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SEC reviewing equity collateral rules for US sec lending
01 February 2017
Longstanding regulatory barriers have prevented US market participants from using equities as collateral
SEC officials are reconsidering rules which prevent
institutional market participants from pledging and accepting
equities as collateral in the US securities lending market.
Stocks have long been recognised as an acceptable form of
collateral for years in European and Canadian markets. However,
longstanding legal and regulatory barriers have barred US
market participants from doing the same.
Speaking at the IMN Securities Finance conference in Florida
this week, Theresa Hajost, special counsel at the
SEC’s Division of Trading and Markets, said the
agency is "working through" scenarios where such trades could
take place, adding it was an "ongoing process".
US securities lending industry groups, including the RMA,
have previously urged the watchdog to consider a "coordinated
approach" that would allow institutional participants in the US
securities lending market to pledge and accept equities as
The trade body believes that such a change would benefit all
market participants and help to reduce systemic risk in both
normal and stressed environments.
It has also suggested that a move towards equity collateral
would improve market liquidity, reduce borrowing costs for
broker dealers and provide beneficial owners and agent lenders
with another tool to manage risk in their lending
Others in the industry, including major agent lenders, have
previously pointed out that the acceptance of correlated
collateral, particularly equities against equity collateral,
enables beneficial owners to benefit from increased
utilisations and spreads.
Speaking on the same panel as Hajost at the IMN this week,
Andrea Aguiar, Morgan Stanley's executive director of bank
resource management, added: "The rise of collateral trading
techniques to optimise balance sheet usage supports the idea of
using equities as collateral."