Ireland has yet to introduce rules requiring investors in contracts for difference (CFD) to disclose their positions, despite the role the derivatives played in precipitating the financial crisis.
Last November the Transparency Directive, which will prevent the secret building up of a holding “hidden ownership” by requiring the disclosure of holdings of a wider range of instruments including CFDs, entered into force, and member states were given two years to adopt it into national law.
However, while the Department of Finance has indicated that Ireland will comply with this deadline frame, as legislation "is likely to be introduced in early 2015", it nonetheless means that Ireland lags behind some of its European neighbours.
The UK, for example, introduced rules back in 2009 that require CFD holders to disclose their position in a company once it passes the equivalent of a 3 per cent stake, while Germany has also introduced similar measures.
Disclosure rules
Deirdre Somers
, chief executive of the
Irish Stock Exchange
, has described the omission as “outrageous”.
“The government is presiding over a situation where they’re incentivising the market to be totally opaque and fundamentally, as proven before, destructive. Nothing has changed,” she said.
According to Brenda Kelly, chief market strategist at financial spread betting and CFD provider IG in London, the UK rules have improved market transparency.
If these rules had been in place in Ireland prior to 2007, “it would have prevented undue issues”, she says.
Responding to the delay in transposing the legislation, a spokeswoman for the Department of Finance said that there is an extensive package of EU financial services legislation requiring transposition over the coming two years, which will be “challenging” for all member states. “We, like other member states, will give priority to transposing banking union legislation,” she said.
Initial deposit
CFDs allow investors to bet on a share price by only putting up an initial deposit of as little as 10 per cent of the price of the stock. Investors are asked by a broker to deposit more cash or securities to cover any losses, known as a margin call. They can also have agreements with their CFD providers to buy the underlying shares at a later date.
CFDs have traditionally been popular with Irish investors because unlike buying an Irish stock outright, investors in CFDs are not liable to stamp duty. And the instrument appears to remain popular with Irish investors.
Joe Rundle, head of trading at ETX Capital, a London-based brokerage which recently acquired Dublin firm Shelbourne Markets, predicts that trading volumes should increase by as much as 5 per cent each month.
Last year the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published a warning to retail investors about the dangers of investing in CFDs. – (Additional reporting Bloomberg)
