THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS Ref.: CESR/04-512c CESR’s advice on possible implementing measures of the Transparency Directive Part II: ¾ Notifications of major holdings of voting rights ¾ Half-yearly financial reports ¾ Equivalence of third countries information requirements ¾ Procedural arrangement whereby issuers may elect their ‘Home Member State’ December 2004 INTRODUCTION Background On 30th March 2004, the EU Parliament approved the Commission’s proposal for the Level 1 Directive on the harmonisation of transparency requirements for securities issuers (the Transparency Directive), subject to a number of amendments. Following on the Parliament’s decision, the European Council reached a political agreement on the Draft Directive on 11th May 2004 and agreed with the amendments adopted by the Parliament. Formal adoption and translation into the official languages of the Directive is expected to take place later this year. According to the Lamfalussy Process, the Commission may adopt implementing measures, so-called “Level 2 measures”, with respect to a large number of provisions of the Directive. Before the Commission presents a proposal for implementing measures to the European Securities Committee, it seeks the technical advice on these measures from the Committee of European Securities Regulators (“CESR”). To this aim, the Commission gives a formal mandate or sends a request to CESR for technical advice. Areas covered CESR received on 29 June 2004 the official request from the EC for technical advice on implementing measures of the Transparency Directive. The purpose of this consultation document from CESR is to seek comments on the draft technical advice that CESR proposes to give to the European Commission. There were two elements in the request of the European Commission. This first element was a mandate given to CESR for technical advice on priority measures that are needed to complete the Directive. This advice must be delivered by June 2005. This mandate covered a number of different technical issues which can be grouped as follows: a. Different technical issues related to notifications of major holdings of voting rights in companies whose shares are admitted to trading on regulated markets. b. The minimum standards for the dissemination of regulated information and implementing measures on the conditions under which periodic financial reports of issuers must be kept available. c. Different technical questions related to half-yearly financial reports, to equivalence of transparency requirements for third countries issuers. The mandate also asked for technical advice on the procedural arrangements whereby an issuer may elect its ‘Home Member State’. The second element of the Commission’s request was presented through letter of the Commission to CESR, inviting CESR to present a progress report on the conditions for officially appointed mechanisms for storage of information and on possible electronic networks of information about issuers. A first progress report is expected from CESR in February 2005. Based on this progress report, the Commission will consider whether a second mandate should be sent to CESR requesting technical advice on these issues. CESR has decided to publish two separate consultation papers setting out its draft advice and thinking on these different issues (ref CESR/04-511 and CESR/04-512c). A first consultation paper (ref CESR 04-511), which had been released for public consultation on 28 October 2004 , sets out CESR’s draft advice possible implementing measures for dissemination of 2 regulated information and on the conditions under which periodic financial reports of issuers must be kept available. This first consultation paper also included a draft progress report on the conditions for officially appointed mechanisms for storage of information and on possible electronic networks of information about issuers. This document is the second consultation paper, presenting CESR’s draft advice on (i) Issues related to notifications of major holdings of voting rights (ii) Issues related to half-yearly financial reports (iii) the equivalence of transparency requirements for third countries issuers (iv) The procedural arrangements whereby issuer may elect its ‘home Member State’ Public consultation Following receipt of the mandate from the European Commission, CESR began its work on 29 June 2004 by launching a call for evidence for interested parties to submit comments by 29 July 2004. As a result of this consultation, CESR received 18 responses from a wide range of interested parties. These responses have been published on CESR’s website (www.cesr-eu.org) and have formed a very helpful source and have assisted greatly in the preparation of this consultation paper. The public consultation on the present paper will close on Friday 4th March 2005. Responses to the consultation should be sent via CESR's website (www.cesr-eu.org) in the section “Consultations”. A public hearing for this consultation paper will be held in Paris, at CESR premises, on Thursday 17th February 2005 from 14.30 to 17.30. Registration can be made via the CESR website (www.cesr-eu.org) under the section “Hearings”. CESR draws consultees’ attention to the fact that references to articles of the Transparency Directive made in this consultation paper are to the unofficial version of 11 May 2004 of the Transparency Directive as published on European Commission website (http://europa.eu.int/comm/internal_market/securities/transparency/index _en.htm). This version of the Transparency Directive has also been posted on CESR’s website (under Documents – EU Legislation). Consultees should be aware that the numbering of the article of this Directive is expected to change in further versions of the Directive. 3 INDEX Paragraphs Chapter I Notifications of major holdings of voting rights 1 to 483 Section 1 The maximum length of the short settlement cycle for shares and 2 to 20 financial instruments if traded on a regulated market or outside a regulated market and the appropriateness of the "t+3 principle" in the field of clearing and settlement Section 2 Control mechanisms to be used by competent authorities with 21 to 55 regard to market maker and appropriate measures to be taken against a market maker when these are not respected Section 3 The determination of a calendar of "trading days" for the 56 to 81 notification and publication of major shareholdings Section 4 The determination of who should be required to make the 82 to 155 notification in the circumstances set out in article 10 of transparency directive Section 5 The circumstances under which the shareholder, or the natural 156 to 179 person or legal entity referred to in article 10, should have learned of the acquisition or disposal of shares to which voting rights are attached Section 6 The conditions of independence to be complied with by 180 to 271 management companies, or by investment firms, and their parent undertakings to benefit from the exemptions in articles 11.3a and 11.3b Section 7 Standard form to be used by an investor throughout the 272 to 384 community when notifuing the required information Section 8 Financial Instruments 385 to 483 Chapter II Half-yearly Financial Reports 484 to 525 Section 1 Minimum content of half-yearly financial statements not 484 to 500 prepared in accordance with ias/ifrs Section 2 Major related parties transactions 501 to 512 Section 3 Auditors’ review of half-yearly report 513 to 525 Chapter III Equivalence of transparency requirements for Third countries 526 to 623 issuers Section 1 Equivalence as regards issuers 526 to 595 Section 2 Equivalence in relation to the test of independence for parent 596 to 623 undertakings of investment firms and management companies Chapter IV Procedural arrangements for election of “Home Member State” 624 to 635 4 CHAPTER 1 - NOTIFICATIONS OF MAJOR HOLDINGS OF VOTING RIGHTS (Section I of Chapter III of the Transparency Directive – Information about major holdings – art. 9 to 12) 1. The European Commission’s mandate requested CESR to provide a technical advice for implementing measures on the following eight issues related to the requirements set out by the Transparency Directive for information about major holdings of voting rights: (i) The maximum length of “the usual short settlement cycle” to which reference is made in Article 9(3a) in cases of shares and financial instruments, and whether or not the “T+3 principle”, which is used in the field of clearing and settlement, is appropriate; (ii) Control mechanism by competent authorities as regards market makers, further to their limited exemption under Article 9(3b); (iii) To determine a calendar of “trading days” for all Member States for notification purposes under Article 11(5); (iv) To clarify which person (the shareholder or the natural person or legal entity referred to in Article 10 or both) should make the notification, for the purposes of Article 10; (v) To clarify the circumstances under which the shareholder, or the natural person or legal entity referred to in Article 10, should have learnt of the acquisition or disposal of shares to which voting rights are attached, for the purposes of Article 11(2a); (vi) To clarify the conditions of independence to be complied with by management companies, or by investment firms, and their parent undertakings to benefit from the exemptions in Articles 11.3a and 11.3b; (vii) To draw up a standard form to be used by an investor throughout the Community when notifying the required information