The prohibition of the activity – when investors sell borrowed securities to buy them back later at a cheaper price and make a profit – ignited a debate about schemes’ stock-lending programmes.
These give schemes a valuable source of additional revenue by allowing third parties, such as fund managers or hedge funds, to borrow securities for risk management or short selling activities.
In response to a flurry of criticism from politicians and trade unions, many schemes annou-nced a temporary suspension of stock lending when the ban was announced in September.
However, others vowed to continue with the activity amid fears they would lose millions of pounds in revenue when terminating lucrative deals.
Ed Oliver, senior business consultant at Spitalfields Advisors, said securities lending revenues were valuable amid falling markets.
“The challenge now will revolve around pension funds identifying an appropriate lending structure that provides comfort that they can participate in a lending programme where risks are understood and balanced against revenue.”
Commenting on the end of the ban during a debate in the House of Lords recently, City minister Paul Myners, said: “It is important to note that just about every major pension fund and every major endowment in this country is in some way or another involved in short selling.
“However […] I have asked the FSA to look at whether those practices are sufficiently understood by practitioners and subject to appropriate regulation.”
In response, PIRC, the independent consultancy, said: “If this is a sign of things to come, it’s a very welcome one.
“As we have argued in the past, there are a number of important governance issues in the overlap between shorting and stock lending that rarely attract the attention they deserve.
“Let’s hope this is an opportunity to revisit them.”
The £37bn BT pension scheme is retaining its ban on lending securities to third parties, saying market conditions mean the risks are greater than the rewards.
In contrast, the £26bn Universities Superannuation Scheme confirmed it will continue with the activity.
