Myners demands shake-up in stock-lending practices

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The Independent Online

Paul Myners, the leading City figure and chairman of the Guardian Media Group, has called on fund managers to stop lending shares in companies which face contentious annual meetings.

Paul Myners, the leading City figure and chairman of the Guardian Media Group, has called on fund managers to stop lending shares in companies which face contentious annual meetings.

Mr Myners wants to bring to an end the "inappropriate" voting of shares by investors who borrow stock to give them a bigger proportion of the vote than the shares they physically own would confer.

Mr Myners' conclusions are contained in his progress report to the Shareholder Voting Working Group, which includes the Bank of England, published today. While most of his recommendations from an initial report a year ago have been acted on, including wider use of electronic voting, Mr Myners said there was more to be done.

Problems relating to stock lending were singled out by Mr Myners after Makinson Cowell, the capital markets advisory firm, found that lending by shareholders in FTSE 100 companies rose from less than 3.5 per cent of their holdings in September 2003 to more than 4.5 per cent a year later. In August 2004 it was more than 5 per cent.

Mr Myners wants institutions to tighten up their procedures surrounding when they lend stock and to whom.

Part of the rapid increase in stock lending was related to a small group of French banks, which temporarily borrow shares to claim a 10 per cent tax credit, called an avoir fiscal, from the French government on the dividends received.

Mr Myners is also concerned about the dangers of stock lending being abused in takeover situations.

In his initial report a year ago Mr Myners recommended that shares lent in a company facing a contentious vote should be recalled. "There is now a case for strengthening this such that those responsible for initiating voting instructions should seek to anticipate contentious votes and recommend to beneficial owners that the related stock should not be lent," he said.

When shares are lent, the voting rights transfer to the borrower. Although Mr Myners found that 78 per cent of the fund managers he questioned had a policy of recalling lent stock when a resolution was contentious, this was far from watertight protection against problems arising. Institutions often allow intermediaries to lend shares on their behalf.

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