Essential Corporate News – Week ending July 8, 2016

Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

On July 5, 2016 the City of London Law Society (CLLS) and Law Society Company Law Committees' Joint Working Parties on Market Abuse, Share Plans and Takeovers Code published a Q&A on the Market Abuse Regulation (MAR).

The Q&A sets out a suggested approach to implementing certain aspects of MAR, and provides answers to questions including the following:

PDMR Dealings (Article 19)

• What is the interaction between the MAR closed periods for PDMR dealings in Article 19(11) and the insider dealing offence in MAR Articles 8 and 14?
• Does the FCA’s position on closed periods and preliminary announcements in its statement of 25 May 2016 apply to all issuers, wherever their securities are traded?
• Is the meaning of "transaction" the same for the purposes of Article 19(11) as it is for the purposes of the disclosure requirement in Article 19(1)?
• How do the MAR closed periods affect conditional transactions?
• Is an issuer subject to the MAR closed period?
• What exchange rate should be used for calculating the EUR 5,000 threshold in EU MAR Article 19(8)?
• Can a PDMR acquire shares under a share savings scheme or a dividend reinvestment plan during a MAR closed period?
• Can a PDMR acquire or dispose of shares under a trading plan during a MAR closed period?
• Is the cancellation or surrender of an option (or other right to acquire shares) awarded to a PDMR under an employee share scheme permitted during a MAR closed period?
• I am one of three trustees whose investments include securities of a company of which I am a PDMR. Can the trust deal during a MAR closed period?

Share BuyBacks (Article 5)

• Can an issuer operate a share buy-back programme which does not satisfy the conditions in Article 5 of EU MAR and the Level 2 Regulation?
• Is stake-building permitted (by Article 9(5)) provided the only inside information the bidder has is (i) its intention to bid and (ii) its intention to stake-build?

Disclosure (Article 17)

• What must an issuer do to comply with the Implementing Technical Standards (ITS) for public disclosure of inside information?
• In an announcement containing inside information who should be identified as the person making the notification?
• How may an issuer comply with the requirement for inside information to be located “in an easily identifiable section of the [issuer’s] website”?
• How should an issuer notify inside information when an RIS is not open for business?

Insider Lists (Article 18)

• Which individuals should be included on insider lists for advisers to issuers?
• How do issuers and their advisers complete the national identification number column in the Insider List templates in respect of British and other nationals who do not have national identification numbers?

Investment Recommendations (Article 20)

• If a circular contains a voting recommendation by the board of an issuer, as required by the Listing Rules, does this constitute an “investment recommendation” for the purposes of Article 20 of EU MAR?
• Will the directors’ recommendation of a takeover offer be treated as “an investment recommendation or other information recommending or suggesting an investment strategy” under Article 20?

The Joint Working Parties note that the Q&A is an explanation of how, in their view, MAR should apply to certain practical situations, but is subject to review and amendment in the light of practice on the implementation of MAR and to any relevant future UK or EU guidance published in relation to MAR.

(CLLS, Market Abuse Regulation (EU MAR) Q&A, 05.07.16)

On July 4, 2016 the Investment Association (IA) published an updated version of its share capital management guidelines, previously published in July 2014.

Section 1 (Directors' Power to Allot Shares) has been updated to state that IA members support the Pre-emption Group’s template resolutions for the disapplication of pre-emption rights. These resolutions relate to the disapplication of pre-emption rights over five per cent of the issued share capital to be used on an unrestricted basis and a second resolution, to be put forward by companies when appropriate, requests the disapplication of pre-emption rights for an additional five per cent in cases when the board considers the use to be for the purposes of an acquisition or specified capital investment in accordance with the Statement of Principles. IA members have requested the Institutional Voting Information Service to amber top any company seeking such a disapplication of pre-emption rights which does not provide two separate resolutions as set out in the template from August 1, 2016, and to red top any such company from January 1, 2017.

(The Investment Association, Share Capital Management Guidelines, 04.07.16)

On July 4, 2016 the Investment Association (IA) published a notice stating that the implementation of the Market Abuse Regulation (MAR) will have an effect on the guidance in its Principles of Remuneration (the Principles) regarding the timing of share awards. Accordingly, given the change in definition of closed periods in MAR and the ongoing uncertainty regarding the long term implementation of this provision, the IA has amended Section C.2 (viii) of the Principles to state that the rules of a long-term incentive scheme should provide that share or option awards should normally be granted within a 42 day period immediately following the end of the closed period under MAR.

The IA also notes that, as previously announced, it will review the Principles following the Executive Remuneration Working Group’s final report, which is due to be published by the end of July 2016 and will incorporate its annual review into this process.

(Investment Association, Principles of Remuneration, 05.07.16)

On July 4, 2016, the Financial Conduct Authority (FCA) published its thirteenth quarterly consultation paper, which, among other things, proposes changes to the Handbook Glossary and the requirements in the Disclosure Guidance and Transparency Rules (DTRs).

Specifically, these proposals entail:

• Changing the definition of a prescribed market in the Handbook Glossary for the purposes of DTR 5 following the repeal of the Prescribed Markets and Qualifying Investments Order on July 3, 2016. The new definition will comprise all markets which are established under the rules of a UK Recognised Investment Exchange. The FCA does not consider that the proposed change to the definition will alter its scope in any way for the purposes of DTR 5, but will instead update it by deleting reference to the Prescribed Markets and Qualifying Investments Order and creating a standalone DTR definition.
• Inserting a new rule, DTR 7.2.8A, to implement the requirement in the EU Non-Financial Reporting Directive for issuers to disclose their diversity policy in their corporate governance statement. The new rule would not apply to an issuer which qualifies as a small or medium company under DTR 1B.1.7R, or to a listed company which is required (by certain Listing Rules) to comply with DTR 7.2 as if it were an issuer and would meet the criteria in DTR 1B.1.7R if it were a company incorporated in the UK. The new DTR 7.2.8AR reporting requirement will apply to all other issuers to which DTR 7.2 applies that do not fall within the exemption. The FCA proposes that the new DTR should apply for financial years beginning on or after January 1, 2017.

The FCA has requested comments on the proposals by September 1, 2016.

(FCA, Quarterly Consultation No. 13, 04.07.16)

On July 5, 2016 the Association for Financial Markets in Europe (AFME) published guidance on research meetings and material prior to the award of a capital markets mandate.

The guidance covers:

• Meetings between research analysts and companies (including their owners, managers and IPO advisers) during a solicitation period: AFME states that, in relation to the the content of meetings, topics of discussion that are consistent with conversations research analysts would typically have with buy-side clients about their sector, or help provide background to frame their due diligence discussion should be viewed as appropriate communications during the pre-mandate period or solicitation period. It also lists topics of discussion that carry an elevated risk that they could be viewed in hindsight as inappropriate. AFME states that investment banking and research staff should not attend the same meeting with the company and its advisers during the solicitation period and that attendance by analysts at meetings with advisers or other representatives at which neither company management nor significant shareholders are present is discouraged.
• Responses to common request for proposal (RFP) questions: AFME notes that RFP responses should not commit to a specific research analyst for a transaction unless such research analyst has been assigned by research management, that biographical information of research analysts should be limited to basic information, and that responses should not commit to specific activities/process for research analysts beyond a general intention to produce pre-deal research or pre-deal investor education. Further, any exclusivity or conflict of interest clauses requested from firms in the RFP should not bind research and firms should not respond to requests for an estimation/indication of research analysts’ views, including expected valuation ranges.

(AFME, Practices and Principles with Respect to Research Meetings/Material Prior to the Award of a Capital Markets Mandate, 05.07.16)

On July 5, 2016 the European Commission published a proposal for a directive to amend the Fourth Money Laundering Directive (Directive 2015/849/EU) and the First Company Law Directive (Directive 2009/101/EC).

Proposed provisions include:

• Amending the definition of beneficial ownership in Article 3(6) to provide that for the purposes of Article 30 of the Fourth Money Laundering Directive, the indication of ownership or control is reduced to 10 per cent whenever the legal entity is a Passive Non-Financial Entity (as defined in the Directive 2011/16/EU) on administrative cooperation in the field of taxation.
• Member states must ensure that information relating to the beneficial ownership of corporate and other legal entities (other than those which are not profit-making) is publicly available.
• Member states must also ensure that information relating to the beneficial ownership of certain business-related trusts and other types of legal arrangements having a similar structure or function is also publicly available.
• The information to be made publicly available includes the name, the month and year of birth, the nationality and country of residence of the beneficial owner, as well as the nature and extent of the beneficial interest held.
• The information must be publicly available for 10 years after the company has been struck off the register.
• The transposition date of the Fourth Money Laundering Directive is brought forward to January 1, 2017 (from June 26, 2017).

The European Commission proposes that member states must implement the Directive by January 1, 2017.

(European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC, 05.07.16)

On July 4, 2016 the European Securities and Markets Authority (ESMA) published a peer review on the prospectus approval process with the objectives of assessing the effectiveness of the application of the prospectus regime, the efficiency of the approval process and the proportionality of the resource allocation to prospectus scrutiny, and of assessing the nature and consistency of prospectus approval processes employed by national competent authorities (NCAs), both internally and on a cross-NCA basis.

The main findings of the review are:

• Market structure and organisational set-up: ESMA concludes that NCAs’ organisational set-up and supervisory methods largely depend on market structure, the size and volatility of the prospectus numbers, on whether or not the transaction in question is related to the national market and on the level of retail involvement.
• Risk-based approach and approval process: Many NCAs apply risk based approaches to prospectus approval, both in terms of involvement of staff and as regards consultation of other departments or regulators. Almost all NCAs have an escalation process in place which is in line with ESMA’s approach to the four eyes principle. The review also identified divergent approaches by NCAs in the way that comments on draft prospectuses are provided to issuers and as regards the decision making process, i.e. the approval of the prospectus.
• Timing of the approval process: The peer review had a particular focus on approval times, from the submission of the first draft to the final approval. The responses received showed a broad and diverse range of approval times, across all types of prospectuses, with a number of outliers on both ends of the scale. However, the on-site visits and analysis of randomly selected prospectuses showed that, rather than NCAs delaying the process, factors which have a direct effect on the approval time appear to largely fall outside NCAs’ responsibilities and include the issuer's response time, the quality of their responses and the complexity of the issuer’s circumstances, including issues concerning the financial information.
• Issues encountered in the approval process: In terms of the content of prospectuses, the issue of their comprehensibility, particularly as regards base prospectuses, was a recurring concern. It was also found that NCAs interpret a number of legislative provisions differently. This was particularly the case as regards interpretation of what constitutes a profit forecast, how dilution is presented and consistency of approach as regards the capitalisation and indebtedness table.

The review sets out a number of recommendations for enhancing supervisory convergence and those include the identification of legislative clarifications as well as other areas for consideration.

(ESMA, Peer Review on Prospectus Approval Process, 04.07.16)

On July 7, 2016 the Government Equalities Office announced a new review on improving female representation in leadership positions of British business, broadening the ambition to the entire FTSE 350 and raising the target to 33 per cent of women on boards by 2020. The review will focus on ensuring the very best of female talent make their way up the pipeline by removing barriers to their success, and continue to drive forward the momentum from Lord Davies’s work as chair of the Women on Boards Review - which pushed the numbers of females on FTSE 100 boards up from 12.5 per cent to 26 per cent.

The review will consider current research on how to drive improvements and the obstacles preventing women’s progress, and findings are expected to be presented to the Government by the end of 2016. Further appointments have also been made to the Women’s Business Council.

(Government Equalities Office, Press release: Rallying call for female boost in business and the boardroom, 07.07.16)