The first-ever application of simplified settlement of a fineable matter under a new Dutch sanctioning system involving a Netherlands-based global asset manager has placed the spotlight on the growing shift towards a zero-tolerance policy to non-disclosure by regulators globally. The penalties for late shareholding disclosure can be significant, from censure, hefty fines, the loss of advisory license, and even imprisonment. In such an environment, firms should reassess the robustness of their regulatory reporting platforms sooner rather than later.
The Netherlands’ Shareholding Rule.
Under The Netherland’s Authority for the Financial Markets (AFM) rules, when investors obtain or lose shares or voting rights in a listed company resulting in their shareholding meeting a particular threshold ― between 3% and 95% of the company’s issued share capital ― they must immediately notify this to the AFM, which then includes these details in the public register of substantial shareholdings and gross short positions so investors can make an opportune and substantiated assessment of shares involved in a potential transaction, thereby fostering transparency and market integrity.
Summary of The Netherlands’ Substantial Holding rules:
Based on the European Transparency Directive Act, the rules require immediate disclosure of voting rights or issued nominal share capital and/or financial instruments which give the entitlement to acquire shares or have a similar economic effect as shares (e.g., options, futures, convertible preference/debt security) when the percentage held in the issuer reaches, exceeds, or falls below the following thresholds:
If the issuer’s home member state is the Netherlands ― 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75%, or 95%.
If the issuer’s host member state is the Netherlands ― 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%.
Other possible disclosable events are if the nature of the holding has changed (e.g., an option is exercised and the shareholder receives the underlying equity) or if the issuer alters their total voting rights/issued capital (passive disclosure event).
Nevertheless, complying with complex shareholding disclosure requirements is often far from straightforward. Given the general tightness of substantial holding notification deadlines for The Netherlands and many other jurisdictions, having an efficient mechanism to assess and identify whether a disclosure obligation has arisen in a timely fashion is fundamental for financial firms.
Two Key Requirements.
1. Awareness of jurisdiction rule nuances and complexities
The Netherlands is just one jurisdiction with its own nuanced shareholding disclosure rules. Other jurisdictions have their own complexities which must be taken into consideration when monitoring the holders ― from deciding under which jurisdictions the holdings should be captured to addressing the subtle intricacies of a given jurisdiction. Factors to be considered range from the type of instrument to the capacity in which shares are held – even to the aggregation and disaggregation of holdings across hierarchies. These are examples of key elements required when assessing whether the holdings are relevant for disclosure under various Shareholding regulations (such as Substantial Shareholdings, Net Short Positions, Takeover Panels, Sensitive Industries, and SEC Form 13-F).
Institutions also need to be able to efficiently monitor their portfolios against the rules of multiple jurisdictions simultaneously, which means that asset managers must find effective, fully automated mechanisms for completing these assessments across jurisdictions in an accurate and expedited manner.
2. A trusted and complete data source
Besides these cross-jurisdictional complexities, another core challenge facing firms concerns data ― firms must marshal requisite position, market, reference, hierarchy, and legal-rules data to successfully monitor huge disclosure volumes and withstand regulatory examinations.
Given these obligations and the complexities and variations surrounding them, a lack of access to accurate data on total shares and voting rights can quickly lead to a host of challenges for institutional investors and asset managers necessitating a data management platform that enables connection to multiple data systems ― be that internal source system to access position information, or external market data provider system allowing for the creation of a single, consolidated data source that can be used for the myriad of shareholding disclosure regulations or for internal analysis.