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UK investment companies welcome disclosure plans for contracts for difference


The UK’s Association of Investment Companies has welcomed the publication by the Financial Services Authority of proposals that will require the disclosure of contracts for difference and

The UK’s Association of Investment Companies has welcomed the publication by the Financial Services Authority of proposals that will require the disclosure of contracts for difference and similar derivatives based on the value of company shares.

After receiving feedback from ‘a broad spectrum of interested parties’ on its November 2007 consultation paper, the FSA has decided to implement a general disclosure regime for long CfD positions as the most effective way of addressing concerns in relation to voting rights and corporate influence.

Existing share and CfD holdings in the same company should be aggregated for disclosure purposes. The initial disclosure threshold will be at 3 per cent, in line with existing disclosure rules, although the FSA proposes an exemption for CfD writers that act as intermediaries, similar to the UK Takeover Panel’s recognised intermediary exemption, to reduce unnecessary disclosure.

The FSA has published a feedback statement containing draft rules to implement its position, which has now been finalised, although the regulator will accept technical comments on the rules to ensure they are effective. The deadline for comment is January 23, 2009 after which the FSA plans to issue final rules in February that will come into effect on September 1.

‘Our goal is to provide an effective and proportionate disclosure regime that works for all involved, and sustains market confidence and efficiency,’ says FSA director of markets Alexander Justham. ‘We have received extensive support for the approach we are taking since we announced it in July.’

The AIC supports disclosure of derivative positions to protect shareholder interests, arguing that in principle the FSA’s proposed measures should enable shareholders to understand who might try to exert influence over the affairs of companies they own and allow them to act to protect their own long-term interests.

‘Transparency is vital to the smooth and fair operation of markets,’ says AIC director-general Daniel Godfrey. ‘In this case, letting shareholders know who has an economic interest in their stock will help them understand who may be trying to influence the direction of the share price of the company and what their motives may be.

‘Shareholders can then discuss options with management and each other and vote accordingly. These policy proposals should help create confidence in UK markets and reduce the risks that shareholders may face from other parties with conflicting, often short-term, agendas.

‘Of course, policy intentions are only as good as the regulatory system intended to deliver them. We will therefore be studying the proposals carefully to ensure that there are no gaps and to check that they really do deliver the FSA’s objectives.

‘Areas of particular interest, for example, will be the scope of the rules – which derivative instruments are covered – and the proposed exemption for businesses that use CFDs when providing other services to clients.

‘We are also keen to see these measures introduced as early as possible and will ask the FSA to bring forward the September 2009 implementation date if at all practicable.’

The Association of Investment Companies was founded in 1932 to represent the interests of the investment trust industry but today represents a broad range of closed-ended investment companies, including venture capital trusts VCTs. The AIC has 346 members with total assets under management of some GBP88.8bn.

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