The Stock Exchange Act has recently been amended to extend significantly disclosure obligations for shareholdings in listed companies. The main objective is to capture arrangements, in particular derivatives, which previously escaped major shareholding disclosure rules, even though they could be (and were) used for stake-building purposes in Austrian listed companies.
Changes are effective as of January 1 2013 and are expected to create challenges for investors, fund managers, credit institutions and securities firms.
Former legal framework
Before the amendment, any person or entity was obliged to report transactions to the Financial Market Authority, the Vienna Stock Exchange and the issuer, as a result of which it reached, exceeded or fell below certain percentages of total voting rights in such issuer. Percentages ranged from 5% to 90%, with the first statutory reporting threshold being set at 5%.
First statutory reporting threshold
From January 1 2013 onwards, the first statutory reporting threshold will now be lowered to 4%. In addition, issuers are free to set the reporting threshold to 3% in their articles of association if they so wish. In particular, this may be useful for companies with significant free float. The previous thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75% and 90% remain unaffected.
Instruments covered and aggregation rules
A key purpose of the amendment is to extend the scope of instruments that are subject to reporting requirements. Particular emphasis is made to include any derivative instruments that were not subject to reporting or aggregation rules and were therefore used for stake-building purposes (eg, convertible bonds). These will now be treated as if the conversion right had already been exercised. In addition, any cash-settled instrument that enables its owner to participate economically in changes relating to the issuer's share price will now be subject to reporting requirements.
While there is no exhaustive list of instruments covered, the notification obligation will now extend to cash-settled options (whether put or call, European or American style), certain (equity) backed and index instruments (eg, swaps), as well as futures or contracts for difference which were previously not subject to disclosure rules.
Instruments covered will also include the full range of instruments covered by the EU Markets in Financial Instruments Directive, as well as comparable instruments and agreements, such as:
- transferable securities;
- money market instruments;
- forward rate agreements;
- swaps; and
- financial or commodity derivatives.
Any holder of such instruments will essentially be under a reporting obligation akin to a shareholder if relevant thresholds are reached, exceeded or fallen below, if such position:
- provides a right to acquire shares with voting rights already issued (at the holder's initiative and under a legally binding agreement);
- provides a right to conclude an agreement to acquire shares with voting rights already issued;
- partially or entirely relates to shares or a basket or index in which the issuer's shares account for more than 20% of the basket or index's aggregate value and, irrespective of whether the instrument is physically or cash settled, if it:
- grants its holder the right to demand, in whole or in part, the difference between the base price and the settlement price or to conclude an agreement to this effect; or
- enables its holder to participate economically in any changes relating to the issuer's share price; or
- under a legally binding agreement, provides a right to acquire shares in an entity whose principal purpose is to hold shares with voting rights in an issuer, but only if the holder would attain a reportable controlling interest in such entity.
For the purpose of determining voting rights, all financial instruments relating to shares of the same issuer must be aggregated.
While non-compliance with major shareholder reporting obligations previously triggered only a fine of up to €30,000, penalties will now become increasingly stringent. Not only will fines be drastically increased to up to €150,000, but voting rights may now be temporarily suspended. This means that the difference between newly acquired, but not duly notified voting rights and last reported voting rights can be exercised only after:
- a mandatory disclosure has been made; and
- a period of six months has elapsed.
Reporting of existing holdings
Anyone holding voting rights that reach or exceed any of the reporting thresholds - such as the new statutory 4% threshold or a 3% threshold if such has been adopted by the respective issuer in its articles of association - is required to notify this to the Financial Market Authority, the Vienna Stock Exchange and the issuer before March 1 2013. Such obligation does not apply if a corresponding notification had already been made before the new rules entered into force.
In order to avoid suspension of voting rights and significant fines, investors are advised not only to monitor their existing positions more thoroughly, but also to examine any new products carefully to determine what reporting obligations, if any, may apply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.