Transparency of Listed Companies

What is the transparency of listed companies (LCs)?

The admission of the shares of a public limited company to trading on a stock exchange has a number of consequences. The main one is that its ability to capture investors’ savings is multiplied. In other words, it increases their financing capacity. But access to the stock market is not “free” in terms of bonds. Having access to a huge number of investors requires informing them about the company. Investors must have as much information as possible in order to make their investment decisions. This is where information or transparency obligations come in.

The transparency of listed companies is mainly projected in three areas: corporate, financial and political.

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Corporate transparency

The Spanish Securities Market Law (TRLMV) establishes two obligations for LCs:

• The LCs must publish any change in the rights derived from the possession of the securities. They are also obliged to make public new debt issues. The LCs must provide this information to the CNMV for inclusion in the corresponding registry. These obligations are set out in articles 123 and 238 of the Spanish Securities Market Law (TRLMV).
• The LCs must make available to the shareholders the means and information necessary to exercise their rights. In other words, they must provide mechanisms for shareholders to exercise the rights inherent in the ownership of the securities. This obligation is regulated in article 12 of the TRLMV.

The LCs shall comply with their information obligations by any means. This is without prejudice to the fact that shareholders may request the information in printed form. The LCs shall also have a website to meet these rights. The board of directors shall be the body responsible for deciding on the content of the website. However, said content must comply with the provisions of Circular 3/2015 of the CNMV in this regard.

Financial and accounting transparency

The accounting and financial information required by the Spanish Corporate Law for all LLCs is insufficient for LCs. Therefore, the TRLMV and its implementing regulations require LCs to have a special reporting regime. This regime is complemented by the provisions of CNMV Circular 3/2018.

LCs must have their accounts audited annually, following more in-depth and strict criteria than normal companies. This report is regulated by article 118 of the TRLMV. They must also have an Audit Committee. The audit report and the management report shall be considered public information. In the case of consolidated accounts, the LCs must apply international financial reporting standards.

In addition, the LCs must publish the following periodic financial information

• An annual financial report: Regulated in article 118 TRLMV. It comprises the individual and consolidated annual accounts and management report, if applicable, reviewed by the auditor. The report must be published no later than four months after the end of the financial year. It may not be published later than the official publication of the notice of the general meeting of shareholders. The report must be kept available to the public for at least ten years. Responsibility for the content of the report shall lie with the issuer and its directors.
• Two half-yearly financial reports: Regulated in article 119 of the TRLMV. The first will refer to the first six months of the financial year and the second to the twelve months. They contain: the individual and, where appropriate, consolidated summary annual accounts and interim management report. They must also include the statements of responsibility for their contents. They shall be published within the first three months following the end of the corresponding six-month period. They shall be published for at least ten years.
• Two intermediate management declarations: Regulated in article 120 TRLMV. They report on the periods between the beginning of financial year and the end of the first and third quarters. They will report on the operations and significant events and on the financial situation and results of the company.

Political transparency

Who controls the company or what power relationships exist is equally important to investors when they decide to invest. Articles 125, 126 and 127 of the TRLMV and Title II of RD 1362/2007 regulate this issue. These rules, together with Circular 2/2007 of the CNMV, establish models for the notification of significant holdings. Thus, a significant holding is understood to be the acquisition or holding of the following percentages of voting rights:

– 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80%, y 90%.

This regulation also regulates the parties obliged to notify the CNMV of acquisitions of significant holdings.

Conclusion

Listed companies cannot be considered as normal companies. Having access to the capital of savers through the stock market implies higher requirements. And these demands are manifested most strongly in the obligations of transparency and information to investors. The corporate, financial and political information of the LCs is the basis for investment decisions. It is therefore of the highest importance that this information be as accurate and transparent as possible.