Securities lending agents are racing the clock to provide key information on their lending clients to broker-dealers so that those clients — including plan sponsors, mutual funds and central governments — get a clean bill of credit health.
March 31 is the first deadline. The deadline agreement was made by the securities lending industry task force that has been spearheading the push toward more disclosure and the Securities and Exchange Commission, which regulates broker-dealers.
By that date, broker-dealers are expected to have certified the creditworthiness of the institutions from which they borrow securities. To do that, they need information such as company name, place of business and some financial records. On Oct. 1, principal-level, loan-by-loan details will be required to be reviewed daily by broker-dealers.
But while lenders might be OK with providing the information, smaller lenders might be surprised to see their lending activity change after the broker-dealers review them.
The information being sent to broker-dealers is innocuous, said Robert A. Wittie, a partner in the Washington office of the law firm Kirkpatrick & Lockhart Nicholson Graham LLP. "There's nothing terribly dramatic about the idea that you're going to be identified, that your name, rank and serial number is going to borrowers," he said.
"What is going to be a little bit more interesting or potentially uncomfortable or troublesome for beneficial owners is that the reason this whole exercise is occurring is so that borrowers will make a credit determination about all outstanding loans," Mr. Wittie added. "That implies some financial information is going to be provided. The documentation that calls for that at this stage is pretty non-specific as to what information is going to be provided."