The need for share data as firms invest in large volumes of equities internationally

Russell Ironside, pricing and reference services propositions manager at Refinitiv, discusses what is driving the need for more data in the area of shareholding disclosure

Shareholding disclosure regulations ensure regulators are aware when investors have a controlling interest in a company that puts them in a materially market-moving position. This is not a new challenge for financial institutions, but the amount of data that regulators hold to enforce the reporting requirements here is expanding. 

At the same time, the trend in the equities markets is seeing institutional investors take large positions in more mid-cap equities internationally, which is creating additional obligations in shareholding disclosure for them.

What tools do investors need to comply with shareholding disclosure requirements?

Russell Ironside, Refinitiv

Russell Ironside: The regulations require constant reporting of the investor’s shares. In addition, they require an aggregation to be run on the share amount types. Firms use share data, which is the denominator in a complex, factor-like equation, to determine their percentage of ownership of a given company. 

Institutional investors also need software that uses Refinitiv’s share data as an input, alongside their ownership positions and the appropriate jurisdictional rules to determine whether and how to disclose to each regulator. The jurisdictional rules used by software providers are governed by changes to the law that are fed into the software and are constantly being updated.

How have the sanctions for non-compliance increased over the years, and would you say enforcement has become more aggressive?

Russell Ironside: The regulators certainly have more data available to them. Firms fear the additional reporting obligations under the second Markets in Financial Instruments Directive (Mifid II) has led to additional intelligence that could be used to determine the equity positions of investors and to chase non-disclosure of positions.

Some of the fines have already been devastating. One hedge fund, for example, had a €20 million penalty imposed early last year for obstructing an investigation and not adequately disclosing its positions.

What are the changes driving the renewed focus on shareholding disclosure?

Russell Ironside: As a result of large amounts of net inflows into equities, we have seen a lot of sovereign wealth funds diversifying outside of their local markets and investing internationally. 

Hedge funds are being set up with the purpose of taking large positions in smaller, mid-cap companies globally. And, given that disclosures tend to be required between 2% and 5% ownership depending on the jurisdiction, they will likely have to disclose these positions to the regulators.

Can you describe the complexities facing firms with shareholding disclosure obligations in multiple jurisdictions?

Russell Ironside: The jurisdiction applicable to a given shareholding defines which regulator must be reported to and how. In addition, the concept in Europe of home member states creates complexities in being able to establish this.

Again, in Europe, the principle of issuer thresholds creates reporting obligations for institutional investors, not only to the regulators in their market-monitoring capacity, but also to issuers in certain jurisdictions. 

What are the challenges firms face in managing data for the purposes of these rules?

Russell Ironside: If the investor does not have reliable share amount or denominator data – or perhaps is not aware that their overall position in a given equity has increased – they are at risk of missing a disclosure obligation.

Timely and accurate data is always important but is clearly impacted by corporate events such as share buybacks where the amount of shares decreases, potentially meaning investors’ overall percentage of ownership increases, and they are required to make a disclosure. Similarly, if a firm has moderate to large positions in two companies in a takeover situation, their position can change materially when the shares are transferred, and this can result in a reporting obligation.

There is also scrutiny on what are known as ‘sensitive industries’ – for example aviation – to ensure that no single firm is taking too large a position in those types of securities.

What is Refinitiv’s data offering to help institutional investors manage their disclosure processes, and what sets it apart in this area?

Russell Ironside: Complying with shareholding disclosure regulations is not as simple as pulling outstanding share amounts from a company report or data terminal. It is a complex undertaking that requires a diverse amount of data; in one jurisdiction you may need the outstanding shares but, in another, you might need the issued shares only, the closely held or the treasury shares, and so on.

Refinitiv supplies both the class level shares and voting rights, as well as the aggregated, issuer-level shares for global equity markets, including unlisted share amounts. Our shareholding disclosure service also covers all the referential data required, including business classification schemes for sensitive industry determination, instrument taxonomy and analytics. We provide a file with the issuer thresholds, for the countries and companies that have their own threshold requirements in addition to those of the regulators. And we also have a takeover panel package to provide advance warning of takeovers occurring in the industry. 

Read more

Further information on Refinitiv’s data for shareholding disclosure

About Refinitiv

Refinitiv, an LSEG (London Stock Exchange Group) business, is one of the world’s largest providers of financial markets data and infrastructure. With $6.25 billion in revenue, more than 40,000 customers and 400,000 end users across 190 countries, Refinitiv is powering participants across the global financial marketplace. Refinitiv provides information, insights and technology that enable customers to execute critical investing, trading and risk decisions with confidence. By combining a unique open platform with best-in-class data and expertise, Refinitiv connects people to choice and opportunity – driving performance, innovation and growth for customers and partners.

 

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