The Financial Services Authority in the United Kingdom has adopted final rules requiring disclosure of options and other equity derivatives.
This has long been a hot issue both in the US and the UK. In both countries, regulators have rules that are supposed to prevent takeover by stealth. When one company or investor or fund owns a sizeable share in another -- ignore the specific threshold amounts just now -- it is supposed to disclose the fact.
But lately the growth of equity derivatives of a sort that (a) may allow for the indirect exercise of power over an issuer yet (b) don't count against the threshold, has raised the specter again of the sort of takeovers by stealth the regulators had belived themselves to have exorcised decades before.
In the US, the question of how to treat such equity derivatives has been addressed only in a very piecemeal fashion. The recent CSX decision spoke to it, and the appeals process might have yielded something more authoritative, but the parties have settled their dispute.
In the UK, though, the FSA has taken the question on more directly. Here's the link.
Don't be confused by the rather modest title of the paper. The new rules cover not just "contracts for difference," but other derivatives with similar effects.
Showing posts with label equity markets. Show all posts
Showing posts with label equity markets. Show all posts
Sunday, March 29, 2009
Monday, June 30, 2008
CSX
The activist hedge funds are claiming that they won four of the five seats at issue (at a 12-seat board of directors) at last week's CSX shareholder's meeting.
The company says the vote is too close to call.
The official results are due in late July, and oral arguments about some of the legal issues this proxy fight has stirred up will take place before the appellate court in early August.
The legal issue that fascinates me is the relevance (or otherwise) of an investor's position in total return swaps to the disclosures required by 13D.
Why is that important? Because it is part of the much broader question of whether ownership is a single fact or an arbitrary bundle. When I went to law school, the basic property law course began with an effort to disabuse students of the naive idea that ownership is a simple solid sort of fact. The ownership of land, for example, consists of the right to exclude others from it, the right to reside there and enjoy it, the right to sell it in whole or in part, the right to lease it out, etc. These rights can be severed from one another by statute or precedent.
Well, okay ... point taken. Still, there's something to be said for the naive view. The bundle is not arbitrary, the acts of severance that have historically made it look more like a fascis than like a single stout branch -- that has been arbitrary.
With the ownership of stock in particular, I submit that we need to stick with the single stout branch, and that the position of CSX in that respect is the more sound.
The hedge funds are trying to 'own' stock through "total return swaps" in a way that remains largely opaque to the market and their fellow shareholders.
Though they might be right about much, they are wrong about this.
The company says the vote is too close to call.
The official results are due in late July, and oral arguments about some of the legal issues this proxy fight has stirred up will take place before the appellate court in early August.
The legal issue that fascinates me is the relevance (or otherwise) of an investor's position in total return swaps to the disclosures required by 13D.
Why is that important? Because it is part of the much broader question of whether ownership is a single fact or an arbitrary bundle. When I went to law school, the basic property law course began with an effort to disabuse students of the naive idea that ownership is a simple solid sort of fact. The ownership of land, for example, consists of the right to exclude others from it, the right to reside there and enjoy it, the right to sell it in whole or in part, the right to lease it out, etc. These rights can be severed from one another by statute or precedent.
Well, okay ... point taken. Still, there's something to be said for the naive view. The bundle is not arbitrary, the acts of severance that have historically made it look more like a fascis than like a single stout branch -- that has been arbitrary.
With the ownership of stock in particular, I submit that we need to stick with the single stout branch, and that the position of CSX in that respect is the more sound.
The hedge funds are trying to 'own' stock through "total return swaps" in a way that remains largely opaque to the market and their fellow shareholders.
Though they might be right about much, they are wrong about this.
Monday, March 3, 2008
New York Times stock price
On Friday, both the New York Times and Harbinger filed their preliminary proxy statements with the SEC. One thing that piques my interest in the Harbinger filing is the disclosure of an equity-swap deal Harbinger has made with a London company doing business as TradIndex.
On January 17, around the time the NYT price was hitting $15. "TradIndex agreed to pay the Special Fund an amount equal to any increase, and the Special Fund agreed to pay TradIndex an amount equal to any decrease, in the official market price of 320,455, 300,000 and 390,480 notional shares, respectively ...."
This sounds like a "contract for difference," a way of separating voting interest from the economic significance of stock ownership. I'm guessing (and that's all I'm doing at this point) that Harbinger entered into the deal to protect itself against the further decline in the value of Times' stock that it plans to use to get some seats on the Times board.
It certainly had reason to worry, based on the charts. In June of last year, the stock price of the New York Times was at $26. That was a gain of $4 per share from its value as of a year before. But it was not to last.
By August the stock (NYSE: NYT) was back at summer of 2006 levels. It continued to fall, right through them.
By mid-October, it was near $18, then rallied briefly, up to $21, before falling back to $18 at the start of November.
Once we were into the new year, the newspaper company reported a December revenue drop off of 22.4%, and the stock price quickly came to reflect this news, getting to below $15 in mid-January. That, as I say, was when Harbinger entered into this hedge.
There's been something of a rally since then, in part at least because the January revenue results were an improvement over those for December, and in part because of the interest Harbinger and Firebrand have show. The price is now back above $18. So it appears that Harbinger could close out its deal with TradIndex for a profit.
Nothing untoward about this -- it all seems to be a Marquis of Queensbury proxy fight, and civil enough so far to sound like some of the Clinton/Obama debates. Should somebody get Mr. Sulzberger a pillow?
Still, the whole idea of CFDs and the separation of economic from voting interest raises policy/regulatory issues.
On January 17, around the time the NYT price was hitting $15. "TradIndex agreed to pay the Special Fund an amount equal to any increase, and the Special Fund agreed to pay TradIndex an amount equal to any decrease, in the official market price of 320,455, 300,000 and 390,480 notional shares, respectively ...."
This sounds like a "contract for difference," a way of separating voting interest from the economic significance of stock ownership. I'm guessing (and that's all I'm doing at this point) that Harbinger entered into the deal to protect itself against the further decline in the value of Times' stock that it plans to use to get some seats on the Times board.
It certainly had reason to worry, based on the charts. In June of last year, the stock price of the New York Times was at $26. That was a gain of $4 per share from its value as of a year before. But it was not to last.
By August the stock (NYSE: NYT) was back at summer of 2006 levels. It continued to fall, right through them.
By mid-October, it was near $18, then rallied briefly, up to $21, before falling back to $18 at the start of November.
Once we were into the new year, the newspaper company reported a December revenue drop off of 22.4%, and the stock price quickly came to reflect this news, getting to below $15 in mid-January. That, as I say, was when Harbinger entered into this hedge.
There's been something of a rally since then, in part at least because the January revenue results were an improvement over those for December, and in part because of the interest Harbinger and Firebrand have show. The price is now back above $18. So it appears that Harbinger could close out its deal with TradIndex for a profit.
Nothing untoward about this -- it all seems to be a Marquis of Queensbury proxy fight, and civil enough so far to sound like some of the Clinton/Obama debates. Should somebody get Mr. Sulzberger a pillow?
Still, the whole idea of CFDs and the separation of economic from voting interest raises policy/regulatory issues.
Monday, February 4, 2008
A sentence in Korea
On Friday, February 8, a court in Seoul, Korea sentenced Paul Yoo to five years in jail on a charge of stock price manipulation. This was only half of what prosecutors had requested, but it still surely seems like a long time to Mr. Yoo.
I doubt that Mr. Yoo did anything to merit the sentence. Nonetheless, I won't go into a tirade about the tyranny of it all, etc. I understand the prosecutors' reaction to events fairly well at a human level.
It is what I remarked upon briefly yesterday, a natural reflexive oposition to the increasing prominence of the impersonal equity markets -- at the expense of the more personal 'Confucian' type of business dealings some in east Asia consider more of a cultural/regional strength.
With the rise of equity markets comes the thorough globalization of finance, and the demise of traditional ideas of sovereignty. With the rise of equity markets come mergers and acquisitions, proxy contests, and a general stirring of the pot. The stirring can be very productive, but if you're one of the vegetables inside, it can be scary too.
Lone Star Funds is an investment company headquartered in Dallas Texas. Five years ago it bought a controlling stake in the Korean Exchange Bank. At that time, Mr. Yoo worked for Lone Star, with the job of scouting out promising acquisition targets and reporting to Steven Lee, who was the highest-ranking Lone Star honcho in Korea.
The gist of the ostensible case against Yoo is that he made false public statements about KEB, and especially about its credit-card unit, KEB Credit Services, in order to make their financial distress seem greater than it was, drive down the share price, and ease the way for their acquisition by Lone Star.
You can find more on the subject in this Bloomberg story.
I doubt that Mr. Yoo did anything to merit the sentence. Nonetheless, I won't go into a tirade about the tyranny of it all, etc. I understand the prosecutors' reaction to events fairly well at a human level.
It is what I remarked upon briefly yesterday, a natural reflexive oposition to the increasing prominence of the impersonal equity markets -- at the expense of the more personal 'Confucian' type of business dealings some in east Asia consider more of a cultural/regional strength.
With the rise of equity markets comes the thorough globalization of finance, and the demise of traditional ideas of sovereignty. With the rise of equity markets come mergers and acquisitions, proxy contests, and a general stirring of the pot. The stirring can be very productive, but if you're one of the vegetables inside, it can be scary too.
Lone Star Funds is an investment company headquartered in Dallas Texas. Five years ago it bought a controlling stake in the Korean Exchange Bank. At that time, Mr. Yoo worked for Lone Star, with the job of scouting out promising acquisition targets and reporting to Steven Lee, who was the highest-ranking Lone Star honcho in Korea.
The gist of the ostensible case against Yoo is that he made false public statements about KEB, and especially about its credit-card unit, KEB Credit Services, in order to make their financial distress seem greater than it was, drive down the share price, and ease the way for their acquisition by Lone Star.
You can find more on the subject in this Bloomberg story.
Subscribe to:
Posts (Atom)
