Recently, Droit joined a webinar hosted by the London Stock Exchange (LSEG) to discuss the growing compliance requirements for shareholding disclosure.
The webinar brought together industry experts, including Will Graham, Product Manager, Position Reporting & Buy Side at Droit; Joseph Maehr, Executive Director, Compliance Advisory, Morgan Stanley; Fausto Marseglia, Head of Product Management, FRTB and Regulatory Propositions, LSEG; and Widade Deguerre, Director, Business Management – PRS, LSEG, to cover the latest changes, challenges, and the crucial role of fintech firms in delivering RegTech solutions, including the implications of the SEC’s Rule 13f-2.
Click here to view the webinar replay.
The discussion highlighted how regulations continue to evolve the landscape of shareholding disclosures. Despite a common goal to increase market transparency by requiring investors to report their holdings when they meet or exceed specific thresholds, a significant challenge remains. While regulators generally look to achieve similar outcomes with implementation of shareholding disclosure rules, there is a substantial lack of standardization and alignment in how these rules are formulated, interpreted, and implemented across different countries, including major markets like the US, EU, UK, Hong Kong, Singapore, Japan, and Australia.
This fragmentation manifests in variations regarding reporting thresholds (which can be based on share, voting rights, market cap or a combination), the types of securities and instruments included (increasingly including cash-settled derivatives), methods for calculating ownership, reporting timelines, and methods of disclosure.
Inconsistency places a significant burden and increases the cost of compliance for financial institutions investing in multiple jurisdictions. Firms must navigate distinct rule sets, data requirements, and interpretations for each country in which they report. For example, the EU’s revisions to the Transparency Directive in 2015, intended to bring consistency, resulted in “gold plating” where individual countries implemented the rules with national variations, leading to distinct requirements across Europe. Differences extend so far as to include unique national legal concepts, such as France’s “Florange Act,” which introduces double voting rights for long-term shareholders.
Panelists agreed that data and automation are critical for effectively managing these complexities and ensuring compliance. Accurate and timely reporting, especially daily monitoring, necessitates high-quality data and automated processes. The constant evolution and speed of regulatory changes require agile systems capable of quickly adapting rule configurations and interpretations, which can be very costly for internal technology teams to manage.
Panelists also emphasized the importance of digitizing information and achieving consistency in data interpretation across the industry. Firms employ various strategies, including developing in-house platforms, outsourcing, and enhancing existing data accuracy. FinTech and RegTech solutions, such as the platform offered by Droit, are seen as crucial for handling large data volumes with low latency and providing transparency, traceability, and auditability for regulatory decision-making.
Collaboration among industry participants through forums like the Endoxa consortium, SIFMA and the Financial Information Forum (FIF) is deemed essential. These groups work to achieve consensus on rule interpretations, discuss edge cases, and engage directly with regulators to seek clarification and guidance, helping firms navigate regulatory ambiguity.
The most recent significant regulatory change under the SEC’s rule 13f-2, requiring financial institutions with significant short positions in US-traded securities to report monthly, while seemingly simple in principle, presented significant interpretive challenges regarding its scope. Key topics were mentioned, including cross-border application to foreign shorts, the treatment of derivatives, and the complexity required to calculate thresholds averaged across the month. Given that the rule’s implementation was delayed from early 2025 to likely early 2026, panellists noted that this is a real opportunity for the industry, assuming the industry is taking advantage of the additional time. As the SEC is expected to provide further clarity on the implementation, firms should have time to ensure that their implementations, both of the logic and data, are fully tested.
To effectively manage the challenges in this dynamic environment, practical guidance offered by the experts included:
- Fostering strong relationships and collaboration between internal teams (front office, back office, tech, compliance, legal).
- Adopting a data-first approach, focusing on data quality, mapping, digitization where possible, and implementing controls.
- Regularly reviewing and potentially challenging existing technology solutions to ensure they meet current and future needs.
- Designing and monitoring robust control frameworks, including data feed oversight, exception management, and tracking metrics.
- Actively engaging with industry forums and peers to align on interpretations and stay informed about regulatory changes.
- Regularly reviewing or auditing opportunities to improve technology.
Shareholding disclosure is a complex and ever-changing area of regulatory compliance, marked by significant jurisdictional inconsistencies. Navigating this landscape effectively requires robust data management, sophisticated technology solutions, active industry collaboration, and a proactive approach to understanding and implementing evolving rules.