The majority of European pension funds believe lending securities from their portfolios helps hedge funds manipulate markets, according to research by Financial News.

The findings of the poll of 103 pension funds, sponsored by State Street and Equilend, suggest the securities lending industry has failed in its efforts to distance itself from corporate governance abuses. Some industry participants want the Financial Services Authority, the UK regulator, to improve transparency so owners of lent shares can be confident they are not being used improperly. Hedge funds can borrow securities from other investors to sell them short or influence important proxy votes, for example, on mergers or acquisitions. When shares are lent, voting rights transfer to the borrower. However, Chris Taylor, head of European securities lending at State Street, said it was rare for lent shares to be used to influence corporate governance. He said: "It is unlikely the practice of securities lending will influence a critical proxy vote." The Financial News research showed a third of pension funds that lend securities never recall them for proxy votes, 15% always do and the remainder recall securities for votes on contentious issues. The FSA is examining whether to introduce rules requiring investors to report interests in companies held through borrowed shares or contracts for difference.