Mark Hynes - thoughts on corporate disclosure

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

Friday, November 27, 2009

CFD disclosures 6 months on.

Hard to believe, but it is 6 months since the new rules on disclosures of CFD positions came into force. On the 1st June, investors were obliged to disclose positions above 3% taken through CFD’s, in addition to those held directly through equities. Has it made a difference? And more importantly, where do these rules fit with the topical ‘stewardship’ debate?

First, the volumes of announcements expected by some who opposed the disclosure in first place have not materialised. There has been no substantial increase in disclosures of major shareholdings.

However those notifications ARE more informative, and include information on positions that allow issuers to build up a picture of the beneficial ownership. However it is still tricky to establish where the voting rights lie. And to understand where the implicit hedge in the CFD lies. Meantime, the market for CFDs has undoubtedly changed, certainly in the early months of the new rule. Leverage remains was more scarce, negating part of the benefit of a CFD in the first place.

So where next? CESR is looking at an EU-wide regime of short selling disclosures. And the 2010 review of the Transparency Directive could be extended to include disclosure of cash settled derivatives. All in all, IR teams are gradually getting the tools to do the job of building up a picture of who owns – or has an interest in – their shares.

However the bigger picture is probably more important. CFD’s and short positions are some of the tools of those who take short term positions in companies. The debate about ownership of UK Plc and the ‘casino’ markets is very much a live issue. To what extent should we encourage (or force) a situation where shareholders have priorities and behaviours aligned with the long-term interests of the company? Tomorrows Owners – who have spearheaded this issue for many years – have just published an updated view on this. And it’s hard to turn on the radio these days without getting a view from Government on the issue.

But more of that another time. Meantime, IR teams have got what they wanted – enhanced disclosure of derivative positions – balancing the disclosure scales more evenly.


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