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Taking stock

08 March 2019

Taking stock

ICSA and BNY Mellon event attempts to shed light on the polarising issue of stock lending

 The ICSA was delighted to host an event with BNY Mellon, looking at the role that stock lending – the temporary exchange of securities for acceptable collateral between a lender and an approved borrower – plays in the world of business.

 The Senior Executive Breakfast Briefing was held at The Ritz on 15th November 2018 and through conversation with Peter Swabey, Policy and Research Director at ICSA: The Governance Institute and James Day, Head of Securities Finance EMEA at BNY Mellon, sought to answer a variety of questions about the stock lending industry’s past, present and future.

It is an industry which has shown significant growth since the Financial Crisis of 2008 and now covers $2.3tn in assets and produces $9.2bn in revenues as companies have increased their lending of global equities, sovereign debt, and supernatural debt. However, discussions on the day centred on the fact that it is a controversial topic, that often polarises viewpoints.

“Company Secretaries and IR Professionals increasingly need to understand the basics of stock lending and the potential governance implications”

On the one hand it can be a useful source of liquidity. But on the other, it can lead to loss of shareholder votes in important situations, as the client forfeits proxy voting rights unless their securities are recalled. This can lead to votes being cast by parties who have no long-term interest in the company’s welfare.

The discussion at the event ultimately concluded that stock lending was a good thing due to the increased liquidity and the fact that it makes it cheaper to trade.

Understanding of the process is complex but Company Secretaries and IR Professionals increasingly need to understand the basics of stock lending and the potential governance implications, as the industry grows. Both UK and EU regulation is clear in terms of market abuse regulation and the burden of proof is placed on the banks. However, there is much more that needs to be done in order for professionals to be confident in their obligations. This event was a step towards greater understanding.

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