Market Transparency in Italy: Has the Time for Disclosure of Cash-Settled Equity Derivatives Finally Come?
On May 6, 2011, the regulator of the Italian financial markets, Consob, requested public comments on amendments to the current disclosure requirements for stock ownership in Italian listed companies.
Under the current regulatory regime, disclosure is required when certain thresholds are exceeded for ownership of voting shares and physically settled equity derivatives of Italian listed companies. Consob is proposing to widen the scope of the current regime so as to include cash-settled equity derivatives, following in the footsteps of other European countries such as the United Kingdom, France, and Switzerland. Pursuant to the proposed amendments, the following three types of holdings would be relevant for disclosure purposes:
1. Listed voting shares (actual shareholdings);
2. Financial instruments that entitle the holder to acquire (and, under certain circumstances, to sell), through physical delivery and on his/her own initiative, the underlying listed shares (physically settled equity derivatives); and
3. The financial instruments described in 2 above that are to be settled in cash as well as any other financial instrument or agreement associated with an economic interest in the appreciation of the underlying shares (cash-settled equity derivatives).
The proposed amendments also prompted Consob to revisit the disclosure thresholds as well as to decide whether and how the three categories of relevant holdings described above should be aggregated for the purpose of determining whether a disclosure threshold is exceeded. Consob has proposed three alternative scenarios to market participants, which are briefly summarized below.
First Proposal
The first proposal is for a disclosure system based on a so-called "three separate basket approach." The first two baskets would include, respectively, voting shares and physically settled equity derivatives (much like under the current regime). The third basket would be for cash-settled equity derivatives that establish a long position in the underlying listed shares
Basket
| Relevant Thresholds
| Differences with Current Regime
|
Shares
| 2%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 66.6%, 75%, 90%, and 95%
| No change
|
Physically Settled Derivatives
| 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%
| 2% threshold would no longer apply.
|
Cash-Settled Derivatives
| 10%, 15%, 20%, 25%, 30%, 50%, and 75%
| New basket
|
Second Proposal
The second proposal deviates from the first proposal with respect to the disclosure required by the third basket. In particular, the third basket would not be limited to cash-settled equity derivatives but it would rather encompass all three types of an investor's holdings (i.e., voting shares, physically settled equity derivatives and cash-settled equity derivatives), thereby disclosing the investor's aggregate economic interest in the listed company in determining whether an applicable threshold was triggered. Under this proposal, however, only physically settled equity derivatives that establish a long position in the underlying shares would be relevant for disclosure purposes.
Basket
| Relevant Thresholds
| Differences with Current Regime
|
Shares
| 2%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 66.6%, 75%, 90%, and 95%
| No change
|
Physically Settled Derivatives
| 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%
| 2% threshold would no longer apply.
|
Aggregate Economic Interest (shares plus physically settled equity derivatives plus cash-settled equity derivatives)
| 10%, 20%, 30%, and 50%
| New basket
|
Third Proposal
The third proposal is based on a so-called "two basket approach." The first basket would include voting shares and the second basket would aggregate physically settled equity derivatives and cash-settled equity derivatives.
Basket
| Relevant Thresholds
| Differences with Current Regime
|
Shares
| 2%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 66.6%, 75%, 90%, and 95%
| No change
|
Derivatives (both physically settled and cash settled)
| 5%, 10%, 15%, 20%, 25%, 30%, 50%, and 75%
| The second basket would no longer be limited to physically settled equity derivatives but would also include cash-settled equity derivatives. 2% threshold would no longer apply.
|
Consob, through its public consultation procedure, welcomes comments to the proposed amendments by any interested party. These comments must be received by Consob on or before June 6, 2011 (for more information, see www.consob.it). Anyone interested in discussing the implications of the proposed amendments more thoroughly or any comments that may be conveyed to Consob, please contact any of the individuals listed below.
Lawyer Contacts
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.
Stefano Crosio, Partner
Milan
+39.02.7645.4001
Luca Ferrari, Senior Associate
Milan
+39.02.7645.4001
Cesare Silvani, Junior Associate
Milan
+39.02.7645.4001
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