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 Lending
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

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