Hedge funds may lose one of their most prized attributes, secrecy, if a U.K. proposal to force market players to reveal their positions in listed companies goes ahead. The rules could apply to long positions executed via derivatives, such as contracts for difference and options, as well as cash positions. Bankers fear this could signal a move towards increased regulation of the over-the-counter market.
The Takeover Panel, a regulatory body which administers the City code on takeovers and mergers, has launched a consultation paper about long contract for differences and equity option positions because it believes derivatives houses are offering hedge funds the voting rights when the funds are only entitled to the economic exposure through derivatives. "There are some pretty extraordinary things that banks are doing now to win business," said one prime broker. Christian Dalban, head of equity derivatives for Europe at JPMorgan in London, said, "I think [The Takeover Panel] should look to ensure the banks are acting correctly with regard to their holdings."
Lawyers warned this is a gray area for derivatives trading and the Panel will have to decide whether it regulates the banks or hedge funds. The closing date for consultation is Feb. 28. The Panel expects to draw up draft regulations for consultation in late spring, early summer, according to Charles Crawshay, secretary to the Panel.
