Thursday, 22 January 2009

NAPF and stock-lending

I'm think this headline - NAPF chairman urges schemes to restart stock lending programmes - might oversell what the NAPF chair actually had to say, which was:
"Don't abandon your securities lending programs. Having stock to lend and borrow is crucial for efficient markets."

But still I find the pro-stock-lending stance from a trade body meant to represent pension funds - not custodians - a bit odd. For one, arguably he's endorsing a particular strategy - why not tell his members they must do commission recapture? Secondly pension funds also remain split over this issue. In addition shouldn't the membership give the steer to the representative body, not t'other way round?

And what about sentence two - is having stock to lend and borrow "crucial" for efficient markets? Is there evidence that markets without stock-lending are less efficient, and in what sense do we use the term? The existence of stock-lending implies more trading, which means more costs. So that might actually be less efficient - if you think extra trading simply increases frictional costs - from a pension fund point of view, surely?

A bit of a strange perspective all round, especially in light of this.

No comments: