Shares digital

Renewed calls are being made for unconditional 3% disclosure of contracts for difference (CFD) positions. In November the Financial Services Authority (FSA) unveiled proposals to unmask CFD holders, but unlike the current regime for shareholdings, the FSA favours a partial disclosure system. It wants holdings above 3% disclosed only when the investor controls the underlying shares.

However, the Association of Investment Companies (AIC) – which represents the UK’s investment trust sector – has slammed a conditional disclosure system, saying it ‘will not work’ because there are too many loopholes.

While the AIC speaks as a representative of quoted companies (and institutional investors) non-disclosure of CFDs is also a hot issue for private shareholders. Inexplicable share price movements are often blamed on unofficial leaks of hidden CFD positions.

Private client stockbrokers have called for unconditional 3% disclosure as has the Investor Relations Society (IRS), whose members include 80% of the FTSE 100 companies.

CFDs have been used by investors to stake-build in secret. Whenever a CFD broker writes a contract for a client the business model involves buying shares to the same amount as a hedge. But secret agreements are struck where the investor is given the right to buy the hedging shares once the contract expires.

The FSA put forward two proposals for CFD disclosure as part of a consultation process that closed last week. But opponents ask why it can’t just replicate the existing rules for share dealings which have no loopholes in them.

It has been reported the FSA put out watered-down proposals after buckling under pressure from the big investment banks, whose brokerages offer stealth CFD stake-building services to their clients.