The AITC is lobbying the DTI to try and ensure investment trusts have greater flexibility in control...
The AITC is lobbying the DTI to try and ensure investment trusts have greater flexibility in controlling their discounts.
Two years ago, the DTI proposed that UK plcs should be allowed to repurchase up to 10% of their shares, a practice known as holding shares in treasury, and also be able to sell them back onto the market at a future date.
Earlier this year the DTI issued a consultation document suggesting investment trusts should be excluded from this provision. It is planning to publish a draft regulation next month.
While investment trusts are already able to buy back shares they are not able to hold these in treasury.
Daniel Godfrey, director general at AITC said: "The advantage to an investment trust being able to buy back and hold up to 10% of its shares is that it would provide liquidity. If trusts can hold shares rather than increasing discounts in order to sell this would lead to smoother discount volatility. We are also supported by a number of trade associations."
The AITC believes there is no reason why investment trusts should be excluded and it has met with the DTI several times in the past year to argue against this. One part of the trade body's reasoning is that share holders would have to give permission if the trust wanted to repurchase and hold its own shares.
The DTI has said closed end funds should be excluded due to concerns about market manipulation, shareholder protection and credit protection. These three factors were tested against and the DTI are now reasonably comfortable that there is no danger.
Godfrey said: "These concerns apply less to investment than they do to plcs and gave no reason to exclude investment companies from the proposed regulations."
In a separate move the AITC is lobbying the FSA to prevent investment trusts coming under the remit of the Financial Services Ombudsman Scheme which is due to come into force next summer on the date the FSA's powers are enacted.
The FSA's proposals would allow shareholders in investment trusts to go to the ombudsman on all issues related to the management of the underlying assets of the trust, except issues related to performance.
Annabel Brodie-Smith, marketing manager at AITC, said: "The proposal not only raises legal issues but undermines the clear complaints and governance structure that exists for shareholders in company law."
In a recent meeting with the AITC, the FSA said that there could be occasions where it would be appropriate for a shareholder to complain about the mismanagement of the company's assets.
The AITC believes that if such a situation occurred, it would be up to the trust, via the board to secure redress for the shareholder.
Brodie-Smith said: "Should these legal mechanisms be deemed inadequate to ensure shareholder protection, it should be for the ongoing Modern Company Law Review to propose changes to company law. The Ombudsman proposals merely compromise these clear lines of accountability."
The FSA believes the inclusion of investment trust shareholders within the scheme would help establish a 'level playing field' for all financial services customers.
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