Mark Hynes - thoughts on corporate disclosure

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

Thursday, January 17, 2008

And so the FSA Listings conference

The event that is the FSA’s chance to share with the market new proposed rules for UK Plc took place this week. Around 200 people attended, many of them advisors to companies in one form or another.

Since the last conference in March 2006, UK Plc – and the financial services markets generally - has seen a massive change in new and amended regulation. Most of this has been driven from Europe, and so would the tide continue? The impression gained was probably not. Much of the new proposed discussion was almost a ‘tidying up’ of regulation, fixing areas where concerns remain.

2 prime examples. First the structure of the listing regime itself. Confusion is seen to exist between primary listings, secondary listings and GDRs. At one level, the concern is that UK Plc is subject to a stringent set of domestic governance rules, whereas overseas companies are largely subject to their own rules. How to ensure that investors are confident that all companies are subject to an appropriate standard?

And similarly should the Official List be restricted? What about companies traded through MTFs operated by other RIE’s? The FSA discussion paper is open for comment.

Second example is one extremely close the the heart of most IRO’s. The IRS has long campaigned for the disclosure of economic interests owned in the form of CFD’s. Given the huge rise in the use of CFD’s, and the consequent rise – some say up to 30-40% - of companies are held in the form of CFD’s, pressure has been building on the FSA to require disclosure.

The FSA’s CP on the issue offered – in summary – 3 options: The first was do nothing – rejected by the FSA. The second option was a series of rather complex safe harbours which would be an administrative nightmare for brokers, and not result in any more visibility of who is influencing the ownership or voting of shares. The third option was simply to add CFD’s – and similar instruments – to the existing disclosure regime, but to disclose them at 5%. Since this holding could then be aggregated with existing direct ownership, the first the market would know was when a holding of 8% had been built up.

The IRS – and in fact I spoke for them at conference – argued for the third option but with the threshold being set at 3%, without the aggregation, so that it mirrors the existing Panel regime.

The mood of the conference on this issue had changed substantially, so I expect responses from the traditional investor organisations – and in fact brokers and others - to reflect the IRS view. With a deadline of February 12th, time to get our skates on in order to reply.


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