Overview
FundApps has conducted an internal audit to optimise the TakeoverGB rule. For the purposes of this audit, we have considered the aosphere memo alongside the Takeover Code and any further guidance given by the Takeover Panel. We have made 5 changes to the rule.
1. The assets considered in scope have been updated
Going forward, additional assets in scope include ETFs, uncovered warrants, subscription rights, and DRs on preferred equities. This is based on our understanding of the definitions of Relevant Securities and Interests in Securities in the Takeover Code.
Please see the full list of in-scope assets below:
Equities (including preference shares)
Depositary Receipts (on equities and preference shares)
ETFs (included conservatively in line with UK Major Rules)
Convertibles
Warrants
Derivatives on Shares
Subscription Rights
Securities held through index derivatives (where the component makes up 20% or more of the index, or the exposure is 1% or more of the underlying class)
Securities held through ETFs (where the component makes up 20% or more of the index, or the exposure is 1% or more of the underlying class).
2. Preference shares are considered in scope whether they have voting rights attached or not.
We consider this to be more accurate based on the revised scope considering the definitions in the Code. In particular, our understanding is that non-voting preference shares of an offeree are in scope, where those securities are listed in the Panel’s Disclosure Table.
3. Derivatives are no longer delta-weighed.
This was decided following a conversation with the Takeover Panel.
4. Uncovered warrants and rights (newly included assets) are not aggregated with the underlying equity but are counted as a class of securities in their own right.
The definition of Interests in Securities in the Code states that securities convertible into unissued shares should be counted as a class of securities in their own right and not aggregated with the underlying.
Because of how FundApps works, this means that an ISIN will need to be defined for any Rights which appear on the Panel’s list [In the extremely unlikely event this happens, clients will be prompted by Missing Data warnings]
In line with the definitions, covered convertibles represent an interest in the underlying equity rather than an interest in a distinct class. Therefore, we have recoded the rule so that covered (and undetermined) convertibles are counted as such.
5. In order to be counted by the rule, the ISIN of the underlying share/convertible must be on the RegData list.
In the theoretical case where an Equity/Preferred/Convertible is on the list without an ISIN, the asset will not be counted [We are currently unaware of any examples of this]. We do not require ISINs for derivatives (in most cases) - the underlier ISIN from the equity or preferred equity will be used to determine whether it is in scope.
FAQ
I would like to approve the rule and go ahead. Is there anything else I need to do?
Yes! Make any relevant filings before approving the rule. Approve the rule. Please re-run yesterday’s file after approving the rule and then run today’s file. This will allow the new rule to generate accurate results. If you have any results from yesterday’s file run on the old version, please take note of this.
I don’t want to approve the rule right away, and I would like to use the old version. What do I need to do?
That’s not a problem; you can continue to follow the old rules. However, the forms will not work on the old rule version, so please download the form from the Takeover Panel’s website and fill it in manually.
I have a question about the rule and FundApps’ interpretation.
We would love to hear your thoughts. Please let us know via the Comments Tab on the Takeover GB rule page.
I do not want to re-run yesterday’s file after approving the rule. Is that an option?
We would advise you to re-run yesterday’s file after approval. If you choose not to, there is a small risk of a missed disclosure in one scenario. Please see an overview below.
Please manually review your holdings if you choose not to re-run your file. The rule will generate full results after two consecutive file runs.
Example of possible missed disclosure if you do not re-run yesterday’s file.
RegData
ISIN | Day of addition | Comment |
GB0000000001 | Day 1 | Added to list on Day 1 |
GB0000000002 | Day 0 | Present on list from Day 0 |
GB0000000003 | Day 1 | Added to list on Day 1 |
Day 0
Asset | ISIN | Issuer | Percentage |
Asset 1 | GB0000000001 | Issuer1 | 1.1 |
Asset 2 | GB0000000002 | Issuer2 | 1.1 |
Asset 3 | GB0000000003 | Issuer3 | 1.5 |
Day 1
Asset | ISIN | Issuer | Percentage |
Asset 1 | GB0000000001 | Issuer1 | 0.9 |
Asset 2 | GB0000000002 | Issuer2 | 0.9 |
Asset 3 | GB0000000003 | Issuer3 | 1.5 |
Results on Day 1 (without file rerunning)
Issuer1 - 1 - Info
Issuer2 - 1 - Disclosure Dropped below 1% because an asset has been sold out - Final disclosure required.
Issuer3 - 2 - Disclosure Opening position disclosure - new addition to the Takeover Panel.
Results on Day 1 (with file rerunning)
Issuer1 - 3 - Disclosure Held 1% in relevant securities yesterday, which were added to the Panel today, and trading during offer period. Dealings disclosure required.
Issuer2 - 3 - Disclosure Holdings in position has dropped below 1% - Final disclosure required.
Issuer3 - 2 - Disclosure Opening position disclosure - new addition to the Takeover Panel.
Summary
There is a small risk of a missed disclosure if, on the first day that you run the rule, you cross below 1% in a class of relevant securities added to the Panel’s list that day.
You can eliminate this risk by rerunning yesterday’s file after approving the new Rule Version and before running today’s file.
What are the limitations of this rule? Is there any theoretical scenario this rule cannot cover?
Unfortunately, the rule - as the last version - is not able to cover the following possible edge case. If you have any further specific concerns about this, please contact FundApps Support.
FundApps is not able to monitor situations on the day that the issuer goes on the Takeover list where the position in the issuer drops below 1% due to selling out of one or more assets. The Takeover Panel requires disclosure in these situations. FundApps will alert correctly if the threshold is crossed due to a change in Quantity and the asset is present in today's file run. Please see the example demonstrated below.
Example 1 - Edge case we currently do not cover
RegData
ISIN | Day of addition | Comment |
GB0000000001 | Day 1 | Added to list on Day 1 |
GB0000000002 | Day 0 | Present on list from Day 0 |
GB0000000003 | Day 1 | Added to list on Day 1 |
Day 0
Asset | ISIN | Issuer | Percentage |
Asset 1A | GB0000000001 | Issuer1 | 0.8 |
Asset 1B | GB0000000001 | Issuer1 | 0.4 |
Asset 2A | GB0000000002 | Issuer2 | 0.8 |
Asset 2B | GB0000000002 | Issuer2 | 0.4 |
Asset 3A | GB0000000003 | Issuer3 | 1.0 |
Asset 3B | GB0000000003 | Issuer3 | 0.4 |
Day 1
Asset | ISIN | Issuer | Percentage |
Asset 1A | GB0000000001 | Issuer1 | 0.8 |
Asset 2A | GB0000000002 | Issuer2 | 0.8 |
Asset 3A | GB0000000003 | Issuer3 | 0.8 |
Results on Day 1
Issuer1 - 1 - Info (should be disclosure)
Issuer2 - 1 - Disclosure
Issuer3 - 3 - Disclosure
Does this new version consider the recent aosphere alert about the new version of the Code effective from 20 February 2023?
Yes. We have considered the changes to the Code and determined that they have no impact on the coding of our rules.