Shareholder transparency is important for issuers, who need to know the ultimate owners of their shares. Determining an issuer’s domestic investors is usually straightforward but identifying cross-border holdings can entail working down a sizeable chain of intermediaries. Manual processes, differing approaches to communication and uncertainty about the rules governing disclosure make this slow and often ineffective.
The introduction of T2S and a resulting increase in cross-border trading could exacerbate the problem. To address this concern, the T2S Advisory Group set up the Taskforce on Shareholder Transparency.
Paul Bodart of The Bank of New York Mellon chaired the taskforce, which began by studying how shareholder transparency currently works. “We found that in most European markets, there is already a good mechanism for providing information on domestic shareholders,” he says. “We concluded that we should not try to change something that worked relatively well. Instead, we decided to focus on how we could help issuers collect information across borders.”
The taskforce determined that there was no need to wait until T2S went live, and that there were practical steps that could be taken now that would improve shareholder transparency.
“We concluded that there were three things we could do,” Paul says. “The first was to create a standard message format for issuers to use when they requested information, and a standard response for intermediaries. We have approached SWIFT about introducing these standards and we believe the new format will be adopted by mid-2012. The meetings we have had with other countries – the US, Japan and Brazil, for example – showed there was tremendous support for our proposal.
“The second thing we have suggested is to clarify the overall process and to use the registrars or CSDs as the main channel to exchange information.” This would involve the issuer CSD or the registrar using an automated process to contact either the intermediaries or the investor CSDs for details of the holdings in their books. “This would seriously improve access to cross-border shareholder information,” Paul says.
“The third thing we discovered was that, particularly for intermediaries, the rules are not clear. Intermediaries do not always know if they have to respond to requests for information on their clients’ holdings, or if they are allowed to do so because of the need to protect the clients’ privacy. The rules are very different. In some countries, if you do not respond you can lose your dividend and your voting rights. In other countries, it is acceptable not to respond.”
Intermediaries therefore need clear guidance on how to balance the right of issuers to know who controls their shares, and the right of holders to maintain their privacy. In response, the Taskforce shared a long series of recommendations with the European Commission. “We requested that the Commission should clarify the rules when it redrafts the Transparency Directive,” Paul says.
The taskforce’s recommendations, once implemented, should significantly reduce the time it takes for issuers to find out who holds their shares and improve the quality of the information they receive. The introduction of T2S might then further improve transparency. As a single platform, it could give instant visibility of all holdings in the books of participating CSDs.