Cross-Post
Bringing Securities Lending Out of the Dark. On November 18, 2021, the Securities and Exchange Commission (SEC) proposed broad disclosure rules intended to “provide transparency in the securities lending market.” As directed by the Dodd-Frank Act[1], the Commission proposed these rules to: Further, the data elements proposed to be collected are intended to provide regulators […]
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.
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.
The U.S. Labor Department (DOL) has proposed regulations that would greatly expand how retirement and pension plans can invest in ESG strategies and clarify the scope of ERISA plans’ responsibility for proxy voting. If adopted, the DOL’s proposal, drafted by the Employee Benefits Security Administration (EBSA), will reverse the former administration’s regulations on ESG factors in retirement portfolios and ERISA fiduciaries’ use of proxy voting powers in favor of social or political goals.
The Securities and Exchange Commission issued a proposal to expand investment company disclosures of their proxy voting activities. If adopted, the rules would enhance the information mutual funds, exchange-traded funds, and other regulated investment companies are required to report on Form N-PX under the Investment Company Act.[1] These expanded disclosures are intended to make proxy voting decisions made by investment company advisers more complete, accessible, and understandable to investors.
Paris, September 24, 2021 – The next shoe has fallen in reaction to the January 2021 GameStop short squeeze, by which certain online brokers interpreted clearinghouse rules to necessitate the suspension of their retail customers’ ability to buy “meme stocks”. Today, the European Securities Markets Authority (ESMA), citing SEC and EU data for January 2021 on suspiciously high levels of failed meme stock settlements, asked for public comment on rule changes to avoid future short squeezes in the EU. This ESMA consultation on systemic risk management will surely propel industry leaders to advance their previously-announced plans for a block-chained securities market infrastructure to add even more robust operating and disclosure protocols.
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.
German courts and regulators have put securities lenders on notice that cross-border withholding tax (WHT) reclaim “schemes” are now “crimes.” Recent developments in Germany have cleared the way for sweeping tax audits and potential criminal prosecutions of borrowers and lenders reaching back 25 years. The so-called “cum-ex” trades have been a focus of European regulators, particularly in Germany and Denmark, whose treasuries have been hit hardest by these trades. Lenders are being advised that there is new potential for legal and criminal jeopardy attached to cum-ex securities lending transactions and that principals and their service providers should be ready for heightened scrutiny.
The German Federal Court of Justice’s decision two weeks ago to prosecute as criminals anyone who abused dividend arbitrage trades anytime over the previous 25 years is bad news for everyone in the securities lending community. The German tax authorities’ new determination to conduct sweeps of securities loans that span dividend record dates should in particular sound the alarm for institutional securities lenders, especially if it presages a new trend among regulators.
Creating ESG Models to Change Negative Views of Financial Markets Good morning, this is Ed Blount and I am speaking to you from the Center for the Study of Financial Market Evolution here in Washington, D.C. I’ve been asked by my good friends at the Risk Management Association, RMA, just up the road in Philadelphia, […]