UK - The securities lending industry has been warned it needs to address issues of transparency and must provide institutions with informed choices if it is to avoid regulatory interference.
Speaking at the IBC Securities, Lending and Repo conference in London today, Peter Montagnon (pictured), director of investment affairs for the Association of British Insurers (ABI), said voter turnout by institutional investors, including pension funds, could be effected by stock lending which could in turn effect the ability of investors to influence corporate governance.
“If we don’t address this problem then things could get out of hand. The regulator and government are actually very interested in all of this,” he said.
He also said institutions who had decided to enter the securities lending market should ensure they had a policy on the issue, especially where it concerned the ability of shareholders to vote on important corporate decisions.
Institutions had to weigh up the benefits gained from income generated against the value of maintaining their voting rights in the firm they had invested in, though he admitted the value of the voting rights was much harder to quantify.
Montagnon went on to express concerns that securities lending could be used to hijack critical stock holder votes, especially if the turnout was low. He said one way to counter this was for lenders and lending agents to expose vote manipulation.
“If the stock lending business does not sort its own house out then there will be regulation,” concluded Montagnon.
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