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Equity Collateral Rule Change Hinges on SEC Appointments
Traders Magazine Online News, April 7, 2017
(this article originally appeared in Global Investor)
Current rule prevents US broker dealers from pledging equities as collateral when borrowing from lending clients
A potential US rule change which could allow equities as an acceptable form of collateral is being considered by the SEC, market participants heard this week, although the outcome could be affected by personnel changes at the securities regulator.
Trade bodies RMA and SIFMA have been working for a couple of years on a proposal to request changes to the collateral requirements of rule 15c3-3.
The rule effectively prevents US broker dealers from pledging equities as collateral when borrowing securities from lending clients.
Similar restrictions are not in force in Europe and new capital and liquidity frameworks, resulting in balance sheet pressures for US dealers, are providing added incentive.
"The proposal would permit US broker dealers to pledge a diversified basket of high-quality liquid equities when borrowing equity securities from large institutional lenders." Mike McAuley, managing director, global head of product strategy, securities finance, BNY Mellon said this week.
"However, the outcome remains uncertain and could be affected by personnel changes at the SEC," he added, speaking at Finadium’s inaugural Investors in Securities Lending Conference in New York.
Mary Jo White stepped down as SEC chair at the end of the Obama administration. Her term was set to expire in 2019.
Other key members of the SEC staff also quit the agency earlier this year, including Andrew Ceresney, director of SEC’s division of enforcement and Stephen Luparello, director of SEC’s division of trading and markets.
Wenchi Hu, an associate director in the division of trading and markets, also left the SEC in early February.
Meanwhile, any changes to Rule 15c3-3 may require additional SEC action to permit US mutual fund lenders to accept the new collateral.
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