Trustees unaware of sec lending issues – NAPF Investment Conference 2009

Andrew Clearfield - who is a founder of corporate governance engagement firm, Investment Initiatives - said schemes should ensure they do not to lend for shareholder voting related issues.

He said: "The securities lending activity has been largely ignored because it was sold to trustees as a risk free activity and it was kept deliberately invisible."

However, he explained events over the past year events have shown there are problems with securities lending - both related to counterparty risk and to the reinvestment of collateral.

In addition, he said there was also a risk due to the potential bankruptcy of the intermediary involved in the securities lending transaction.

He said: "In the US courts decided lent stocks are not attachable to any bankruptcy procedure, but I do not believe the same legal principles apply in the UK.

According to Clearfield, there was no evidence so far that securities lending and short selling had a significant role in the crisis.

He added: "The process is so opaque and there is potential for abuse, so it is very difficult to conclude anything at this stage."