Disclosure Regimes
Comments to SEC on Proposed 10c-1 Reporting by Securities Lenders Excerpts from CSFME comment letter on proposed SEC Rule 10c-1, submitted 15 December 2021 “The Honorable Gary Gensler, Chairman, U.S. Securities and Exchange Commission: “With regard to the above-cited 10c-1 disclosure system, my colleagues and I consider inclusion in the rule proposal of an optional […]
Finding a Better Value Proposition for the SEC’s Sec Lending Disclosure Rule The SEC has proposed a radical and potentially very costly reporting regime for securities finance transactions to increase transparency “to brokers, dealers, and investors.” Notably, the rule release’s[1] extensive economic analysis section includes some potential alternatives to the proposed new reporting structure. While […]
The Securities and Exchange Commission (SEC) recently proposed a new reporting regime to increase transparency and efficiency in the securities-lending market. The SEC seeks to accomplish this by requiring anyone who loans a security on behalf of himself or another person to report material terms of those loans (and related information regarding the securities on loan) to a registered national securities association (RNSA), namely the Financial Industry Regulatory Authority (FINRA).
SEC’s New Disclosure Regime to Fix “Information Assymetry” Make no mistake. The new 10c-1 disclosure proposal by the SEC is an Investor Protection Rule on steroids. It is also a profound escalation of regulatory support for Investor Self-Protection. Nothing less than a near real-time, stock loan ticker will result if enacted, revealing U.S. loan rates […]
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 […]
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.
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 has to be how to make securities lenders’ decision processes about whether to recall lent securities to vote proxies more transparent to investors and the regulators themselves.
Sustainable investing is becoming more important to investors when creating portfolios. As a result, institutions often follow policies with formal environmental, social, and governance (ESG) factors to guide their investments. They commit substantial resources to ESG research and produce comprehensive reports about their compliance. But then the same institutions give away their proxy votes when they lend securities for fees to cover their bank charges. And the loans of those securities – and their proxies – go to borrowers with unknown intentions, and often with unknown identities.
One market veteran asked if there is any other space in capitalist finance where the lender knows neither the specifics of the borrower nor the purpose of the loan? Given this opacity, can ESG factors really be squared with securities lending strategies?
In his first address as Chairman of the Securities and Exchange Commission, Jay Clayton reaffirmed his dedication to the Commission’s guiding principles and historic approach to regulation. At the same time, however, Chairman Clayton said he sees areas where the SEC’s regulations need to evolve to “reflect the realities of our capital markets.” One of these realities is that implementing regulatory change has costs, and over time cumulative regulation and the associated costs can drive behavior that has dramatic effects on the market. One example of such a driver of behavior, according to Chairman Clayton, is public company disclosure. This ever-expanding body of regulation brings a robust transparency to the markets. Clayton fears, though, that some of these disclosure requirements have strayed from their core purpose.
On June 1, 2017, the Public Company Accounting Oversight Board (PCAOB) voted to adopt new standards for public company audit reports. The new auditing standard, AS 3101, is the result of nearly eight years of work by the PCAOB with members of the public accounting profession, regulators, academics, and investor groups. If approved by the Securities and Exchange Commission, this new standard will change the scope of the current auditor’s report. AS 3101 retains the unqualified versus qualified (pass versus fail) opinion of the existing auditor’s report, but makes significant changes to the auditor’s report by adding a new section highlighting what the PCAOB calls “critical audit matters” (CAM). Adding CAM to audit opinions is intended to better highlight key areas of risk information to reduce the information asymmetry between users of a company’s financial statement and the company’s management.