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Brief Counsel

Equity derivative disclosure – step two

05 March 2013

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The Takeovers Panel is recommending a late change to the Financial Markets Conduct Bill to provide for ongoing disclosure of long equity derivative positions in public issuers.

The Panel’s recommendations, published last week after public consultation last year, are relevant not just to takeovers but to the securities markets generally.

Key recommendations

The Panel’s two key recommendations are:

  • that securities law be amended (preferably through the Financial Markets Conduct Bill) to include a requirement for ongoing disclosure of long equity derivative positions in public issuers, and
  • that the Takeovers Code be amended to require long equity derivative positions to be disclosed by relevant parties to a takeover transaction (i.e. the offer, the target company and certain of their respective related parties).

Recognising the complexity inherent in this area, the Panel also recommends that any proposed drafting of the law changes be put out for public consultation.

Chapman Tripp comments

We welcome the proposed changes to the Takeovers Code.  Although the use of long equity derivatives in New Zealand takeovers is (anecdotally) rare, they do nonetheless present a possible threat to the well-informed and equitable functioning of the takeovers market, by permitting a bidder to effectively warehouse a significant stake in a target company without the need for public disclosure.

Legislative change to require the ongoing disclosure of long equity derivative positions in public issuers, even outside of a takeovers context, requires deeper consideration in our view but may be justified if it is the only way successfully to combat the “warehousing” aspect of long equity derivatives. 

The proposed amendments should also prevent another Rubicon/Perry situation arising (see our earlier Brief Counsel on the Panel’s discussion document for details).  Taking care to ensure immaterial interests and arrangements do not become subject to public disclosure requirements will be an important aspect of any reform.

Next steps

If the Panel’s recommendations are accepted we expect further detail will be provided in a Supplementary Order Paper to the Financial Markets Conduct Bill in the next few weeks, although the changes are unlikely to commence until mid 2014 at the earliest. 

Our thanks to Joshua Pringle for writing this Brief Counsel.  For further information, please contact the lawyers featured.