July 8, 2015
The proposed rules for reporting securities lending activities address real concerns about the lack of transparency. As a researcher, I have found it difficult to obtain meaningful information about lending program risk, fee sharing arrangements, performance, and program size (how much on loan). The proposed rules will certainly make lending program assessment easier for market participants, regulators, researchers, and investors.
However, I am concerned that many of the prosposals will impose an unnecessary burden on funds that will lead them to suspend their lending programs, thereby reducing fund investor returns. Fewer lending funds could also raise securities borrowing costs leading to less efficient markets.
Funds should be required to report average monthly aggregate dollar amounts on loan for each counterparty and fee split information in addition to the information currently reported in the footnotes to fund financials. More importantly, on a semi-annual basis fund managers should be required to provide a brief report on securities lending performance relative to similar funds, lending program risk, strategy, and how the lending prgram affected overall fund performance. This assessment would help focus fund managers on the larger question of how lending benefits shareholders and provide investors, market participants, and regulators a better understanding of each funds' lending program.