The Association of Investment Companies, a body representing UK investment trusts, has welcomed the Financial Services Authority’s publication of a consultation paper which, if implemented, will require the disclosure of contracts for difference and other similar derivatives based on the value of company shares. 

In principle these disclosures should let shareholders understand who might try and exert influence over the affairs of companies they own and then allow them to act accordingly to protect their own long-term interests.

Daniel Godfrey, AIC director general, said: “Transparency is vital to the smooth and fair operation of markets.  In this case, letting shareholders know who has an economic interest in their stock will help them understand who may be trying to influence the direction of the share price of the company and what their motives may be.  Shareholders can then discuss options with management and each other and vote accordingly. These policy proposals should help create confidence in UK markets and reduce the risks that shareholders may face from other parties with conflicting, often short-term, agendas.

“Of course, policy intentions are only as good as the regulatory system intended to deliver them.  We will therefore be studying the proposals carefully to ensure that there are no gaps and to check that they really do deliver the FSA’s objectives.  Areas of particular interest, for example, will be the scope of the rules – which derivative instruments are covered – and the proposed exemption for businesses that use CFDs when providing other services to clients.

“We are also keen to see these measures introduced as early as possible and will be asking the FSA to bring forward the implementation date, currently set at September 2009, if at all practicable.”