CFD holders which were at the center of the Quinn/Anglo Irish controversies, should face additional restrictions, corporate enforcement watchdog Paul Appleby has stated.
Appleby has urged that those holding contracts for differences in an enterprise should be considered as ‘related parties’ and, as a consequence, they could be disallowed from getting loans from the company.
Such circumstances would most likely have prevented Sean Quinn and his relatives from acquiring loans from Anglo during 2007 and 2008.
Mr Appleby has suggested that ‘related parties’ should include anyone with an investment interest that ‘exceeds 10 per cent of the shares or voting rights’.
Once the legal ramifications have cleared, this will enable the classification of investors choosing such alternative investments to be included as related parties, he said.
Mr Appleby referenced contracts for differences as part of a ‘wider range’ of possible investments available now in the market.
About CFDs: A CFD is an agreement between two parties to exchange the difference between the entry and exit price of a contract and allows investors to speculate on shares without having full ownership of the underlying asset.
They are usually highly geared investments, which implies that the amount you put down is only a small amount of the market value of the contract. Investors can take CFD positions out on a number of assets such as shares, commodities, forex pairs or indices.
About Sean Quinn: Sean Quinn, reputed to be Ireland’s richest man built up a position in Anglo Irish Bank using financial products known as CFDs. Quinn’s interest in Anglo was first reported in January 2007 when he was named as the mystery investor who had bought up 5% of the bank.
By 2008 the Quinn family had utilized contracts for differences build a position equivalent to about 25% of Anglo, but as the value of the bank plunged they were on the wrong end of the CFD deal. Quinn’s gamble on the share price going up backfired within months. On June 7, 2007, Anglo’s shares peaked at €17.53. Three months later, the share price started falling and it never recovered as the international banking sector collapsed, led by Bear Sterns in the United States and followed up Lehman Brothers.
In July 2008 Quinn crystallised his losses by converting the CFDs into an ordinary 15% shareholding – a move which is reputed to have cost him circa 2.5bn euros (£2.2bn). At least some of the stock was bought with borrowings from Anglo. The remainder of his position was bought out by 10 major customers of Anglo. The bank lent them the money for the deal to prevent the shares coming onto the open market, which would have further depressed the bank’s value further.
‘We are mindful of the difficulties presented by the wide range of possible investment methods available in the market.’ ‘However, you will be aware of the specific difficulties caused by for instance, CFDs,” Mr Appleby stated in a letter addressed to Regulator Matthew Elderfield.’
