Markets work only when investors know who owns what. A superannuation fund building a stake in a listed company, or a trustee voting a unit trust’s shares, moves prices and may signal a coming takeover. Part XII of the Capital Market Act 2015 forces those positions into the open. Section 394 states its purposes: an informed market, and deterrence of insider conduct, market manipulation and secret dealings in potential takeover bids. The rules work alongside the insider trading and takeover provisions.
The 5 percent threshold
A person has a substantial holding in a listed corporation for the purposes of this Act if the person has a relevant interest in the security that comprises 5 percent or more of a class of voting securities of the listed corporation.
The percentage is the number of securities in the class in which the person has a relevant interest, divided by the total in that class, times 100 (section 395(4); the printed formula is garbled but the meaning is clear). Each class counts separately (section 395(3)). A derivative over a listed security counts as a holding of a prescribed number of those securities (section 396). A person may rely on the total most recently published by the corporation or the exchange unless they know it is wrong (section 405).
When disclosure is required
| Event | Section | Timing |
|---|---|---|
| Beginning to have a substantial holding (or one in a new class) | 397 | As soon as the person knows, or ought reasonably to know |
| Movement of one percentage point or more from the last disclosed figure | 398 | As soon as the person knows, or ought reasonably to know |
| Change in the nature of a relevant interest | 399 | As soon as the person knows of the change |
| Ceasing to have a substantial holding | 400 | As soon as the person knows, or ought reasonably to know |
| Commission tracing notice | 407 | As soon as practicable after receiving the notice |
Each disclosure goes to the listed corporation, every market operator on which its securities are quoted, and the Securities Commission (section 402(1)), in the prescribed form (section 403). The corporation must acknowledge it on request (section 404). The “ought reasonably to know” test means a fund that fails to monitor its trades cannot plead ignorance.
What counts as a relevant interest
Section 414 gives the basic rule: a person has a relevant interest in a capital market product if they are the registered holder or beneficial owner, can exercise or control a vote attached to it, or can acquire or dispose of it or control its acquisition or disposal. The power may be express or implied, direct or indirect, enforceable or not, present or future, sole or joint. Section 415 extends it to powers arising under a trust or agreement, and section 416 attributes to A any interest held by B where B acts on A’s instructions, A controls 20 percent or more of B’s voting products, they are related bodies corporate, or they have agreed to act in concert. A trustee holding a unit trust’s shares has a relevant interest in them; so does a manager that can direct how they are voted.
Section 417 excludes a lender holding securities only as collateral, a broker buying for a client, a corporate representative or proxy for a single meeting, a bare trustee, a director whose company holds the interest, and holders of pre-emptive rights. Section 406 lets the Commission exempt lenders, licensed stockbrokers, designated trustee and nominee corporations and bare trustees on written application.
The listed corporation’s duties
A listed corporation may serve written notice on any registered holder, or anyone named in an earlier disclosure, requiring them to reveal who stands behind them (section 408), and may question anyone it believes may hold a relevant interest (section 409). Each year it must publish, in its annual report or a notice to security holders within three months of balance date, the names of all substantial holders, the size of each holding and the total securities in each class (section 411); failure carries a fine of up to K10,000,000, though the corporation is not liable for false information received in good faith (section 412). The Commission may issue tracing notices under section 407 covering voting and non-voting, quoted and unquoted, issued and unissued securities.
Directors’ and chief executives’ interests
Part X adds a parallel regime for insiders. A director or chief executive officer of a listed corporation must notify it within five trading days of their interests on appointment, and immediately of any acquisition, disposal or contract over its securities or those of an associated corporation (section 375); spouses, children and parents are included. The corporation passes the information to the Commission and keeps an interests register at its registered office, open to public inspection and copying (sections 383–385), with fines of up to K1,000,000 for breaches (section 386). See directors of licensed firms.
Listed unit trusts
Units in a unit trust are “securities” under section 2, and section 116 treats a listed unit trust scheme as a listed entity. A unit holder whose relevant interest reaches 5 percent of the units on issue must therefore disclose it, and the trustee should publish substantial unit holders annually. Nasfund’s stake in the Pacific Balance Fund is the kind of holding Part XII is designed to make visible. See how the exchange is regulated.
Part XII sets no specific penalty for a holder who fails to disclose under sections 397 to 400. The Commission relies on section 443, under which contravening any provision of the Act other than Part VI is a “breach” attracting a direction, reprimand, restitution order or administrative penalty of up to K5,000,000 after a hearing. The missing offence is a gap in the drafting.
Sources
- Capital Market Act 2015 — ss 2(1) (“listed corporation”, “securities”), 116, 374–386, 394–417, 443
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.