Archive Articles

Predictive AI in Securities Finance: Step One

by Ed Blount, Dan Hammond | Nov 6, 2023

On April 2nd, 2026, an effusion of data from a daily trove of U.S. regulatory filings will create resources to drive many new use cases for artificial intelligence in capital markets. A clear opportunity exists in securities finance, where practitioners have repeatedly stated that major IT investments will be needed to comply with the many new regulatory mandates. “Black box” AI platforms may seem a ready solution but can also create nightmares for client reviews and lawsuits.

In our opinion, public data can clarify the rational limits of influence for predictive artificial intelligence. The best courtroom-ready models will display an audit trail based on the replication of critical decision parameters and vectors from past markets. Vendor data in securities finance may be more timely and deeper than the public releases but, for judicial purposes, the public data will provide foundational evidence for the “bounded rationality” of decision-makers, as defined by the late Herbert Simon, Nobel Laureate and the father of Artificial Intelligence.

Beyond Benchmarking: The Race to Predictive Analytics in Securities Finance

by Ed Blount | Oct 27, 2023

When, on October 13, 2023, the Securities and Exchange Commission released its long-awaited final 10c-1 rule on reporting and public disclosure of securities loans (explained here), the most important passage, at least to the commercial data vendors who support the securities finance community, stated that, “the final rule could render existing securities lending data services less valuable, potentially leading to less revenue for the firms currently compiling and distributing these data for a fee.”[1] But is that true? Are bonuses and careers really at risk?? As shown in the table below, there is hope for vendors because the public data release will either omit or delay several data elements that are crucial to many important vendor applications today.

New Money Fund Reforms: Safer and More Resilient Cash Collateral Pools?

by David Schwartz J.D. CPA | Oct 24, 2023

The Securities and Exchange Commission (SEC) recently adopted final rules on money market (2a-7) fund reforms. These reforms are designed to make money market funds more resilient and liquid, potentially making them safer and more attractive vehicles for mutual funds to use as collateral pools for their securities lending programs.

SEC Adopts Long Awaited Securities Lending Disclosure Rule

by David Schwartz J.D. CPA | Oct 12, 2023

Persuasive Public Comment Helps Mold the Final Rule The Securities and Exchange Commission (SEC) has adopted a new rule, rule 10c-1, to increase transparency in the securities lending market. The rule requires certain persons to report information about securities loans to a registered national securities association (RNSA). The RNSA will then make certain information publicly […]

Untold Stories of Market Manipulation: Archegos Capital

by Ed Blount, Dan Hammond | Sep 27, 2023

This blog tells the untold story of how securities lenders in March 2021 became more than simply a source of liquidity to markets. Lenders organized their de facto market posse when their securities lending agents and custodians set in motion the chain of contractions that brought down Archegos’ massive fraud. It was their automated ceiling on total credit extension – share inventory buffers — that led, in a very short time, to traders’ discovery, surveillance, and opposition to the manipulation.

Archegos Litigation Heats Up

by David Schwartz J.D. CPA | Sep 25, 2023

In March 2021, Archegos Capital Management, a family office run by Bill Hwang, collapsed in a spectacular fashion, leaving its counterparties with over $10 billion in losses. The collapse of Archegos was one of the largest hedge fund failures in history, and it has since been the subject of intense scrutiny by regulators and law enforcement.

Modernizing Beneficial Ownership Reporting

by David Schwartz J.D. CPA | Jul 30, 2023

In early 2022, the Securities and Exchange Commission (SEC) proposed several significant changes to Regulations 13D and 13G, which require certain persons to disclose their beneficial ownership of equity securities. These changes seek to improve the transparency and timeliness of beneficial ownership reporting and to make it easier for investors to access and understand this information.

The SEC Unveils its Agenda for 2023

by David Schwartz J.D. CPA | Jan 11, 2023

In its recently updated regulatory flexibility agenda, the Securities and Exchange Commission has announced its regulatory priorities for 2023. A mix of old and new business, the Commission’s 2023 plans include finalizing 29 existing proposals and placing 23 new proposals up for consideration. In a January 4, 2023 press release announcing the updated agenda, SEC Chairman Gary Gensler stated that the agency’s agenda “reflects the need to modernize our ruleset, moving deliberately to update our rules in light of ever-changing technologies and business models in the securities markets.” Regulatory flexibility agendas are aspirational, and the SEC’s rulemaking agenda could change throughout the year.

SEC Beefs Up Proxy Voting Disclosure

by David Schwartz J.D. CPA | Nov 27, 2022

On November 2, 2022, the Securities and Exchange Commission (SEC) finalized the first of its market data rule proposals. The amendments to form N-PX bring greater detail, consistency, and usability to the proxy voting information reported by mutual funds. These changes came in response to investors, who have said for nearly twenty years that they would benefit from more readily usable information and greater details.

Common Domain Model Paves the Way to the Future

by David Schwartz J.D. CPA | Nov 16, 2022

The Common Domain Model (CDM), the International Securities Lending Association’s (ISLA) ambitious securities lending standardization project, is a step closer to reality. And industry leaders already see opportunities for application. In a report jointly produced with Linklaters, ISLA outlined the project’s progress since its launch in 2021 and described how the CDM lays the foundation for distributed ledger (DLT)-based smart contracts to remake the securities lending landscape.

Serious Doubts About the SEC’s Short Sale Proposals

by David Schwartz J.D. CPA | Sep 29, 2022

In February of 2022, the Securities and Exchange Commission proposed new disclosures to provide more transparency into institutional investors’ short-selling activity. According to Chairman Gensler, collecting more granular data from large short sellers “would help us to better oversee the markets and understand the role short selling may play in market events.” Despite these lofty goals, industry commenters are raising serious questions about whether some elements of the proposed new disclosure regime are structurally and technologically feasible.

Bringing Crypto Asset Activities Into the Regulatory Perimeter

by David Schwartz J.D. CPA | Aug 19, 2022

A collection of the globe’s most significant securities trade associations joined forces to file a comprehensive response to the Basel Committee on Banking Supervision’s (BCBS) second public consultation on the prudential treatment of banks’ crypto-asset exposures. The September 30, 2022, letter voiced support for the design of the crypto-asset exposure framework proposed by BIS in its June 10, 2021, initial and follow-up June 30, 2022, consultations.

Is T+1 Something We Can All Agree On?

by David Schwartz J.D. CPA | Jun 19, 2022

In moving to shorten the U.S. securities settlement cycle by one day to T+1, the Securities and Exchange Commission appears to have hit on something upon which virtually everyone can agree. Judging by the comments to the SEC’s T+1 proposal, everyone from State Street to the Cornell Securities Law Clinic agrees that moving to T+1 is both desirable and beneficial to risk management in the long run. That said, despite this rare moment of accord between the regulator and the regulated, according to some commenters, some parts of the proposed implementation need attention, fine-tuning, or reconsideration.

Regulators Drop the Hammer on Archegos

by David Schwartz J.D. CPA | Apr 27, 2022

The Securities and Exchange Commission (SEC) filed a civil lawsuit against Archegos Capital Management, its founder, and several other individuals in April 2022. The SEC alleges that Archegos engaged in a fraudulent scheme to manipulate the market for the securities of the issuers that represented Archegos’s top 10 holdings, both through purchases of the issuers’ securities and entry into total return swaps referencing those issuers.

SEC Gets an “Earful” on Securities Lending and Short-selling Disclosure Proposals

by David Schwartz J.D. CPA | Apr 17, 2022

The Securities and Exchange Commission’s controversial securities lending disclosure proposal (Proposal) sought public input on 97 questions and received a substantial body of feedback during the initial 30-day comment period. Drawing sharp rebukes, most responses from trade associations for lenders and borrowers focused on the ambiguous scope of rule 10c-1, the feasibility of the proposed 15-minute reporting regime, lopsided cost and technology burdens, and the risks of reverse engineering posed by the public disclosure provisions.

Disclosure and Beyond: Restructuring the U.S. Equity Markets

by David Schwartz J.D. CPA | Mar 19, 2022

On Friday, February 25, 2022, the Securities and Exchange Commission (SEC) proposed its latest round of GameStop rule proposals. In addition to enhanced public disclosures of short sales by institutional investors, the Commission announced a 30-day extension of the comment period on its sweeping securities lending disclosure proposal, Rule 10c-1, and technical amendments to the “consolidated audit tape” regulations.

T+1: The Future is Now (or at least as early as 2024)

by David Schwartz J.D. CPA | Feb 14, 2022

While real-time settlement is still something that may happen far in the future, perhaps on the Starship Enterprise, T+1 is now imminent. On February 9, 2022, the Securities and Exchange Commission proposed to make T+1 a reality. The proposal aimed at reducing risks in clearance and settlement seeks comment on shortening the current T+2 standard settlement cycle for most broker-dealer transactions by one day to T+1.

How Would Cross-Border Payments Change in a Digital Currency World?

by David Schwartz J.D. CPA | Feb 11, 2022

Widespread adoption of central bank digital currencies (CBDC) could revolutionize cross-border payments by reducing friction and making it possible for T+1 or even T+0 settlement of cross-border trades. The Fed’s Digital Currency discussion paper is the central bank’s first step in a public discussion with stakeholders about a digital dollar, as we described in our January 25 post. But what would such a cross-border payment system look like? Is it enough to mimic the traditional systems of SWIFT, DTCC, and others? Or does the unprecedented interoperability and technology of CBDCs force obsolesce on the current systems?

The Fed Weighs in on a ‘Digital Dollar’

by David Schwartz J.D. CPA | Jan 24, 2022

A discussion paper published on January 20th invites the public to explore with the U.S. Federal Reserve Board the creation of a digital version of the U.S. dollar. A Central Bank Digital Currency (CBDC) backed by the Federal Reserve would be designed, according to the Fed’s paper, to compete with cryptocurrencies like Bitcoin and Ethereum. Comments are due by May 20, 2022.

Lenders and Borrowers Sound off on the SEC’s Disclosure Proposal

by David Schwartz J.D. CPA | Jan 21, 2022

The Securities and Exchange Commission’s (SEC) securities lending disclosure proposal has drawn sharp rebuke from both securities lenders and borrowers. Lending principals criticized the proposal on everything from cost, lack of clarity, and overbroad scope to the rule’s general inequity. They also warned of a host of potential unintended consequences that could work against the very transparency the rule proposal was intended to foster. Some of the highlights are summarized below.