Wednesday, 14 January 2009

Myners on shorting and stocklending

Yesterday saw some interesting banter in the House of Lords. Given the FSA's decision to let its ban on the shorting of financial stocks lapse, the Archbishop of York asked the following rather pertinent question:
To ask Her Majesty’s Government what steps they are taking to ensure that the lifting of the ban on the short selling of shares in financial companies does not adversely affect the market.

The Government's pointman on this kind of thing is, of course, City minister Lord Myners, and he provided some good commentary in response (though anyone expecting a denunciation of shorting will be disappointed). I'd recommend reading the whole transcript of the section of the debate on shorting, but the key part in it is where the link to stock-lending is made. Here's what Myners had to say about it:
It is important to note that just about every major pension fund and every major endowment in this country is in some way or another involved in short selling. However, my noble friend made a fundamental point about stock lending practices. I have asked the FSA to look at whether those practices are sufficiently understood by practitioners and subject to appropriate regulation.

Obviously this right up my street, and it's great to hear that the Government wants the FSA to take a closer look. I've droned on about this a few times in the past, but there are a few issues for supposedly long-term shareowners if they lend out stock. Fundamentally there is the question of whether it's counterproductive if stock is returned at a lower a value, but what about governance issues such as the use of voting rights? I'm not sure many pension fund lenders bother to recall for the purpose of voting, for example. So it will be interesting to see what any FSA review covers.

Very encouraging stuff!

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