Time to clamp down on CFDs, says watchdog
Published 30/07/2010 | 05:00
Holders of contracts for difference (CFDs), which were at the heart of the Quinn/Anglo Irish controversies, should face additional restrictions, corporate enforcement watchdog Paul Appleby has said.
He has suggested that those holding CFDs in a company should be categorised as "related parties" and, as a result, they could be restricted from getting loans from the company.
Such an idea would most likely have prevented Sean Quinn and his family getting loans from Anglo during 2007 and 2008.
Mr Appleby has suggested that "related parties" should simply mean anyone with an investment that "exceeds 10pc of the shares or voting rights".
Subject to legal clarification, this may allow for those choosing such alternative investments to be appropriately classified as related parties, he said.
Mr Appleby described CFDs as part of a "wide range" of possible investments available now in the market.
A CFD is an investment that allows an investor to speculate on the direction of stocks without having full ownership of the underlying share.
CFDs provide investors with the all the benefits and risks of owning a stock without actually owning it.
"We are mindful of the difficulties presented by the wide range of possible investment methods available in the market.
"However, you will be aware of the particular difficulties caused by for example, contracts for difference," Mr Appleby said in a letter to Regulator Matthew Elderfield.