Publicly listed companies in the European Union (EU) will no longer be required to undertake quarterly reporting, according to a revision of the EU Transparency Directive agreed upon by the European Parliament in part to prevent short-termism among investors.
Revisions to the directive also seek to prevent investors from secretly building up stakes in companies by using financial instruments equivalent to shares, and would require companies in the extractive industries to report payments made to governments on a country-by-country basis.
‘With this agreement, listed companies, including small and medium-sized issuers, will no longer be obliged to publish quarterly financial information, which will contribute to less administrative burden and should help to discourage short-termism in financial markets,’ says EU commissioner Michel Barnier in a press release.
While many listed companies may continue to report quarterly to meet established market expectations, the agreed revision, besides targeting short-term investment, is designed to offset the high compliance costs of increased reporting expectations in other areas, particularly for small and medium-sized listed companies.
Barnier says other provisions of the agreement ‘will prevent investors from secretly building up a controlling stake in a listed company (hidden ownership). Investors will now need to [disclose] all financial instruments that have the same economic effect as holdings of shares.’
The requirement, which still faces a final vote on June 12, could affect, for example, the use of contracts for difference, a popular mechanism that allows investors to profit from share price movements without actually owning the shares.
Currently, the EU Transparency Directive requires investors to disclose the accumulation of shares in a certain company when they reach certain thresholds, such as 3 percent ownership of the entire firm. The existing directive, however, does not require disclosure of accumulation of other instruments that could potentially be converted into shares, allowing investors to build up large interests unnoticed.
The agreement reached last week also seeks to impose greater controls on oil & gas, mining, forestry and other extractive businesses by requiring them to disclose on a country-by-country basis the taxes, royalties, license fees and other payments they make to governments.
‘These new rules will encourage European companies to be more open about what they are paying to governments around the world,’ notes Michael Noonan, the finance minister of Ireland, which currently holds the EU presidency, in a statement. ‘I believe more transparent and more socially responsible companies will be better able to contribute to job creation and economic growth in Europe. Stability, jobs and growth are the key objectives of the Irish presidency.’
