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Fidelity puts securities lending programme under review

Corporate Bonds Stock Certificate 450

Fidelity Worldwide Investment could become the latest asset manager to scrap its securities lending programme, according to reports.

Fidelity Worldwide chief investment officer Dominic Rossi has told a Government select committee that the practice “does not really make much sense” as it could harm a stock that the asset manager finds attractive, the Financial Times says.

Securities lending, which involves loaning an owned stock to a short seller for a fee, has been criticised recently after it was shown that some asset managers are keeping up to 40 per cent of profits arising from the practice.

New guidelines from the European Securities and Markets Authority demand that Ucits products carrying out securities lending to return all revenues net of operating costs back to the fund rather than them being pocketed by the asset manager.

Rossi told the committee: “The idea that we would lend the stock that we obviously like, otherwise we would not own it, to someone who is then going to short it does not really make much sense.

“It is not in the interests of our clients to have to foster that short selling, nor is it in the interests of the company in which we invest. We do a very limited amount related to dividends and I suspect even that practice will stop shortly.”

Fidelity Worldwide investment director Tom Stevenson added that the asset manager is reviewing the practice, the FT reports.

Standard Life Investments stopped carrying out securities lending during the financial crisis after financial institutions were targeted by short sellers. SLI chief executive Keith Skeoch suggested practice has the potential to “destabilise” the market.

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