§ 15. Dr. Gilbertasked the Secretary of State for Trade and Industry if, as a result of his review of company law, he will seek powers to end the practice whereby merchant banks and other financial institutions warehouse lines of stock in unit trusts managed by them.
§ Mr. NobleI take the hon. Member to mean a practice whereby a merchant bank arranges for a unit trust under its control to acquire shares for whose issue the merchant bank is responsible. If the hon. Member has information to show that the practice has been followed to the prejudice of the unit trust, I will consider it.
§ Dr. GilbertI am grateful for that answer but the right hon. Gentleman has not quite got the point. I am referring to the normal practice whereby merchant banks and other financial institutions can put into a unit trust lines of stock for which they may have subsequent use. Are there not two possibilities for abuse which he may consider: first that there will be an avoidance of disclosure under the 10 per cent. rule; and secondly that serious conflicts of interest can arise in takeover situations whereby stock is voted, not in the interests of ordinary members of the public who subscribe to the unit trusts but in the interests of merchant bankers who control them?
§ Mr. NobleI am in some difficulty in answering this question, not because I do not know the answer, but because the phrase used by the hon. Gentleman has no recognised meaning. Therefore, I had 1239 to make the best guess I could about what was behind his Question. As for the point which he put in his supplementary question, I think that in most cases this could not happen because the merchant bank would be acting as principal, and that kind of action would be in breach of the trust deed. If the hon. Gentleman has in mind a particular point and would like to write to me about it, I shall certainly give him a full answer and tell him whether there are actions that we can take.