Q&A
Disclosure of derivative interests in UK listed shares is required subject to the interest reaching the relevant 1%, 3% or 5% threshold, as applicable even though the holder of the derivative does not control the voting rights.
Disclosure of derivative interests in UK listed shares is required under the FCA’s DTR 5 (Vote Holder and Issuer Notification Rules)
DTR 5.3.1R(1) provides that a holder of a derivative interest is treated the same way as person who holds the shares and controls the voting rights.
Specifically, DTR 5.3.1R(1)(b) provides that a purely cash settled derivative is treated the same way as a derivative where the holder has the right or discretion to physically settle) as provided in DTR 5.3.1R(1)(a).
The answer is counter-intuitive because the investor has a pure economic interest and the counter-party (normally the prime broker at a bank) holds the shares and has the right to control the voting rights.
This rule was amended to follow the approach that the Takeover Code takes towards disclosure of derivative interests in UK listed shares because the FCA (like the Takeover Panel) takes the view that even if the contract does not provide the investor with the option to do so, the counterparty (which is likely to have hedged the derivative by acquiring the underlying shares) is likely to acquiesce to a request to physically settle in which event it will end up controlling the voting rights.
For more information on disclosing interests in UK listed shares, see my post here.
Enhanced rules for disclosure of an interest in UK listed shares apply if the listed company is in an offer period for the purposes of the Takeover Code.
Under Rule 8 of the Code, when the target company is in an offer period, the threshold for disclosure of dealings is 1% for shareholders and dealings below this threshold must be made by an identified potential bidder.
When the target company is in an offer period, the threshold for disclosure of dealings is 1% for shareholders and dealings below this threshold must be made by an identified potential bidder.
Dealing disclosures must be made in the securities of the target and the bidder (unless the bidder has announced that the offer will be in cash only).
