Mark Hynes - thoughts on corporate disclosure

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

Thursday, October 11, 2007

Great excitement in shareholder ID circles this morning.

A new best practice guidance document from the hedge fund industry, on which it is seeking comment, is proposing more disclosure of CFD positions.

This blog has highlighted several times the fact that unless IRO’s know who their shareholders are, conducting an IR outreach is almost impossible. In the UK, companies have the advantage of obligations in the FSA’s DTR rules, and in the Companies Act, which allow companies to know who their shareholders are. However these rules exclude derivatives, except under takeover situations, where Takeover Panel rules kick in.

So it is encouraging to see today the consultation from the Hedge Fund Working Group, recommending that industry wide disclosure of derivative positions should be required. Here’s an extract from the draft guidelines:

“The HFWG acknowledges that companies have a right to know who owns them or who has an ability to easily obtain significant voting power. Indeed, members of the HFWG would welcome higher levels of disclosure.

However, the voluntary adoption of enhanced disclosure requirements by hedge fund managers (or any other particular sector of the market) would cause distortions in the market place because they would not apply to all market participants but merely to hedge funds.

Therefore, the HFWG recommends that regulators take action to introduce a regime (similar to that of the Takeover Panel in the United Kingdom applicable during takeover offer periods) requiring notification of “economic” interests in shares held via instruments such as CFDs.
The HFWG members are willing to contribute to consultations with regulators to work out a solution that enhances the current disclosure regime.”

You can see the full consultation here.

This is very encouraging. A disclosure regime should absolutely apply to all holders of derivatives, and not just hedge funds, and we hope that this proposed self regulatory regime will help the FSA – as it goes through forming its own ideas - to add derivatives to material positions in the DTR 5 rules.


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