The Financial Services Authority (FSA) has published a consultation paper proposing ways of achieving greater disclosure of "economic interests" in company shares held in derivatives such as Contracts for Difference (CfD).
According to the body, using CfDs on an "undisclosed basis" to inform corporate governance could lead to a number of market failures, which may affect confidence in the market.
Welcoming the move, Guy Rainbird, public affairs director of the Association of Investment Companies, said that the paper represented a "significant step forward".
"Without transparency through appropriate market disclosure there is a risk that some investors could be in the dark about the true demand for the shares," Mr Rainbird claimed.
As a result, investors may not be able to make "fully-informed" decisions about their investments, he added.
Sally Dewar, director of markets at the FSA, said that the regulator's effort to address the issue was not a "clampdown" on CfDs.
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