With shareholder engagement moving ever higher up the (potentially) regulatory and market best practice agenda, voting is likewise coming under the spotlight. In recent days, we have seen the unexpected result of the Infineon AGM provoke concerns about ‘irregularities in the voting process’.

Manifest’s own investor conference in Paris in September 2009 demonstrated the importance to investors of being free to choose their own provider for the instruction of their voting rights in order to have sufficient control over whether their voting instructions are processed as expected. Instead, most investors remain tied to having their voting instructions passed through voting service(s) chosen not by them, but by their custodian (or securities account provider, to use European Commission (EC) parlance).

The EC is currently consulting opinion in response to a report presented in November of last year on the topic of the potentially unfair practices of tying and mixed bundling of services in the financial services industry.

The consultation identifies that tying occurs when two or more products are sold together in a package and at least of one these products is not sold seperately, and that mixed bundling occurs when two or more products are sold together in a package, although each of the products can also be purchased separately on the market.

The study behind the consultation identified that such practices lead to customers inability to move providers or select providers of other more specific services, and that this in turn damages the efficiency of the financial markets themselves.

Whilst the background of the consultation is retail financial services, it’s clear that institutional investors are no less susceptible to a similar problem. These two scenarios are of course very familiar with institutional investors in their relationships with custodians and their Central Securities Depositaries when it comes to voting. Investors would not tolerate being tied to a specific broker chosen by a third party for execution of their ownership rights, yet we regularly see this in the field of vote processing.

This is a point which should not go un-noticed by the EC: if tying and mixed bundling is deemed unfair in retail financial services, it is no less damaging in the realm of institutional investor services. 2010 presents an unmissable opportunity for investors to ensure that recognition is made in the Securities Law Directive which will be the subject of a consultation later this spring. Watch this blog for more news on this opportunity.

Last Updated: 12 February 2010