Securities Market Stakeholders Group answers ESMA call for evidence on revised SRD II

SMSG finds approach to proxy and meeting-related processes still wanting.

By Richard Schwartz

The Securities Market Stakeholders Group (SMSG) has described the shareholder identification process in the revised SRD ll as not significantly improved, given that the term ‘shareholder’ continues to be defined by applicable national corporate law rather than being harmonised.

In its response to ESMA’s call for evidence, the SMSG also argues that the option provided by SRD II to limit the scope of shareholder identification to holdings exceeding a given threshold should be repealed.

The Group considers the transmission of information along the transaction chain remains not fully satisfactory and may have had an impact on the flow of information between issuers and investors around a general meeting.

It notes that costs and charges for general meeting-related services continue to be a deterrent, especially for individual shareholders. “While at national level, participating in and voting at general meetings is generally free of charge, it may become very costly when the same rights are to be exercised abroad,” it suggests, urging ESMA to undertake an in-depth analysis on general meeting-related costs and charges invoked by intermediaries which should be made transparent for investors in advance.

Whilst proxy advisors are not subject to mandatory regulation beyond the requirements laid down in Article 3j of SRD II, the Best Practice Principles (BPP) were formed to establish voluntary best practice principles. The SMSG considers that the latter’s impact on service quality, conflicts of interest and communication with issuers remains unsatisfactory.

The SMSG says that SRD II did not achieve more transparency when it comes to proxy advisors, or at least only marginally. When reviewing the Directive, the SMSG would therefore favour a reinforced voluntary approach, based on the “comply or explain” principle.

In a call for evidence in October, ESMA set out to gather information on how market participants perceive the scope and effectiveness of the SRD2 provisions on the identification of shareholders, transmission of information and facilitation of the exercise of shareholder rights, as well as on transparency of proxy advisors. The deadline for submissions was 28 November.