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AIC urges FSA to force full disclosure of CfDs

The Association of Investment Companies is urging the FSA to introduce a general disclosure regime to force full disclosure of companies’ use of Contract for Difference.

The AIC says this will tackle problems caused where CfDs are used to take an economic interest in a particular company share but where shareholders in that company are not made aware of the existence of those CfDs.

Currently investors are required to tell the market when they own a significant amount of shares or have an option to buy them and the AIC says the same rules should apply to CfDs.

One option that has been put forward by the FSA is to require all CfD holdings over a certain threshold to be disclosed.

Another is to create a ‘safe harbour’ where disclosure will not be required if the CfD meets certain conditions, including an undertaking not to acquire the relevant shares from the CfD counterparty and an agreement not to try and influence any voting rights associated with the shares.

AIC director general Daniel Godfrey says as the market for CfDs has grown, the potential for abuse has also increased.

He says: “CfDs can be used, for example, to support stake-building without informing shareholders or the wider market that it is going on. This can create problems for investors, for example, in depriving them of information they need to make an effective assessment of the “right” price at which to buy or sell. This is why CfDs should now be disclosed alongside shares and options when the aggregate interest reaches 3 per cent.

“While a partial disclosure may look attractive at first sight, it is clear that it will not work. It creates too many loopholes which will allow abuses to persist. It is also inherently complicated and these complications will create costs.”

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