Obscure securities lending practices have been a cause for concern for the governance community in recent years as the ability to recall shares at short notice can negatively impact investors' ability to vote at general meetings.

The US Senate is now adding its weight to worries about the industry and is launching an investigation into the securities-lending practices of defined benefit and defined contribution pension funds, according to a recent article in Pensions & Investments. Committee Chairman Herb Kohl, was prompted to act after press reports suggesting that 401(k) plan sponsors have been limited in their ability to withdraw money from their securities-lending accounts. 

Kara Getz, counsel for the Senate Aging Committee, told Fundamentals, a securities lending journal, that the initiative was launched following a specific Wall Street Journal article that outlined withdrawal restrictions related to 401(k) plans. “There were some huge losses in some of the cash collateral pools and so some plan sponsors were trying to get out of certain funds and they couldn’t, so that is what has prompted the investigation,” she explained.The committee sent a series of letters to a number of custodian banks and 401(k) plan sponsors on the week of 29^th November, with a request for response by the week of 20^th December.

Further Reading

Wall Street Journal: 401(k)s hit by withdrawal freezes >>