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UK industry calls for regulation of CFDs Back  
Improved disclosure of the Contracts for Difference (CFDs) market in the UK is being called for by the Association of Investment Trust Companies (AITC), the trade organisation for the investment company industry in the UK.

A CFD is an agreement to exchange the difference in value of an underlying security (typically a share or an index) between the time that the ‘contract’ is opened and closed (i.e. it gives an investor exposure to the profit or loss resulting from changes in the price of a security without ever actually owning it).

It is estimated that CFDs currently account for around 40 per cent of all activity in the Irish stock market, and are attractive as they are leveraged and investors avoid paying stamp duty on Irish shares. Concerns have been expressed over the lack of transparency and the riskiness to investors of investing in such products before.

However, the AITC’s concern arises where investors use contracts-for-difference (CFD) positions as a way of amassing large stakes in companies, and wants them to be charged with market abuse. The association has written to the Financial Services Authority urging it to amend its rules.

At present, prospective stake builders can buy a CFD, and then can subsequently purchase the related shares in large blocks from the contract counterparty or another market participant. According to the AITC, ‘this process can allow the stake builder to acquire very substantial amounts of shares without making a disclosure until they reach their target level, which may be well in excess of the normal disclosure limits of 3 per cent of a company’s share capital’.

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