CFD rules set for major overhaul – Ireland

August 24, 2007Andy No Comments »

Samantha McCaughren – The POST.IE

Investors who build up stakes in companies using contracts for difference (CFDs) will be forced to disclose their shareholding when current rules on the financial instrument are overhauled in the coming months.

The Sunday Business Post understands that the Takeover Panel will shortly tackle the loophole which allows stake-builders to remain anonymous by using CFDs.

The ability to avoid disclosure through the use of CFDs came to prominence recently, when property developer Liam Carroll built up a stake in ferry operator Irish Continental Group (ICG) by using the instruments.

Carroll’s identity was suspected for several weeks but only recently confirmed. Insurance and cement billionaire Sean Quinn has also been reported as having built up a stake of around 5 per cent in Anglo Irish Bank.

Quinn has yet to declare publicly the level of his interest in the bank despite recent market rumours that he may have increased his interest.

A similar loophole was closed off in Britain last year, following the role played by CFDs in a number of high-profile takeover bids, including an attempt by billionaire retailer Philip Green to launch a bid for Marks & Spencer.

The new British rules are seen as having improved transparency, and an overhaul of the Irish rules is expected to mirror those in Britain.

Sources familiar with takeover regulations said they expected disclosure rules to be changed as early as this year, with more complex changes impacting on CFDs likely to be introduced in 2008.

‘The disclosure issue is easy to address and that can be done very quickly,’ said the source.

‘You may see changes to the disclosure regime coming in this year, depending on whether it is decided that it is of such significance that it needs to be done immediately or whether it can wait to come in with other changes to the treatment of CFDs.’

‘The second is a more complex issue, which is how you treat the individual who holds the CFDs for the purposes of control.’

Technically, a person who enters into a CFD does not own the underlying shares and does not hold the voting rights to the stock.

The Takeover Panel would need to consider a range of financial derivatives and establish when a share is judged as being in control of the investor.

The panel regularly updates its rules to keep up with market developments and has recently completed integrating an EU takeover directive in to Irish legislation.

The body would be expected to hold a consultation process before any changes are made to the existing rules.

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