Sunday, November 21, 2021

SEC Proposes Sweeping Securities Lending Disclosure Rules

Bringing Securities Lending Out of the Dark.

Author: David Schwartz

On November 18, 2021, the Securities and Exchange Commission proposed broad disclosure rules intended to "provide transparency in the securities lending market." As directed by the Dodd-Frank Act, the Commission proposed these rules to (1) supplement publicly available information, (2) close data gaps in the securities lending market, (3) minimize information asymmetries between market participants, and (5) provide market participants with access to pricing and other material information.

Further, the data elements proposed to be collected are intended to provide regulators with the information necessary to perform effective market surveillance. "This proposal would bring securities lending out of the dark," according to SEC Chair Gary Gensler. 

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Monday, November 15, 2021

New Trends in Data Ownership

How Data Trusts Can Transform Securities Finance. Part I.

Author: David Schwartz

Certain challenges in securities finance can only be met with better data and newer data models. Market regulators now coping with investor demands for ESG-compliance will have to monitor the disclosures of regulated entities by combing through vast pools of stock loan and proxy voting data. Bank custodians and brokers, if tasked with validating the social propriety of their stock loans, will have to dive deep into customer profile data, deeper than either regulators or vendors can today access efficiently.

 

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Monday, November 8, 2021

Exposing the Rogue Traders

The Case for a Cross-Border Stock Loan Registry, Part II

Author: Ed Blount

Master Criminals don’t usually confess in public. If prosecutors’ charges are true, Sanjay Shah is the leading figure in the largest reported tax swindle in history. Yet, Mr. Shah, unbowed, pleading his case to reporters, has openly admitted to borrowing the assets of widows and orphans in one country to kick-start a pyramid scheme of dividend capture trades, so as to swindle widows and orphans in other countries. Mr. Shah’s attorneys argue that his trades were not illegal. Mr. Shah, according to the reporters, claims everything he did was legal, and then he appeals to the Law of the Jungle:

“If there’s a big sign on the street saying, ‘please help yourself’,
then me or somebody else would go and help themselves.”

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Monday, November 1, 2021

A Twenty-Year Journey to Transparency

Securities Lending Versus Proxy Voting

Author: David Schwartz

Securities lending has proven the most challenging aspect of shadow banking for regulators to bring under a regulatory rubric. One of the most vexing aspects for regulators is proxy voting by securities lenders or, more particularly, the lenders' decision processes about whether to recall lent securities to vote their proxies and forego the lending income. The calculus about whether to forego lending income in favor of exercising the right to vote relies on so many factors that regulators are hesitant to second-guess. Nonetheless, investors in lenders like mutual funds have a right to know how investment managers make these decisions. And now, the enormous demand for ESG investing is driving an intensifying interest in how funds are managing governance decisions. Perhaps it is time to explore more active metrics to avoid what could be more needless and ultimately unhelpful disclosure to shareholders. 

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Monday, October 25, 2021

Assembling the Market Posse

The Case for a Cross-Border Stock Loan Registry, Part I

Author: Ed Blount

We’ve all been there, having drinks after work with an important client visiting from overseas. My most memorable time was at the very beginning of my career on Wall Street. The client was a trader from the South African branch of Jos. Sebag & Co., a London firm more than 100 years old when he and I met in 1975 at the upscale bar, Michael II. The firm and the restaurant have long since vanished, but at the time Sebag was the most active account for First National City Bank’s (FNCB) American Depositary Receipt (ADR) business. The firm was far more active than Merrill Lynch, Goldman Sachs or any other cross-border trading outfit. Most of the trades were for the issuance of ADRs in South African mining stocks, such as Anglo-American Gold.

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