Executives from corporate pension funds are happy about the new rules.
"Any time you broaden the amount of firms you can lend to and the collateral that you can take, it helps the lending of funds," said William F. Quinn, president of AMR Investment Services, Fort Worth, Texas, which oversees American Airlines' $11 billion pension fund. "It will improve our results from securities lending."
"It certainly has to help (securities lending); anything like this would help," said Ira Powell, chief administrative officer for DuPont Capital Management, Wilmington, Del., which oversees the $14.5 billion E.I. du Pont de Nemours & Co. Inc. pension fund. "I know that State Street (the fund's custodian) is in favor of it, so it has to be in our best interests," he added.
"For (ERISA) funds that have international securities they can be more efficiently lent by those guidelines," said Chris Kunkle, first vice president of Mellon Global Securities Lending, Boston, and a member of the RMA's executive committee. "The pension plans will have the benefit of lending into the foreign broker network, which can more efficiently use their securities," he added.
Mr. Picone thinks that the biggest benefits to ERISA pension funds will be from lending international securities. "They had to find a way to make the securities more attractive," he said. "If this (the rules) didn't change, they (pension funds) would have lost business to European lenders," he added.
Fixed-income securities lending will also benefit from the rule changes, according to Mr. Picone. It will be cheaper for a borrower to obtain foreign fixed-income securities from ERISA plans under the new rules because they will not have to deal with foreign-exchange risk if they can give collateral in euros or pounds, he said.
Tom Ford, head of securities lending at Bank of New York, agrees the fixed-income securities lending by ERISA pension plans will benefit from the new rules.
"Non-U.S. fixed-income markets are typically collateralized by securities denominated in local currencies, or by cash with the euro as collateral. Those trades had been lost to ERISA plans. They will be positioned competitively now," said Mr. Ford. "It is a market they (ERISA funds) had been almost completely shut out of."
The new rules "will allow them (ERISA plans) to be more competitive (in securities lending) than they are today," said Mike Vardas, senior vice president of Northern Trust Co., Chicago. "ERISA funds were at a relative disadvantage to other (public) pension funds in securities lending."
State Street's Mr. O'Brien pointed out that some large U.S. broker-dealers with U.K.-based affiliates have gotten exemptions from the rules and have been borrowing from U.S. corporate pension funds for years.
He also pointed out another potential large benefit from the new proposals, once they are approved. "It opens up the dialogue with the DOL to go in and ask for more," said Mr. O'Brien. He said the DOL has indicated it will consider allowing ERISA funds to lend securities to borrowers from other countries besides the United Kingdom if the DOL get appropriate information about how those markets are regulated.