Rule 15c3-3 reform offers equity collateral
22 June 2017 Berlin
Image: Shutterstock
Potential reform of SEC Rule 15c3-3 is likely to change the US market, but the likes of the UK will see a realignment in trading rather than an out-and-out replacement.
Attendees of the ISLA Securities Finance and Collateral Management Conference in Berlin heard how collateral requirements are diverging by region, with Middle East-based clients seeking sharia-compliant assets, and those in the Nordics asking for environmental, social and governance-friendly assets.
In the US, long-mooted changes to Rule 15c3-3 promise to allow mutual funds to collateralise their securities lending activity with equities.
Experts at BNY Mellon recently wrote of the excitement among collateral providers in the US, “because, on the surface, the rule change potentially reduces their financing costs, as they’re naturally long in equities”.
“Given that most equity collateral-driven businesses are based outside the US, with the highest concentrations being in Europe, Asia Pacific and Canada, Rule 15c3-3 will likely result in a shift back towards the US.”
A poll of conference attendees in Berlin showed that a significant share believe that such a shift could occur, although speakers cautioned against getting too excited.
It is understood that eligible collateral would be restricted to Russell 1000 and S&P 500 equities under the changes to Rule 15c3-3, which would limit their effect on trading around the world.
There was also a prediction that changes to Rule 15c3-3 would be counterproductive, putting a squeeze on cash in the US market, and scepticism as to whether they would displace business from markets such as the UK, where there have long been no restrictions on collateral type.
Attendees of the ISLA Securities Finance and Collateral Management Conference in Berlin heard how collateral requirements are diverging by region, with Middle East-based clients seeking sharia-compliant assets, and those in the Nordics asking for environmental, social and governance-friendly assets.
In the US, long-mooted changes to Rule 15c3-3 promise to allow mutual funds to collateralise their securities lending activity with equities.
Experts at BNY Mellon recently wrote of the excitement among collateral providers in the US, “because, on the surface, the rule change potentially reduces their financing costs, as they’re naturally long in equities”.
“Given that most equity collateral-driven businesses are based outside the US, with the highest concentrations being in Europe, Asia Pacific and Canada, Rule 15c3-3 will likely result in a shift back towards the US.”
A poll of conference attendees in Berlin showed that a significant share believe that such a shift could occur, although speakers cautioned against getting too excited.
It is understood that eligible collateral would be restricted to Russell 1000 and S&P 500 equities under the changes to Rule 15c3-3, which would limit their effect on trading around the world.
There was also a prediction that changes to Rule 15c3-3 would be counterproductive, putting a squeeze on cash in the US market, and scepticism as to whether they would displace business from markets such as the UK, where there have long been no restrictions on collateral type.
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