OECD – WORLD BANK
South Eastern Europe Corporate
Governance Roundtable
Transparency and Disclosure.
Implementation and Enforcement.
How to identify beneficial owners
Dr Panayiotis Alexakis
President, CEO
Athens Exchange S.A.
June 11, 2004
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I.
II.
III.
IV.
Why is identifying the beneficial
owner important?
What is meant by the term
“beneficial owner”
Which are the main tools for
identifying the beneficial owner?
The Greek experience
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I. Why is identifying the
beneficial owner important?

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
Registry purposes – Benefits for the issuer
Allowing investors and most importantly retail
investors to take decisions based on information,
with regard to their participation in an investment
– Benefits for the investor
Improving the level of servicing and protecting the
end investor – Benefits for for the investor
State supervision – Benefits for the society
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I.1) Why is identifying the beneficial
owner important for registry purposes?

Identifying the beneficial owner helps the issuer to:
 perform corporate actions in a more satisfactory and
speedy way for all its titleholders. If the issuer knows
the identity and location of his shareholders, he can
make all necessary arrangements for accomplishing
corporate actions (e.g. dividend payments et.c.)
efficiently
 study the patterns, which international investors follow,
when they make their investment decisions. In other
words, identifying the beneficial owner is a strong
weapon for the company’s IR department
 understand significant changes in the shareholders’
structure of the company. These changes may also
signal future take-over attempts
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I.2) Why is identifying the beneficial
owner important for investment
decisions?
The shareholder structure, as well as the exact
moment of participation and exit of major
investors, is a decisive factor, which helps the
investor to take his investment decisions
Identifying and revealing the above data is a
strong weapon against insider dealing that
could take place if an equivalent disclosure
regime had not been in place
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I.3) How is identifying the beneficial
owner contributing to investor servicing
and protection?
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In an ideal world, new technology enabling the
employment of STP process at all levels of the
transaction, would give the beneficial owner the
opportunity to transact directly in the markets,
limiting the scope of financial intermediation
Direct registration of the beneficial owner in the
central system (for example in the CSD)
facilitates the employment of STP at all levels of
transaction and practically broadens the
beneficial owner’s opportunity for direct access in
the markets.
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I.4) Why is identifying the beneficial
owner important for reasons of state
supervision?
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Money laundering concerns
The New EU Directive extends the coverage to a series of nonfinancial activities and professions that are vulnerable to misuse by
money launderers. Requirements as regards client identification,
record keeping and reporting of suspicious transactions are
therefore extended to external accountants and auditors, real estate
agents, notaries, lawyers et.c.. This shows the concern of the EU for
preventing money laundering, to which identifying beneficial owner
contributes significantly
Global safety concerns
Tax avoidance issues
Special purposes, for which the identity disclosure of the shareholders
is deemed as essential. As paradigms:
 State contractors
 Media companies
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II) What is meant by the term “beneficial
owner”

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It is a term derived by the common law “equity” regime.
It means the person, who is entitled to enjoy the
economic rights stemming from the ownership, although
the ownership has been registered in the name of
someone else (the legal owner), who holds the object in
his own name but on behalf of the beneficial owner
The beneficial owner is the “indirect” owner. Therefore
beneficial registration structures are known as “indirect
holding”, “nominee registration” or “omnibus holding”
structures as opposed to the “end-investor” or “direct
holding” structures.
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Continental property law traditionally lacked beneficial ownership
structures. However, indirect holding in a global economy had
originally been seen as a practical necessity. To resolve the problem,
most continental legal orders incorporated a clause in their insolvency
law whereby it was recognized that holdings registered in omnibus
accounts were segregated from the pool of asset of the legal owner in
his insolvency event. In this way, indirect holding systems became
legally safer and business-wise eligible
Systems that chose the end-investor approach on the other hand,
were based on a proxy whereby the (natural or legal) person
registered in the system, namely the accountholder, was recognized as
the final owner of the securities. Improper registration in end-investor
systems (namely, registration of merely the legal owner) entailed
some degree of legal risk for the beneficial owner, who ran the danger
of having a mere contractual claim, instead of a property right, in the
case of the legal owner’s insolvency.
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III) Which are the main tools for
identifying the beneficial owner?
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The two main tools for beneficial owner
identification are:
 The obligation to disclose to the market major
holdings acquisitions or disposals
 The end investor registry system
These tools are not interchangeable, neither
from a legal nor from an operative perspective.
They serve different needs and perform different
functions
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III.1a) The obligation to disclose

From a legal point of view, the obligation to disclose has, since 1988,
been a piece of European legislation (Dir.88/627 later incorporated in
the 2001/34 Dir and currently a substantive part of the Transparency
Directive)
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In the current EU regime, the obligation lies initially with the person
who acquires or disposes and at a second level on the issuer, if and
when he is informed. The person must make the announcement the
seventh calendar day the latest from the day he learnt he has acquired
or disposed the shares
The new Transparency Directive extends the period of announcement
to 7 trading days and it alters the process: the acquiring or disposing
person will be obliged within 4 trading days to notify the issuer, who
will within the next 3 trading days, notify the market.
The home Member-State is not prevented from employing a more
stringent regime
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III.1b) The obligation to disclose as a
tool of identifying the beneficial owner
– Pros and cons
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CONS
Significant time lapse of 7 days from the acquisition or disposal
Lack of any central cross-checking mechanism. The disclosure rests on
the hands of the beneficial owners
Limited help to the registry function, since only major shareholdings
are declarable and the time lapse is considerable
HOWEVER
This tool is a common practice for all markets and is practically easier
for very large markets, where the employment of a direct holding
structure would possibly require heavy technological investment
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III.2a) The end – investor approach /
pros
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The end-investor approach is, as we previously said, legally created by
a proxy whereby the person registered as the account owner (normally
in a CSD system) is assumed as the final (both legal and beneficial)
owner of the securities recorded therein
The end investor system has the effect of the direct disclosure of the
beneficial owner identity with the analyzed positive effects for the
issuer, the investor, the state control mechanisms et.c.
Direct holding systems are facilitated by the new technology (APIs)
These systems are of a minimum legal and operative risk, since all
holdings are directly registered in the database of a CSD, whose risks
are minimum in comparison to the custody risks of a chain of
intermediaries in an indirect holding system. In addition, issues with
regard to the law applicable for the determination of ownership rights
receive a more straightforward answer: usually the law applicable will
be the one that governs the direct holding system.
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III.2b) The end – investor approach /
cons
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Despite gradual unification of technological solutions applied in
registry and custody services, the issue remains that direct holding
structures appear as demanding from the global custodian, the
development of various interfaces that enable him to connect with
local systems. Therefore, concentration of back office operations is
not encouraged. This disadvantage will gradually disappear with the
employment of new technological solutions (APIs)
Proper direct holding registration requires a satisfactory degree of
effective and efficient communication between the registry system
(normally, the CSD) and its participants (the custodians), which is
not always easy.
Direct holding systems must not deprive the investor and most
importantly the intermediary of the privilege to keep in anonymity
data connected to his/her identity or to the identity of its clients
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
The existence of the proxy with regard to the identity of
the beneficial owner (namely, the assumption that the
final owner of all the holdings recorded in an account is
the account owner) may be seen as arbitrary. The
problem is due to improper registration. However this
“misuse” of the direct holding system has the following
disadvantages:
 Discrepancy between the data stemming from the
CSD system and those stemming from the major
holdings disclosure system, as regards the beneficial
owner’s identity.
 Wrongful information to the issuer or to other inforeceivers
 High level of legal risk on the circulation of the title
through indirect holding chains, as above described.
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IV) The Greek experience
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The Greek market uses both tools for identifying the beneficial
owner of securities
P.D. 51/92 implementing Major Holdings Disclosure Directive into
the Greek law has been interpreted restrictively and currently
requires the person, who has acquired or disposed, to notify the
market on T+1, namely the next trading day
The CSD registry database is oriented to the end-investor, who
becomes owner of securities directly from the title-leg CSD
settlement on T+3
CSD registry system facilitates STP and the interconnection between
the trading and registry system gradually develops
CSD registry system secures anonymity in the sense that no account
operator (the CSD, included) has access to other parts of the
investor’s account, unless he is expressly authorized by the account
holder.
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For more information
http://www.ase.gr
Thank you very much for your
attention!
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