FSA to order CFD disclosure

The UK Financial Services Authority (FSA) will treat contracts for difference (CFDs) in the same way as shareholdings for disclosure purposes, it announced today.

Under proposed rules, to be finalised in February 2009, holdings of CFDs equivalent to 3% or more of the underlying company's total equity will have to be disclosed, putting CFDs and direct equity holdings on an equal footing.

The news marks a hardening of the FSA's line towards CFDs since its original proposals back in November 2007. Then, it suggested three options. First, the status quo: CFDs need not be disclosed at all, except during takeover proceedings, when holdings of 1% of stock (either direct or through CFDs) would have to be made public. Second, disclosure of 3% positions, unless the holder undertook not to seek voting rights or other influence. Third, general disclosure of all CFD holdings over 5%.

The latest proposal follows the third option, but imposes stricter criteria. Rather than a threshold of 5% in CFDs, which would allow an investor to build up an undeclared stake of almost 8% (just under 3% in shares and just under 5% in CFDs), the limit is now 3% total in either shares, CFDs or a combination. The only exception is for writers of CFDs who are providing liquidity and will be granted exemption, the FSA said.

The new rules will come into force by September 2009. Last year the FSA estimated the cost of a general disclosure rule at up to £50 million, but it said today that exempting intermediaries would "significantly reduce the cost".

See also: Open to disclosure? 
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