Investors who secretly build stakes in listed companies using synthetic instruments will have to disclose their holdings when they exceed 3 per cent, under new rules announced yesterday.

The Financial Services Authority announced a new regime for the disclosure of contracts for difference (CFDs) - derivatives used by many investors to give the effect of owning underlying shares but without paying stamp duty.

The FSA said that investors in CFDs, or a combination of CFDs and shares, would be obliged to disclose their holdings when accumulating 3 per cent or more of the targeted company - the same level at which disclosure kicks in for ordinary shares alone.

The decision surprised some investors, who had been expecting a less radical regime, and divided the City. Traditional investment houses and listed companies welcomed the ruling. Hedge funds attacked it.

Andrew Shrimpton, a former FSA official who now works for Kinetic Partners, a hedge fund adviser, said: “This is another burdensome disclosure regulation that will disproportionately affect hedge funds, and comes hard on the heels of the recent requirement to disclose large short positions. Together, these interventions will make the UK a less attractive place to do business and raise capital.”

The Association of British Insurers and the Association of Investment Companies (AIC) welcomed the changes. Daniel Godfrey, head of the AIC, said: “Holders of CFDs have been able to secure stakes and voting powers in companies ‘at arm's length' without the knowledge of other shareholders and the management of those companies. These undisclosed interests are contrary to good governance.”

Investors with hostile intent have been able to build large CFD positions in a target, then at a stroke unwind the contracts and buy the underlying shares from the CFD counter-party, giving them the advantage of surprise.

Activists have used CFDs to lay siege to investment trusts, enabling them to grab the 10per cent needed to put proposals to an extraordinary meeting.

Others like CFDs because of the stamp duty saving and the gearing effect, which means that they have to put up only a small sum to gain exposure to a large parcel of shares. Robert Tchenguiz used CFDs to get big positions in J Sainsbury and Mitchells & Butlers.

The Takeover Panel introduced new rules in 2005, putting owners of CFDs on the same disclosure as shareholders, but only in official bid battles.

Alexander Justham, the FSA's director of markets, said: “Our goal is to provide an effective and proportionate disclosure regime that works for all involved, and sustains market confidence and efficiency.” Final rules would be published next February, he said.

The FSA decided against a lighter-touch regime that would have exempted investors buying CFDs for cash settlement and therefore with no control over the votes attached to the underlying shares. The new rules do not apply to CFD short positions - bets that a share price will fall.

Lord Turner of Ecchinswell, who takes over from Sir Callum McCarthy as chairman of the FSA in September, told MPs yesterday that another Northern Rock-style regulatory problem was more than possible. Britain would be lucky to go through the next two or three years without another big problem, he told MPs on the Treasury Select Committee, who formally endorsed his appointment.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive