Fund Directions - Five Things Directors Should Know About Securities Lending and Corporate Governance

Five Things Directors Should Know About Securities Lending and Corporate Governance

Fund Directions spoke with Ed Blount, chair of the Washington, D.C.-based Center for the Study of Financial Market Evolution, about what boards should consider when dealing with lending securities. The Securities and Exchange Commission is expected shortly to issue new rules on monitoring the lending of portfolio securities by mutual funds. The agenda for those rules was outlined last September during the SEC's Roundtable on Short Selling and Securities Lending.

"As fund boards prepare to review their securities lending programs' 2009 annual results, directors can get ahead of this issue by also reviewing the guidelines which control their corporate governance policies," said Blount, who was one of the experts on the roundtable. "In particular, as equity markets return to normal and merger and acquisition activity heats up, funds' guidelines for recalling loaned securities in order to vote their proxies at special meetings is coming back under the spotlight."

For example, Blount said, managers will have to decide whether to forgo lending income in favor of voting on an important ballot item and regulators may require boards to monitor those decisions about the trade-offs between lending and voting, particularly for material issues in ...

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Five Things Directors Should Know About Securities Lending and Corporate Governance