UK - The BT pension scheme had already acted to stop the securities lending of certain financial stocks earlier this week, before the UK and US regulators stepped in to halt such activity.

The UK Financial Services Authority this morning confirmed it would no longer allow the short selling of 20 financial stocks - made up of banks and insurers - for the next three months while the SEC yesterday announced it would preventing investors from short selling the securities of 799 financial companies for a short period, in a bid to try and restore stability in the equity markets.

At the same time, the FSA will require from Tuesday 23 September all companies state on a daily basis the positions they have in relation to short selling.

Most UK and European pension funds, including the British Airways pension fund, who were lending stocks to be used for short selling or who were short selling themselves through hedge funds have now begun to review their positions.

Hermes, which manages the €53bn BT pension fund, said it has had a long-standing processes of managing stocklending on behalf of BTPS which would not include lending considered contrary to long-term shareholders' interests.

It therefore stopped the lending of HBOS and Bradford & Bingley equities several months ago prior to their recent rights issues.
"This week we took the view that what is happening in the market has switched from a healthy clear-out of excesses to an unhealthy hunting down of the weakest members of the pack. We therefore decided to add a slate of around 20 financial institutions across the world to our list. This decision was in place ahead of the FSA and SEC decisions on short-selling," said Hermes in a statement.

IPE understands the Electricity Supply Pension Scheme - which has approximately 20 smaller schemes under its umbrella - has also seen the few schemes which were counterparty to Lehman Brothers on stock lending, so those trustees have been working with custodians Bank of New York Mellon to ascertain what, if any, impact there may have been.

Officials at Watson Wyatt have also revealed stock lending was not a practice widely adopted by pension funds, as many tended to still feel it is "too much hassle" and has little perceived return verus the risk alongside the - now revealed - concerns about counterparty risk.
"There is also a minority view from some pension funds that, from a moral stance, it is arguable that hedge funds move share prices and therefore one shouldn't lend to them," continued the spokesman.

What general impact has this week's turmoil had on your pension scheme assets or those of your clients, and are there any long-term implications? If you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email