On November 12, the Financial Services Authority (FSA) published a consultation paper proposing greater disclosure of significant “economic interests” in shares held through derivatives such as Contracts for Difference (CFDs). The FSA’s position has gradually evolved since in CP06/4, as described in the April 9, 2006 edition of Corporate and Financial Weekly Digest, it announced that it was not minded to expand the shareholding disclosure regime to apply to derivatives. It has now concluded that potential market failures could occur where CFDs are used on an undisclosed basis to influence corporate governance and build up stakes in companies. The Financial Services Authority has stated that such failures, although not widespread, need to be addressed to ensure that market confidence and efficiency are maintained. CFDs currently fall outside the scope of the FSA's disclosure and transparency rules although disclosure of dealings in CFDs is required under Takeover Panel rules during an offer period.
The consultation proposes two alternative approaches: (i) strengthening the current regime by requiring disclosure in defined circumstances of CFDs that reference 3% or more of the total voting rights attached to a company's shares, or (ii) introducing a general disclosure regime which would require CFD holders to reveal all economic interests of 5% or more in a company's shares.
The consultation period ends on February 12, 2008. www.fsa.gov.uk/pages/Library/Policy/CP/2007/07_20.shtml