08 October 2007

 

Activist investors and derivatives

Letter sent to the FT 26/09/09 (not published).

Dear Sir,
Your article "Derivatives stand in the way of equity" 26/09/09 highlights the regulatory questions that arise from significant derivative positions held by activist investors.

It seems to me that many of the difficulties could be solved if the voting rights associated with an ordinary share did not accrue to the share owner until the owner had held the share on the share register for, say, six months. This would ensure that companies could see a potentially influential position developing over time. It would also protect companies from the activists with the most extreme short term focus.

Activist investors will obviously hate this idea, and it is true that regulation should not seek to deter legitimate activism. But how can we distinguish between legitimate and illegitimate activism? Surely a legitimate activist is one who is prepared to commit capital to a potential target for a reasonable period of time? An activist who is not prepared to do this presents no evidence of solidarity with the long term interests of other shareholders.

Yours faithfully,
Revd Patrick Gerard

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