The UK Financial Services Authority’s proposals to increase disclosure of positions in contracts for difference has so far met with a mixed response.
On the back of concerns that some market players, namely hedge funds, are using CFDs to secretly build up substantial positions in companies, the regulator issued a consultation paper in November in which it proposed two possible frameworks for increasing CFD disclosure. CFDs are a type of equity derivative, which means they fall outside normal equity market disclosure rules. The FSA invited the industry to give feedback on its two proposals by February 12.
| CFDs and financial betting account growth in Europe |
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| Source: Celent |
One option would involve the introduction of a general disclosure regime that would require CFD holders to reveal all economic interests of 5% or more in any company’s shares. The alternative proposal is more targeted; it would require disclosure of any CFDs written in reference to 3% or more of total voting rights attached to a company’s shares, unless it is clear that the CFD holder cannot exercise or seek to exercise voting rights, that this is made clear in a statement, and that there are no arrangements or understandings in relation to the potential sale of the underlying shares by the CFD holder.