Regulators see stock lending code

A NEW code for firms involved in securities lending is being circulated to City regulatory bodies to eliminate some of the loopholes that allowed Robert Maxwell to steal money from pension funds.

The code has been drawn up by the Stock Borrowing and Lending Committee, which represents a little-known market that has as much as pounds 20bn of business on its books at any one time.

The committee's main function is to provide stock for professional dealers so that they always have enough available to make a market for their clients. Institutions lend stock for a fee to market makers, which use it to improve their liquidity.

Sources on the committee, chaired by Ian Plenderleith, a senior Bank of England official who is also the government broker, denied that the code was a response to the Maxwell revelations.

They said it simply set down on paper the best practice already operated by the main firms that borrow and lend stock, and that discussions about a code had started well before the Maxwell affair.

However, there has been widespread criticism of the ease with which stock borrowing and lending was used to rob Maxwell funds. The new code has at least seven highly relevant provisions and regulators are being urged to insist that their members obey them.

These include a requirement that stock lenders should have authority from the beneficial owners of the securities and that there should be a clear system for determining ownership of assets when more than one fund's stock is involved in a transaction.

Participants in the market include insurance companies, regulated by the Department of Trade and Industry, the banks, regulated by the Bank of England, and securities firms, regulated by the Stock Exchange and the Securities and Futures Authority.