COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
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, 25.10.2011 
SEC(2011) 1280 final 

COMMISSION STAFF WORKING PAPER 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a  

Directive of the European Parliament and  ofthe Council amending 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 and Commission Directive 2007/14/EC 

{COM(2011) 683 final} 
{SEC(2011) 1279 final} 

 
 
 
 
  
 
1. 

INTRODUCTION 

The  Transparency  Directive1  (“the  Directive”)  requires  issuers  of  securities  traded  on 
regulated markets within the European Union (“EU”) to ensure appropriate transparency for 
investors through the disclosure and dissemination of regulated information2 to the public.  

Five  years  after  the  entry  into  force  of  the  Directive,  the  Commission  published  a  Report3 
assessing  the  impact  of  the  Directive. The Report  recognised  the Directive as useful for the 
proper and efficient functioning of the market, however it highlighted areas for improvement. 

In  2010,  the  Commission  launched  a  public  consultation  on  the  modernisation  of  the 
Directive. The main issues raised were: the attractiveness of the regulated markets for small 
and  medium  -  sized  issuers  “SMIs”  and  ways  to  improve  the  regime  for  major  holdings  of 
voting rights.  

The respondents to the public consultation varied in their views as to whether the situation of 
SMIs  could  be  improved  through  changes  to  the  Directive.  Concerning  holdings  of  voting 
rights,  the  public  consultation  demonstrated  general  agreement  on  the  need  to  include  a 
requirement  to  notify  holdings  of  cash-settled  derivatives4  and  to  increase  the  level  of 
harmonisation in this area. In addition, calls were made for greater clarity in certain technical 
areas.  

Finally,  in  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 countries5. A separate impact assessment on this issue concluded that 
the  Transparency  Directive  and  the  Accounting  Directives6  should  be  modified  to  include  a 
new requirement in this respect. 

2. 

PROBLEM DEFINITION 

The problems identified with the existing regime can be grouped into two main categories: a) 
SMIs; and b) the requirements regarding the notification of major holdings of voting rights.  

2.1. 

Problems identified in relation to SMIs 

There  is  no  legal  definition  of  SMIs  in  the  EU.  Where  reference  is  made  to  SMIs  in  this 
document, this should be understood in terms of the existing national concepts used in MS. 

1 
2 

3 

4 

5 
6 

Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004. 
The  term  regulated  information  includes,  annual,  half-yearly  and  quarterly  financial  information,  on-
going information on major holdings of voting rights and ad hoc information disclosed pursuant to the 
Market Abuse Directive (Directive 2003/6/EC). 
COM  (2010)  243  FINAL  of  27  May  2010.  The  report  was  accompanied  by  a  more  detailed 
Commission staff working document (SEC(2010061)). 
Cash-settled equity derivatives refer to equity linked transactions settled by the payment of cash only 
without any physical delivery of the underlying equity. 
http://register.consilium.europa.eu/pdf/en/10/st15/st15650-ad01.en10.pdf 
The  Fourth  Council  Directive  78/660/EEC  on  annual  accounts  and  the  Seventh  Council  Directive 
83/349/EEC on consolidated accounts. 

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Improving the regulatory environment for SMIs and facilitating their access to capital are high 
political  priorities  for  the  Commission7.  Although  transparency  requirements  are  not 
considered to be the only source of problems faced by SMIs, they contribute to the high costs 
of compliance linked  to  listing  on the regulated markets, their low visibility to analysts and 
investors, and the culture of short-termism.  

2.1.1.  High costs of compliance for SMIs 

The objective of the Directive is to provide accurate, comprehensive and timely information 
to  the  market.  Issuers  are  required  to  publish  annual,  half-yearly  and  quarterly  financial 
information8.  The  Directive  imposes  a  minimum  requirement  to  publish  Quarterly  Interim 
Management Statements with limited content. However, many MS require additional items to 
be  disclosed.  For  SMIs,  the  costs  incurred  through  the  publication  of  quarterly  financial 
information are relatively high, while the utility of this obligation is not clear.  

In addition, compliance with the strict deadline for the publication of half-yearly reports, as 
well  as  the  complexity  of  the  content  and  the  types  of  information  to  be  disclosed  in  the 
narrative parts of the reports, can also be costly and resource-intensive for issuers. 

2.1.2.  Focus on short-term results 

The need to publish quarterly financial information could lead to pressure on management to 
demonstrate profits each and every quarter. Quarterly reporting could also be perceived as a 
regulatory incentive for investors to focus on the short-term performance of companies rather 
than taking a longer-term view.  

2.1.3.  Lower visibility of SMIs 

The  short  deadline  for  the  half-yearly  reports,  (two  months  after  the  end  of  the  reporting 
period),  creates  a  bottleneck  at  the  end  of  the  second  month  which  disrupts  the  market, 
overloads investors and analysts with financial information and accentuates the tendency for 
them  to  restrict  their  attention  to  the  largest  market-leading  companies,  and  to  take  little 
interest  in  SMIs.  This  is  particularly  the  case  for  the  majority  of  European  issuers  whose 
accounting year corresponds to the calendar year, and for whom this deadline therefore falls 
in  late  August.  This  contributes  to  the  low  visibility  of  SMIs  in  relation  to  investors  and 
analysts. 

The  difficulties  facing  investors  who  wish  to  access  published  information,  due  to  the 
insufficient  interconnection  of  the  various  national  storage  mechanisms,  is  another  issue 
limiting the visibility of SMIs.  

7 

8 

Communication from the Commission: "Towards a Single Market Act - For a highly competitive social 
market  economy  -  50  proposals  for  improving  our  work,  business  and  exchanges  with  one  another", 
COM(2010) 608 final and Communication from the Commission "Single Market Act - Twelve levers to 
boost  growth  and  strengthen  confidence-  Working  together  to  create  new  growth",  COM(2011)  206 
final.  
Either quarterly financial reports or interim management statements: also referred generally as quarterly 
financial information. 

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2.1.4.  Problems  identified  in  relation  to  the  notification  of  major  holdings  of  voting 

rights  

The Directive requires issuers to notify the market whenever they acquire or dispose of shares 
admitted to trading on a regulated market to which voting rights are attached (that is, to notify 
the proportion of voting rights held whenever that proportion reaches, exceeds or falls below 
the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%). Two problems have been 
identified  with  the  current  regime:  hidden  ownership  as  a  result  of  gaps  in  the  rules  for 
notification; and divergent notification rules across MS. 

2.1.5.  The possibility of hidden ownership  

Since  the  adoption  of  the  Directive,  the  use  of  cash-settled  derivatives  in  the  market  has 
increased substantially. Cash-settled derivatives can be used to acquire and exercise influence 
over  a  listed  company  or  to  build  a  hidden  stake  in  a  company  (there  are  several  reported 
examples  of  such  behaviour9).  However,  they  are  not  currently  covered  by  the  Directive’s 
rules for disclosure. This omission can lead to possible market abuse, inefficiency in the price 
formation  mechanism,  and  empty  voting,  resulting  in  low  levels  of  investor  confidence  and 
misalignment  of  the  interests  of  investors  with  the  long-term  interests  of  the  companies 
themselves. 

2.1.6.  Divergent notification rules across MS leading to increased liability and regulatory 

risk and high compliance costs for cross-border investors 

Divergent  notification  rules  across  MS,  in  particular  regarding  aggregation  of  holdings  of 
shares  with  those  of  the  financial  instruments,  raise  costs  and  create  legal  uncertainty  for 
investors who participate in cross-border activity. Lack of aggregation of holdings of shares 
with those of the financial instruments also leads to lower level of transparency within some 
MS. 

3. 

SUBSIDIARITY 

The EU has the right to act in this area according to Articles 50 and 114 of the TFEU. All the 
problems  identified  concern  the  EU  capital  market  in  its  entirety,  and  so,  for  changes  to  be 
effective, they should be made at EU level.  

In addition, the problems identified concerning SMIs derive from EU and MS legislation and 
can  only  be  addressed  through  changes  in  the  EU  legislation.  Finally,  only  an  instrument 
adopted at the EU level would ensure that all MS apply the same regulatory framework based 
on  the  same  principles,  thereby  ending  the  current  fragmentation  of  the  regulatory  response 
with regard to the notification of major holdings.  

9 

Exemples: LVMH/Hermes, Porsche/VW, Schaeffler/Continental. 

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4. 

OBJECTIVES 

The measures envisaged should simplify certain obligations so as to help ensure that regulated 
markets are attractive to SMIs, and should improve the legal clarity and effectiveness of the 
transparency regime with respect to the disclosure of corporate ownership.  

5. 

POLICY OPTIONS: ANALYSIS OF IMPACTS AND COMPARISON 

To realise the objectives set out above, the Commission has designed, analysed and compared 
different  policy  options  to  determine  which  options  satisfactorily  address  the  problems 
identified. These options are set out below. 

5.1. 

(1) 

(2) 

(3) 

(4) 

Policy options to allow for more flexibility regarding the frequency and timing 
of publication of periodical financial information for SMIs 

No  action  –  this  option  would  not  achieve  the  objective.  This  option  is  therefore 
discarded. 

Abolish  the  obligation  to  present  quarterly  financial  information  for  SMIs  –  This 
option  would  reduce  both  costs  for  SMIs  and  regulatory  incentives  which  can 
encourage short-termism. However, introducing differentiated regimes for companies 
listed  on  regulated  markets  according  to  their  size  could  be  confusing  for  the 
investors,  and  could  also  lead  to  lower  visibility  for  SMIs.  This  option  is  therefore 
discarded. 

Abolish  the  obligation  to  present  quarterly  financial  reports  for  SMIs  during  an 
initial  period  of  3  years  after  admission  to  trading  –  Although  alleviating  the 
immediate  pressures  faced  by  SMIs,  this  option  would  only  delay  the  costs. 
Introducing  differentiated  regimes  for  companies  listed  on  regulated  market 
according to their size and their age could be confusing for the investors. This option 
is therefore discarded. 

Abolish the obligation to present quarterly financial reports for all listed companies 
–  This  option  would  reduce  companies’  compliance  costs.  The  average  estimated 
cost  reduction,  excluding  costs  linked  to  preparation  of  the  quarterly  information, 
ranges from 2 k€ to 60 k€ per year/per issu er for SMIs 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 SMIs: this 
reduction varies widely from one issuer to another; from 8 man-days per year to 30 
man-days  per  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  a  maximum  of  2  M€  per  year  per  issuer.  It  should  enable  the  SMIs  to 
redirect  their  resources  to  publish  the  kind  of  information  that  best  suits  their 
investors.  This  option  should  reduce  short-term  pressure  on  issuers  and  incentivise 
investors  to  adopt  a  longer-term  vision.  It  should  not  have  a  negative  impact  on 
investor protection. Investor protection is already sufficiently guaranteed through the 
mandatory  disclosure  of  half-yearly  and  yearly  results,  as  well  as  through  the 

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disclosures  required  by  the  Market  Abuse  and  Prospectus  Directives10.  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 Directive. Thus, it does not seem necessary 
to  mandate  disclosure  of  interim  management  statements  in  legislation.  To  be 
effective,  this  option  should  also  prevent  MS  from  imposing  in  national  legislation 
the publication of quarterly information. Companies would have discretion to publish 
quarterly information if they so desire. 

Extending  the  deadline  for  the  publication  of  half-yearly  information  to  3  months 
after  the  end  of  the  relevant  reporting  period  for  all  listed  companies  –  For  SMIs, 
there  would  be  some  cost  savings,  however  the  most  important  benefits  would  be 
non-monetary.  Issuers  would  have  extra  time  to  draft  their  reports,  thus  improving 
the  quality  of  their  output.  This  option  would  also  have  a  positive  impact  on  the 
visibility of SMIs as they would be able to time the publication of their reports more 
easily  so  as  not  to  fall  at  the  same  time  as  that  of  the  reports  by  large  listed 
companies. This would mean analysts and investors would have more time available 
to look at the half-yearly results of SMIs. 

Extending  the  deadline  for  the  publication  of  half-yearly  information  to  3  months 
after the end of the respective reporting period for SMIs – This option would have 
positive  impact  on  visibility  of  SMIs.  However,  introducing  differentiated  regimes 
for companies listed on regulated markets according to their size could be confusing 
for investors. This option is therefore discarded. 

(5) 

(6) 

5.2. 

Policy options to simplify the narrative parts of financial reports for SMIs 

(1) 

(2) 

(3) 

No  action  –  this  option  would  not  achieve  the  objective.  This  option  is  therefore 
discarded. 

Harmonising  the  maximum  narrative  content  of  financial  reporting  at  the  EU  level 
for SMIs – Standardising the content of reporting may lead to increased compliance 
costs for SMIs located in those MS where the requirements are currently low. This 
option  would,  however,  facilitate  comparability  of  financial  information  across  the 
EU. But if the threshold for content at the EU level was set too low in the hope of 
saving costs, this might in turn have negative implications for investors. This option 
is therefore discarded. 

Requiring ESMA11 to prepare non-binding guidance (templates) on narrative content 
of  financial  reports  for  all  listed  companies  –  This  option  would  enable  ESMA  to 
target the template so as to ensure cost savings. It would also facilitate comparability 
of information for investors and could increase the cross-border visibility of SMIs. It 
would entail some one-off costs for ESMA.  

(4) 

Requiring  MS  to  prepare  non-binding  templates  or  guidance  on  the  content  of  the 
narrative aspects of reporting – This option would allow MS to adapt the content of 

10 
11 

Directive 2003/6/EC and Directive 2003/71/EC. 
European Securities and Markets Authority. 

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5.3. 

(1) 

(2) 

(3) 

5.4. 

(1) 

(2) 

the reports to their internal market. It would not, however, facilitate the cross-border 
comparability of information. This option is therefore discarded. 

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

No  action  –  this  option  would  not  achieve  the  objective.  This  option  is  therefore 
discarded. 

Broad regime: disclosure regime extended to all instruments with similar economic 
effect  to  holding  shares  and  to  entitlements  to  acquire  shares  –  This  option  would 
capture cash-settled derivatives, as well as any similar financial instruments that may 
emerge  in  the  future.  It  was  supported  by  the  majority  of  respondents  to  the 
consultation  as  a  solution  to  the  problems  described  above.  It  would  have  a  strong 
positive  impact  on  investor  protection  and  confidence.  The  new  disclosure  regime 
covering all types of financial instruments equivalent to share ownership might cause 
an  increase  in  the  organizational  and  compliance  costs  for  holders  of  cash-settled 
derivatives  (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 a 
significant quantity of these instruments). The ongoing costs could not be estimated 
as  they  would  vary  depending  on  the  increase  in  practice  in  the  number  of 
disclosures  per  holder.  However,  following  the  experience  in  the  UK  which  has 
already introduced such a regime in 2009, the increase in notifications is estimated to 
be limited.  

Limitative approach: disclosure not required in case “safe harbor” criteria are met– 
This  option  would  require  all  instruments  giving  access  to  the  underlying  voting 
rights  to  be  disclosed  unless  some  specified  criteria  are  met.  It  would  still  enable 
investors  to  circumvent  the  purpose  of  the  disclosure  requirement.  This  option  is 
therefore discarded. 

Policy  options  to  eliminate  divergences  in  notification  requirements  for  major 
holdings 

No  action  –  this  option  would  not  achieve  the  objective.  This  option  is  therefore 
discarded. 

Harmonise  the  regime  for  the  disclosure  of  major  holdings  of  voting  rights  by 
requiring  the  aggregation  of  holdings  of  shares  with  those  of  financial instruments 
giving  access  to  shares  (including  cash-settled  derivatives)  –  This  option  would 
harmonise  the  method  used  to  calculate  the  thresholds,  but  not  the  thresholds 
themselves,  thus  creating  a  uniform  approach  that  would  reduce  legal  uncertainty, 
enhance 
the 
attractiveness  of EU capital markets. The estimated  reduction in  on-going costs for 
cross-border  investors  is  77  k€/year/opera tor.  This  option  could,  however,  create 
some  additional  costs  linked  to  additional  disclosures  in  those  MS  where  there  is 
currently no aggregation requirement. 

transparency,  simplify  cross-border 

investments  and 

increase 

(3) 

Harmonise  the  regime  for  the  disclosure  of  major  holdings  of  voting  rights  by 
requiring  3  separate  regimes  of  disclosure:  one  for  holdings  or  shares,  one  for 
financial instruments giving access to shares, and one for cash-settled derivatives – 

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This  option  would  create  a  uniform  regime,  but  may  have  a  negative  impact  on 
investor protection and confidence. This option is therefore discarded. 

(4) 

Harmonise  the  regime  of  disclosure  of  major  holdings  of  voting  rights  by 
harmonising the thresholds for disclosure – The thresholds of voting rights were not 
considered a major issue by the majority of respondents. In addition, thresholds for 
notification  seem  to  be  difficult  to  harmonise  because  of  the  differences  in 
shareholding population from one MS to another. This option is therefore discarded. 

6. 

THE INSTRUMENT TO BE USED AND TRANSPOSITION AND COMPLIANCE ASPECTS  

Only  a  binding  legal  instrument  would  ensure  that  all  MS  apply  the  same  regulatory 
framework  based  on  the  same  principles.  A  directive  would  allow  for  maximum 
harmonisation  in  some  areas,  but  would  still  leave  MS  flexibility  to  allow  their  specific 
situation to be taken into account in other areas.  

To  ensure  a  better  implementation  of  the  Directive,  and  following  the  Commission’s 
Communication  “Reinforcing  sanctioning  regimes  in  the  financial  sector”12,  the  existing 
framework for sanctions should also be improved.  

7. 

MONITORING AND EVALUATION 

The  Commission  will  monitor  how  the  MS  implement  the  Directive.  Where  needed,  the 
Commission  services  will  offer  assistance  to  the  MS.  The  evaluation  of  the  impact  of  the 
application of the legislative measures should take place six years after the entry into force of 
the  legislative  measures.  The  Commission  will  monitor  the  application  of  the  Directive,  as 
amended, through ESMA and through extensive dialogue with major stakeholders. 

12 

Communication of 9 December 2010: COM(2010)716 final. 

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