Tim LindAfter the 2008 financial crisis and notable gaps in the understanding of market risk, transparency has become the primary  theme driving regulatory reforms globally. Transparency in all its forms -- in market exposure, management fees, conflict of interest, liquidity, asset valuation, and beneficial ownership -- is the main pillar of compliance for global asset management.

As regulators begin to pivot their attention from banks to asset management in terms of their impact on systemic risk, the accuracy of disclosures will fall under increased scrutiny. 

In the video below, I outline the struggles asset managers are facing regarding shareholding disclosures and offer advice to ensure compliance. 


"With record fines levied on asset managers in 2015, we expect regulators will continue to focus on compliance related to significant shareholder disclosures of both long and short positions by real money managers and hedge funds." 

Regulators protect sensitive industries like media, natural resources and other vital utilizes from the controlling interest of any single shareholder. Likewise, under the corporate charter of many companies, provisions are often included that protect the company from hostile takeovers by a shareholder. Under the securities law in every country, asset managers are obligated to monitor and report any breach in the threshold of ownership in the outstanding share capital of a given issuer or when they have a significant short position.

The ability to monitor the precentage of holding of an Issuer requires accurate information on the shares and voting rights outstanding for all share classes for all equity issues. The process is made extremely complex because calculations can vary market to market depending on share type, total shares with or without derivatives, inclusion of preference shrea, convertibles and unlisted share classes. 

In addition, regulators in each country have unique reporting rules around terms of timing, format of disclosure, and what data need to be included. The numbers need to be monitored daily as outstanding share capital changes with corporate actions and even the amount of voting rights can change depending how long a shareholder has owned the stock. 

European Transparency Directive

Asset managers in Europe in particular are facing additional requirements due to the EU Transparency Directive Amending Directive (TDAD) put into effect in November 2015. This directive mandates asset managers consider their holdings in instruments that have a "similar economic effect" to equities. Convertible bonds and derivative contracts that can be converted or take delivery to underlying equity must be included in the overall calculation of significant shareholder reporting.

Complex Data Challenges

Asset managers are challenged by the complexity of rules, high volume of disclosures, and the ability of accurate data on outstanding shares. In addition, the data required for these calculations is collected from hundreds of different sources, some of which are officially mandated by securities regulators. Multiply the different rules by the number of exchanges and countries an asset manager can hold securities and you get a feel for the complexity of this investment compliance process.

Zero Tolerance for Errors

Regulators have a zero tolerance for errors. Financial funds that are not compliant with these requirements face the enforcement of fines, censure, and the potential loss of their advisory license. 2015 set records for the size of fines and many fines predict the volumes of disclosures will increase in 2016. 

By ensuring they have precise and unique data, asset managers can more easily monitor the threshold of ownership for a given issuer. Thomson Reuters Shareholding Disclosures contains shares and voting rights collected from over 150 reliable and timely sources across 99 countries as well as total shares and voter data for all types of shares at instrument and issuer level. Allowing flexible delivery through Thomson Reuters DataScope, asset managers can effortlessly respond to regulator requests. 

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