Delivery of Stocks and Public Disclosure

Q.: Can you take or make delivery of a stock by trading a CFD?

A: No. A CFD is a financial instrument linked to the underlying share price. Unlike exchange traded options, you will not acquire any rights or incur any obligations relating to the underlying share.

Q.: Do CFDs give you the right to convert your holdings into actual shares?

If you're holding a Long CFD position do you have the right to buy the underlying shares from the CFD counter-party (say for a takeover bid) or does there have to be an agreement with the counter-party to be able to do this?

A: CFDs don’t give you the right to convert into actual shares. If they did someone would have to relinquish the shares as no new shares would be created. So CFDs don't have an automatic right, however, the cfd holder may have an agreement with the actual owners to purchase the shares at a fixed given price. Usually, however, the CFD will follow whatever is decided in the specific corporate action – more or less.

Q.: If anyone holds shares via CFDs does one have to notify the public through an RNS if their holding goes over...

If anyone holds shares via CFDs does one have to notify the public through an RNS if their holding goes over a certain limit? And what about if one were to dispose of this holding would they have to issue another RNS or are they not obliged to make notifications at all? I always thought that an RNS was mandatory when one’s holdings via share holdings or CFDs exceeded the 3% threshold...

A: It’s an OTC (over-the-counter) product, which in this case does not follow the 3 pct rule....well at least at present...the FSA is working on disclosure rules to block covert stakes which rules are likely to come into force later in 2009

Q.: Yes, I understand that but shares as you know give you entitlement in the say of things...

Suppose if one held 51% of the shares in a company it effectively gives him much more say…

A: Ok, in that case the CFDs will no…so if you’re thinking to obtain certain rights some way or the other, it must be through shares. CFD traders do not have any real voting rights whatsoever. They cannot say who runs the company, and they do not go to an AGM.