers guaranteed 
by  a  State/province/municipality  of  OECD  countries  are  exempted  from 
presenting  annual  accounts.  These  issuers  benefit  already  from  a  simplified 
prospectus  regime.  Regarding  8(1)(b),  the  alignment  between  the  Prospectus 
Directive (as amended) and the Transparency Directive is also required. 

•  Notification duty 

–  A  harmonized  approach  is  needed  to  align  duties.  For  example:  disclosure  to 
whom?  (which  regulator);  by  which  deadline  (T+3)  and  by  which  methods 
(including form and language). 

–  There  is  a  need  to  clarify  whether  a  notification  duty  is  triggered  by  a  trade  as 
such  (most  jurisdictions)  or  only  by  the  settlement  of  the  trade  (Germany). 
Having  different  events  (i.e.  trade  or  settlement)  triggering  the  notification 
requires  investors  to  maintain  two  separate  monitoring  systems,  one  supplying 
trade dates and the other supplying settlement dates.  

–  Thresholds  triggered  by  corporate  actions:  It  is  often  difficult  for  investors  to 
monitor  notification  obligations  that  are  triggered  by  corporate  actions  (e.g. 
capital  increases).  A  central  database  indicating  the  relevant  total  number  of 
voting  rights  and  on  which  the  investors  can  rely  when  determining  their 
notification obligation would be helpful. Any such database should be in a format 
that allows the import of data by investors. 

–  It would be useful to clarify the question whether the underlying holders need be 

disclosed by portfolio managers. 

•  Clarification of definitions 

–  It would be useful to clarify the concept of "make public" in articles 4, 5 and 6. 

–  It should be made explicit that the annual reports to be disclosed within the four 

month deadline cannot be those approved by the general meeting.  

–  Applicability  of  Transparency  Directive  to  depository  receipts  when  the 
underlying  shares  are  not  admitted  to  trading  on  a  regulated  market:  the 
applicability of different rules (especially Articles 9–13 and 16–18) to depository 
receipts and holders of depository receipts or holders of underlying shares should 
be clarified. 

143 

 
–  It  should be  clarified that  the  requirement of Article 12(3) of the implementing 
Directive  (Directive  2007/14/EC)  providing  for  regulated  information  to  be 
communicated to the media in "unedited full text", permits this information to be 
produced in PDF. 

–  Terms  used  in  Article  9  (2),  "as  a  result  of  events  changing  the  breakdown  of 
voting rights", should be clarified. For example, it could be clarified, as the FSA 
has done in the UK (see DTR5.1.2R(2)), that where there is a notifiable switch 
(e.g. 1% for UK issuers) from a soft shareholding to an absolute shareholding by 
the  exercise  of  entitlements  to  acquire  shares,  without  affecting  the  overall 
percentage of the holding, a new disclosure would be required. It could also be 
clarified  that  this  particular  provision  does  not  necessitate  a  disclosure  where  a 
person has disclosed its holding of voting rights, but then it subsequently changes 
the capacity in which it holds them. For example, where a person has disclosed 
its indirect holding of shares as a beneficiary (and these shares are held by a non-
discretionary nominee), the person would not be required to disclose a change if 
it  then  takes  those  shares  out  of  the  nominee  account  and  holds  the  shares 
directly itself. 

–  In  Article  18(2),  there  is  a  need  to  clarify  the  interpretation  of  the  "financial 

institution".  

•  Other issues  

–  The  Transparency  Directive  requires  companies  listed  on  regulated  markets  to 
make public their audited financial statements within 4 months of financial year 
end.  However,  if  there  was  a  disruption  in  the  supply  of  audit  services,  for 
instance, along the lines of  Andersen Accounting, some listed companies could 
be  unable  to  contract  an  auditor  in  time  to  lodge  audited  accounts  within  this 
timeframe.  Therefore,  the  Commission  should  consider  whether  a  clause  might 
be  added  to  the  directive  to  allow  companies  additional  time  to  publish  the 
audited accounts should there be a major disruption to the audit market. 

–  It would be useful to clarify the relationship between Article 8 of the Prospectus 
Directive,  which  gives  the  competent  authority  the  ability  to  authorise  the 
omission  of  certain  information  from  a  prospectus,  and  the  Transparency 
Directive provisions under Articles 4 and 5.  

–  Solutions should be provided regarding the way dividend information is given by 
issuers  to  the  market.  ESMA  should  require  issuers  to  follow  some  basic  rules 
regarding disclosure of dividend information. This reply identifies such rules. 

–  Some respondents favoured lowering the initial threshold for disclosure of major 
holdings at 3%. But one respondent was explicitly not in favour of lowering such 
initial  disclosure  threshold  to  3%.  If  this  were  done,  there  should  be  an 
exemption for regulated investment managers that do not invest for control. 

–  One  respondent  explained  that  if  the  current  system  of  more  stringent  and 
additional  rules  prevailed,  it  would  be  essential  to  give  at  least  a  facilitated 
access to centralized (and regularly updated) information to any shareholder on 
the mechanisms existing in the 27 Member States in order to facilitate the life of 
the investors. Currently, it is really a burden for shareholders investing all over 

144 

 
Europe to find in each Member State, in addition to the total number of the issuer 
voting  rights,  the  threshold  to  declare,  the  way  of  notifying  it,  the  deadline  for 
notification,  the  addressee  and  the  consequences  of  a  lack  of  notification.  The 
complexity  and  the  difficulty  to  find  information  on  the  above  matters  can  be 
considered  as  an  obstacle  to  invest  in  Europe  while  it  seems  important  to 
preserve  the  attractiveness  of  the  Single  Market.  Furthermore,  some  countries, 
like  France,  allow  companies  to  insert  in  their articles of incorporation specific 
thresholds which the investors will have to find out also.  

–  Article  17  of  the  Transparency  Directive  should  be  reviewed  in  the  light  of 
Directive  2007/36/EC  on  the  exercise  of  certain  rights  of  shareholders  in  listed 
companies. 

–  Article 19(1) (2nd paragraph) should be deleted: this article requires an issuer to 
communicate any amendment of its instrument of incorporation or statutes to the 
competent  authority.  This  requirement  may  result  in  some  confusion  about  the 
role  of  the  competent  authority.  CESR  proposes  to  abolish  this  requirement  in 
order  to  reduce  administrative  burden  for  issuers.  The  Shareholders'  Rights 
Directive  already  requires  issuers  having  shares  admitted  to  trading  on  a 
regulated  market  to  make  the  proposal  and  the  invitation  to  general  meeting  of 
shareholders  publicly  available.  Moreover,  although  the  Shareholders’  Rights 
Directive  does  not  apply  to  issuers  having  only  other  securities  than  shares 
admitted to trading on a regulated market, the Market Abuse Directive requires 
also these issuers to disclose information relating to the issuer which is likely to 
have a significant effect on the price of the securities admitted to trading. 

–  There is a need to harmonise the rules regarding "equivalence" for third country 
issuers in the Transparency Directive (Article 23) and the corresponding rules in 
the Commission Directive 2007/14. 

•  Reference is made to the replies made to CESR consultation in 2007. 

•  In  addition  to  the  issues  mentioned  by  the  various  respondents  (including  CESR), 

CESR raised the following specific issues:  

–  Definition of regulated information: CESR notes that currently some information 
required to be disclosed by listed companies, especially in relation to corporate 
governance and shareholders' meetings, is classified as regulated information in 
some Member States whereas it is not regulated information in others. In order to 
achieve further harmonisation it should be considered whether there disclosures 
should be classified as regulated information throughout the EU. 

–   Definition  of  an  issuer:  It  seems  that  in  some  Member  States  there  are  issuers 
other than legal persons with securities admitted to trading on regulated markets. 
The definition of an issuer should therefore be aligned with the situation. 

–  Communication  of  choice  of  home  Member  State:  It  should  be  considered 
whether  Article  2  of  the  implementing  Directive  would  need  to  be  amended  so 
that  EU  issuers  would  also  be  required  to  communicate  the  choice  of  home 
Member State to the competent authority of the Member State where the issuer 
has its registered office (if different). 

145 

 
–  Possibility for binding standards on supervision of financial information: Article 
24(4)(h) lays out the general power of competent authorities to examine whether 
information referred to in the Transparency Directive is drawn up in accordance 
with the relevant reporting framework and to take appropriate measures in case 
of  discovered  infringements.  The  rule  is  the  foundation  for  supervision  of 
application  of  IFRS  standards  in  financial  statements.  CESR  has  issued  two 
standards  relating  to  supervision  of  financial  information.  In  order  to  ensure 
consistent  supervision  of  financial  information  throughout  the  EU  it  should  be 
considered  whether  the  proposed  European  Securities  Markets  Authority  could 
propose binding technical standards on this issue.  

–  Relationship  between  the  Transparency  Directive  and  the  Market  Abuse 
Directive: There seem to be some inconsistencies between these two Directives 
(and their implementing measures) especially in terms of disclosure mechanisms. 
CESR  therefore  considers  that  these  inconsistencies  should  be  further  analysed 
and abolished in connection with the review of the Directives. 

146 

 
ANNEX 11 

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. (27.05.2010. COM (2010)243FINAL) 

147 

 
 
 
 
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 

1. 

1. 

2. 

3. 

4. 

INTRODUCTION 

This  report  reviews  the  operation  of  Directive  2004/109/EC179  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)180. 

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. 

179  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 

180  OJ L 96, 12.4.2003, p.16. 

148 

 
 
                                                 
2. 

5. 

6. 

7. 

8. 

IMPACT OF AND COMPLIANCE WITH THE TRANSPARENCY DIRECTIVE  

The External Study on the application of the Transparency Directive conducted 
on behalf of the Commission181 (hereinafter "the External Study") reflects that a 
strong majority of the stakeholders who participated in the survey consider 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.  

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  Directive182 
does not appear, prima facie, particularly high183. 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"184  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.  

181  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 
at: 
securities 
on 
to 
http://ec.europa.eu/internal_market/company/ecgforum/index_en.htm  

regulated  market.  Available 

admitted 

trading 

are 

a 

182  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. 

183  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 

184  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.  

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3. 

9. 

10. 

11. 

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  issuers185.  While  the  scope  for  simplification  of  the  Transparency 
Directive rules for smaller listed companies, and therefore achieving savings, is 
limited,  there  are  specific  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 analysts186, therefore increasing their attractiveness.  

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 investors187, 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.  

185  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 
Transparency  Directive  to  MTFs.  A  more  detailed  explanation  is  proposed  in  the  Commission  staff 
working document attached to the present report. 

186  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".  

187  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).  

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12. 

13. 

14. 

Thirdly,  the  minimum  harmonisation  character  of  the  Transparency  Directive 
allows  Member  States  to  adopt  more  stringent  requirements188.  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  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 Statement189. 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.  

15. 

A  related  issue  concerns  disclosure  of  Environmental,  Social  and  Governance 
(ESG)190 data made by listed companies. Some stakeholders (non-governmental 

188  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. 

189  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).  

190  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 

151 

 
                                                 
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  slow191  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.  

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.  

16. 

17. 

4. 

CONCLUSIONS 

18. 

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 

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. 

191  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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small issuers and stored in the officially appointed mechanisms for the storage 
of regulated information. 

19. 

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. 

153