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British investors demand banks stick to lockups on share sales

A man walks past the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth
A man walks past the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth

By Chris Vellacott

LONDON (Reuters) - British investors have called upon investment banks to stick closer to lock-up agreements on sales of company shares after a major transaction, saying it would ensure more stable markets.

The Association of British Insurers (ABI) - whose members manage assets worth a quarter of the UK economy - has released a set of 'best practice' guidelines demanding bankers are clearer about how much time will pass before they launch further placings of shares.

The call comes as frustration mounts among investors over an increasingly common disregard for lock-ups designed to prevent a selling shareholder, such as a private equity group, destabilizing the market.

The lock-ups are meant to reassure investors buying into a share sale that the seller will not dump more of their stake on the market shortly afterwards, driving down the share price.

"It comes down to no more than we think it is important that lock-up agreements frankly do what they say on the tin," Robert Hingley, Director of Investment Affairs at the ABI, told Reuters on Friday.

"This is important because (lock-ups) are designed to regulate the balance between supply and demand and send a signal to the market that if you buy shares now there won't be a further increase in supply for a given period."

The ABI does not have a regulator's powers to set rules but its views are important because of the buying power of its members who represent much of the UK mutual funds market, managing nearly $3 trillion of assets.

Some investors were angered in 2013 when Lloyds Banking Group , in transactions run by bookrunner Bank of America Merrill Lynch , sold two tranches of shares in wealth manager St James Place in quick succession.

The second sale came just over 10 weeks after the first, even though Lloyds had said it would not reduce its stake further for at least a year.

The ABI wants lock-up agreements to specify an initial "hard" lock-up that cannot be waived after which the terms become more flexible.

"You don't want to necessarily set a cliff edge in the market because otherwise you get funny things happening around that cliff edge. Some discretion is fine. But if you are going to have 180 days, the first 150 days should be hard and then you can waive in the last 30," Hingley said.

He said the ABI had made investment banks aware of its demands and received mixed responses.

"We have been in touch with a number of investment banks for a while, Some are sympathetic. Some are less so," he said.

(Reporting by Chris Vellacott; editing by Tom Pfeiffer)

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