Banking, Finance & CM

Austria: New Disclosure Requirements for Shareholdings in Listed Companies – Five Things Investors Should Know

The Austrian Stock Exchange Act (Börsegesetz; BoerseG) has recently been amended to significantly extend disclosure obligations for shareholdings in listed companies. The main objective is to capture arrangements, in particular derivatives, which previously escaped major shareholding disclosure rules, even though they could – and were – used for stake building purposes in Austrian listed companies. The changes are effective from 1 January 2013 and are expected to create challenges for investors, fund managers, credit institutions and securities firms.

Former legal framework to the amendment, any person/entity was obliged to report transactions to the Austrian Financial Market Authority (Finanzmarktaufsicht; FMA), the Vienna Stock Exchange (Wiener Börse; VSE) and the issuer, as a result of which the person/entity reached, exceeded or fell below certain percentages of total voting rights in such issuer. Percentages ranged from 5% to 90%, with the first statutory reporting threshold being set at 5%.

First statutory reporting threshold lowered to 4%; issuers can adopt 3% threshold in articles

From 1 January 2013 onwards, the first statutory reporting threshold will now be lowered to 4% from the previous 5%. In addition, issuers are free to set the reporting threshold even further down to 3% in their articles of association. This may in particular be useful for companies with significant free float. The previous thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75% and 90% remain unaffected.

Significant extension of instruments covered and aggregation rules

A key purpose of the amendment is to extend the scope of instruments that are subject to reporting requirements. Particular emphasis is made to catch any derivative instruments that were to date not subject to reporting/aggregation rules and, therefore, used for stake building purposes (eg, convertible bonds), which will now be treated as if the conversion right had already been exercised. In addition, any cash settled instrument that enables its owner to participate economically in changes relating to the issuer’s share price will now be subject to reporting requirements. While there is no exhaustive list of instruments covered, the notification obligation will now extend to cash-settled options (whether put or call, European or American style), certain (equity) basked and index instruments (eg, swaps) as well as futures or contracts for difference that were previously not subject to disclosure rules.

Instruments covered will include the full range of MiFID financial instruments and comparable instruments and agreements, such as transferable securities, money market instruments, options, futures, forward rate agreements, swaps and financial or commodity derivatives. Any holder of such instruments will essentially be under a reporting obligation akin to a shareholder if relevant thresholds are reached, exceeded or fallen below if such position:

  1. provides a right to acquire shares with voting rights already issued (at the holder’s initiative and under a legally binding agreement); or
  2. provides a right to conclude an agreement to acquire shares with voting rights already issued; or
  3. partially or entirely relates to shares or a basket/index in which the issuer’s shares account for more than 20% of the basket’s/index’s aggregate value and if it:
    • grants its holder the right (a) to demand, in whole or in part, the difference between the base price and the settlement price or (b) to conclude an agreement to this effect; or
    • enables its holder to participate economically in any changes relating to the issuer’s share price,

    in each case irrespective of whether the instrument is physically or cash settled; and

  4. under a legally binding agreement, provides a right to acquire shares in an entity the principal purpose of which is to hold shares with voting rights in an issuer, but only if the holder would attain a reportable controlling interest in such entity.

For the purpose of determining voting rights, all financial instruments relating to shares of the same issuer must be aggregated.

Sanctions: Fines of up to EUR 150,000 and temporary suspension of voting rights

While non-compliance with major shareholder reporting obligations previously triggered a fine of up to EUR 30,000 only, sanctions will now become increasingly stringent: Not only will fines be drastically increased to up to EUR 150,000, but voting rights may now be temporarily suspended. This means that the difference between newly acquired but not duly notified voting rights and last reported voting rights can be exercised only after (i) mandatory disclosure has been made and (ii) a period of 6 months has lapsed.

Reporting of existing holdings by 1 March 2013

Any person holding voting rights that reach or exceed any of the reporting thresholds – such as the new statutory 4% threshold or a 3% threshold if such has been adopted by the respective issuer in its articles of association – is required to notify this to the FMA, the VSE and the issuer by 1 March 2013. Such obligation does not apply if a corresponding notification had been made before the new rules entered into force.

In order to avoid suspension of voting rights and rather significant fines, investors are well advised to monitor not only their existing positions more thoroughly but also to examine any new products carefully to determine what reporting obligations, if any, may apply.