Chapter 8. Disclosure of major shareholdings
This chapter presents the results of the review in the area of disclosure of major shareholdings. It takes stock of the criteria and mechanisms that may motivate and allow flexibility and proportionality in the implementation of rules and regulations relating to the area across the 39 jurisdictions that responded the survey used for the review. It also includes a case study of the Japanese corporate governance framework in the area submitted by Akito Konagaya.
Introduction
Regulations of disclosure of major shareholdings; background and context
As stated in the G20/OECD Principles, one of the basic rights of investors is to be informed about the ownership structure of listed companies. To ensure that this information is provided to investors, many jurisdictions have established two pillars of regulations regarding disclosure of major shareholdings.
The first pillar of regulation requires companies to disclose their major shareholders. Definition of major shareholders differs across jurisdictions. Some jurisdictions set thresholds1 of holding ratio above which shareholders are regarded as major shareholders. Other jurisdictions define major shareholders as, for example, top 10 shareholders2.
The second pillar of regulation requires shareholders to disclose their shareholdings. Disclosure requirements for shareholders are usually linked to certain thresholds. For example, the EU's Transparency Directive (2004/109/EC) sets the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% (Box 8.1.). EU member states require shareholders to notify the issuer of their proportion of voting rights where that proportion reaches, exceeds or falls below the thresholds set in accordance with the Transparency Directive. On the other hand, some jurisdictions such as Japan and the US set the sole threshold3 above which shareholders are obliged to file a report, and also require them to file an amendment when there is a material change4 to their holding ratio.
There are a couple of rationales for the mandatory disclosure regulation of major shareholdings. First of all, acquisition of large blocks of shares conveys information about the issuer, and the sooner the public is informed about the information, the more accurate the share prices are and the more liquid the market is.
The second rationale is that large blocks of shares define the free float so that disclosure of major shareholdings will provide shareholders and investors with a better sense of shares’ liquidity.
The third rationale is that large blocks of shares have an impact on corporate governance. It may be an indication that a change of control will take place – for example through a hostile takeover. In addition, large blocks may be a signal that the company is better managed through monitoring on managers. Large blocks can also be an indication of higher expropriation risk – large block holder may use its influence to expropriate minority shareholders.
The view of the G20/OECD Principles
The G20/OECD Principles state that disclosure should include material information on major share ownership including beneficial owners and voting rights.
The G20/OECD Principles further state that “disclosure of ownership data should be provided once certain thresholds of ownership are passed. Such disclosure might include data on major shareholders and others that, directly or indirectly, significantly influence or control or may significantly influence or control the company through, for example, special voting rights, shareholder agreements, the ownership of controlling or large blocks of shares, significant cross shareholding relationships and cross guarantees”.
Notification of the acquisition or disposal of major holdings
1. The home Member State shall ensure that, where a shareholder acquires or disposes of shares of an issuer whose shares are admitted to trading on a regulated market and to which voting rights are attached, such shareholder notifies the issuer of the proportion of voting rights of the issuer held by the shareholder as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5 %, 10 %, 15 %, 20 %, 25 %, 30 %, 50 % and 75 %.
The voting rights shall be calculated on the basis of all the shares to which voting rights are attached even if the exercise thereof is suspended. Moreover this information shall also be given in respect of all the shares which are in the same class and to which voting rights are attached.
2. The home Member States shall ensure that the shareholders notify the issuer of the proportion of voting rights, where that proportion reaches, exceeds or falls below the thresholds provided for in paragraph 1, as a result of events changing the breakdown of voting rights, and on the basis of the information disclosed pursuant to Article 15. Where the issuer is incorporated in a third country, the notification shall be made for equivalent events.
3. The home Member State need not apply:
(a) the 30 % threshold, where it applies a threshold of one-third;
(b) the 75 % threshold, where it applies a threshold of two-thirds.
It should be noted that the G20/OECD Principles point out the importance of information about beneficial ownership particularly for enforcement purposes, stating that “in cases where major shareholdings are held through intermediary structures or arrangements, information about the beneficial owners should therefore be obtainable at least by regulatory and enforcement agencies and/or through the judicial process”.
Flexibility and proportionality with respect to disclosure of major shareholdings
As discussed by the Committee in 2017 as part of a roundtable on flexibility and proportionality of corporate governance framework, the notion of flexibility and proportionality is not an end in itself. And it is by no means a way to weaken the effectiveness of the corporate governance framework. On the contrary, flexibility and proportionality is a necessary prerequisite for creating an effective legal environment that can support the ultimate policy objectives of the G20/OECD Principles, namely to improve investment, economic growth and financial stability.
In order to achieve these policy objectives, jurisdictions have established various flexibility and proportionality mechanisms. One way of doing this is to exempt certain types of companies and/or shareholders from reporting itself – for example, in many jurisdictions non-listed companies and their shareholders are exempt from disclosure regulations of major shareholdings taking into consideration that the liquidity of non-listed companies’ shares is low and there is less need for disclosing ownership of those shares. Also, some jurisdictions set different thresholds or reporting frequency according to the types of issuers and/or shareholders.
Survey results
Out of the 39 jurisdictions included in the survey 30 jurisdictions reported at least one criteria or optional mechanism to allow flexibility and proportionality with respect to disclosure of major shareholdings (Figure 8.1.). From those, 29 use flexibility and proportionality criteria (Figure 8.2.).
Source: OECD Survey.
Source: OECD Survey.
As described in the main chapter of this thematic review, among all the criteria that jurisdictions employ to promote flexibility and proportionality in their corporate governance frameworks, the criterion of listing/publicly trading and the criterion of size are by far the most used when considering all areas of practice. This is also the case in the area of disclosure of major shareholdings. Figures 8.3. presents the use of criteria by jurisdiction.
Source: OECD Survey.
The use of listing/publicly traded as criterion for flexibility and proportionality
Listing/publicly traded is used as criterion for flexibility and proportionality in the regulatory area of disclosure of major shareholdings by 24 jurisdictions (Figure 8.4.).
Although the dimensions of listing/publicly traded criterion differ across jurisdictions (listing venue, listing level and trading in ATPs are used in nine, seven and five jurisdictions respectively), most jurisdictions report that they use listing/publicly traded as a flexibility and proportionality criterion in the sense that non-listed companies are not subject to disclosure regulations of major shareholdings. The exception is Germany5 and Switzerland,6 where shareholders are subject to disclosure regulations when their shareholdings of non-listed companies’ shares exceed certain thresholds.
Nine jurisdictions discriminate between listing venue. For example, in Belgium, the notification thresholds for shareholders are set at 25%, 30%, 50%, 75% and 95% – instead of 5% and all multiples of 5% – when issuers are listed on the MTF Euronext Growth Brussels. In Saudi Arabia, companies listed on Nomu-Parallel Market7 are exempt from major shareholding disclosure requirements.
Seven jurisdictions discriminate between listing level. For example, in Malaysia, a corporation listed on the Main Market and ACE Market is required to provide the details of its major shareholders in the annual report,8 whereas a listed corporation on the LEAP Market is not required to provide such information.
Source: OECD Survey.
Debt only listing is used as a dimension of listing/publicly traded criterion only in Singapore, where companies that list only debt instruments do not need to comply with major shareholding disclosure requirements imposed by the Stock Exchange. Cross listing is not mentioned as a dimension of listing/publicly traded criterion in the area of disclosure of major shareholdings.
The use of size as criterion for flexibility and proportionality
As shown in Figure 8.5., size also appears to be an important criterion used in disclosure of major shareholdings. Nine jurisdictions report using it in different dimensions.
The most common dimension is size of revenues, used in Italy, the Netherlands, Slovenia, South Africa and Spain. Beyond the seven dimensions of size listed in the survey, Czech Republic uses size of registered capital and the United States uses number of holders of securities.
Some jurisdictions differentiate the initial threshold which triggers disclosure of major shareholdings according to the size of companies. For example, in Czech Republic, the minimum threshold of 1% or 3% applies to listed joint stock companies whose registered capital exceeds CZK 500 million or CZK 100 million, respectively, while the minimum threshold of 5% applies to other listed joint stock companies. In Italy, the initial threshold is 5% when the issuer is an SME, while the general rule requires disclosure of major shareholdings when the holding ratio is higher than 3%.
Source: OECD Survey.
Source: OECD Survey.
The use of legal form as criteria for flexibility and proportionality
Five jurisdictions (Australia, Germany, Mexico, Singapore and the US) use the criterion of legal form to introduce flexibility and proportionality in this area of regulation. For example, in Australia, proprietary companies – companies that do not engage in activities that require disclosure to investors and of which number of non-employee shareholders is no more than 50 – are required to notify the securities regulator of a change to its top 20 shareholders. In Germany, disclosure regulations only apply for stock corporations (both listed and non-listed) but not for private limited liability companies. In Mexico, SAPIBs9 are exempt from providing the information on their major shareholders.
The use of other criteria for flexibility and proportionality
Respondents were also invited to mention any "other" criteria for flexibility and proportionality than those listed in the survey. One important example of such criteria is the category of investors (Italy, Japan,10 Spain and the US). In these jurisdictions, disclosure requirements for certain type of investors such as fund managers are relaxed with respect to the initial threshold, deadline or frequency of disclosure of major shareholdings.
The maturity of firm criterion and the accounting standards criterion are not used in the regulatory area of disclosure of major shareholdings.
The use of opt-in and opt-out mechanisms for regulating disclosure of major shareholdings
Four jurisdictions (Germany, Italy, Lithuania and Spain) use opt-out mechanisms for the regulation of disclosure of major shareholdings. For example, in Italy and Spain, the regulation provides specific opt-out from the disclosure of the initial threshold of 3% if the shareholder is an asset manager, private equity, or venture capital firm/fund. In Germany, a shareholder reaching or exceeding the threshold of 10% has to notify the issuer about the aims underlying the purchase of the voting rights and of the origin of the funds used to purchase the voting rights, however, the articles of association of the issuer may stipulate for an opt-out from this requirement.
Opt-in mechanism is not mentioned in any jurisdiction for the regulation of disclosure of major shareholdings.
Source: OECD Survey.
The use of sectoral criteria for flexibility and proportionality
An analysis of the results per sector activity reveals that flexibility and proportionality criteria for disclosure of major shareholdings are used in 18 jurisdictions (Figure 8.7.). Most jurisdictions that present flexible sectoral regulations report having special regimes for the financial sector.
Case study: Japan
Overview
This case study describes how the disclosure of major shareholdings is regulated in Japan and the different flexibility and proportionality mechanisms that can be used when implementing these regulations. The study is structured in two parts. The first section presents an outline of the different regulations with respect the disclosure of major shareholdings that exist in Japan while the second section introduces the various flexibility and proportionality mechanisms that can be used.
Regulations on the disclosure of major shareholdings
Two types of regulations
Like in many other jurisdictions, Japan has two pillars of regulations regarding disclosure of major shareholdings. The first pillar of regulation requires companies to disclose their major shareholders. For example, under the Companies Act, a public company11 is required to disclose in its business report the names of its top 10 shareholders and the number and percentage of shares held by each of them. Also, under the Financial Instruments and Exchange Act, companies that are obliged to file an annual securities report12 are required to disclose in that report similar information on its top 10 shareholders as required under the Companies Act.
The second pillar of regulation requires shareholders to disclose their shareholdings. This type of regulation is stipulated in the Financial Instruments and Exchange Act and is known as "Large Shareholding Reporting System".
The Large Shareholding Reporting System
The Large Shareholding Reporting System was established in 1990. The purpose of the System is to provide investors with timely information on large holdings of listed shares and thereby increasing market fairness and transparency.
Under the Large Shareholding Reporting System, any person or corporation who directly or indirectly holds more than 5% of the voting shares13 of a listed company (hereafter "Large Shareholder") must file a "Large Shareholding Report" within five business days of becoming a Large Shareholder.14 In this Report, a Large Shareholder is obliged to disclose, among other things, the size of the holding as per cent of all shares (hereafter "holding ratio"), financial resources for acquiring shares, purpose of holding shares, and transactions of the shares in the recent 60 days.
In addition, a Large Shareholder must file an "Updated Report" within five business days from the day when there is a significant change to the entries in the most recently submitted Large Shareholding Report/Updated Report.15 A typical example of a significant change is an increase or decrease by 1 percentage point (hereafter "pp") or more in the holding ratio.
When a Large Shareholder has Joint Holders, a Large Shareholder is required to add Joint Holders' holding ratios to its holding ratio. A Joint Holder16 includes a spouse (when a Large Shareholder is a person), a corporation controlling, controlled by or under common control with a Large Shareholder (when a Large Shareholder is a corporation) and a person or corporation that acts in concert with a Large Shareholder, among others.
Figure 8.8. shows an example of when a Large Shareholding Report or an Updated Report must be filed. Suppose that a person holds 2% of the shares of a listed company. On Monday, November 6, the person acquired an additional 6% of the company's shares so that the person's total holding ratio rose to 8%. Since the holding ratio becomes greater than 5%, the person must file a Large Shareholding Report within five business days from that date (i.e., by Monday, November 13).
Then, the person sold 0.5% of the company's shares on Friday, November 17. At this point, the person is not required to file an Updated Report, since the new holding ratio (7.5%) is only 0.5pp smaller than that in the most recently submitted Report (8%).
Subsequently, the person sold 1.5% of the company's shares on Tuesday, November 21. In this case, the person must file an Updated Report within five business days from that date (i.e., by Tuesday, November 28) since the holding ratio (6%) has decreased by 2pps compared to that in the most recently submitted Report (8%).
Source: Author’s analysis.
Flexibility and proportionality in the Large Shareholding Reporting System
The Large Shareholding Reporting System has a number of different flexibility and proportionality mechanisms.
Special Reporting System
Financial institutions such as securities companies and fund managers engage in share trading repeatedly and continuously in their daily business operations. If the Large Shareholding Reporting System were applied to financial institutions without exception, they would be forced to file an Updated Report very frequently and be exposed to excessive paperwork which, in turn, may hinder smooth transaction of listed shares by those financial institutions.
As a consequence, there is an exemption called the "Special Reporting System"17 which relaxes the frequency and deadline of filing Reports for financial institutions that are specified in the Cabinet Office Ordinance18 and satisfy the following two conditions:
-
The institution will not use its large shareholding to make suggestions that may influence the corporation's business in important ways.19
-
The institution will conduct its share trading within a holding ratio range that does not exceed 10%.
The first condition is a key in the Special Reporting System, since the exemptions from reporting under the Special Reporting System should not facilitate financial institutions to acquire control or substantial influence of listed companies without disclosing their shareholdings. As mentioned above, the rational is rather to reduce the burden of excessive filing for financial institutions and promote their smooth transactions of listed shares. From the viewpoint of preventing the use of the Special Reporting System in a way that distorts its purpose, financial institutions are not allowed to use the system when the purpose of holding shares is to make suggestions that would influence the company in important ways.
As mentioned above, Large Shareholding Reports and Updated Reports must in principle be filed within five business days from the day when the cause of filing occurs (this principle is called "General Reporting System" in contrast to the Special Reporting System). However, financial institutions that are allowed to use the Special Reporting System need to judge only twice a month whether they must file a Large Shareholding Report or not. In this case, the Large Shareholding Report should be filed within five business days of a preregistered reference date if the holding ratio is above 5% on that date. These reference dates can be either the combination of the second Monday and the fourth Monday of each month, or the combination of 15th and the last day of the month. Eligible financial institutions are allowed to file their subsequent Updated Reports within five business days from the reference date, based on the increase/decrease of the holding ratio on the reference date (i.e., eligible financial institutions must file an Updated Report when the holding ratio on the reference date is larger/smaller than that in the most recently submitted Report by 1pp or more). In addition, with regard to the content of disclosure, eligible financial institutions are not obligated to disclose financial resources for acquiring shares and transactions of the shares during the last 60 days.
The example in Figure 8.9. illustrates how the Special Reporting System relaxes the frequency and deadline of filing Reports and help financial institutions execute share trading smoothly. Suppose a fund manager has 6% of the shares of a listed company and the fund has already submitted a Large Shareholding Report in October disclosing that it holds 6% of the company's shares. It then buys 1% and 1.5% of the company's shares on November 17 and 21 respectively, and sells 1% of the company's shares on November 23 and 28.
Under the General Reporting System, these trades would require the fund to file an Updated Report at four different times between November 15 and 30. By using the Special Reporting System and choosing 15th and the last day of each month as the reference dates, however, the fund is only required to file an Updated Report within five business days from the reference dates based on the increase/decrease of the holding ratio on those dates. As a consequence, the fund in this case does not have to file any Updated Report with respect to the reference date because the holding ratio in the most recently submitted Report and the ratio on November 15 remain the same at 6%. Neither is the fund required to file an Updated Report on November 30, since the holding ratio on that date (6.5%) is only 0.5pp larger than that in the most recently submitted Report (6%).
Source: Author’s analysis.
Thus, the Special Reporting System is a typical example of flexibility and proportionality mechanisms which uses the characteristic of a large shareholder (financial institutions or not), purpose of holding shares (whether or not to make important suggestions that influence the target listed company) and scale of share trading (whether share trading is conducted within a holding ratio range not exceeding 10% or not) as criteria.
Type of shares excluded from the Large Shareholding Reporting System
As mentioned above, any person or corporation who holds more than 5% of "listed shares" must, in principle, file a Large Shareholding Report. However, several types of listed shares are exempt from this principle. The rational for this flexibility is to avoid an undue burden on shareholders.
First of all, as is the case in many other jurisdictions, shares issued by unlisted companies are not subject to the Large Shareholding Reporting System as they are not widely traded and need not be disclosed to the market.
Treasury shares held by listed companies were originally subject to the Large Shareholding Reporting System. However, it was pointed out in the Financial System Council of the Financial Services Agency that disclosure of treasury shares under the Large Shareholding Reporting System might not be useful for investors, since the Companies Act stipulates that treasury shares cannot have any voting rights. It was also pointed out that the Large Shareholding Reporting System had hindered listed companies from carrying out trading in treasury shares smoothly. In light of these discussions, the Financial Services Agency amended the Financial Instruments and Exchange Act in 2014 and exempted treasury shares from the Large Shareholding Reporting System.
Also, the following types of listed shares are exempt from the Large Shareholding Reporting System, among others.20
a) Listed shares held by trust business operators as trust property21
b) Listed shares held by securities companies which engage in underwriting of listed shares22
c) Listed shares owned by securities companies through margin trading
d) Listed shares that are agreed to be sold but have not yet been transferred23
Thus, these exemptions, which are established not to place an undue burden on shareholders, are examples of flexibility and proportionality mechanisms based on the criterion of how the listed shares are held.
Example of flexibility and proportionality mechanisms designed for growth companies
As mentioned above, whether or not a person or corporation must file a Report is, in principle, not determined by the number of shares an owner holds, but on its holding ratio.
However, certain problems would arise if the obligation for filing a Report were determined only with respect to the holding ratio. Take the example when a listed company has increased its capital through a public offering in which existing shareholders do not participate and as a consequence all existing shareholders' holding ratios have decreased by more than 1pp. If we apply the principle literally to this case, existing shareholders who have already filed a Large Shareholding Report would be required to file an Updated Report even though they have not done any share trading and the number of shares they hold has not changed. This kind of case could occur especially when a listed company is small in terms of capital (such as growth companies).
In order to address this problem, it is stipulated under the Large Shareholding Reporting System that a person or corporation does not have to file a Report when the number of shares the person or corporation holds does not change, even though the holding ratio changes.24
This exemption can be regarded as a flexibility and proportionality mechanism designed for growth companies and their shareholders, although it does not explicitly use the company's size or stage of development as a criterion.
Sanctions for non-compliance with the Large Shareholding Reporting System
Under the Financial Instruments and Exchange Act, failure to submit Large Shareholding Reports/Updated Reports and false or missing statements of material items in those Reports are subject to criminal punishments and administrative monetary penalty.
The amount of administrative monetary penalty for violating the Large Shareholding Reporting System is set at one hundred thousandth (1/100 000) of the total market value of the target listed company. Since, the administrative monetary penalty is related to the market value of the target listed company. This arrangement of sanctions can also be regarded as an example of proportionality mechanisms.
Large volume transfers in a short period
This is an example of proportionality mechanisms by which regulations are strengthened rather than relaxed when certain conditions are met.
In the mid-1980s, there was a growing trend in Japan that some corporations engaged in the act of buying a certain amount of listed companies' shares and then requiring listed companies to buy those shares back at a price higher than the market price (Kotani, 2017). This kind of behaviour, so called "Greenmailing" or "Kata-gawari" in Japanese, aimed to make a profit in a short period rather than to build a long-term relationship with listed companies for the sake of long-term profit.
In order to address this issue and thereby increase fairness and transparency in the equity market, Japan designed a mechanism to address "Large Volume Transfers in a Short Period".25
In short, this mechanism applies when the holding ratio in an Updated Report (i) is less than half of the largest holding ratio reported in the 60 days prior to the transfer date and (ii) decreases by more than 5pps from the largest reported holding ratio. When a Large Shareholder conducts a share trading which satisfies the above conditions,26 the Large Shareholder must disclose in its Updated Report additional information27 such as to whom the Large Shareholder sold its shares and the sale price.
Figure 8.10. illustrates a case which satisfies the conditions of "Large Volume Transfers in a Short Period". Suppose a corporation acquired 10% of the shares of a listed company on November 6, and then sold 7% of the company's shares on January 1. In this case, the holding ratio on January 1 is less than half of the highest holding ratio (3% < 5% = 10%/2) reported in the 60 days prior to the transfer date and decreases by more than 5pps from the highest holding ratio (10%-3% = 7pps > 5pps). Therefore, in the Updated Report submitted within five business days from January 1, the corporation must disclose to whom it sold 7% of the listed company's shares and how much the prices were. An example of how this disclosure is presented is shown in Table 8.1.
Source: Author’s analysis.
In this way, the Large Shareholding Reporting System has a proportionality mechanism that strengthens disclosure requirements from the viewpoint of providing necessary information for investors and shareholders.
Conclusions
The survey results show that flexibility and proportionality are important elements of the corporate governance framework in most jurisdictions. They also reveal that flexibility and proportionality mechanisms are widely applied in disclosure regulations of major shareholdings.
While receiving information about major share ownership is one of the basic rights of investors as stated in the G20/OECD Principles, simply imposing disclosure regulations of major shareholdings on listed companies and their shareholders might not be a right solution since such regulations could sometimes hinder smooth transactions of securities.
As demonstrated by the case study of Japan, flexibility and proportionality mechanisms can be used in the area of disclosure of major shareholdings in many ways such as to relax disclosure obligations for certain types of investors or to impose tighter regulations on investors when certain conditions are met. Those mechanisms can help policy makers strike the right balance between securing transparency, minimizing the regulatory burden and securing market efficiency in the area of disclosure of major shareholdings.
References
Financial System Council (2013), “Report by the Working Group on the Provision of Risk Money to Emerging and Growing Companies”, http://www.fsa.go.jp/en/refer/councils/singie_kinyu/20131225/01.pdf.
Kotani, Toru, 2017, "Securities Fraud and Regulations (in Japanese)," Journal of Osaka University of Economics, 67-5.
Machida, Yukihito, 2016, A Detailed Explanation of Large Shareholding Reporting System (in Japanese), Shojihomu.
Nemoto, Toshimitsu, 2017, Theory and Practice for Large Holding Report System (in Japanese), Shojihomu.
OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris, https://doi.org/10.1787/9789264236882-en.
The Securities Exchange Council of the Government of Japan, 1989, Report on the design of disclosure regulations of major shareholdings (in Japanese).
Notes
← 1. For example, the threshold of 5% is used in Argentina, Lithuania, Switzerland and the US. The threshold of 10% is used in Mexico for Sociedades Anónimas Bursátiles (SABs).
← 2. For example, in Japan, a public company is required to disclose in its business report the names of its top 10 shareholders and the number and percentage of shares held by each of them.
← 3. 5% in the case of Japan and the US.
← 4. In the case of Japan and the US, a material change includes an increase or decrease by 1 percentage point or more in the holding ratio.
← 5. In Germany, under the Stock Corporation Act, enterprise shareholders that hold more than 25% or majority of shares of a non-listed company (having its registered office in Germany) are required to disclose their ownership.
← 6. In Switzerland, any person who, alone or by agreement with third parties, acquires shares in a company whose shares are not listed on a stock exchange, and thus reaches or exceeds the threshold of 25% of the share capital or votes must within one month give notice to the company of the first name and surname and the address of the natural person for whom it is ultimately acting (i.e., the beneficial owner).
← 7. Nomu-Parallel Market is an alternative equity market with lighter listing requirements compared to the Main market.
← 8. Such as the names of the substantial shareholders and their direct and deemed interests.
← 9. Listed firms in the equity market of Mexico can have the legal status of Sociedades Anónimas Bursátiles (SAB), or Sociedades Anónimas Promotoras de Inversión Bursátil (SAPIB), and these types of firms have different requirements for listing, board composition, and information disclosure.
← 10. The case of Japan is elaborated in the following section (Special Reporting System designed for financial institutions).
← 11. A public company is a company of which articles of incorporation do not require approval of the company for acquisition of shares by transfer, as a feature of all or part of its shares (Article 2 (v) of the Companies Act).
← 12. Type of companies which assume obligations for filing an annual securities report is defined under Article 24 (1) of the Financial Instruments and Exchange Act. Listed companies are included in this category.
← 13. In this report, we limit the scope of our discussion to shares and do not go into details of the types of securities that are subject to the Large Shareholding Reporting System for simplicity’s sake. In the actual regulations, securities such as convertible bonds are subject to the System if the shares issued in exchange for convertible bond s are voting shares.
← 14. Article 27-23 (1) of the Financial Instruments and Exchange Act.
← 15. Article 27-25 (1) of the Financial Instruments and Exchange Act.
← 16. A Joint Holder is defined under Article 27-23 (5) and (6) of the Financial Instruments and Exchange Act.
← 17. Article 27-26 of the Financial Instruments and Exchange Act.
← 18. Following corporations are listed in Article 11 of the Cabinet Office Ordinance on the Disclosure of Large Shareholdings: (1) Securities companies, (2) Investment management business operators (so called fund managers fall into this category), (3) Banks, (4) Trust companies, (5) Insurance companies, (6) The Norinchukin Bank, (7) Shoko Chukin Bank, (8) Corporations who conduct securities businesses, investment management businesses, banking businesses, trust businesses or insurance businesses in a foreign country in accordance with the laws and regulations thereof, (9) Banks’ Shareholdings Purchase Corporation, (10) Bank of Japan, (11) Deposit Insurance Corporation of Japan, and (12) A person or corporation who is a Joint Holder of (1) to (11) above.
← 19. An act of making important suggestions is an act of suggesting the following items (listed in Article 14-8-2 (1) of the Order for Enforcement of the Financial Instruments and Exchange Act) that are a material change in business activities or a material influence on the business activities of listed companies: (1) Disposition or acceptance of transfer of important properties, (2) Borrowing in a significant amount, (3) Selection or removal of a representative director, (4) Important changes in the constitution of officers, (5) Appointment or dismissal of managers or any other important employees, (6) Establishment, change in, or abolition of a branch office or any other important organisation, (7) Share exchanges, stock transfers, or split or merger of the company, (8) Transfer, acceptance, suspension, or abolition of the business in whole or in part, (9) Important changes in the policy concerning dividend distribution, (10) Important changes in the policies concerning the increase in or reduction of the amount of stated capital, (11) Listing or delisting on the stock market, (12) Important changes in capital policy, (13) Dissolution, (14) Petition for the commencement of bankruptcy proceedings, rehabilitation proceedings, or the start of reorganisation proceedings.
← 20. Article 27-23 (4) of the Financial Instruments and Exchange Act and Article 4 of the Cabinet Office Ordinance on the Disclosure of Large Shareholdings.
← 21. Listed shares held by trust business operators are not exempt from the Large Shareholding Reporting System in cases where trust business operators have the authority to exercise voting rights for the purpose of controlling the business activities of the target listed company, or in cases where trust business operators have the authority to make a decision to invest in the target listed company.
← 22. Listed shares held by those securities companies after the payment due date for the new shares issued are not exempt from the Large Shareholding Reporting System.
← 23. Limited to listed shares that will be transferred within five business days from the sales contract.
← 24. Article 27-23 (1) and 27-25 (1) of the Financial Instruments and Exchange Act and Article 3 (i) of the Cabinet Office Ordinance on the Disclosure of Large Shareholdings.
← 25. Article 27-25 (2) of the Financial Instruments and Exchange Act.
← 26. These conditions are stipulated under Article 14-8 of the Order for Enforcement of the Financial Instruments and Exchange Act.
← 27. It should be noted that the mechanism of “Large Volume Transfers in a Short Period” does not aim to prohibit the act of “Kata-gawari” directly. Rather, the purpose of the mechanism is to inform investors and shareholders of transactions that may potentially be “Kata-gawari”.