Blog Category:
Change Overview and Rationale

Fed Official Outlines Potential Changes to Basel III Endgame Proposal

by David Schwartz J.D. CPA | Sep 13, 2024

On September 10, 2024, Michael S. Barr, the Federal Reserve Board Vice Chair for Supervision, delivered a speech at the Brookings Institution outlining potential changes to the Basel III Endgame and G-SIB Surcharge proposals, originally released in July 2023. Barr characterized these changes, developed collaboratively by the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), as both “broad and material”.

While Barr did not specify an exact release date for the reproposal, he indicated that it would be reviewed in an open board meeting, followed by a 60-day comment period. Implementation is anticipated one year after the final rule’s release.

SEC Extends SLATE Review Period Due to Industry Concerns

by David Schwartz J.D. CPA | Jun 19, 2024

Many Believe FINRA Exceeded its Mandate On June 10, 2024, the SEC extended the period by which it must take action on FINRA’s proposed SLATE Rules from June 21, 2024 to August 5, 2024.

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.

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 […]

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.

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.

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.

DOL to Reverse Rules “Chilling” ESG Investing and Proxy Voting

by David Schwartz J.D. CPA | Oct 13, 2021

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.

Will Securities Lending Indemnification Be Regulated Into Oblivion?

by David Schwartz J.D. CPA | Dec 20, 2014

Borrower default indemnification, sometimes referred to as a “securities replacement guarantee,” is fairly common in the securities lending industry. Under the typical arrangement, should a borrower of a security fail to return it at the end of the loan, the lending agent agrees to purchase a replacement security for the lender using the proceeds of the collateral posted by the borrower for the loan. The indemnity is applicable if the price of the replacement security exceeds the value of the collateral. In such a case, the lending agent agrees to make up the difference.

For many years, banks have provided borrower default indemnification as part of their securities lending services, which has given beneficial owners additional assurance as to the safety of their lending programs, and has allowed pension funds and others for whom such indemnity is legally required to participate in the securities lending market as well.

Blog Category: Change Overview and Rationale

Blog Category:
Change Overview and Rationale