UK: Hedgeline - November 2008 Issue

Last Updated: 14 December 2008
Article by Philip Rubens

In this Month's Update:

  • FSA publishes draft Contracts for Difference (CfD) disclosure rules
  • New website offers complete guide to hedge fund best practice standards
  • US hedge funds appeal to UK regulators to speed up Lehman insolvency


  • New disclosure rules for CfDs; come into force 1 September 2009
  • CfD holdings must be aggregated with shareholdings; disclosure level will be 3%
  • All economic interests similar to CfDs will be included in new regime
  • Only gross long positions fall within scope

The FSA has published draft rules for its new disclosure regime for Contracts for Difference (CfDs). As announced in a policy update in July, the new regime will introduce a disclosure threshold of 3% and will also require share and CfD holdings to be aggregated for disclosure purposes - a more comprehensive regime than was first proposed.

Hedge funds are major investors in CfDs as they offer easy leverage and the ability to build up stakes unnoticed. One of the concerns with the current regime is that it enables hedge funds to suddenly acquire a large stake in a company - by converting CfDs into the underlying equity - and in doing so take the market by surprise. The new rules will prevent activist investors from using this tactic.

Previously, the FSA proposed a 5% threshold for disclosure of CfDs. Explaining its change in tack, the FSA said that "once the view is taken that CfDs should be aggregated with shares," it would be "logical and pragmatic" to keep the disclosure level at the same 3% level currently required for shareholdings under existing Disclosure and Transparency Rules (DTRs).

In another modification to the initial proposals, the FSA has introduced an exemption for "CfD intermediaries", or sellers of CfDs.

Key elements of CfD disclosure regime:

  • Disclosure of any financial instrument having similar economic effect to qualifying financial instrument (as defined under existing DTRs) will be required
  • Only gross long positions fall within the scope of the new rules
  • New rules will apply to instruments relating to shares of UK issuers traded on regulated markets
  • The same position need not be disclosed more than once where firms move positions between accounts or group companies
  • Disclosure required once aggregate position reaches 3% and subsequently where holdings increase or decrease by 1% (as with existing DTR thresholds)
  • Exemption for CfD writers when done in a client-serving capacity, not for proprietary business
  • Existing trading book exemption will apply to CfD disclosure

To view the policy conclusions, consultation feedback and draft technical instrument, click here. To view the FSA press release, click here.


  • New "matrix" tool for hedge fund best practices
  • Aims to harmonize global hedge fund standards
  • Hedge Fund Standards Board creates new hedge fund standards document for internal compliance

A new website has been launched that enables users to compare hedge fund guidelines produced by leading hedge fund and financial markets associations across the globe including the UK-based Alternative Investment Management Association (AIMA) and Hedge Fund Standards Board and the US-based Managed Funds Association and the US President's Working Group on Financial Markets.

Known as the Hedge Fund Matrix, the website enables users to compare guidelines side-by-side. The ultimate aim of the initiative, according to AIMA, is to provide a "first step" toward harmonised hedge fund practices.

The Matrix is split into five sections:

  • Creating and Managing a Hedge Fund Business
  • Investment Process and Portfolio Risk Management
  • Portfolio Administration and Operational Controls
  • Raising Capital and Investor Relations
  • Hedge Fund Structure and Organisation

The Matrix compares the standards of each association across each section, drilling down into specific areas (eg, compliance). It also provides links to the relevant rules of each body.

The tool is aimed at hedge fund practitioners, investors, professional advisers and the regulatory community and is available at no cost. To access, click here: Hedge Fund Matrix.

Meanwhile, the Hedge Fund Standards Board has created a new version of its Hedge Fund Standards in an Excel spreadsheet format. The spreadsheet is designed to facilitate internal due diligence for complying with the standards. To download the document, click here.


  • Managed Funds Association argues hedge funds should be priority as creditors; claims delay in Lehman administration could lead to failure of prime brokerage industry
  • PwC says Lehman administration "would move as expeditiously as possible"

US hedge funds that have had client assets frozen following the collapse of Lehman Brothers International Europe (LBIE) are pressing UK regulators and administrator PricewaterhouseCoopers (PwC) to unlock the assets in the failed bank. According to the US hedge fund association, the Managed Funds Association (MFA), an estimated $40 billion to $70 billion in assets is being held by LBIE under 1,300 prime brokerage arrangements.

In a letter to the Governor of the Bank of England, the MFA argues that Lehman Brothers' prime brokerage clients should be prioritised in the administration, before other creditors. If not, it warns that many hedge funds with exposure to LBIE could fail. Worse, it argues that delay in the administration could lead to a wider failure in the prime brokerage industry that could be "disastrous for UK plc".

Lehman Brothers went into insolvency on 15 September with PwC appointed administrators in the UK. Under UK insolvency law all creditors must be treated equally - no group of creditors can be preferred in any way. However, the MFA argues that the UK administration process is likely to be very slow because of the lengthy process of identifying client asset claims and would be "wholly at odds with the interests of restoring confidence and liquidity in the global capital markets." It claims a disparity exists "in terms of confidence and speed of response" between the liquidation of Lehman Brothers Inc in the United States, and the administration of its European arm in the UK.

Following meetings with the Bank of England and Financial Services Authority, the MFA invited PwC administrator Tony Lomas to the United States to meet with hedge fund creditors. In a statement, Lomas said he recognized the "confusion and frustration" regarding the UK's administration process and stated that he hoped to assure MFA members that the administration "would move as expeditiously as possible under our legal system."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.