Assessing the real impact of securities lending on the corporate governance landscape

Abstract

This paper explores the complex interrelationship between corporate governance and securities lending. Its purpose is to consider the central issues, and to explore how securities lending and good corporate governance can be arranged so as to minimise conflict to the overall benefit of the institutions involved, the corporations and the market. It considers the choices and controls with which the owners of assets are presented and proposes several ways in which the market might develop to provide reassurance to those with concerns.In recent times, there have been several reviews of this important topic, including those by the International Corporate Governance Network (ICGN) and the EU Commission. Market practitioners will typically be familiar with the themes presented, but this topic is of considerable relevance to a broad cross-section of the financial and business community, for which securities lending is a peripheral, or even an unfamiliar, activity. These parties may include: the individuals responsible for corporate governance at beneficial owners and asset managers; members of the press writing on the subject of corporate governance or securities lending; academics for whom the high profile of, and potential conflict in, the subject is increasingly attractive; the individuals responsible for, or considering participation in, securities lending at beneficial owners and their agents; associations that are considering how to address the perceived conflict between securities lending and good corporate governance; and regulators with responsibility for oversight in this area. It may also be of interest to corporate issuers who wish to understand the mechanisms of how securities lending can impact corporate governance.