New Securities Law for
Investment Advisers and Market Participants
2008
Substantial Security Holders
Introduction
The aim of substantial security holder disclosure is to promote an informed market and deter insider conduct, market manipulation, and secret dealing in potential takeover bids.
Disclosure by substantial security holders of changes to their holdings helps achieve this by ensuring that all market participants have information about trading by persons who control or influence significant voting rights in a public issuer.
Summary of Changes
Changes to the Securities Markets Act coming into force on 29 February
2008 include a re-write of this law.While the basic features of the law remain
the same, there have been some important changes. These include:
- a person becomes a substantial security holder by having a relevant interest in 5% of the listed securities in any class (rather than 5% of the total number of voting securities of an issuer); and
- disclosure applies to listed voting securities only, not to unlisted securities; but
- the Securities Commission can require any person to disclose the nature and extent of any relevant interests in securities of a public issuer, including in unlisted and non-voting securities.
Under the new law, non-disclosure of substantial security holdings is a criminal offence.
Who is a Substantial Security Holder?
A substantial security holder is a person who has a relevant interest in 5% of a class of listed voting securities of a public issuer.
A person has a relevant interest in a security if that person:
- is the registered holder of the security; or
- is a beneficial owner of the security; or
- has the power to exercise, or to control the exercise of, a right to vote attached to the security; or
- has the power to acquire or dispose of, or to control the acquisition or disposition of the security.
Under this law it does not matter how a person came to have power or control over securities or voting, or whether the power is expressly stated or implied, direct or indirect, or whether it is legally enforceable.
If two (or more) people jointly have a power or control over securities or voting, then each of them is taken to have that power or control individually for the purposes of this law.
However, the fact that a person has a power to cast one of many votes does not give that person a joint power under this law. This means that each shareholder in a company is not taken to have the combined power of all the votes of the company just because all shareholders together could control the voting of the company's shares.
A person is taken to have a power or control also if that person may have the power or control at some time in the future because of some trust, arrangement, or understanding.
Some people are deemed to have relevant interests that are held by certain others,
such as related companies, people who are accustomed to act under instructions,
or people who have some arrangement or agreement to act in concert.
Some situations do not give rise to a relevant interest for the purposes of
substantial security holder law. These are:
- securities held by banks and financial service providers as security for loans;
- securities held by sharebrokers in the course of ordinary trading activity on a registered exchange;
- voting powers held by someone who has been authorised by the directors of a company to act as their representative at a meeting of the public issuer (so long as the resolution authorising this is given to the public issuer in advance);
- voting powers held by someone who is appointed as a proxy by other shareholders to vote at a meeting of the public issuer (if the document appointing the person as proxy is given to the public issuer in advance of the meeting);
- securities held by a bare trustee;
- any power directors of a company may have individually over securities held by that company (i.e. if a company owns some shares in a public issuer, each director of the company that owns the shares is not taken to have a relevant interest in those shares merely by reason of his or her position as a director);
- pre-emptive rights on transfer of securities held by members of a body corporate under the constitution.
Disclosure of Substantial Security Holdings
Four events require disclosure:
- becoming a substantial security holder;
- a movement of 1% or more in a substantial security holding;
- a change in the nature of any relevant interest held by a substantial security holder (e.g., the exercise of options over listed voting securities);
- ceasing to be a substantial security holder.
Disclosure of each of these events must be given as soon as the person knows,
or ought to know, that the event has arisen.
Disclosure of substantial security holdings must be made to:
- the public issuer concerned; and
- any registered exchange on which the securities of the public issuer are listed.
The forms used for substantial security holder disclosure have been redesigned to simplify disclosure and to promote electronic disclosure of holdings.
Registered exchanges can set forms and also the methods of delivery, subject to approval by theMinister of Commerce. If a registered exchange sets forms and specifies the method of delivery, then these must be used unless doing this would delay the disclosure.
The law sets out default forms to be used if a registered exchange does not set its own forms.
Default forms are available for disclosure when:
- a person first becomes a substantial security holder;
- a substantial security holding changes by 1% or more or the nature of a holding changes; and
- a person ceases to be a substantial security holder.
The default forms can be found in the SecuritiesMarkets (Substantial Security
Holders) Regulations 2007.
If the default forms are being used, disclosure to the registered exchange must
be made, if this is reasonably possible, in the electronic format required by the
registered exchange. If it is not reasonably possible to use that format, then
disclosure must be made:
- by email in some other format; or
- by another electronic method; or
- by fax.
If none of these options is reasonably possible, then disclosure can be made by physical delivery. Disclosure cannot be made by post.
Disclosure to the public issuer can be made using either the registered
exchange's form or the default form for the type of disclosure. Disclosure to
the public issuer must be made by email or some other electronic method, fax,
or delivery. Disclosure cannot be made by post.
Enforcement
Failure to comply with substantial security holder obligations is a criminal offence, subject to a fine of up to $30,000.
Civil penalties of up to $1 million can be imposed by the court on the application of the Commission. The court can also make a range of orders relating to any holding of securities, including orders to forfeit or dispose of securities.
The Commission has administrative powers to prohibit or require correction of substantial security holder notices.
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