What do we mean by ‘Major shareholders?’
The answer to this question is not as simple as it seems. First, you have the legal owner of the shares. This entity appears on the share register and holds the legal title to the shares. These are often nominee companies holding the shares on behalf of the underlying beneficial owner(s).
The beneficial owner refers to the person / entity that has the commercial "benefit" of the shares, typically rights to the capital and dividends. Most commonly, this will be a person or a fund.
Next, you have Fund Managers – the person / entity that makes the investment decisions over the shares i.e. what to buy and sell.
It is important for an issuer to understand the distinction between these audiences when thinking about its ‘Major shareholders’. A key element to this is who controls the voting rights – the legal owner, the beneficial owner, or the fund manager? Again, not a simple concept and one we will talk more about below.
How can an issuer identify its major shareholders?
There are 2 main ways:
- Proactive disclosure from shareholders submitted to an issuer (TR-1 notifications under DTR5 - Disclosure Guidance and Transparency Rules Chapter 5)
- The issuer undertaking an analysis of its share register.
What is a TR-1 and where does the information come from?
TR-1 forms are sent by shareholders to issuers to notify them that their holding has reached, exceeded or fallen below a given threshold. The rules are set out in DTR5. These notifications are only concerned with the voting rights that the shareholder controls.
Who is responsible for filing the TR-1 notifications?
The shareholders – not the issuer! Even if the issuer identifies that a shareholder ought to have disclosed a position via TR-1, it is not the responsibility of the issuer to follow this up with the shareholder (although it may be best practice to do so!). Once the notification has been filed with the issuer, it is then the issuer’s responsibility to make this information public.
What is SRA and how can it be used? Can it differ from TR-1s and why?
SRA (share register analysis) is a more thorough and in-depth look at the beneficial owners and fund managers that own and make the investment decisions for your stock. SRA will dig beneath the legal owner of the shares (the names that appear on the share register) to identify the underlying beneficial owners and fund managers. Issuers will use these reports to help track and engage with their shareholder base.
So, why have SRA if you have the information coming to you from the TR-1 notifications?
The lowest level of disclosure under the DTR5 rules is 3% of the total number of voting rights held. All shareholdings below that threshold are not required to be disclosed under DTR5. In contrast, an SRA can provide analysis of the entire share register.
The information disclosed under DTR5 via the TR-1 forms is purely concerned with the voting rights over the shares whilst SRA is providing information around who has an interest in those shares and provides both beneficial ownership and fund management data. In the UK, this information is sourced under Section 793 UK Companies Act 2006.
It is also worth mentioning that we do see instances of shareholders that do not submit TR-1 forms even though the onus is on them to do so. They may also submit the TR1 form a few months late. This means that if an issuer solely relies on this source of information, it can often lead to an inaccurate picture of who the shareholders actually are.
Can the information provided via the TR-1 form and the information included in an SRA differ?
YES!
There are often ‘discrepancies’ between what the issuer is informed of via the TR-1 form and the information they receive via the SRA report from their chosen provider. This is nearly always down to the issue who controls voting rights vs who is making the investment decisions regarding the shares in question. An example of this is the best way to demonstrate.
The Government of Norway are a significant investor into UK equities. It will sometimes make the investment decisions over its shareholdings in-house, but will also use external fund managers in some situations.
When the fund uses an external manager, the investment discretion sits with this manager, who then decides the stocks to buy and sell. However, in these scenarios, the Government of Norway invariably retains the voting rights.
The result of this situation is that the Government of Norway will disclose for all of the voting rights it has in an issuer via the TR-1 form, even if they do not make the investment decisions over the shareholding.
This often causes confusion if compared with SRA. In SRA reports, shares will be represented under the external fund manager(s), wherein the TR-1, the shares will all be disclosed by the Government of Norway.
In the below scenario, the issuer would receive a TR-1 notification from the Government of Norway stating they had a holding of 5%. If the issuer compares that to their SRA report, this 5% would be split under Schroder Investment Management and Columbia Threadneedle Investments.
| Beneficial Owner | Discretionary Fund Manager | Voting rights controlled by | Shareholding in XYZ PLC (%) |
| Government of Norway | Schroder Investment Management | Government of Norway | 2.50% |
| Government of Norway | Columbia Threadneedle Investments | Government of Norway | 2.50% |
| 5.00% |
Are there any other common queries you receive around the information disclosed via the TR-1 form and SRA reports?
Yes! The biggest one is the misconception that every shareholder that holds over 3% of the total number of voting rights is required to disclose this via TR-1.
There are a couple of exemptions under DTR5, one of which is fund managers that have control of voting rights attached to ‘shares forming part of property belonging to another (i.e. a fund manager that has been appointed by a fund to manage the holding on their behalf).
For example, let’s say a fund manager has been appointed to manage 3 separate funds (and has control of the voting rights for all 3).
If all three of these funds hold 1% of XYZ plc that would bring the total of voting rights controlled by that fund manager to 3%.
However, this would not be disclosed under DTR5 as the fund manager is exempt under the above rule (DTR 5.1.5) – the fund manager would only have to disclose once they cross 5% / 10% and every 1% thereafter.
This example also demonstrates the importance of a thorough SRA – we can see from the above how shareholders can build significant positions that are not disclosed to the issuer until they reach the 5% level of disclosure.
Annual Reporting on major shareholders – to use TR1 information, SRA information or both?
The UK Listing Rules, 6.6.6 specifically, require the issuer to include all interests disclosed under DTR5 i.e. the information disclosed via the TR-1.
Given what we have discussed above in terms of the confusion that can arise from exemptions to the disclosure thresholds, and the fact that some shareholders may erroneously not release the correct TR-1 at the right point in time, we would advise that best practice would be to include two tables within the Annual Report.
One to disclose the information as per the UK Listing Rules and a second to disclose major shareholders as per the share register analysis. This will provide a good level of visibility over the shareholders that control the voting rights and those shareholders who have significant investment discretion.
Contributors: Daren Norman, Head of Small & Mid Cap, Investor Analytics; Madeleine Cordes, Client Director; Karen O’Donnell, Governance & ESG Knowledge Manager