The Financial Services Authority (FSA) has today fined Sir Ken Morrison £210,000 for breaching the Disclosure and Transparency Rules (DTR) by failing to disclose his reduced shareholding and voting rights in Wm Morrison Supermarkets Plc (Wm Morrison).
Shortly after his retirement as Chairman of Wm Morrison, the company announced on 28 March 2008 that Sir Ken had a notifiable holding of voting rights of 6.38%. After the announcement on 28 March 2008 there were no further shareholding notifications made concerning Sir Ken’s holdings until 1 March 2011 – just under three years later - despite the fact that he had reduced his holdings during that period to 0.9%.
Between 2009 and 2010 Sir Ken had substantially cut his shareholding reducing his voting rights of over 6% (a holding worth over £450m) to 0.9%. Sir Ken failed to notify Wm Morrison on four separate occasions when his voting rights fell below 6%, 5%, 4% and 3% which he should have done.
While Sir Ken did not financially benefit from these breaches, his failure to notify Wm Morrison of the changes to his shareholding resulted in Wm Morrison not being in a position to update the market in accordance with the DTR rules. This resulted in the market being misled as to the ownership of voting rights in WM Morrison and Sir Ken's shareholding being stated incorrectly in Wm Morrison’s annual report of 31 January 2010.
Tracey McDermott, acting director of enforcement and financial crime, said:
“It is important that significant shareholders recognise that timely and accurate disclosure of their shareholdings and voting rights is a fundamental component of a properly informed securities market. Investors are entitled to know when major and influential shareholders significantly reduce their interest in a listed company. Sir Ken should have been aware of his obligations and his failure to meet them has resulted in this fine.
“The rules are designed to enhance transparency and provide investors with timely information regarding voting rights in issuers. Failure to comply with the rules risks damaging investor confidence in the financial markets.”
Sir Ken co-operated with the FSA and agreed to settle at an early stage and therefore qualified for a 30% reduction in penalty. Were it not for this discount the FSA would have imposed a financial penalty of £300,000.
Background
1. Read the Final Notice for Sir Ken Morrison.
2. The Disclosure and Transparency Rules (DTR) are set out in the FSA Handbook, the relevant rules being:
(a) DTR 5.1.2(1) R which states that subject to the exemption for certain third country issuers (DTR 5.11.6 R), a person must notify the issuer of the percentage of its voting rights he holds as shareholder or holds or is deemed to hold through his direct or indirect holding of financial instruments falling within DTR 5.3.1R (1), subject to the exemption in DTR 5.3.1R(2), and DTR 5.3.1R (2A), (or a combination of such holdings) if the percentage of those voting rights reaches, exceeds or falls below 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10% and each 1% threshold thereafter up to 100% (or in the case of a non-UK issuer on the basis of thresholds at 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%) as a result of an acquisition or disposal of shares or financial instruments falling within DTR 5.3.1 R.
(b) DTR 5.8.3(1) R which states that the notification to the issuer shall be effected as soon as possible, but not later than four trading days in the case of a non-UK issuer and two trading days in all other cases, the first of which shall be the day after the date on which the relevant person learns of the acquisition or disposal or of the possibility of exercising voting rights, or on which, having regard to the circumstances, should have learned of it, regardless of the date on which the acquisition, disposal or possibility of exercising voting rights takes effect.
(c) DTR 5.8.12(1) R which states that an issuer not falling within DTR 5.8.12(2)R (not relevant here) must, in relation to shares admitted to trading on a regulated market, on receipt of a notification as soon as possible and in any event by not later than the end of the trading day following receipt of the notification make public all of the information contained in the notification.
3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.