The U.K. government should consider introducing a transaction tax on high-frequency trading to deter very short-term investors, a panel of lawmakers said.
Such a levy could be used to help implement the findings of economist John Kay’s 2012 review of the U.K. equity market, the House of Commons Business, Innovation & Skills Committee said in a report published today. It also called on Prime Minister David Cameron’s government to look into ways of giving preferential voting rights to long-term shareholders during takeovers.
“Professor Kay sought to bring about cultural change to improve long-termism in the equity market,” the committee chairman, Adrian Bailey from the opposition Labour Party, said in an e-mailed statement. “It’s not enough for the government to simply say it supports Kay’s recommendations and then leave it to the industry to change of its own volition. The government must set measurable, accountable targets through which reform can be driven and measured.”
The cross-party panel endorsed the 17 recommendations in the report by Kay, a visiting professor at the London School of Economics, who was commissioned by Business Secretary Vince Cable to examine how existing market structures and incentives are affecting companies’ longer-term investment.
Kay said the pay of asset managers should be tied more closely to the interests of investors, fewer middlemen should be involved in buying shares and individual investors should be encouraged to hold stakes directly. Company executives, asset managers, the disclosure of investment costs and stock lending practices are “misaligned,” Kay said.
In 2010, 11.5 percent of U.K. shares were directly owned by individuals, compared with 54 percent in the 1960s, the panel said. Regulation has not kept pace with the shift from “owning” to “trading” and asset managers do not always act in the best interests of the companies in which they invest, according to the lawmakers.
The government “must bring forward proposals to enhance the culture of long-termism, transparency and accountability,” the committee said.