According to S&P Global Market Intelligence, revenues from the securities lending industry increased 4% year-on-year (YoY) to US$1,079 million for April.[1] As the fully paid securities lending (FPL) market grows due to investor appetite for yield-enhancement strategies, the associated regulatory scrutiny for industry participants will continue to be a key area of regulatory focus. To help navigate this turbulent intersection, Broker-dealers and custodian banks are turning to 17a-4’s fully paid lending collateral administration services for assistance.
Recently, both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have emphasized[2] the necessity for broker-dealers and clearing firms to ensure transparency and to implement robust Supervisory Systems which establish and enforce procedures to monitor FPL activities and ensure compliance with regulatory requirements.
One central theme we have observed is customers must retain control over their collateral, and broker-dealers must prove it. Firms have articulated the following regulatory priorities including:
- Compliance with SEC Rule 15c3-3(b)(3): prohibiting broker-dealers from retaining control over collateral posted to customers
- Daily mark-to-market practices with clear visibility
- Independent verification of collateral delivery, segregation, and valuation
- Books and records compliance under SEC Rules 17a-3 and 17a-4
17a-4’s Collateral Administration platform is purpose-built for this next era of fully paid lending, offering broker-dealers and custodian banks the operational backbone needed to scale FPL programs securely and compliantly.
Key Capabilities:
Real-Time Collateral Monitoring
- Track collateral sufficiency and overcollateralization thresholds (e.g., 102%, 105%)
- Support for daily mark-to-market valuations
- Realtime alerts for undercollateralization events.
Segregation & Third-Party Control of Collateral
- Integration with third-party custodians and trust structures to ensure broker-dealers do not maintain control over customer collateral.
- Support for delivery to segregated custodial accounts
- Custody reporting and timestamped confirmations
Supervision & Exception Reporting
- Automated policy compliance checks.
- Supervisory dashboards for risk and compliance teams to monitor program activity in real time.
Books and Records Compliance
- Real-time recording of loan transactions, collateral posted, and lender information.
- Data retention and export aligned with SEC Rule 17a-3 and 17a-4.
Ready to Elevate Your FPL Program?
Whether you’re a Broker-dealer launching a new fully paid securities lending program or Custodian enhancing oversight of an existing program, our team can help. Let’s turn compliance into your competitive advantage.
[1] https://www.securitiesfinancetimes.com/securitieslendingnews/industryarticle.php?article_id=227874#:~:text=Despite%20market%20volatility%2C%20securities%20lending,to%20S%26P%20Global%20Market%20Intelligence.
[2] https://www.sidley.com/en/insights/newsupdates/2025/02/increased-us-regulatory-focus-on-fully-paid-securities-lending-programs?utm_source=chatgpt.com
