Regulatory Change in Securities Lending
November 14, 2011

An array of proposed legislation and recommendations including Basel III, Dodd-Frank and European Commission rules on short selling will ultimately provide new mandates for securities lending market participants at all stages of the transaction. In the meanwhile however, beneficial asset holders and securities lending agents are working to assess the new environment as regulatory concepts become formalized and specific rules are adopted.

Executive Summary

  • Dodd-Frank's Orderly Liquidation Authority, credit limits on counterparties, capital rules and short sale disclosure studies have a potentially major impact on securities lending market participants. The Volcker Rule calls into question the ability of agent lenders to manage certain unregistered cash collateral reinvestment pools.
  • European Commission proposals on regulating short selling, the Alternative Investment Fund Managers Directive and the coordination of European tax rates would, if carried out in their current form, dramatically affect the securities lending industry. Borrower demand could also be reduced by the ability of European regulators to intervene in financial markets to temporarily reduce or eliminate short selling.
  • Globally, requirements for hedge fund disclosure of short positions would very likely decrease short selling and hence the demand for securities loans. Regulators are discussing many proposed rules now.
  • Basel III brings into question for the first time the value of indemnification that banks provide their securities lending clients, and encourages banks to consider Central Credit Counterparties for trading OTC derivatives as well as other bilaterally traded products. Basel III may also encourage more acceptance of non-cash collateral to manage balance sheets.
  • The Financial Stability Board has begun to review the shadow banking industry with potential implications for repo, securities lending and money market funds. Any changes or increased regulation in this area could impact cash collateral reinvestment portfolios for securities loans.
View this Thought Leadership paper:
Regulatory Change in Securities LendingBNY Mellon Asset Servicing
View previous BNY Mellon Thought Leadership papers:
ETFs 2.0: The Next Wave of Growth and Opportunity in the US ETF Market
Breaking Down the Walls: Convergence Between Traditional Investment Managers and Hedge Fund Managers
Strategies of Securities Lending
Resetting the Roadmap: Managing in a New Securities Lending Environment for Beneficial Asset Holders
 




This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across fundservices.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

An array of proposed legislation and recommendations including Basel III, Dodd-Frank and European Commission rules on short selling will ultimately provide new mandates for securities lending market participants at all stages of the transaction. In the meanwhile however, beneficial asset holders and securities lending agents are working to assess the new environment as regulatory concepts become formalized and specific rules are adopted.

Executive Summary

  • Dodd-Frank's Orderly Liquidation Authority, credit limits on counterparties, capital rules and short sale disclosure studies have a potentially major impact on securities lending market participants. The Volcker Rule calls into question the ability of agent lenders to manage certain unregistered cash collateral reinvestment pools.
  • European Commission proposals on regulating short selling, the Alternative Investment Fund Managers Directive and the coordination of European tax rates would, if carried out in their current form, dramatically affect the securities lending industry. Borrower demand could also be reduced by the ability of European regulators to intervene in financial markets to temporarily reduce or eliminate short selling.
  • Globally, requirements for hedge fund disclosure of short positions would very likely decrease short selling and hence the demand for securities loans. Regulators are discussing many proposed rules now.
  • Basel III brings into question for the first time the value of indemnification that banks provide their securities lending clients, and encourages banks to consider Central Credit Counterparties for trading OTC derivatives as well as other bilaterally traded products. Basel III may also encourage more acceptance of non-cash collateral to manage balance sheets.
  • The Financial Stability Board has begun to review the shadow banking industry with potential implications for repo, securities lending and money market funds. Any changes or increased regulation in this area could impact cash collateral reinvestment portfolios for securities loans.
View this Thought Leadership paper:
Regulatory Change in Securities LendingBNY Mellon Asset Servicing
View previous BNY Mellon Thought Leadership papers:
ETFs 2.0: The Next Wave of Growth and Opportunity in the US ETF Market
Breaking Down the Walls: Convergence Between Traditional Investment Managers and Hedge Fund Managers
Strategies of Securities Lending
Resetting the Roadmap: Managing in a New Securities Lending Environment for Beneficial Asset Holders