News
Peregrine Riviere, the Chairman of the Society has written a letter to our members outlining the current position in the FSA’s consultation process on disclosure for Contracts for Difference. The Society has been actively lobbying for improved disclosure of CFDs and our feeling is that opinion is moving in our favour. As stated in the letter below, we think it would further strengthen our case if you were able to submit a supportive response to the FSA before the deadline of 12 February. If you would like any further information please do not hesitate to contact the Society’s General Manager, Mike Mitchell at michael.mitchell@irs.org.uk
Dear Member
As you are probably aware, the FSA has been considering what the disclosure regime for Contracts for Difference ("CfDs") should look like, given the significant increase in the proportion of trading executed via CfDs and other cash-settled derivatives in recent years. It published a consultation paper last year seeking responses from interested parties to a series of draft proposals.
(see link below to access full details:)
http://www.fsa.gov.uk/pubs/cp/cp07_20.pdf
In short, the FSA tabled three options for disclosure, which are summarised and simplified below:
Option 1 Do nothing;
Option 2 Make disclosure of CfDs directly related to access to voting rights. CfD holders would need to agree to a "stringent" set of safe harbour requirements preventing them from having access to underlying voting rights, if they wanted to avoid disclosing significant holdings. CfDs with voting rights attached would be aggregated with holdings in the underlying equity, with disclosure required from the 3% level upwards, as with the existing DTR regime; or
Option 3 Replicate the DTR regime that currently exists for disclosure of equity shareholdings, but at 5%, 10% and 15% levels, rather than the DTR's approach of 3% and incremental 1% movements.
We have been in regular communication with the FSA and rejected all of these options on behalf of members. We believe that Option 2 would be impossible to enforce, and that Option 3 has two significant failings: firstly that the disclosure levels are too high, and should be aligned with the existing DTR levels; and secondly that CfD positions are not to be aggregated with ownership of the underlying equity - this could lead to an institution owning an 8% economic interest in a company without any disclosure requirement.
We have therefore proposed a very simple "Option 4" to the FSA. This proposes that the disclosure regime for CfDs should be entirely equivalent to that for underlying equity ownership, and that in all cases CfD and equity positions should be aggregated for disclosure purposes. In other words, a 3% CfD holding should be disclosed, as should a combined holding of 1% in CfDs and 2% in underlying equity. Our response to the FSA draws this conclusion.
Encouragingly, it is apparent from discussions across other industry bodies and representative groups that the tide is beginning to flow in the same direction, with a majority appearing to support this view. I know from my own experience how difficult it can be identifying shareholders, or those moving large amounts of stock in my company; I am sure many other IROs have had similar experiences. I would encourage as many companies as possible to respond to the FSA, even if it is only a very brief submission to voice support for the IR Society's position.
All responses should be submitted by 12 February 2008, either in writing to:
Simon Cottee
Policy - Primary Markets
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
or by email to cp07_20@fsa.gov.uk.
If you have any questions on the issues raised, please do not hesitate to contact me, Mark Hynes (mark.hynes@prnewswire.co.uk) or Michael Mitchell (michael.mitchell@irs.org.uk).
Best wishes
Peregrine Riviere
Chairman
The Investor Relations Society
Published: 31 January, 2008