Regulator to require CFD disclosure next year

LONDON (Reuters) - The Financial Services Authority said on Thursday it planned to make investors disclose holdings of more than 3 percent in companies through contracts for difference (CFD).

The FSA said the final draft of the rules on CFD -- under which one party agrees to pay another the difference between the current and future price of a share -- would be published in February 2009 and come into force on September 1 next year.

"Our goal is to provide an effective and proportionate disclosure regime that works for all involved, and sustains market confidence and efficiency," said FSA Director of Markets Alexander Justham.

CFD holders, who effectively have the benefits and risks of a stock without owning it, are currently not obliged to make their positions public, allowing some hedge funds to use them to anonymously build sizeable stakes in companies they wish to influence.

The Association of British Insurers, which represents the UK's biggest institutional investors, said the measure would improve transparency for companies and investors alike.

"This is a welcome step forward. Companies should know who has built up a stake and investors too should be aware of what would otherwise be happening behind their backs," ABI Director of Investment Affairs Peter Montagnon said.

The Association of Investment Companies, which represents the investment trust industry, also welcomed the move.

"These disclosures should let shareholders understand who might try and exert influence over the affairs of companies they own and then allow them to act accordingly to protect their own long-term interests," the AIC said in a statement.

(Reporting by Myles Neligan; Editing by David Cowell)