New Developments in Global Shareholder Disclosure Reporting by Investment Managers

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New Developments in Global Shareholder Disclosure Reporting by Investment Managers

As someone who has spent more than ten years working on the compliance staff of three different asset managers since 2007, I can tell you that global shareholder reporting and disclosure of long and short equity positions by investment managers can be complex and challenging. A few years back, I was entrusted with shareholding reporting for a large, aggressive hedge fund with an activist trading strategy. Upon arriving at my desk one morning, my portfolio manager told me that he intended to buy four percent of the stock of a French company that day. He also asked me about French shareholder disclosure laws and regulations since it was imperative that the firm’s investment in the company remain non-public.  Off the top of my head, I told him that I knew France had a general five percent initial shareholder disclosure rule. Otherwise, I told him I would review and report back to him.  Arriving back at my desk, I learned during an internet search that French public companies may impose shareholder disclosure thresholds that are lower than the national five percent disclosure standard so long as the lower threshold is set forth in the company’s articles of association. In fact, French public companies can elect to impose shareholder disclosure thresholds of as low as 0.5% of shares outstanding.  After confirming that the target company had such a lower disclosure threshold in its articles, I had to scramble to stop trading right before we hit the French company’s 0.5% disclosure threshold.

The shareholder disclosure rules and regulations around the world are filled with nuance. The methods used to calculate exposure to a disclosure threshold can vary significantly on a global basis. Some countries have extremely brief, even immediate, disclosure periods.  Some countries require fund disclosure and some countries allow managers to aggregate fund ownership up to the manager of the fund. Some countries have takeover panels that impose wholly different regulatory thresholds and disclosures for certain securities in certain circumstances. In addition, each country expects investment managers with global portfolios to always be in compliance with their shareholder disclosure rules and to make all relevant reports and disclosures in a timely manner. This can be extremely difficult for many investment managers, especially when so many managers operate with small, skeletal compliance staffs. Late or incorrect disclosures in today’s fast paced regulatory environment can cost an organization dearly in monetary fines and/or result in severe reputational harm.

In order to comply with the shareholder disclosure rules of a foreign country, the initial step a manager must take is to understand the rule and how to apply it to the transaction and to manager’s organizational complex. At the time I started working with shareholder reporting, it was not uncommon to have to call local counsel to discuss and understand a country’s shareholder disclosure rule, especially if my firm had little or no prior institutional knowledge of trading in that country.  This process was often time-consuming, expensive and impractical.

For countries where my firm had a longer history of trading, on the other hand, notes were often kept in the files on how to best comply with local shareholder disclosure rules. This worked well in most cases but the notes on file were often outdated given how frequently these rules change around the world. An internet search to confirm the accuracy of the notes on file was always recommended but finding readily understandable information about the current shareholder disclosure obligations in foreign countries on the internet is often difficult before the reporting deadline.

One of the best things to happen to this field, in my opinion, is the shareholding disclosure rule library published by Aosphere LLP, an affiliate of the international legal practice, Allen & Overy LLP.  For a reasonable subscription fee, a manager can gain access to a wealth of knowledge about shareholder disclosure obligations imposed by 85+ countries. Aosphere provides both a brief summary of the shareholder disclosure rules for each country in its library, as well as a more expansive, detailed profile of the country’s regulatory environment.  Both the summary and the profile address such topics for each country as: the major shareholder disclosure rules; how to calculate ownership exposure; the securities and financial instruments to disclose; ownership aggregation issues; key exemptions; all applicable deadlines; short position disclosure rules; any applicable takeover panels; and sensitive industry requirements. Aosphere provides links to all necessary disclosure forms. Aosphere also monitors and issues periodic alerts to its subscribers when there are substantial changes to global shareholder disclosure regulation.

I can testify that aosphere has made global shareholder disclosure compliance cheaper, easier and more efficient. Aosphere provides all of the tools necessary for the legal and compliance staff of global asset managers, especially those with a smaller legal and compliance staff, to comply with their global shareholder disclosure obligations around the world at a practical price point.

As useful a tool as aosphere is, however, the information in aosphere is not automated.  You still need an eagle-eyed legal or compliance professional to understand how to apply the information in the Aosphere library to your firm, your portfolio and to your transactions.  So much of securities regulation is dependent upon trigger thresholds, triggering events and firm deadlines.  Time is of the essence.  Failure to spot shareholder disclosure concerns at or near the time a threshold is breached can often result in a late or inaccurate disclosure.

Now there are service providers that are providing their investment managers with tools that automate information in the aosphere library. By integrating their own library of global shareholder disclosure rules based upon Aosphere data in their trade management system, investment managers can generate compliance trade alerts and portfolio reports prior to making the trade and anticipate any applicable shareholder compliance obligations rather than react after executing the transaction.  I currently work as Senior legal and compliance analyst for INDATA, a leading industry provider of software, technology and managed services for buy-side firms. INDATA offers its software clients a fully integrated Global Shareholder Disclosure Compliance-as-a-Service that leverages the best-in-class legal information provided by aosphere with INDATA compliance specialists that will test and tailor the service to work best within your firm’s environment.

Investment managers would be wise to see the benefits of subscribing to an easily-accessible global shareholder disclosure library like aosphere. The further benefits of automating this information in your firm’s trade management system should also be easy to see. Given today’s ever-changing regulatory environment and ever increasing risk of enforcement actions, managers should seek out these common-sense solutions to better manage shareholder disclosure compliance in a more efficient and practical way. Learn more.