Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, February 01, 2007

Scratch an IRO and you are likely to find someone who has concerns about CFDs. Wake up to find a significant share stake building is underway – and the IRO knew nothing about it. With limited disclosure obligations for contracts for difference – and other derivatives - this is not an unlikely occurrence. Ask the people over at Photo-me for instance.

2 things have happened which point towards improvement in the transparency of these instruments.

First, an informal consultation is being conducted by the Code Committee of the Takeover Panel, into the effectiveness of the rule, introduced in November 2005, which requires disclosure of stakes above 1% of any class of securities, including therefore CFD’s, during an offer period.

Whilst this consultation does not therefore address the issue of wider disclosure OUTSIDE an offer period, it does present an opportunity for issuers to have their say. The Investor Relations Society is including a question on this in its weekly Bulletin, and issuers have the chance to contribute to the debate in this way.

The second intervention came from the hugely influential Association of British Insurers, representing more than a fifth of the UK listed equity investment. They have called for the regular disclosure of CFD holdings – and not just during a takeover bid.

The ABI was quoted in the Sunday Times as saying “"Through this consultation the Takeover Panel has shown that a modern disclosure system can work, that it doesn't result in an over-burdening of information or loss of liquidity and brings genuine benefits to the market. We hope the FSA (Financial Services Authority) will look closely at adopting this model across the market at all times - not just in bid situations."

And issuers are interested to see the disclosures increasing not only in CFD’s but in stock lending situations as well.

Given the ABI’s influence, these events may give a fillip to the FSA’s work in reviewing the disclosure regime. The FSA indicated that it would consult on the issue in the Spring.

Whether they will be influenced by the recent changes to the listing of investment funds – notably hedge funds – remains to be seen.


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