When must a holder of voting rights notify the issuer and CySEC?

A shareholder, including a first-time buyer and a person holding shares in its own name for someone else, must tell both the issuer and CySEC its percentage of voting rights whenever an acquisition or disposal takes that percentage to or above a threshold on the way up, or to or below one on the way down. The thresholds are 5, 10, 15, 20, 25, 30, 50 and 75% of voting rights, unchanged since the Law was enacted in 2007. The duty also arises passively, when a change in the issuer's total, such as a new share issue or a buy-back shown in the issuer's monthly figure, carries the holder across a threshold.

The percentage is calculated on all the issuer's voting shares, even those whose voting rights are suspended, and the notice also gives the position in each class of voting shares. Only reaching or crossing a threshold matters. Take an investor who goes from 3% to 4.8% (nothing to notify), then to 11% (5% and 10% crossed: notify), then to 14% (nothing), then to 26% (15%, 20% and 25% crossed: notify), and later sells down to 19% (25% and 20% crossed downwards: notify). A subsidiary need not notify if its parent does.

The duty also covers voting rights a person can acquire, dispose of or exercise without holding the shares itself. These are votes: held by a third party with which it has agreed to follow, by acting together, a lasting common policy on the issuer's management, where all the parties share the duty; held by a third party whose agreement with it provides for the temporary transfer of the votes for consideration; attached to shares lodged with it as collateral, if it controls the votes and declares an intention to use them; attached to shares in which it has a life interest; held or exercisable by undertakings it controls; attached to shares deposited with it that it may vote at its discretion; held by a third party in that party's name on its behalf; and exercisable by it at its discretion as a proxy.

The exam material presents the extension to holders of financial instruments through this list of indirect holdings. The Law treats financial instruments separately. It catches anyone holding, directly or indirectly, instruments that on maturity give an unconditional right or a discretion to acquire voting shares already issued and, since 8 April 2016, instruments with a similar economic effect, whether or not they are physically settled, such as options, futures, swaps, forward rate agreements and contracts for difference. Cash-settled instruments count on a delta-adjusted basis, only long positions count, with no netting against short ones, and holdings of shares and of instruments are added together, with the notice showing the breakdown.

No notification is needed for shares acquired only for clearing and settlement and held for no more than three working days after the transaction (the Cyprus wording; the EU implementing directive says three trading days). Custodians are exempt for shares held in that capacity if they can vote only on the beneficiary's written or electronic instructions. A market maker reaching or crossing 5%, counting shares and instruments together, is exempt if it acts as a market maker and is authorised under the investment services law. It must not intervene in the issuer's management or press the issuer to buy the shares or support their price. It must also tell CySEC on Form 190-06-01, within three trading days, that it makes or intends to make a market in the shares. Voting rights that a credit institution or investment firm holds in its trading book are exempt up to 5%, counting shares and instruments together, if they are not exercised or used to intervene in management. Shares that central banks in the European System of Central Banks give or receive in short-term monetary operations are exempt if the votes are not exercised, and so are shares bought for stabilisation while their votes are not used (see What is market manipulation, and how is it detected and reported?).

The holder notifies promptly, and at the latest within three trading days of the transaction, or of the day it learned or should have learned of it, or was told of the event that changed the total; it is deemed to know no later than two trading days after the transaction. The exam material gives no deadline. The Law has set three trading days since 8 April 2016 (worded 'working trading days' until 16 June 2017); before that it required notice by the next working trading day. The Directive allows four. Managers' own dealings follow MAR instead: see When must managers and their close associates report their dealings, and when may they not trade?

Breaches can lead to a public statement, an order to stop, and a fine of up to €10,000,000 for a legal person or €2,000,000 for a natural person, or twice the profit gained or loss avoided if higher. Where the breach gave the holder significant influence over the issuer, CySEC can also suspend the voting rights attached to the shares. The exam material states no sanctions for these rules; this menu has applied since 8 April 2016.