UK: shortening the rights issue subscription period - FSA proposal published

The Financial Services Authority has today published a consultation paper in which it sets out its proposals for reducing the minimum subscription period for companies undertaking a rights issue to either 14 calendar days or 10 business days. This follows a recommendation from the Rights Issue Review Group in its report published last year. Further information is available in the FSA's press release and newsletter. 

UK: institutional investors and bankers' pay - Myners interview

An important theme in the development of the UK's Combined Code on Corporate Governance is the role of institutional investors. The Cadbury Committee observed in the Cadbury Report, which provided the foundation for the Combined Code (para 6.16): 

Because of the importance of their collective stake, we look to the institutions in particular, with the backing of the Institutional Shareholders’ Committee, to use their influence as owners to ensure that the companies in which they have invested comply with the Code".

The importance attached to institutional investors continues to be made in the Combined Code. Main Principle E.1. provides that institutional investors "should enter into a dialogue with companies based on the mutual understanding of objectives". A supporting principle provides that institutions should apply the principles set out in the Institutional Shareholders' Committee's The Responsibilities of Institutional Shareholders and Agents – Statement of Principles.

In an interview with yesterday's Observer newspaper, Lord Myners - the Financial Services Secretary - suggests that institutional investors should have done more to challenge the remuneration structures adopted by UK banks. Myners observes: 

"I'm disappointed there's not more evidence that institutional investors have been seized by the challenge of addressing the shortcomings that have emerged in corporate governance as a result of this crisis ...Institutional shareholders need to be asking themselves: were they appropriately engaged in asking questions about the risk appetite of our banks? Were they asking sufficient questions about competency of directors, and were they appropriately engaged in examining and approving compensation cultures?"

Europe: Prospectus Directive - Commission consultation

The European Commission has published a consultation paper in which it sets out proposals for the reform of the Prospectus Directive 2003/71/EC. One of the proposals being considered is the introduction of an exemption from producing a prospectus for non-listed companies in the context of employee share schemes. Further information about the Prospectus Directive, including a study of its impact on financial markets, is available here.

India: Satyam update

The Indian Government has replaced the board at Satyam Computer Services. The company's former chairman and chief executive are under arrest. Further information is available here (from the Financial Times) and here (from the Wall Street Journal).

UK: using shares as security - FSA clarification

The Financial Services Authority has today issued a statement in which it clarifies the operation of Disclosure and Transparency Rule 3.1 and the Model Code with regard to using shares as security. The operation of these rules has proved controversial, following the resignation in December 2008 of David Ross, deputy chairman of Carphone Warehouse Group plc, for his failure to disclose (see here and here). 

DTR 3.1 requires persons discharging managerial responsibilities (e.g., directors) to disclose transactions conducted on their own account in shares of the issuer, or derivatives or any other financial instrument relating to those shares. With regard to this rule, the FSA states that it includes grants of security over shares (e.g., pledges, mortgages and charges). The FSA nevertheless notes:

"we recognise that we are implementing a European regime [the Market Abusive Directive 2004/72/EC] and it has become clear that there are differing approaches in some other Member States, based in part on local practices and structures or procedures for granting security over shares, including the circumstances in which legal title to shares transfers. We are therefore seeking to reach a common understanding on the detail of the MAD requirements in this area with the European Commission and our counterparts in the Committee of European Securities Regulators".

In the statement, the FSA also reminds listed companies of their obligations under the Model Code (Annex 1 to Chapter 9 of the Listing Rules) and, in particular, the obligation on directors to obtain clearance (in accordance with paragraph 4 of the Code) before using the issuer's shares as security. In this regard, the FSA warns:

"... we can see no basis on which a director could have a legitimate excuse for not seeking clearance in advance where the company’s securities are to be used as collateral for a financing transaction. We expect listed issuers to deal with Model Code breaches by their directors".