Shareholder Rights Directive (SRD) Summary

The Shareholder Rights Directive (SRD) aims to improve the governance of corporations listed on the European Union stock exchanges and strengthens their competitiveness and viability in the long term.

Shareholders Rights Directive II (2017/828/EC) is an amendment to SRD I (2007/36/EC) that entered into force in 2007 post the financial crisis.

Both SRD I and SRD II together form part of the European Commission’s Corporate Governance Action Plan 2012, to promote longevity and stability and to prevent short termism.

The directive amendment intends to improve shareholders ability to exercise their rights across multiple markets whilst utilising technology to enhance communication between firms, intermediaries and the shareholders.

Background and Objectives

The 2008 financial crises highlighted shortcuts in the relationships between investors and issuers.

Issues like short term investment, lack of transparency for all stakeholders activities were considered as some of these weaknesses.

In response, SRD II aims to encourage long-term investment by the shareholders and to increase transparency between investors and corporations.

It amends Directive 2007/36/EC which deals with the rights of shareholders to improve the governance of corporations listed on the European Union stock exchanges and strengthens their competitiveness and viability in the long term.

It supervises the exercise of certain shareholders' rights on shares with voting rights particularly at General Meetings (GM).

Its objective is the companies admitted for trading on a regulated market established or operating in the European Union and whose registered office is in a Member State.

It puts emphasis on non-resident shareholding which represents 44% of shares listed in the EU.

Key Areas Addressed by SRD II

The Directive deals with different issues that can be summarized under two main topics:

Interaction between Issuer and Shareholder

SRD II:

• Gives the possibility for an issuer to identify its shareholders.
• Imposes to intermediaries to send shareholders information issued by an issuer to exercise its rights.
• To facilitate the exercise of shareholders' rights.

Transparency

SRD II:

• Reinforces transparency of voting.
• Increases the commitment of the institutional investors and asset managers and transparency regarding investment policy of asset managers and potential conflict of interests that could result from services’ or products offering to the company.
• The disclosure of the company's remuneration policy offering shareholders the possibility to vote ex ante and ex post for or against it.
• Increases transparency and independent opinion on the related parties' transactions, and imposes shareholders’ approval of largest transactions.
• Imposes to proxy advisers to details their methods such as voting methods, exchanges with companies staffing of advisers”team and to make statement of any conflicts of interest.

Any investor that owns common shares of a company stock, has common rights with other shareholders.

SRD II forms requirements with regards to the exercise of specific shareholder rights linked to voting, to enable issuers to gain greater company identification of its shareholders.

In addition, it forms the requirement to boost long term shareholder engagement.

Issuers of shares must create an annual remuneration report to show an in-depth review of all renumeration including benefit awarded or due to directors in the current financial year.

Proxy advisors must ensure accurate voting recommendations.

It is mandatory for intermediaries to assist and facilitate a company’s right to identify a firm’s shareholders and facilitate the actioning of shareholders rights.

ISLA advocates the rules of the Bank of England Money Markets Code (Chapter 4 - Securities Lending; Voting Rights and Benefits Section 6.2-6.4) in which it clearly states that it is best practice, not to borrow securities for the sole purpose of exercising the right to vote.

Any lent shares under a securities lending agreement would have to be recalled for voting at general meetings.

Implementation and Impact

Published on 2017, May the 17th and entered into force on 2017June the 10th, the Directive has been completed by implementing acts published on 2018, September the 3rd.

SRD II impacts not only management companies/AIFMs but also asset managers managing UCITS/AIFs investing in shares traded on a regulated market.

Capital Markets Union (CMU) and SRD II

Robust EU Capital Markets are needed to ensure funding EU companies and the provision of sufficient liquidity to facilitate transformative processes.

As an international exchange organization, we rely on global ties and support the setting up of efficient capital markets, benefitting all market participants.

The capital markets union (CMU) project was a top priority for the first von der Leyen Commission, which in 2019 set up an expert group, the High-Level Forum (HLF) on the CMU.

The Forum developed 17 specific sets of action that are considered as “game changers” in achieving a fully functioning and integrated capital market, with an overall focus on re-equitization.

Reflecting the need to develop deep, liquid and globally competitive European capital markets that would allow Europe to finance its policy goals, in 2024 the Eurogroup agreed upon a roadmap on the future of European capital markets.

Key measures highlighted in the roadmap are, amongst others, the reduction of the regulatory burden, convergence of national corporate insolvency frameworks, harmonization of listing requirements, better integrated market infrastructures, and supervisory convergence.

Creating a fully integrated capital market will feature high on the agenda for the next European legislative term (2024-29).

In April 2024, the Letta Report on the future of the Single Market was presented to the EU leaders at the EU summit.

Deutsche Börse Group genuinely supports actions and ideas aiming at creating an efficient and high-quality European ecosystem that fosters sustainable economic growth.

The need to progress with creating truly unified capital markets has become particularly urgent with the departure of the UK, Europe’s largest financial center, and exacerbated financing needs for digital and green transitions, especially in the wake of the COVID-19 pandemic.

Moreover, there is an increased importance of fostering globally competitive European structures in the light of shifting global balances capable of attracting third-country market participants and supporting domestic market participants in meeting their needs.

To this end, we welcome an increased focus on re-equitisation and recommendations in regard to the functioning of primary markets, for example on alleviations of listing requirements in order to make public equity financing a more attractive option for smaller companies.

It will be essential to increase access to capital markets by removing remaining barriers that further hinder market integration, e.g., fiscal disincentives to equity financing (withholding tax, insolvency procedures).

Moreover, it will be necessary to put the right incentives into place, e.g. creating a private public fund for IPOs as proposed by the European Commission as well as promoting the availability of SME research.

However, well-functioning secondary financial markets (for trading) are just as important as primary markets (for issuing) and constitute a necessary prerequisite to the successful development of the CMU.

The robust and transparent price formation processes of exchanges are key to attract liquidity and ensure that shares raised on primary markets can continue to be traded and attract investors in the first place.

Therefore, Deutsche Börse Group strongly believes that measures for a simplified market structure aligning requirements across trading venues and a well-calibrated transparency regime under MiFID II/MiFIR will be an integral part of completing the CMU to fully support efficient, liquid and resilient capital markets.

Savings and Investments Union (SIU)

On March 19, the European Commission published a strategy paper on the new Savings and Investments Union (SIU).

The SIU succeeds the Capital Markets Union (CMU) and builds upon its foundations.

The EU aims to establish a Savings and Investments Union to better channel the substantial savings of its citizens towards productive investments within the EU, boosting economic growth, creating jobs, and strengthening the EU's global competitiveness.

This initiative recognizes the vast untapped potential of the EU's financial system and addresses the persistent underperformance of the EU economy.

The current geopolitical landscape, climate change, and technological advancements necessitate a more ambitious and coordinated approach to policy-making to unlock this potential.

Previous attempts to revitalize capital markets through Capital Markets Union (CMU) action plans (2015, 2020, 2022) have fallen short of expectations.

However, renewed momentum in 2024, driven by discussions within the Eurogroup and Ecofin, along with influential reports (e.g., Letta and Draghi), has created a new opportunity.

The European Commission, particularly Commissioner Albuquerque, is tasked with advancing key areas such as creating EU investment and savings products, reviewing pension systems, supporting start-ups, fostering exchange consolidation, and improving securitization and EU supervision.

Key Priorities of the Savings and Investments Union

1. Mobilizing Retail Savings:
• Savings and Investment Accounts: Promoting the adoption of easily accessible, digitally enabled savings accounts with appropriate incentives like preferential tax treatment.
• Retail Investment Strategy: Ensuring retail investors are protected and receive value for money while encouraging greater market participation.
• Financial Literacy: Improving financial literacy among citizens to foster a stronger investment culture.
• Supplementary Pensions: Strengthening supplementary pension schemes to enhance retirement income security and deepen capital markets, including exploring auto-enrolment and pension tracking systems.
2. Equity and Alternative Investments:
• Promoting institutional investment in equity, venture capital, and growth capital, particularly for innovative start-ups and scale-ups, key to EU competitiveness, including reviewing and upgrading the EuVECA regulation.
• Public Funding Alignment: Better aligning EU public funding instruments with the Union's objectives and leveraging public initiatives to attract private capital, including supporting programs like TechEU and exploring new avenues for co-investment.
• Investment Exits: Improving exit options for investors, such as through public listings (Listing Act) and developing secondary markets for private capital.
• Taxation: Addressing the debt bias in taxation systems and simplifying cross-border investment tax procedures.
• Securitization: Simplifying the securitization framework to enable banks to free up capital for lending to households and businesses.
3. Barrier Removal: Identifying and removing regulatory, supervisory, and political barriers hindering cross-border activity.
4. Consolidation: Facilitating market-driven consolidation of trading and post-trading infrastructures.
5. Asset Management Development: Addressing fragmentation and regulatory burdens in the asset management sector, improving the cross-border distribution of EU-authorized funds.
6. Convergence of Practices: Strengthening the role of European Supervisory Authorities (ESAs) in promoting supervisory convergence.

The Savings and Investments Union recognizes the crucial role of a well-integrated and competitive banking sector.

Completing the Banking Union, including establishing a European deposit insurance framework, is considered essential for the Union's success.

The Commission is committed to implementing these measures through legislative and non-legislative actions.

Regular monitoring and review, including a mid-term review by Q2 2027, will assess progress and address any obstacles.

Strengthening the International Role of the Euro

More than 25 years following the launch of the single currency, the euro has established itself as the second most important currency in the world.

In an increasingly multipolar global economy characterized by geopolitical tensions, technological disruptions, and global trade conflicts, the EU recognizes the importance of a more diversified system of global reserve currencies and is therefore seeking ways to strengthen the international role of the euro.

A more diversified system of global reserve currencies would not only enhance the resilience of the world economy to external shocks but also bolster Europe's economic and financial sovereignty.

As early as December 2018, the European Commission published its communication “Towards a stronger international role of the euro,” thereby initiating a series of measures to strengthen confidence in the common currency and enhance its attractiveness on a global scale.

Complementing the communication, the Commission launched a series of consultations in 2019 with the goal of gathering feedback from a variety of sectors and stakeholders to better understand the mechanisms that underpin the use of the single currency.

Deutsche Börse Group strongly supports the vision set out in the Commission’s guidelines, notably the goal to establish the EU-27 as a competitive and prospering economic area, supported by financial markets built on principles of stability, transparency, and fairness.

As part of our contribution, we identified different avenues for strengthening the international role of the euro: directly, by increasing the trust and attractiveness of the currency itself; and indirectly, by supporting products and services denominated in euros, as well as the Eurozone’s financial ecosystem.

At the same time, new challenges have emerged for the international role of the euro in recent years.

The increasing importance of digital currencies, geopolitical power shifts, and initiatives by other major economies to promote their own currency areas are changing the dynamics in international capital markets.

These developments could sustainably influence the demand for international reserve currencies and capital flows, posing a challenge to global financial stability.

It is therefore all the more important for Europe to act decisively to consolidate and expand the euro's position as a global reserve currency.

A central element of this strategy is the targeted strengthening of the economic and financial resilience of the eurozone.

Through closer economic policy coordination, the development of fiscal stabilization instruments, and the implementation of structural reforms, the eurozone should become more robust against external shocks - a prerequisite for international stakeholders' confidence in the stability of the euro.

In this context, the reform of the Economic and Monetary Union remains as essential as the completion of the Banking Union and the realization of the Capital Markets Union.

Moreover, market-oriented solutions based on an effective and innovation-friendly legal framework can make a decisive contribution.

They enable a balance between stability and growth promotion and create the conditions for increased use of the euro in strategic key sectors - such as commodity markets or the development of system-relevant euro-denominated financial markets.

These measures contribute significantly to increasing the EU's resilience to economic and geopolitical shocks and securing its global competitiveness in the long term.

In parallel, the integration of European capital markets - such as through the "Savings and Investment Union" announced by the Commission in March 2025 - must be decisively advanced.

The goal is to better link savings and investment behavior within the EU, facilitate cross-border capital flows, and overcome the fragmentation of financial markets.

The planned issuance of joint bonds - for example, to strengthen European defense capabilities - can make a decisive contribution to creating safe euro-denominated assets that are essential for the international role of the euro.

The digitization of the European currency system should be another strategic lever.

The digital euro developed by the European Central Bank can function as a secure public means of payment in the digital space and strengthen the innovative power of European payment transactions.

This is complemented by initiatives for the settlement of large transactions in central bank money based on distributed ledger technologies and the improvement of cross-border payments through the linkage of European real-time payment systems.

Combined with the promotion of private digital financial solutions, this creates a future-proof financial ecosystem that aims to sustainably strengthen the international competitiveness and attractiveness of the euro.

Last but not least, the measures taken in the wake of the COVID-19 pandemic - particularly the EU Recovery Fund and the Recovery and Resilience Facility - have increased the supply of safe euro-denominated assets, thereby contributing to the strengthening of the eurozone's economic sovereignty.

The international role of the euro is thus not only an expression of economic strength but also a strategic instrument for securing European interests in a changing world order.

Deutsche Börse Group will continue to actively accompany and shape this path.

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