Business Opinion:Ned Sullivan, the Greencore chairman, spoke for many last week when he vented his spleen about the use of contracts for difference (CfDs) by clandestine stake builders, writes John McManus.

"While it's legal, it's not in the best interests of a fair and transparent functioning of the market," as he put it.

And he should know. Greencore's shares jumped last week on reports that Exista, or individuals associated with Exista, had built up an 8 per cent stake via CfDs. As of last Friday they remained unconfirmed, with Exista - who it is speculated wants to break up the company along with 29.5 per cent shareholder Liam Carroll - saying nothing.

Mr Carroll himself is no stranger to CfDs having reportedly used them to build up a 9 per cent position in McInerney. Again, the reports remain unconfirmed.

CfDs - which are derivatives intended to give the holder an economic interest in a share without actually owning it - have featured in every significant Irish takeover since the take private of Jurys in 2005. Most recently they helped muddy the waters in the prolonged battle for control of Irish Continental Group, and no doubt helped bring about the stalemate that now grips the company.

The problem with the use of CfDs in this fashion is succinctly summed up by the UK Financial Services Authority in a consultation paper published last November that looked at the need for greater disclosure of CfDs.

It concluded: "Potential market failures could occur from using CfDs on an undisclosed basis to influence corporate governance and build up stakes in companies. These failures, although not widespread, need to be addressed to ensure market confidence and efficiency are maintained."

The UK authority proposed two approaches to deal with the problem. The first was that any CfDs written in reference to more than 3 per cent of the voting rights attached to a company's shares should be disclosed, unless it was clear the holder did not plan to exercise the voting rights or potentially buy the shares.

The other proposal was that anyone holding an economic interest of more than 5 per cent of a company through CfDs would have to disclose it. This regime is currently enforced by the UK Takeover Panel during an offer period.

The Association of British Insurers proposed a third approach during the consultation period which elapsed last week. The ABI, whose members own about 20 per cent of the UK stock market, wants all CfDs treated as shares for disclosure purposes. All positions in excess of 3 per cent would be disclosed, even if CfDs only made up a portion of them.

The UK authority has pledged to publish a policy statement on CfDs by the summer, which will result in one or a combination of these approaches being adopted.

The good news for Ned Sullivan and anyone else with an interest in an Irish company having a dual listing in London is that the UK authority believes the rules will apply to them, even if the CfD is written in Dublin. It seems probable then that, come the summer, the larger Irish companies, ie those with dual listings, will have a measure of protection from the use of CfDs for clandestine stake building.

As a result, shareholders in these companies and small shareholders in particular will have some confidence that they know the identity of other owners of the business.

The position for the remaining companies is somewhat less optimistic, with the Irish Financial Regulator lagging behind its UK counterpart in addressing the issue, even though on the face of it the distortions in the Irish market as a result of CfDs are much more significant,

"The Financial Regulator is aware of the potential for contracts for difference to be used to take significant economic interests in listed companies. We are currently working with our CESR [ Committee for European Securities Regulators] colleagues and reviewing our own rules to use the discretion available to us to strengthen the regulatory regime to the extent available to us," it said in a statement last week.

No date for action of any description was proffered. The Irish Takeover Panel, which presumably has the scope to follow the lead of its UK counterpart when it comes to disclosure of CfD positions, did not return calls.