Notice2026-06365
Order Regarding the Collateral Broker-Dealers May Pledge When Borrowing Customer Securities
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 2, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 63 (Thursday, April 2, 2026)</title>
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[Federal Register Volume 91, Number 63 (Thursday, April 2, 2026)]
[Notices]
[Pages 16770-16772]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-06365]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105108]
Order Regarding the Collateral Broker-Dealers May Pledge When
Borrowing Customer Securities
March 30, 2026.
I. Introduction
Section 36 of the Securities Exchange Act of 1934 (``Exchange
Act'') authorizes the Securities and Exchange Commission
(``Commission''), by rule, regulation, or order, to conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions from any
provision or provisions of the Exchange Act or any rule or regulation
thereunder, to the extent that such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
Paragraph (b)(1) of Rule 15c3-3 under the Exchange Act requires a
broker-dealer to promptly obtain and thereafter maintain the physical
possession or control of all fully paid securities and excess margin
securities carried by the broker-dealer for the account of a
customer.\1\ Broker-dealers frequently borrow equity securities from
institutional investors to make
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deliveries on failed transactions or short sales. In order to use the
borrowed securities (i.e., not maintain them in physical possession or
control), paragraph (b)(3) of Rule 15c3-3 provides that the broker-
dealer, among other requirements, must fully collateralize the loan
with cash or United States Treasury bills and Treasury notes or an
irrevocable letter of credit issued by a bank as defined in section
3(a)(6)(A) through (C) of the Exchange Act or such other collateral as
the Commission designates as permissible by order as necessary or
appropriate in the public interest and consistent with the protection
of investors after giving consideration to the collateral's liquidity,
volatility, market depth and location, and the issuer's
creditworthiness.
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\1\ 17 CFR 240.15c3-3(b)(1). ``Fully paid'' securities are
securities carried by a broker-dealer for which the customer has
paid the full purchase price in cash. 17 CFR 240.15c3-3(a)(3).
``Excess margin'' securities are securities carried by a broker-
dealer for the account of a customer that have a market value in
excess of 140% of the debit balance in the customer's account. 17
CFR 240.15c3-3(a)(5).
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By this Order, and subject to the conditions discussed below, the
Commission will permit broker-dealers that borrow fully-paid or excess
margin equity securities from certain types of institutional investors
to pledge a basket of Russell 1000 and/or S&P 500 equity securities
(``Eligible Equity Collateral''). The Eligible Equity Collateral was
selected based on its liquidity, volatility, and market depth. Further,
the issuers of Eligible Equity Collateral are U.S. companies with the
largest public share and market capitalization. Moreover, there is
ample public financial information available about the issuers of
Eligible Equity Collateral. By designating this highly liquid
collateral as permissible for the purposes of paragraph (b)(3)(iii)(A)
of Rule 15c3-3, the Order is consistent with the rule's objectives,
which are designed to ensure that securities borrowings from customers
remain fully collateralized.
The Commission considered several factors in deciding whether to
designate Eligible Equity Collateral as permissible under paragraph
(b)(3) of Rule 15c3-3 and in establishing the conditions that lenders
must meet to receive such pledged collateral. The Commission's primary
consideration was to limit the risks of lender losses associated with
permitting this new category of collateral. In this regard, the
securities comprising the Eligible Equity Collateral are treated as
securities with a ready market under the broker-dealer net capital
rule.\2\ In addition, the securities are included in the Russell 1000
and/or S&P 500 equity securities indices. This means the companies
issuing the securities have large market capitalizations relative to
other types of issuers and, therefore, deeper markets for their
securities. Moreover, the institutional investors lending equity
securities and the broker-dealers pledging Eligible Equity Collateral
must agree to maintain concentration and diversification standards with
respect to the pledged Eligible Equity Collateral. Finally, paragraph
(b)(3) of Rule 15c3-3 requires that the collateral provided by a
broker-dealer fully secures its obligation to a customer, and that the
value of the loaned securities and the collateral be marked to market
daily to meet this requirement. The daily marking to market and over-
collateralization should serve to address fluctuations in value.
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\2\ See 15 CFR 240.15c3-1(c)(11).
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Designating as permissible the use of Eligible Equity Collateral
will add liquidity to the securities lending markets and reduce
operational risk by allowing broker-dealers to directly use the
Eligible Equity Collateral as collateral for securities loans.
For the forgoing reasons, the Commission finds that this exemption
is appropriate in the public interest, and consistent with the
protection of investors.
II. Conclusion
Accordingly, it is ordered, pursuant to section 36 of the Exchange
Act, that, Broker-dealers may pledge, in accordance with all applicable
conditions set forth below and in paragraph (b)(3) of Rule 15c3-3,
Eligible Equity Collateral when borrowing fully-paid or excess margin
equity securities from Qualified Institutional Securities Lenders. For
these purposes:
A ``Qualified Institutional Securities Lender'' is any person that
is:
1. a qualified institutional buyer (``QIB'') as defined in Rule
144A under the Securities Act of 1933 (a ``QIB Lender'');
2. an entity that owns and invests on a discretionary basis at
least $100 million of securities of issuers that are not affiliated
with that entity (a ``Securities Investor Lender''); or
3. a principal lender represented by an agent lender that is a bank
(as defined in section 3(a)(6) of the Exchange Act) that has, as agent,
outstanding loans of securities with an aggregate value of at least
$100 million (exclusive of the broker-dealer's activity with the agent
lender) (an ``Agent Lender'').
In determining whether a prospective lender is a Qualified
Institutional Securities Lender, the broker-dealer may rely on
representations from the prospective lender or its agent as to whether
it satisfies these criteria, provided such reliance is reasonable under
the circumstances. If a broker-dealer that provided Eligible Equity
Collateral to a lender that satisfies these criteria subsequently
learns that the lender does not satisfy the criteria, the lender shall
remain a Qualified Institutional Securities Lender for five business
days after the date such lender ceases to meet the requirements. By the
end of the fifth business day, the broker-dealer must either substitute
other eligible collateral that complies with paragraph (b)(3) of Rule
15c3-3 to replace the Eligible Equity Collateral or return the borrowed
securities to the lender.
``Eligible Equity Collateral'' means a diversified basket \3\ of
long customer margin securities or securities carried for the
proprietary account of a broker-dealer (``PAB'') that are Russell 1000
and/or S&P 500 equity securities.\4\
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\3\ The parties will maintain concentration and diversification
standards to their reasonable satisfaction with respect to the
pledged Eligible Equity Collateral.
\4\ An exchange traded fund composed of unleveraged long S&P 500
or Russell 1000 equity securities may also be Eligible Equity
Collateral.
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Any equity security pledged to a Qualified Institutional Securities
Lender that satisfied the foregoing criteria when it was pledged shall
remain Eligible Equity Collateral for five business days after the date
such security ceases to meet the requirements. By the end of the fifth
business day, the broker-dealer must either substitute other collateral
that complies with paragraph (b)(3) of Rule 15c3-3 to replace the
Eligible Equity Collateral, or return the borrowed securities to the
lender.
Any pledge of Eligible Equity Collateral when borrowing fully-paid
or excess margin securities from Qualified Institutional Securities
Lenders shall be subject to the following additional conditions:
1. Broker-dealers pledging Eligible Equity Collateral must provide
collateral in an amount that exceeds the minimum collateralization
requirement in paragraph (b)(3) of Rule 15c3-3 (100%) by 1% if the
securities borrowed by the broker-dealer are denominated in, Euro,
British pound, Swiss franc, Canadian dollar or Japanese yen, or by 5%
if the securities borrowed by the broker-dealer are denominated in
another currency. For this purpose, an equity security is deemed to be
denominated in the currency of the primary exchange on which such
security is listed and traded.
2. Eligible Equity Collateral pledged by the broker-dealer must be
held at a bank (as defined in section 3(a)(6) of the Exchange Act) or a
broker-dealer. The broker-dealer may rely on representations from the
lender or its agent as to whether this condition is
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satisfied, provided that such reliance is reasonable under the
circumstances.
3. The broker-dealer pledging the Eligible Equity Collateral must
agree with the Qualified Institutional Securities Lender that both
parties will maintain concentration and diversification standards to
their reasonable satisfaction with respect to the pledged Eligible
Equity Collateral. The broker-dealer may rely on representations from
the lender or its agent as to whether this condition is satisfied,
provided that such reliance is reasonable under the circumstances.
By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-06365 Filed 4-1-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on April 2, 2026.
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