1.3.1 Existing Disclosure Requirements

Now, let us consider briefly the extent to which hidden ownership is captured by existing disclosure requirements. To ensure disclosure by the beneficial owner, the Transparency Directive extends disclosure obligations to parties deemed to have access to voting rights, so that "publicly traded companies are informed not only about security holders, but also about those who may effectively exercise lots of influence."1 Consequently, disclosure obligations also apply when, for example, voting rights are held by controlled entities.2 Various criteria are used to try to capture the beneficial owner, such as "power to exercise dominant influence or control,'"`discretion,'"`instruction" and "independently."3 Here, the Directive lets substance prevail over form.

Disclosure obligations are also extended to parties acting in concert or to parties on whose behalf shares are held by a third party.4 Moreover, they are extended to holders of certain equity derivatives, because the Commission acknowledges that "[i]nfluence may be directly exercised on companies through shares, but also indirectly through financial instruments conferring the right to acquire or sell shares [emphasis added]."5 This suggests a more formal approach. Indeed, in the case of Cfd that do not grant a right of acquisition of the underlying shares at settlement, there is no obligation to disclose pursuant to article 13 of the Directive.6 This article stipulates that call options and similar instruments count towards the trigger of a disclosure obligation. But it only covers instruments that grant the kolder, on maturity, "either the unconditional right to acquire the underlying shares or the discretion as to his right to acquire such shares or not,"and such right must derive from an agreement that is binding under applicable law.7 This formalistic approach does not take into account that, in practice, there can be a thin line between formal rights and de facto powers.

Similar difficulties arise when applying the provisions regarding acting in concert to Cfd. Article 10 (a) of the Directive refers to the conclusion of an agreement that obliges the parties to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management of the issuer. Again, the emphasis is on the existence of an agreement, which renders it unlikely that a disclosure obligation arises if a bank votes while merely taking into account the preferences of its client.8

Possibly, voting rights attached to underlying shares held by the short party could, under certain circumstances, be considered to be held "on behalf of' the long party within the meaning of article 10 (g) of the Directive.9 At least among German and Portuguese lawyers, there apparently is consensus that a contractual scheme leads to the short party holding the underlying shares "on behalf of' the long party if the latter (1) bears the economie risk and (2) is capable of influencing how voting rights are exereised.10 On the basis of this interpretation, Dirk Zetzsche has developed a compelling argument that equity swaps such as those employed by Schaeffler should trigger a disclosure obligation under this article.11 Whether this interpretation prevails across Europe, however, remains to be seen. In providing advice on the implementation of this article, the Committee of European Securities Regulators (CESR) has offered the example of a trust, which suggests a somewhat narrower interpretation.12 The FSA, in conducting an extensive analysis of Cfd in relation to existing disclosure obligations, did not refer to the article or to its UK law equivalent.13 Nor does the fact that market participants, commentators and even the European Parliament have called upon the European Commission to increase transparency suggest that current mies provide adequate disclosure.14 The following section explains why this is a concern.