Feasibility Study for a pan-european storage system for information disclosed by issuers of securities - Final Report

Feasibility Study for a pan-european storage system for information disclosed by issuers of securities - Final Report ACTICA/PB318D004 1.3 Keith Thomas Steve Gilbert 18 October 2011

Executive Summary This document has been prepared by Actica Consulting Ltd as the final report of the study into a pan- European storage system for regulated information disclosed by issuers of securities. It has been prepared for Internal Market and Services DG of the European Commission in delivery of Contract No. MARKT/2010/17/F. The European Commission (EC) Directive 2004/109/EC, the Transparency Directive, requires issuers of securities in regulated markets within the European Union (EU) to ensure appropriate transparency for investors. Article 21(1) of the Transparency Directive requires such information to be immediately available to investors and Article 21(2) requires each Member State to officially appoint at least one mechanism for the central storage of regulated information. The Directive encourages the establishment of some kind of interconnection of these officially appointed storage mechanisms (OAMs) across Member States. The purpose of this study is to identify and technically assess possible options for interconnecting the disclosed regulated information about issuers of securities at a pan-european level, beyond the existing situation which results from the implementation of the Directive rules on storage. In pursuit of the above, the Commission have specified the following objectives for the current study: examine the technical feasibility of an electronic storage system (dataset service) providing public access to pan-european regulated information about issuers of securities; evaluate the cost of such a system considering the different solutions available; provide analytical conclusions. In accordance with the expectations of the Commission, this study includes the following elements: examination of the technical characteristics of the existing national OAMs, including: how they are technically structured, including how the filing of documents is organised, how filers are identified, which types of documents are filed, and the facilities available to end users etc.; whether the OAMs comply with the quality standards in paragraphs 5 to 20 of the Commission Recommendation of 2007; how the national OAMs are supervised by the national competent authorities. examination of the technical feasibility of a storage system providing public access to pan- European regulated information about issuers of securities disclosed pursuant to the obligations of Directive 2004/109/EC and other Directives applicable to issuers of securities. The Commission have specified the characteristics required of such a system. The Commission has also required the examination of at least the three options below: o o o a central data set fed by the existing national OAMs; a network of harmonised national datasets; a single EU dataset; analysis of the costs of the storage system, including: o the costs involved in creating and running the existing national OAMs; Page ii Actica/PB318D004 1.3

o o the expected development and on-going running costs and benefits associated with the options for the pan-european service; the expected sunk investments of national OAMs if a single EU dataset is created; analytical conclusions based on the technical examinations and cost analysis. A number of previous studies have been conducted to examine the options for creating a pan-european database of regulated information submitted by issuers of securities. The following points from these studies are relevant to the technical and cost assessment of feasible options to be undertaken here: The provisions of the Directive for the storage of regulated information are generally well understood and accepted by stakeholders. The 2007 Recommendations have defined, at a high level, common operational standards for all OAMs. A full or interim OAM service based on and, to varying levels, compliant with these standards is in place in all Member States. At the more detailed level, common standards have not been set covering the implementation of the OAM solution (for example covering technical architecture, common coding structures, and detailed process areas). As a result OAMs have developed independent solutions in these areas. Usage of OAMs by end users is limited. Most retail and institutional investors, analysts and other stakeholders traditionally use the issuers web site as their first source of information. Whilst the studies indicate that the OAM service is well regarded, market and issuer demand for increased services is limited. A light integration of information held by OAMs has been provided through the use of CESR s MiFID database but this does not fully meet the expectations of even the light integration model proposed by CESR in 2006. A number of options have been put forward to progress the pan-european network by both CESR and Mazars 2009 external study, but to date no consensus on a firm direction has been agreed and no progress has been made on moving forward from the current light integration position. There is no central list of issuers of all securities, a central list of issuers of shares only is available as part of the MiFID database. The development of a central database of issuers, with appropriate coding structures, is a prerequisite for development of an integrated OAM network; There is a view that an OAM based approach offers benefits compared to solutions based on a reliance on issuers web sites or purely relying on commercial data vendors. Summary of the current status quo position OAMs are operating in all Member States, although the types of services offered vary considerably, with some still operating interim solutions with limited facilities for end users. (Although some of these are due for imminent replacement at the time of this report.) The OAMs supplement, and are often closely integrated with, stock exchange and regulatory information filing services and systems. The OAM has not typically acted as a replacement repository for regulated information, and filings continue to be stored and disseminated through multiple channels. Issuers in several Member States make use of intermediaries or commercial data disseminators to manage their filings to both the OAM and other agencies. In these cases there are system-to-system interfaces to support the filing process. Actica/PB318D004 1.3 Page iii

Almost universally, the OAMs support the filing and storage of unstructured document formats. They provide user tools to search for and download documents, based on a limited set of descriptive metadata describing the nature of the document but not its detailed contents. (Some OAMs also provide full text search of the contents of documents.) The OAMs manage the filing process and ensure the safe storage of documents provided by issuers. Their role is to transparently present information provided by issuers. They are not involved in the interpretation, analysis or presentation of the information contained within the documents they manage. Commercial providers of financial information are typically seen as the providers of structured and analytical information regarding issuers. These providers make use of information typically obtained from regulatory filings but tend to have their own information channels and do not rely on the OAMs to source their data. There is very limited pan-european integration available through the ESMA (CESR) MiFID database. Neither this nor the national OAM services appear to be actively promoted or marketed to potential users. Most OAMs report very low volumes of end user/investor access to their services. Typically, such users either use the analytical tools and information available from the commercial providers or directly access information from issuers websites. The OAM acts as a repository of record for professionals to obtain official versions of key documents on an exception basis. Approach In order to meet the objectives of the study as set out above, the approach has included: desk research, including a review of the user facilities offered by the current OAM network; multi-stage online information gathering surveys of the OAM operators supplemented by follow up interviews; structured interviews with both representative OAMs and central bodies with a stakeholder interest, including Eurostat, ESMA and ECB; structured development and assessment of cost and benefit models for technical options for the development of a pan-european solution, compared to maintaining the status quo. Key findings for options analysis Although there are OAM services operating in all Member States, there exist varying degrees of readiness to begin further integration. Except in a few cases where interim solutions still exist this is not predominantly a technical issue, rather it reflects the varying interpretations of the Directive in business process, coding and detailed filing practices: OAMs have implemented different arrangements for the creation and storage of metadata, there are no common standards; OAM filing processes in several Member States are closely coupled with other exchange disclosure, regulatory and news dissemination processes and systems in these cases many issuers do not file direct to the OAM; Information held by the OAMs is often duplicated in other exchange or regulatory systems; OAMs do not have existing structured processes for handling notification of changes to voting rights. Page iv Actica/PB318D004 1.3

Few end users make use of the OAM service in most Member States. The quality of the user experience offered to end users is good overall, but the services offered vary considerably: o o o o Web sites for OAMs can be difficult to find using commercial search engines; Users of the information held in the OAM repositories are mainly professional advisors and researchers; Individual investors tend to access commercial information services or the issuers web sites rather than OAMs, mainly due to the extra information and analysis available; The OAM service is of limited value to central bodies such as Eurostat and ECB because there is no structured or analytical data stored by the OAM that can be used by these organisations for statistical and analysis purposes. Technically, the OAMs are in a good position to respond to changes and extensions to the service they provide: Options o o o o Documents and metadata held by the OAMs are mainly stored in flexible SQL databases so can be updated relatively easily (although the contents of the documents is not structured); Similarly, OAMs can provide access to their back end databases in order to facilitate a central search tool relatively easily, although the scope and activities required would need to be agreed; OAM operators agree with the requirement for pan-european interconnections but are seeking clear long term direction on the way forward as they do not see market demand driving such an initiative; OAM operators have highlighted potential issues with significant change to current operations and processes. The options for implementing a pan-european database of securities information have been developed from a baseline that consists of the existing options as identified by previous studies conducted by CESR (now ESMA) and Mazars. The initial step in the options identification was to assess these options against the EC specified requirements of this study, and discard any options that do not meet the requirements. The remaining options were then reviewed to assess whether there were any gaps, including areas where new technologies could provide an option or areas where a different combination of local and central services provided a different option. The review also ensured that all options proposed by the EC in the scope of this review were included. There were eight options considered: a. Option 1: Single European OAM - Replace all national OAMs with one central OAM that stores all European data and provides all search facilities. b. Option 2: Central database for all data - Create a central European database for securities information which holds copies of all information stored by the national OAMs. c. Option 3: Central database for metadata - Create a central European database that holds metadata for all information held by the national OAMs d. Option 4: OAM web-ring - Standardise data storage across all national OAMs to enable all information to be searched by current national search tools Actica/PB318D004 1.3 Page v

Key requirements e. Option 5: Harmonised OAM network - Standardise data storage/metadata as for Option 4 above together with a central search capability searching all national datasets. f. Option 6: Central intelligent search - Make use of intelligent search tool to provide central search facility without using central database. g. Option 7: Combine current OAM operations with national business registers - Create a combined OAM and national business registers database and its operations to make use of the planned central access point for the business registers by linking it to the national OAM databases. This leverages economies of scale and the existing business registers European network to also provide OAM data centrally. h. Option 8: Maintain status quo - Continue to provide national OAM services using multiple different databases, with few interconnections. The external study, CESR s consultation and report and other work performed by the Commission have identified a number of elements required to be in place in order to build an effective pan-european storage network. The findings from the surveys and interviews conducted allow a number of key requirements to be identified. These are: Common filing standards and formats; Harmonised methods of classification and indexing; Interconnection with national company registers; Multiple country search from a single query; Standardisation of telecoms and database solutions. Initial options analysis A number of the options identified in Section 5 can be discounted at this stage on the basis that they clearly do not meet one or more of the requirements. The discounted options, and reasons for disqualification are listed below. Option 4: OAM web-ring - discounted at this stage because the EC requirements specify that a single, central search tool is required, that allows users to conduct pan-european searches from a single, central point. This option does not meet that requirement as no additional portals are created users would be able to use any of the existing OAM portals rather than being directed to a single, central portal. Option 6: Central search and index engine - discounted at this stage because use of an intelligent tool to index the data is seen as interpretation and carries a risk that data could be incorrectly or inappropriately indexed. Users conducting a search of information indexed in this fashion could therefore be presented with incorrect or inaccurate results which could be seen as the responsibility of the owner and supplier of the search tool. This could lead to complaints or more serious action being taken against the EC (or other central body that is responsible for the central search tool) to recover monies lost as a result of incorrect data being supplied. Option 7: Combine current OAM operations with national business registers - discounted at this stage for two reasons: The effort required to integrate OAM databases with the Business Registers to enable the existing international linkages to be used to share OAM information is likely to be prolonged. This extra effort is not likely to deliver additional benefits over the previous options; Page vi Actica/PB318D004 1.3

The option does not increase the efficiency of the two separate databases due to a lack of synergy between them. The information held in the national business registers is different to that held in the OAMs, the only point of commonality is financial reports. It is therefore unlikely that a combined database would deliver any tangible savings and it is also unlikely that the combined database would be able to make use of the existing international linkages to search OAM data as these exist to share business register data rather than the different OAM data. Option 8: Maintain status quo - discounted as it does not meet the requirement for a single European access point and does not enable a pan-european search. Further options analysis A set of criteria by which the four options taken forward (Options 1,2,3 and 5) can be assessed has been developed based on assessing the overall suitability of each option to fulfil the requirement of enabling users to conduct pan-european searches of regulated information held on issuers of securities. These criteria are listed below: ability to meet the EC requirements as described in the ITT (Annex A); deliverability how easy is it to move from the current situation to that proposed by the option; ability to address concerns identified in previous reports; timescale how long is the option likely to take to be fully implemented; Cost; governance and resourcing How much will current governance and resourcing arrangements need to change to implement the option; standardisation to what level will the current national arrangements need to be standardised to implement the option; flexibility - how easily can the proposed system be changed to include new data, storage arrangements or processes (such as moving to XBRL); benefits and user experience what are the quantifiable and unquantifiable benefits of the option, including any improvements to the user experience; impact on other organisations, including 3rd party providers; impact on other government services such as information registers; risk the likely risk of implementing the option. Each option has been assessed against these criteria individually in order to understand how well that option is likely to meet the overall need. Cost model The table below summarises the full cost model for the options and shows the additional costs incurred centrally and the total costs associated with all four options, detailed over a 5 year period. Actica/PB318D004 1.3 Page vii

Year 1 Year 2 Year 3 Year 4 Year 5 Central costs Option 1 2,070,000 550,000 550,000 550,000 550,000 Option 2 1,240,000 310,000 310,000 310,000 310,000 Option 3 1,880,000 340,000 340,000 340,000 340,000 Option 5 1,090,000 260,000 260,000 260,000 260,000 Total costs Option 1 4,090,000 2,060,000 1,560,000 1,050,000 550,000 Option 2 3,260,000 2,320,000 2,320,000 2,320,000 2,320,000 Option 3 3,900,000 2,360,000 2,360,000 2,360,000 2,360,000 Option 5 3,110,000 2,280,000 2,280,000 2,280,000 2,280,000 Recommendation Cost model summary The options analysis does not identify a clear preferred option. All of the options identified are able to meet the majority of the requirements, have similar costs and similar timescales. It is clear that Option 1 best satisfies the requirements, but it is also clear that this option has the highest overall impact on users, issuers and existing OAMs, and thus is highly likely to take the longest time to implement. However, this option also presents the best opportunity to save costs based on the reduction of the number of national OAMs over time. The recommendation is therefore that Option 1 should be the long term solution, and that the EC seeks to evolve the current situation into a single, European OAM over time. Options 2 and 3 can then be used as steps which support this evolution and allow the costs and impact on stakeholders to be borne over time, and thus the impact and difficulty of change is reduced. It is recognised that the implementation of a pan-european OAM network meeting all the functional requirements specified will require progress through a number of steps and take some considerable time to deliver and manage transition. In order to maintain focus, and to show the market there is strong commitment to the longer term vision, we strongly recommend that a clear strategic roadmap and vision is agreed and published showing the proposed end target model, the proposed steps for moving towards this from the current position and the principles that will underpin this development. The other key activities that are needed to support the implementation of this roadmap are: Set up a central standards and protocol body to agree and implement standards Define a unique pan-european issuer code Standardise metadata held for issuers and filings, and harmonise coding Harmonise other key aspects of national OAM data and processes, including time stamping and version control Specify a standardised format for filing structured information Page viii Actica/PB318D004 1.3

List of Contents Executive Summary ii 1 Introduction 1 1.2 General 1 1.3 Overall study context 1 1.4 Purpose of the study 1 1.5 Objectives of the study 1 1.6 Key outcomes of the study 2 1.7 Scope 2 1.8 Acknowledgements 3 1.9 Status 3 1.10 Disclaimer: 3 1.11 Structure of this report 3 2 Background 5 2.1 Introduction 5 2.2 The Transparency Directive rules on disclosure of regulated information 5 2.3 Dissemination and storage of regulated information 5 2.4 Progress on creating a pan-european network 6 2.5 Commission 2007 Recommendation and standards 7 2.6 The current position 7 2.7 Recommendations and findings of the 2009 External Study 8 2.8 Cross-border access to regulated information on SMEs 9 2.9 Interconnection with company registers and unique company identifier 9 2.10 EC 2010 consultation on the Transparency Directive 9 2.11 CESR 2010 consultation and report on development of pan-european access 10 2.12 Summary 12 3 Methodology 13 3.1 Introduction 13 3.2 Review of user facilities offered by current OAM network 13 3.3 Online information gathering surveys and follow up interviews 13 3.4 Structured interviews for impact assessment of options 14 3.5 Assessment of options 14 4 Findings 15 4.1 Introduction 15 4.2 Overview of the national OAM network 15 4.3 Technical structure of the national OAMs 18 4.4 Common code for identification of issuers 22 4.5 Consolidation of information on voting rights 23 4.6 Visibility of small listed companies 24 4.7 Alert systems 25 4.8 Integration with business registers 25 4.9 Compliance with quality standards 26 4.10 End user access to OAMs 26 4.11 Current pan-european integration 27 4.12 Use of issuers web sites as a source of information 27 4.13 The role of the OAM and interpretation of data 28 4.14 Relationship between OAMs and third party vendors 28 Actica/PB318D004 1.3 Page ix

4.15 Summary of the current status quo position 29 4.16 Key findings for options analysis 29 5 Options Identification 31 5.1 Introduction 31 5.2 Methodology 31 5.3 Options identified 32 5.4 Option descriptions 33 6 Options Analysis 41 6.1 Introduction 41 6.2 Key requirements 41 6.3 Initial analysis 41 6.4 Further analysis methodology 43 6.5 Cost model 48 6.6 Detailed analysis 48 6.7 Other considerations 51 7 Recommendation 53 7.1 Introduction 53 7.2 Recommendation 53 7.3 Other recommendations 56 7.4 Summary of recommendations 56 A Characteristics of a pan-european storage system 59 Page x Actica/PB318D004 1.3

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1 Introduction 1.2 General 1.1.1 This document has been prepared by Actica Consulting Ltd as the final report of the study into a pan-european storage system for regulated information disclosed by issuers of securities. It has been prepared for Internal Market and Services DG of the European Commission in delivery of Contract No. MARKT/2010/17/F. 1.3 Overall study context 1.1.2 The European Commission (EC) Directive 2004/109/EC, the Transparency Directive, requires issuers of securities in regulated markets within the European Union (EU) to ensure appropriate transparency for investors. This is achieved through a regular flow of information by disclosing periodic and on-going regulated information and by disseminating such information to the public throughout the Community. 1.1.3 Article 21(1) of the Transparency Directive requires such information to be immediately available to investors and Article 21(2) requires each Member State to officially appoint at least one mechanism for the central storage of regulated information. The Directive encourages the establishment of some kind of interconnection of these officially appointed storage mechanisms (OAMs) 1 across Member States. The Directive does not however make such networks compulsory. 1.1.4 The transposition deadline of the Transparency Directive was 20 January 2007. On 27 May 2010 the Commission published its report on the application of the Transparency Directive, which included a review of the operation of the OAM network. In the report, the Commission indicated that progress towards the establishment of a pan-european system of storage of regulated information had been slow and the impact of the Directive in this area had been insufficient. 1.4 Purpose of the study 1.4.1 The purpose of this study is to identify and technically assess possible options for interconnecting the disclosed regulated information about issuers of securities at a pan- European level, beyond the existing situation which results from the implementation of the Directive rules on storage. 1.5 Objectives of the study 1.5.1 In pursuit of the above, the Commission have specified the following objectives for the current study: a. examine the technical feasibility of an electronic storage system (dataset service) providing public access to pan-european regulated information about issuers of securities; 1 The acronym OASM is also used. Actica/PB318D004 1.3 Page 1

b. evaluate the cost of such a system considering the different solutions available; c. provide analytical conclusions. 1.6 Key outcomes of the study 1.6.1 In accordance with the expectations of the Commission, the study includes the following elements: 1.7 Scope a. examination of the technical characteristics of the existing national OAMs, including: 1. how they are technically structured, including how the filing of documents is organised, how filers are identified, which types of documents are filed, and the facilities available to end users etc.; 2. whether the OAMs comply with the quality standards in paragraphs 5 to 20 of the Commission Recommendation of 2007 2 ; 3. how the national OAMs are supervised by the national competent authorities. b. examination of the technical feasibility of a storage system providing public access to pan-european regulated information about issuers of securities disclosed pursuant to the obligations of Directive 2004/109/EC and other Directives applicable to issuers of securities. The Commission have specified the characteristics required of such a system. These are summarised in Appendix A of this report. The Commission has also required the examination of at least the three options below: 1. a central data set fed by the existing national OAMs; 2. a network of harmonised national datasets; 3. a single EU dataset; c. analysis of the costs of the storage system, including: 1. the costs involved in creating and running the existing national OAMs; 2. the expected development and on-going running costs and benefits associated with the options for the pan-european service; 3. the expected sunk investments of national OAMs if a single EU dataset is created; d. analytical conclusions based on the technical examinations and cost analysis. 1.7.1 The OAMs in scope for this study are those run by all 27 EU Member States plus Iceland and Norway, making a total of 29 OAMs. Three of those OAMs are managed by a single operator and there are therefore 27 OAM operators in total. 2 Commission Recommendation 2007/657/EC of 11 October 2007. Page 2 Actica/PB318D004 1.3

1.8 Acknowledgements 1.8.1 Actica would like to thank all representatives from national OAMs and operators, the EU, Eurostat and the ECB who contributed to this study. 1.9 Status 1.9.1 This is the final version of this report. 1.10 Disclaimer: 1.10.1 The views expressed in this document are purely those of the writer and may not, in any circumstances, be interpreted as stating an official position of the European Commission. 1.10.2 The European Commission does not guarantee the accuracy of the information included in this study, nor does it accept any responsibility for any use thereof. Reference herein to any specific products, specifications, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the European Commission. 1.10.3 All care has been taken by the author to ensure that he has obtained, where necessary, permission to use any parts of manuscripts including illustrations, maps, and graphs, on which intellectual property rights already exist from the titular holder(s) of such rights or from his or their legal representative. 1.11 Structure of this report 1.11.1 The remainder of this report is structured as follows: a. Section 2 details background information; b. Section 3 outlines the methodology used to conduct this study; c. Section 4 details the findings from the information gathering stage; d. Section 5 provides information on the options identified; e. Section 6 analyses the options; f. Section 7 presents the recommendations and next steps. 1.11.2 Details of the surveys carried out as part of the study, together with tabulations and analyses of the responses to the survey questions, are presented in the Survey Analysis Annex to this report and issued as a separate document. Actica/PB318D004 1.3 Page 3

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2 Background 2.1 Introduction 2.1.1 This section details the background to this study. It outlines the EC Transparency Directive as it applies to issuers of securities and how this requirement is being met by the current situation. It also summaries a number of previous studies that have been conducted in this area, including their conclusions. Lastly, this section contains a summary of the relevant information that is carried forward to the findings and analysis stage of this report. 2.2 The Transparency Directive rules on disclosure of regulated information 2.2.1 Directive 2004/109/EC (the "Transparency Directive") requires issuers of securities in regulated markets within the EU to ensure appropriate transparency for investors. This is achieved through a regular flow of information by disclosing periodic and on-going regulated information and by disseminating such information to the public throughout the Community. Regulated information consists of financial reports, information on major holdings of voting rights and information disclosed pursuant to the Market Abuse Directive (2003/6/EC). Shareholders, or natural persons or legal entities holding voting rights or financial instruments that result in an entitlement to acquire existing shares with voting rights, should also inform issuers of the acquisition of, or other changes in, major holdings in companies so that issuers are in a position to keep the public informed. 2.2.2 The Transparency Directive contains rules on: g. disclosure of information (such as deadlines, content, formats, language etc); h. dissemination of information to the public and the competent authorities; i. storage of disclosed information by the officially appointed storage mechanisms (OAMs); j. liability of issuers regarding disclosed information; k. supervision by competent authorities and penalties for lack of compliance. 2.2.3 The Directive determines which national law is applicable; the home/host Member State rule is irrespective of the place of listing of the issuer. The Directive also contains provision for the treatment of issuers whose registered office is in a third country. The transposition deadline of the Transparency Directive was 20 January 2007. 2.3 Dissemination and storage of regulated information 2.3.1 The Directive requires issuers to disclose regulated information in a manner ensuring fast access to such information on a non-discriminatory basis and without charging investors any specific cost. According to the Directive, the home Member State shall require the issuer to use an appropriate media that may reasonably be relied upon for the effective dissemination of the information to the public throughout the EU, but may not impose an obligation to use only media whose operators are located in the home Member State. 2.3.2 With respect to regulated information access over time, the Transparency Directive has established a specific regime providing for a publicly accessible registry on disclosed Actica/PB318D004 1.3 Page 5

information. Article 21(2) of the Transparency Directive requires each Member State to officially appoint at least one "mechanism for the central storage of regulated information" an OAM. The Directive tries to establish some centralisation at Member State level, not at European level. The Directive is not prescriptive as to the practical solutions. 2.3.3 In addition to the creation of national OAMs, the Directive encourages the establishment of an interconnection across Member States: l. electronic networks at national level connecting OASMs to existing national business registers; m. the connection of those national electronic networks at European level. 2.3.4 However, the Directive is neutral as regards the architecture of OAMs and it does not directly make those networks compulsory. 2.4 Progress on creating a pan-european network 2.4.1 Upon request of the Commission, CESR (the Committee of European Securities Regulators) prepared, in 2005, a Progress Report 3 on the implementation of the network of national OAMs. This Progress Report was followed by a Report on cost issues in 2006 which provides estimates in relation to the cost of setting up a national OAM and the cost of setting up a European network of national OAMs. Finally, later in 2006, CESR delivered formal advice on the possibility of implementing measures on storage of regulated information and filing with the competent authority 4. In its advice, CESR: n. presents 4 alternative models (A to D) for the European network with varying degree of centralisation; o. suggests the minimum standards to be respected by each national OAM; p. describes the funding implications of setting up and operating a national OAM; q. evaluates the role of the Competent Authority in the supervision of the OAM and in adopting the standards; r. provides an opinion in relation to the filing of regulated information by electronic means with the Competent Authorities. 2.4.2 The alternative models proposed by CESR in its advice were as follows: a. Model A proposes that there is a "Central Access Point" ("CAP") application that is used by end users to search the OAM network. The CAP is an application that sits on a central server outside all OAMs that allows end users to search the OAM network. b. Model B proposes that the end users use the software application of any one OAM to search the entire OAM network. In this model, each OAM implements a common search engine. An end user may choose to use the OAM that he or she prefers to search the network. 3 4 CESR (March 2005), Progress Report regarding possible implementing measures of the Transparency Directive on the role of the Officially Appointed Mechanism and the setting up of a European Electronic Network of information about Issuers and electronic filing. CESR (June 2006) Final technical advice on possible implementing measures concerning the Transparency Directive Storage of regulated information and filing of regulated information Page 6 Actica/PB318D004 1.3

c. Model C proposes that there is a central server hosting an application, containing a complete list of issuers and the links to the OAM(s) holding information on that issuer. The list is used by end users to access the OAM that stores information related to the selected issuer. d. Model D proposes that each competent authority carry a list of links to all the national OAMs on its website. An end user must then select the appropriate OAM and access it directly through the web link. 2.4.3 In its advice, CESR expressed a preference for the Model C option, a simple network model. In accordance with the preliminary cost estimates made by CESR in 2006, the model was considered to have adequate functionalities with lower costs than other options. Under Model C, the pan-european network would consist of a common single interface for end users (e.g. a website) containing a central list of all EU issuers with, for each issuer, a hyperlink to the relevant national storage system in which regulated information can be found. By clicking on the name of the relevant issuer, the user would be directed to the site of the relevant storage mechanism to carry out a detailed search for the document(s) required. All data and documents would remain at national level and the only common element would be the list of issuers. 2.5 Commission 2007 Recommendation and standards 2.5.1 Building on the CESR advice, in 2007 the Commission adopted a non-binding Recommendation 5 on the network of national mechanisms storing regulated information. The main aim of the recommendation was to give support to work undertaken by CESR regarding the pan-european network, and to its suggested way forward. Hence, this recommendation suggests that Member States should take steps to set up the network model proposed by CESR and requested CESR to draw up guidelines regarding the future development of the electronic network. The Recommendation also contains suggestions regarding the minimum quality standards with which OAMs should comply. Paragraphs 5 to 20 of the Recommendation include standards covering: a. security; b. certainty as to information source; c. time recording; d. ease of access by end users. 2.6 The current position 2.6.1 CESR has set up an initial network of OAMs using CESR s MiFID database on shares admitted to trading on EU regulated markets. Clicking on the share s name displayed on the database search screen directs users to the corresponding national OAM. The MiFID database is designed with a focus on the issued instrument rather than the issuer and excludes issuers of securities other than shares. Currently a list of issuers of securities other than shares is not available centrally. As a result, the solution does not fully meet the expectations of the original Model C and is referred to by CESR as Model C-. 5 Commission Recommendation 2007/657/EC of 11 October 2007. Actica/PB318D004 1.3 Page 7

2.7 Recommendations and findings of the 2009 External Study 2.7.1 The application of the Transparency Directive was evaluated by an external study undertaken by Mazars in 2009. Concerning the dissemination and storage of regulated information, the study outlined the objective of the Directive to ensure that such information can be: a. rapidly accessed by investors; b. provided on a non-discriminatory basis; c. provided at no cost to investors. 2.7.2 The review noted that the new elements introduced by the Directive were the requirements for an EU wide dissemination of information and for filing to the appointed OAM as well as the regulator of the issuers market. As a result, the role of Supervisors and/or Exchanges in the overall dissemination of this information was changing and was not stable. 2.7.3 Relevant findings from the extensive survey carried out as part of the external study were as follows: a. The vast majority (85%) of stakeholders consider the storage of historical information to be useful, with 70% agreeing it should be stored for a minimum of 5 years. 50% of stakeholders consider that the information stored is relevant and investors would be in favour of storing more information. b. 70% of stakeholders using the information believed issuers used the appropriate media to disseminate the information they produce and 45% did not believe the Directive had changed the way it is made public. c. Half of the users of information feel the information easily reached both the retail and institutional investor, not only intermediaries. d. Almost two thirds (60%) of users believed the Supervisor or Exchange should be the central access point for stored information, with a preference for the Supervisor, but in general these bodies are reticent to play such a role. e. Issuers continue to use data disseminators to ensure a wide distribution of regulated information. There are electronic systems available in some Member States to facilitate this, and the integration of the OAM. f. SMEs expressed the view that posting the information on their website should be sufficient to comply with the dissemination obligation of the Directive. g. While many stakeholders did not express an opinion on the effectiveness of the national OAMs, when an opinion was expressed it was clearly positive. h. The current national OAMs are not well known. Only 5% of users resort to them as a primary source of information regarding a specific company, with 68% of users indicating their first source of information was the company web site, although 38% of investors have more confidence in the information available through an OAM. i. Almost two thirds (63%) of stakeholders who expressed an opinion would be in favour of a central EU storage system to facilitate cross-market searches for information. 2.7.4 The external study concluded that, two years after the introduction of the Directive, there appeared to be no stable and consensual vision emerging on the manner in which stored Page 8 Actica/PB318D004 1.3

information may be accessed on a national and EU level. The study derived three possible scenarios from the opinions expressed by stakeholders: a. rely exclusively on the issuers websites, with harmonised publication in a specific section of the issuers website made compulsory at EU level; b. improve the functioning and visibility of national OAMs through more streamlined and harmonised technical requirements to allow efficient interconnection, and more flexibility in the way in which such systems are run to improve their business case; c. create an EU single entry point, possibly by CESR maintaining a list of EU listed companies with direct links to the specific section of each company s website storing the regulated information. 2.7.5 As a result, the study suggested the following improvement A single EU access to Regulated Information: The time has come for the EU to set up a single access point for stored information, based on a serious cost benefit analysis while taking into account recent advances in technology. 2.7.6 The study goes on to suggest progressing the third option above, noting that the storage of regulated information on the issuers website is already compulsory in several Member States. 2.8 Cross-border access to regulated information on SMEs 2.8.1 The Mazar s external study in 2009 highlighted the poor cross-border dissemination of regulated information by SMEs, and the low interest shown by analysts and investors in those companies (the black hole ). The majority of issuers and users of financial information either thought the Directive had had no effect or had no opinion. There appears to be a Catch 22 situation SMEs regret the low level of cross-border interest, so are unwilling to spend money to ensure wider dissemination (e.g. by translation of their information into English) whilst the analysts and investors believe they do not receive sufficient information from non-domestic SMEs, and so are reluctant to invest in them. 2.8.2 The study suggested that only a change in the behaviour of the markets participants would fill this gap. The specific initiatives suggested by the study to effect this change in behaviour are outside the scope of this work. 2.9 Interconnection with company registers and unique company identifier 2.9.1 The 2010 CESR report and consultation also considered interconnection with the network developed by national company registers. Whilst considering the link to such registers not to be of the highest priority (a view endorsed by the proposed amendments to the Directive on the interconnection of these registers) CESR recognised the value of defining a common company identifier for both networks (for example the REID code developed by the BRITE project). 2.10 EC 2010 consultation on the Transparency Directive 2.10.1 The 2010 Commission report on the application of the Transparency Directive 6 also addressed the development of the OAM network. The report states that progress towards the establishment 6 COM(2010)243 final Actica/PB318D004 1.3 Page 9

of a pan-european network of OAMs has been slow, and the impact of the Directive in this area has been insufficient. 2.10.2 The issue was further addressed in the Commission s consultation on the modernisation of the Transparency Directive held between 28 May 2010 and 23 August 2010. Question 9.3 of the consultation paper asks: a. Do you think that the development of an EU database storing regulated information on all issuers of securities in the EU will facilitate research and create interest/result in greater attention in small listed companies by financial analysts, financial intermediaries and investors? 2.10.3 44 of the responses received to the consultation included comments regarding the development of an EU database. Responses were mixed as to the market demand for such a database and the relative cost and value to be derived from such a development. Some respondents favoured solutions providing a portal to issuers websites or national databases. 2.11 CESR 2010 consultation and report on development of pan-european access 2.11.1 In response to the request in the 2007 Commission Recommendation asking CESR to draw up appropriate guidelines for the future development of the network, in 2010 CESR produced a report to the European Commission 7 setting out its proposals for the onward development required to address the features described in the Recommendation. 2.11.2 The final CESR report was based on a public consultation held between 2 August 2010 and 24 September 2010. CESR received 34 responses to the consultation which were considered generally supportive of the proposals put forward in the consultation paper, and specifically to the two proposed models for the integration of the OAM network: a. Option 1 - A network model which would gradually develop the functionality of the current linked model in a 3 step approach. Step 1 would extend the current solution to cover all issuers of securities; Step 2 would enhance searching capabilities by storing more items of metadata on issuers and filings at the Central Access Point (CAP). National OAMs would provide harmonised metadata to the CAP and the CAP would provide end users with a hyperlink to the stored documents in the OAMs. Finally Step 3 would allow searching of information from documents filed in the OAM network and assumes the need for harmonised filing formats across the network. (Note Steps 2 and 3 above reflect the revised proposals in the report following analysis of the consultation responses.) b. Option 2 A single European OAM replacing the national OAM network. All issuers would be expected to file regulated information to this single point in a standardised way. 2.11.3 In the consultation paper, CESR preferred Option 1 and the responses to the consultation broadly supported this. 7 CESR/10-1507 22 December 2010 Development of Pan-European Access to Financial Information Disclosed by Listed Companies. Page 10 Actica/PB318D004 1.3

2.11.4 In analysing the two options CESR made the following observations: a. The creation of a database of the home member state of all issuers is a prerequisite for the development of either option; as such a database does not currently exist. b. Both options require amendments to the Transparency Directive before a fully integrated network could be created. The network model of Option 1 does however allow development to begin before such changes are made, as it is based on the existing provision. c. The network model has a closer connection to local markets. Most of the national OAMs are operated by institutions with which issuers are in any case required to file regulated information (e.g. competent authorities and stock exchanges). Filing with a single, central OAM would need to be aligned with these national institutions to avoid increased administrative burdens for issuers required to file the information twice. d. Should future large scale development projects be anticipated, the aggregated costs of changes to all OAMs would be more than for a single OAM, increasing the benefits of the latter approach. Conversely, the initial implementation costs of a single European OAM would be high and consideration would need to be taken of the aggregated investments already made in the national OAMs. 2.11.5 In the report, CESR considered that an OAM based approach offered added value when compared with options reliant on issuer s websites. The relative merits of the OAM approach included: a. OAMs provide comprehensive, free of charge coverage of historical information; b. the information remains publicly available even if an issuer ceases to exist; c. OAMs enforce non-repudiation and information cannot be changed after it has been filed; d. OAMs provide easier access to regulated information for some issuers who may not have their own websites (e.g. Special Purpose Vehicles and corporate subsidiaries). 2.11.6 The report also recognised the benefits of the OAM as a source of regulated data compared to commercial data vendors, considering the approach to be: a. non-discriminatory; b. independent; c. providing full coverage; d. at no cost to end users. 2.11.7 CESR did however share the conclusion made in the 2009 external study that the OAMs seem to lack visibility. While national OAMs may be widely used at national level, CESR considered that they are not always easy to access for investors in another country. 2.11.8 Despite suggestions from some respondents to the consultation paper, CESR did not consider that issuers should be required to disclose information in English. They did, however, state that where issuers voluntarily disclose information in more than one language the OAMs should make all language versions available. 2.11.9 Overall, CESR considered that the attractiveness and visibility of the national OAMs and the OAM network could be enhanced through developing search facilities at both national and network level. Actica/PB318D004 1.3 Page 11