J Hughes, Financial Times
The City watchdog is pushing ahead with plans to force disclosure of derivatives that help investors stealthily build positions in target companies.
The Financial Services Authority on Thursday confirmed that investors who build up positions through contracts for difference will have to disclose their holdings when they reach 3 per cent of a company’s outstanding stock – just as if they had bought the shares outright.
CFDs allow investors to gain exposure to a stock for a fraction of the full price, although they do not confer the voting rights attached to the shares. But CfD holders can convert the contracts into the stock itself, allowing investors to “sneak up” on a company and appear as a large shareholder without warning.
The regulator had initially preferred a more complex disclosure system with various opt-outs that would have allowed many stakes to remain secret. But it surprised the markets in July when it announced a simpler system that brought its rationale into line with that of the Takeover Panel, which requires disclosure of a CfD or stock position worth more than 1 per cent in a takeover offer.
On Thursday the FSA produced draft rules for the new regime, which is scheduled to come into effect from September next year. It is inviting comments on the technical aspects of the rules but made it clear in July its position on the wider issue would not change. The final rules will be issued in February 2009.
Alexander Justham, FSA markets director, said: “Our goal is to provide an effective and proportionate disclosure regime that works for all involved and sustains market confidence and efficiency. We have received extensive support for the approach we are taking.”
Institutional investors have welcomed the changes.
“Companies should know who has built up a stake and investors too should be aware of what would otherwise be happening behind their backs,” said Peter Montagnon, director of investment affairs at the Association of British Insurers. But he added: “This is only a start. Especially in the light of the recent market turmoil we need to move on to look more closely at short positions as well as long ones.”