U.K. regulators may require the disclosure of equity derivatives positions in corporations in addition to the current cash position disclosure requirement.
A Financial Services Authority consultation paper threatens to top disruption caused last year when The Panel on Takeovers and Mergers announced requirements for disclosure of equity derivatives in M&A situations (DW, 7/1), because it suggests the regulator may look for disclosure outside of takeover events. The Panel's rules have yet to be tested by a large deal and a review scheduled for 2007 will come too late for the FSA's current consultation.
The potential power grab hasn't yet registered with many City and Street players, according to lawyers, but it is mapped out in an FSA consultation paper tackling the U.K.'s implementation of the European transparency directive.
Certain market-makers may qualify for exemptions, but the mooted regime would put a heavy regulatory burden on derivative dealers, particularly those with large proprietary trading desks. Because parallel rules that give corporates the power to demand disclosure of cash equity interests are not being changed, one lawyer noted compliance officials will have to be able to run two systems--one to monitor cash interests, and one to monitor cash and derivatives interests.
The regulator suggests in the consultation paper that netting of interests would not be worthwhile and mulls requiring disclosure of each separate interest. Lawyers, however, noted the FSA asked for comment on whether this may be too expensive to require. Vanessa Knapp, partner at Freshfields Bruckhaus Deringer in London, said it will be crucial for the FSA to receive responses giving a clear idea of the possible implications of its proposals. The comment period closes June 30.
Knapp noted while dealers have been aware of the impending transparency directive, the FSA's proposals are more stringent.Carol Shutkever, partner at Herbert Smith in London, agreed this has yet to hit the radars of most investment banks. She added, however, that when the final rules come out in the autumn, investment banks will have to look into them carefully, particularly those with significant proprietary trading desks.