Bloomberg News

FSA Adopts Rule on Disclosure of Derivative Long Bets

October 23, 2008

The U.K. market regulator said investors who use derivatives to build large stakes in companies must follow the same disclosure rules as shareholders.

The Financial Services Authority will adopt a policy requiring long positions that use so-called contracts for difference to be made public when holdings reach 3 percent, the regulator said today in a statement. The proposal, originally made in July, was one of several considered this year along with emergency measures to disclose short positions.

The FSA is in the process of reviewing the measures it has adopted this year as part of a bid to calm volatile stock markets. The regulator yesterday eased one provision in a ban on short selling of shares in financial companies that required daily disclosure of short positions.

``The FSA has recently been keen to demonstrate that they can move with speed,'' said Emily Benson, a regulatory lawyer at London-based Barlow Lyde & Gilbert and a former FSA official. ``However, I would speculate that this measure has been in the pipeline for some time.''

The final version of the rules will be issued in February and come into effect in September, the FSA said. The contracts, known as CfDs, enable speculators to bet that a stock will rise or fall without owning any of the shares.

U.K. billionaire Robert Tchenguiz in May gained control of a stake of just over 3 percent in Whitbread Plc (WTB), the owner of Premier Inn budget hotels and Costa cafes using contracts for difference.

`Proportionate Disclosure Regime'

``Our goal is to provide an effective and proportionate disclosure regime that works for all involved, and sustains market confidence and efficiency,'' said Alexander Justham, the FSA's director of markets, in the statement. ``We have received extensive support for the approach we are taking, since we announced it in July.''

The FSA became the first securities regulator in the world to issue a ban on the short-selling of shares last month in a bid to calm market volatility that caused HBOS Plc to lose 37 percent of its value over three days.

To contact the reporter on this story: James Lumley in London at jlumley1@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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