• FSA Brings Forward Implementation Date for CfD Disclosure Regime
  • March 13, 2009 | Author: Helen Janet Marshall
  • Law Firms: Bingham McCutchen (London) LLP - London Office; Bingham McCutchen (London) LLP - Boston Office
  • On 3 March 2009, the FSA published a policy statement in which it has said that it now intends to bring forward from September 2009 to 1 June 2009 the extension of the scope of existing disclosure requirements to require the disclosure of positions held through any financial instrument whose terms are referenced, in whole or in part, to an issuer’s shares and which gives rise to a significant long position on the economic performance of the shares, whether the instrument is settled physically in shares or in cash (for example, contracts for difference).

    The key points as follows:

    • The FSA’s existing Disclosure and Transparency Rules (DTRs) require that a person who holds shares or “qualifying financial instruments” of a UK incorporated company whose shares are listed on a regulated market (the “issuer”) must notify the issuer when its holding represents voting rights equal to 3% or more (and must notify the issuer of each whole percentage point increase or decrease in its holding);
    • For the purpose of the existing rules a “qualifying financial instrument” means any instrument, including derivatives, which gives rise to an entitlement to acquire, on the holder’s own initiative alone, shares of an issuer to which voting rights are attached;
    • As of 1 June 2009 this definition will be extended to include any financial instrument that has “a similar economic effect” to a qualifying financial instrument;
    • In the FSA’s view, a financial instrument will have a similar economic effect to a qualifying financial instrument if (i) its terms are referenced, in whole or in part, to an issuer’s shares and (ii) the holder of the financial instrument has, in effect, a long position on the economic performance of the shares (whether the instrument is settled physically in shares or in cash);
    • Although the definition is deliberately broadly defined, it is principally intended to capture contracts for difference;
    • For the purpose of calculating whether a person has a disclosure requirement, positions held through shares, qualifying financial instruments and instruments with a similar economic effect to a qualifying financial instrument must be aggregated;
    • For the purpose of determining the long position represented by a derivative, calculations should be made on a delta-adjusted basis (which will require holders to monitor delta changes on a daily basis in order to determine whether a disclosure is required). However, for a transition period of 7 months from 1 June 2009, market participants will be allowed to report on a nominal or delta-adjusted basis;
    • An exemption from the disclosure requirement is made available by the proposed rules for persons acting as a “client-serving intermediary” (which is intended to relieve firms of a disclosure requirement where they are holding a position purely to facilitate a client position and have no interest in the performance of the underlying equity);
    • The existing limited exemption for fund managers (which provides that fund managers are only required to make disclosures when their aggregated holdings reach, exceed or fall below 5%, 10%, and each whole percentage point between 10% and 100%) will continue to have effect.