Securities Lending: Laws, Regulations, and Risk Management
Summary
This practice note provides an overview of the laws and regulations governing securities lending transactions. Securities lending comes with its own set of laws and regulations. These include Regulation T, SEC Rule 15c3–3, SEC Rule 10c-1a, The Employee Retirement Income Security Act of 1974 (ERISA), Federal Financial Institutions Examination Council (FFIEC) Revised Policy Statement on Securities Lending, and risk-based capital guidelines. The note also discusses the risks associated with securities lending. Primary risks include credit risk, operations and systems risk, settlement risk, market risk, liquidity risk, legal risk, and fiduciary risk. When dealing with international securities lending, additional risks need to be managed, including intra-day settlement risk, exchange rate risk, credit evaluation risk, valuation risk, and risk relating to national differences, such as corporate actions, taxation, and differing regulations.