The uproar surrounding Porsche’s massive undisclosed stake in Volkswagen has illustrated the potential market failures which can arise as a result of secret stakebuilding using cash-settled derivatives.

In a press release last weekend, Porsche announced that it held 42.6 per cent of the shares in Volkswagen as well as cash-settled options over a further 31.5 per cent. Because the Federal State of Lower-Saxony holds about 20.2 per cent of voting rights, free float has now decreased to about six per cent.

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