ANDREY TSYGANOV: EVALUATION OF THE IMPACT OF RECIPROCAL SHAREHOLDING BY INSTITUTIONAL INVESTORS SHOULD ACCOUNT FOR POSSIBLE ADVERSE CONSEQUENCES
Since transactions with institutional investors are of global nature, absence of an actual possibility to collect market information can become an insurmountable barrier for objective analysis.
On 6 December 2017, OECD Competition Committee discussed “reciprocal shareholding by institutional investors and its impact upon competition”.
The Committee discussed the issues related to the impact of the same persons participating in the authorized capital of different economic entities upon the state of competition. In particular, the Committee considered minority ownership, involvement of institutional investors in the authorized capital of commercial companies, reciprocal holding of shares of competitors on highly concentrated markets. The international competition community analyzed potential adverse effects of reciprocal shareholding, such as coordinating reduction of the level of market competition, and unilateral effects. The Committee also discussed possible measures on alleviating the consequences, particularly: intensifying efforts against cartel agreements, especially between institutional investors; setting restrictions on the percentage of reciprocal shareholding on highly concentrated markets; introducing “safe harbours” for institutional investors; implementing special mechanisms for evaluating economic concentration transactions between institutional investors.
Under Russian antimonopoly law, to acquire voting shares of a shareholding company or shares in an authorized capital of a limited liability company over a particular threshold, a person needs a preapproval by FAS. A person does not need a preapproval of the antimonopoly body to acquire shares (stock) without exceeding the threshold. Thus, acquiring shares owned by minority shareholders typically is beyond the regulation under Russian competition law.
According to international practice, many transactions with institutional investors are global, horizontal and vertical mergers that in some cases require approvals by competition authorities of some states, particularly, Russia. Investigating such mergers, first of all, collecting the necessary information for analysis and evaluating the consequences of the expected transactions for the state of competition, many antimonopoly bodies face a number of difficulties. Objective reasons preventing comprehensive analysis of the mergers include weak interaction between national competition authorities and absence of the mechanisms enabling to fully trace such mergers.
“Evaluating the impact of reciprocal shareholding by institutional investors upon the state of competition must take into account not only positive effects but also possible negative effects of a merger”, pointed out Deputy Head of FAS Andrey Tsyganov. “Since transactions involving institutional interests are global, absence of an actual possibility in the part of collecting market information can become an insurmountable barrier for objective and comprehensive analysis. To overcome the issues, it is expedient to reinforce informational cooperation between competition authorities of different states, establish unified terminology with regard to institutional investors, and develop new approaches to global mergers”.