Following the European Transparency Directive 2004/109/EC (“TD”) a notifiable interest for the purposes of substantial shareholding disclosure will be determined by the direct or indirect holdings (Art 9 and 10 TD) of shares with voting rights attached or interests in financial instruments that result in an entitlement to acquire shares to which voting rights are attached (Art 13 TD).
The TD does not provide a clear distinction between direct and indirect holdings, however, the ESMA standard form for notification of major holdings distinguishes between those two terms. For direct shareholding, it points to Art 9 TD and for indirect shareholdings, it references Art 10 TD.
Generally, pursuant to Art 2 TD a shareholder is defined as someone who holds shares in its own name and either on his own account or on behalf of someone else, notwithstanding if directly or indirectly.
The aosphere memos define a direct shareholding as ‘actual holdings’ of shares. An actual holding can be in line with the shareholding definition in Art 2 TD, hence someone who is the actual owner of the shares and can simultaneously freely dispose of them. However, Art 9 TD does not provide more clarification on what a direct shareholding is.
Ultimately, a direct shareholding would entail that shareholders hold the legal title of the shares, which would mostly apply to persons or entities that own the assets themselves, such as banks or other proprietary holders.
Indirect shareholdings implicate cases in which a natural person or legal entity is entitled to acquire, to dispose of, or to exercise voting rights in the following cases:
- when voting rights are held by a third party with whom that person or entity has an agreement to pursue a common policy with regard to the management of the issuer concerned by exercising the voting rights they hold by common consent; or
- when voting rights are held by a third party under an agreement concluded with that person or entity providing for the temporary transfer for consideration of the voting rights; or
- when voting rights attached to shares are lodged as collateral with that person or entity, provided the person or entity controls the voting rights and declares its intention of exercising them; or
- when the person or entity has a life interest in voting rights attached to the shares; or
- when the voting rights are held by an undertaking controlled by that person or entity or which may be exercised in accordance with points (i) to (iv); or
- when voting rights attached to shares are deposited with that person or entity and the person or entity can exercise the voting right at its discretion in the absence of specific instructions from the shareholders; or
- when voting rights are held by a third party in its own name on behalf of that person or entity; or
- when that person or entity may exercise the voting rights as a proxy at its discretion in the absence of specific instructions from the shareholders.
Investment managers would fall under the indirect shareholding category, taking into consideration the listed scenarios under Art 10 TD, as under normal circumstances they are not the legal titleholders of the shares. In addition, assets aggregated to controlling entities of investment managers or other holders would be indirect shareholders. However, we advise to carefully consider every individual scenario, as we only provide an overview of the given matter.