The firm as a dual commodity provider:

1
The firm as a dual commodity provider The new
rationale for corporate limited liability Photis
Lysandrou
2
1. Introduction

• Corporate power should be subject to control
• However, whatever initiatives are considered, the
  repeal of CLL should not be among them

3
2.Equity trading as speculation

• CLL facilitates unlimited trading
• Unlimited trading usually seen as speculation
• The repeal of CLL seems doubly useful

Average
daily turnover value (bn)
4
3. Trends in secondary market trading


Proportion of UK equity turnover in FTSE 100
shares

(Source LSE secondary market fact sheets
1998-2006)

• Steady trend rate of growth in trading
• Plus concentration of trading on mega cap
  securities
• Suggest a change in the role of equity trading

5
4.Transformation of the asset management
industry

• From a small cottage industry to a mass industry
• Shift from discretionary to rule-based asset
  management
• Core-satellite paradigm

6
5. Equity trading as portfolio rebalancing

• Trading as an input in the provision of
  standardised products
• Trading is essential but costly
• Trading costs are minimised by concentrating
  trades on most liquid securities

7
6.The new rationale for CLL

• CLL is not essential to the productive function
  of corporations
• But CLL is essential to the asset management
  function
• CLL determines the tradability of equities

8
7. The necessity of institutional asset
management

• The shift from public to private retirement
  provision
• The shift from bank based to capital market forms
  of investment for retirement

9
8.Conclusion

• Institutional investors should monitor
  corporations more closely
• However, the repeal of CLL is not the way to
  achieve this
• Since it undercuts the core function of
  institutional investors, CLL is best left alone

10
Figure 1 Client mandates of assets under
management in the UK (Sample size 21 IMA member
groups managing 1.06trn of assets)  
(Source IMA asset management survey 2005)