Europe’s in chains

Whilst it’s pretty certain that Tina Arena didn’t have the travails of institutional investors in mind when she sang her smash hit “I’m In Chains”, it captures pleas that may have more resonance in such circles than the song itself.

Lines such as “A little click and the lock’s on me”, “can’t lift my hands” and “I pretend I can always leave, free to go whenever I please” reflect quite accurately the plight of investors caught by share blocking requirements, forced to have their votes sent through a custodial voting platform they’ve not chosen and have no control over, constrained by administrative hoops which are as prohibitive in their effect as they are outdated.

That’s why Manifest was particularly keen to respond recently to the EU consultation on legislation on the exercise of rights attached to shares held by securities intermediaries, which finished last week.  Here at last was a formal opportunity to influence thinking at the European level on how to simplify the cumbersome means by which investors currently have to exercise their voting instrauctions through a murky, lengthy and frequently buereaucratic chain of securities intermediaries.

Manifest’s view on these issues has been clear from the start, and was the backbone of a significant piece of research we published in 2007 looking at the practical problems which persist for investors voting across borders in Europe. The majority of respondents to our study believed that a scaling back of custodian and sub-custodian involvement and reducing the numbers of links in the chain of intermediaries was highly desirable and, indeed, necessary to increase efficiency of the voting process.

The ability of institutional investors to procure a single service provider for the entire voting cycle (not just for the submission of votes to the next intermediary) is firmly within in the spirit of the Giovanini work on Clearing and Settlement, and will lead to higher efficiency of the voting process in a number of ways:

  • Those providers who currently feel comfortable in their position of intermediaries in the chain will have to compete with smaller and more flexible voting agencies, which are able to offer sharper voting deadlines and go a long way to establish good working relationship with players in the local markets in order to provide clients with necessary feedback on their voting activities;
  • Those fund managers who are managing funds across multiple custodians are then free to choose a single provider for the instruction of the share voting for which they are responsible as a part of their investment mandates across all custodians. This is becoming increasingly important as, for example, pension fund trustees are rightly beginning to become more demanding of their fund managers to report on how voting has gone; and
  • In addition, higher level of accountability before clients on the part of voting service providers will create a powerful pressure group that could press for changes to create a faster and more efficient voting process in Europe and globally. It would also relieve concerns about artificial monopolisation of the voting market by a small number of providers, as institutional investor’s choices of service providers will not be determined as a result of their custodial arrangements.

So, it’s clear that an important principle is at play here. If account holders (investors) “Don’t Ask” their account providers (custodians) for the right to appoint the voting platform they wish, we may never get to “Un Autre Univers” where the chains we’re all in may be broken.

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