Industry Updates

EU publishes proposal for Directive regulating transparency and short selling

Monday, October 31, 2011

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Opalesque Industry Update - On 25 October 2011, the European Commission published the provisional text of a proposal for a directive to amend the Transparency Directive ("TD"), together with an impact assessment, and some frequently asked questions. This came hot on the heels of the agreement reached between the European Parliament and the Presidency on 18 October 2011 for a Short Selling Regulation.

Disclosure of Long CfDs

The amended TD will plug the gap in shareholding notification requirements that enabled stake-building by way of cash-settled derivatives without any notification requirement. Currently, as well as shares, the TD requires disclosure of financial instruments that give a legal right to acquire on the holder's own initiative alone shares already in issue and with voting rights attached. These are defined by the FSA as "qualifying financial instruments" and the TD requires holdings of qualifying financial instruments to be aggregated with holdings of shares for the purposes of the notification thresholds. Under the amended TD, the disclosure requirements will extend to financial instruments with similar economic effects to qualifying financial instruments. These are financial instruments that do not give the holder a legal right to acquire shares, but have a similar effect in practice; that is where the instruments are referenced to an issuer’s shares and the holder has a long position on the shares’ economic performance, whether or not the instrument is capable of being settled physically in shares or in cash. Examples are purchases of Contracts for Differences (CfDs) and cash-settled call options or the writing of a put option, as each is referenced to and gives a long position in the shares’ economic performance.

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