TISA have engaged with the ICSA Registrars Group (the Group) to discuss fractional share trading which many of their members want in order to achieve mirror portfolio investment, whatever the amount involved (and avoid reconciliations on cash residues).
This is already possible with OEICS and TISA want to extend it to Exchange Traded Funds (ETFs) and ultimately all shares. Members of the Group attended a TISA Working Party meeting on 17 February to discuss this with other interested parties from across the market. Whilst there is clearly some investment manager led demand there are significant practical, system (both registrar and CREST) and legal hurdles. There is also the perennial question when a new initiative is suggested – who pays? Given the work that Euroclear has on the books at the moment and will be matter of prioritisation for them – (see last month’s Round-Up which also looked at the hurdles over which proposals for legislative change must jump in order for BIS to entertain them), it seems unlikely that any cost benefit analysis for all stakeholders would be sufficiently strong, given the inevitable changes to the Companies Act.
We have suggested that TISA prioritise by importance to their members which is likely to involve a focus on ETFs, which has two advantages; firstly, a stronger business case can be constructed, given the typically higher unit price and, secondly, significantly less legislative change (and probably system development, though this has not been assessed in sufficient detail yet) is likely to be involved.
Further discussions will now take place within TISA and Equiniti will continue to be involved in the debate.
The Takeover Panel is looking to refresh and update the sections of the Takeover Code relating to communication with shareholders in an offeree company bearing in mind the obligation to treat all shareholders equally.
General Principle 2 of the Code provides that the holders of the securities of an offeree company must have sufficient time and information to enable them to reach a properly informed decision on a bid. The proposals in this consultation focus on the means by which that information is communicated and distributed to offeree company shareholders and other relevant persons, bearing in mind, in particular, the requirement in General Principle 1 that all holders of the securities of an offeree company of the same class must be afforded equivalent treatment.
Since 2009 when this aspect of the Code was revised, there have been considerable advances in the use of the internet, social media and other forms of electronic communication and a number of the amendments proposed seek to bring the Code up-to-date in that regard.
This will generally require an offeror or offeree company (as appropriate) to make an announcement via a regulatory information service and to publish the relevant information or document on a website. However, the Code Committee considers that the Panel should continue to have the ability to require a party to an offer also to send information to offeree company shareholders in hard copy form in appropriate circumstances.
In addition, the Code Committee has identified a number of instances in which the requirements of the Code in relation to the communication and distribution of information currently lack clarity or are inconsistently applied or interpreted. For example, the Code Committee understands that, although the requirement in Note 3 on Rule 20.1 for “meetings” to be supervised by a financial adviser or corporate broker is generally applied such that supervision is put in place not only for “physical” meetings but also for telephone calls and meetings held by electronic means, this is not universally the case.
Equiniti will look carefully at the consultation closing on the 15th April, which can be found here, to consider its response and will advise the outcome of that assessment. Clients may also wish to consider a response.
Once the Panel has analysed the responses to the consultation and identified what action needs to be taken, it will be interesting to see whether any resulting changes are picked up elsewhere and reflected in other law or practice in the wider context of communication between issuers and their shareholders.
PIRC has published its 2016 Shareholder Voting Guidelines along with a supplemental document which highlights the principal changes which have been made to PIRC’s policy for 2016.
As in previous years, PIRC have said that a draft of its report on any shareholder meeting will be sent to the company in advance of publication to allow an opportunity to review the report for any factual inaccuracies.
Changes to previous PIRC voting guidelines include:
Mergers and Acquisitions
The new guidelines expressly indicate the factors that PIRC will review in respect of a merger or acquisition transaction and the effect these may have on voting outcomes.
Authority to Purchase Own Shares
PIRC has reviewed its position on general authorities to buy back shares and has concluded that, for future buy-back authorities, PIRC will not support those authorities unless the board has made out a clear, cogent and compelling case demonstrating both how the authority would be used to benefit long-term shareholders, and also that the directors are not conflicted in recommending the authority.
Significant Votes Not in Favour of Management Proposals (UK, US, EU)
Current Position: For UK companies, PIRC considers that where a resolution has received a significant proportion of votes cast against, the company should provide a statement within its RNS announcement.
2016 Position: PIRC will expect a considered response on issues arising from significant adverse votes to be provided to shareholders before the next annual general meeting.
Non-Disclosure of Auditors Date of Appointment
Current Position: PIRC believes that a failure to rotate auditors regularly can impinge upon their independence and will take adverse voting positions where it considers that tenure has been too long. It has not had a specific policy in respect of non-disclosure of the date of an auditor’s appointment.
2016 Position: If the date of an auditor’s appointment is not disclosed, PIRC will draw a negative inference as to the length of the auditor’s tenure and will assume that there is an impact on the auditor’s independence.
Current Position: PIRC supports the recommendations of The Davies Review that boards of FTSE350 companies should comprise at least 25% women.
2016 Position: PIRC advocates that FTSE350 boards aim for women to account for 33% of board positions in FTSE350 companies by 2020. If PIRC deems there to be evidence of gender disparity in the workforce generally and the gender balance on the board then PIRC expects targets and attempts to address this inequality to be reported. PIRC regards disclosure of targets for gender balance rebalancing as a minimum.
Authorities to Allot Shares for Cash
PIRC has generally considered authorities within the limits previously set out by institutional investor bodies to be acceptable. In 2015, the institutional Pre-emption Group issued new guidelines allowing disapplication of pre-emption rights over 10% of issued share capital (half of which to be used for specific acquisitions or capital investments). PIRC will continue to be guided by the previous institutional guidelines and will not support new 10% disapplication authorities unless the board has made a clear, cogent and compelling case why the 10% level is appropriate for the company. The guidelines are available here.
Don’t forget the 6 April 2016 deadline….
Companies are required from 6 April 2016 to keep a register of ‘people with significant control’ (PSCs) over a company (the PSC Register). You are reminded that your PSC Register cannot be empty. You are required to take reasonable steps to identify your PSCs and if you are researching information for the register you must enter this fact and the stage you have reached in the PSC Register. The guidance issued by BIS contains useful information on what are considered to be reasonable steps, example notices requesting information from anyone you know to have information on the identity of a PSC and official wording to include in the PSC Register at all stages of your research and the outcome. The BIS guidance is available here.
MAR comes into force in the UK on 3 July 2016 bringing changes to regulations governing disclosure of information, insider lists, PDMR dealings, close periods and market soundings amongst other items. Consultations and preparation are underway to finalise the detailed regulations. The European Commission has published further draft implementing regulations and two final implementing regulations. This includes the final implementing regulation concerning the format of insider lists.
Companies with traded securities and their advisers must keep and maintain insider lists which should be in electronic form. The regulations set out a mandatory format for the insider list and sets out the information to be kept on individuals on the list. This includes name, work and personal telephone numbers, full home address, date of birth, function and reason for being an insider, date and time at which the person obtained inside information, date and time at which the person ceased to have access to inside information.
Companies may hold separate permanent and project insider lists but those on the permanent list will be deemed to have knowledge at all times of any inside information and if an individual is on the permanent insider list, they cannot also be on a project list.
It is important that companies keep abreast of the changes that are coming through and it is likely that as a minimum the following will be required:
- Review and amendment of relevant policies such as the Share Dealing Code and Disclosure Policy.
- Consider impact of removal of Model Code and replacement with a company’s own procedures.
- Amendment of insider lists and gathering additional personal information required so that they comply with the required format.
- Communication/training of Directors and other appropriate employees about the new requirements.
30 June 2016 sees the start of a number of items introduced by the Small Business, Enterprise and Employment Act.
- The replacement of the annual return with an annual confirmation statement which must be made within 14 days of the review period. The review period is the 12 months beginning on the day after the company’s last annual return date in the first year and the period of 12 months beginning on the day after the company’s last annual confirmation statement in subsequent years. An annual confirmation statement may also be submitted when filing other information with Companies House. If this is done then a company need not file an annual confirmation statement for a further 12 months.
- The requirement to include in the company’s statement of capital the amount of paid up and unpaid share capital will cease. Companies will now only be required to provide an aggregate amount unpaid on all shares.
- Certain company registers may be kept at Companies House by private companies rather than the company maintaining their own registers. This includes the register of directors, register of directors’ residential addresses, register of members and the new persons with significant control register. The SBBE Act is available from here.
The Financial Reporting Council (FRC) published in March 2016 a letter of advice to audit committee chairs in response to requests for guidance on how matters such as volatile asset prices and uncertainty over interest rates in certain jurisdictions should be dealt with in annual reports.
The FRC highlights that:
- Strategic reports that were written some time ago should be carefully reviewed to ensure that they reflect the latest circumstances;
- Key to an understanding of the company’s prospects will be the disclosure of the directors’ judgements as to the principal risks and their potential impact. Increased disclosure around the sensitivities considered and judgements may be needed;
- Information that has come to light after the balance sheet date, for example regarding asset valuations, should be carefully considered to determine whether it has an impact on the reported numbers or on the disclosures made; and
- Companies should consider whether the events in question have a material impact on the appropriateness of the going concern basis of accounting, or give rise to a material uncertainty regarding this.
A charter was launched on 22 March 2016 setting out the recommendations of a review by Jayne-Anne Gadhia, the Chief Executive of Virgin Money, into how to harness the talents of women in financial services.
The Gadhia review recommends various actions such as setting targets for gender diversity in their senior management and publishing progress reports, in order to drive change in the senior levels of the male-dominated financial services industry. The Treasury will publish a list of the firms who have signed up to the charter in three months’ time. The charter is available here.