Review of UK equity market will look at areas including reporting obligations, how asset managers are incentivized and the impact of automated trading
Short-term decision-making by companies and investors will come under scrutiny in a review of UK equity markets launched last week.
The Kay Review, set up by Vince Cable, the UK business secretary, and chaired by economist Professor John Kay, will examine the workings of the stock market and how that affects the long-term performance of UK businesses.
The review follows criticism of asset managers for being too focused on short-term goals in the run-up to the financial crisis, as well as during corporate takeovers.
‘Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees?’ asked Cable in September last year.
The review will investigate areas including:
- The extent to which reporting obligations hinder long-term decision-making
- Whether corporations focus too much on short-term share price fluctuations
- Whether asset managers are insufficiently incentivized to focus on long-term value
- The impact of automated trading on equity markets.
In a speech last week, Kay said the review will focus not only on whether new regulation is needed, but also on whether existing rules are damaging the long-term goals of companies and investors.
‘Is it possible, for example, that successively more onerous reporting requirements imposed on companies encourage managers to focus on ‘making the numbers’ rather than on developing the underlying competitive strengths of their businesses?’ he asked.
Submissions to the review can be made until November 18. The plan is for Kay and his advisory committee to provide an interim report by February 2012, with a final report due out in July.
