SEC approves new FINRA lending rules 12 December 2013Washington DC Reporter: Mark Dugdale
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New rules in the US on securities loans and borrowings, permissible uses of customers’ securities, and callable securities have received Securities and Exchange Commission (SEC) approval.
The Financial Industry Regulatory Authority (FINRA) proposed the three new rules for securities lending and borrowing transactions, which the SEC approved on 4 December.
Under Rule 4330, a member firm cannot lend securities held on margin for a customer without prior authorisation, and those that borrow on behalf of a client must notify FINRA at least 30 days before doing so while ensuring that the transaction is appropriate for the client’s financial position.
Rule 4314 stipulates that a member firm must disclose that it is acting as an agent in a securities lending or borrowing transaction, making the distinction between agent and principle clearer. It must also maintain books and records reflecting the details of the transaction.
Clarifying requirements applicable to callable securities, Rule 4340 requires member firms to establish an impartial lottery system to allocate callable securities in the event of a partial redemption or call.
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