August 21, 2017

August 21, 2017

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Compilation of SEC Staff Guidance on Securities Lending

Division of Investment Management's guidance on securities lending by open-end and closed-end investment companies provides a reminder of legal obligations in lending programs.

The Securities and Exchange Commission's (SEC's) Division of Investment Management recently published staff guidance on "Securities Lending by U.S. Open-End and Closed-End Investment Companies" (Staff Guidance).[1] The Staff Guidance does not impose any new requirements on investment companies and does not elaborate on prior SEC and staff positions. Instead, the Staff Guidance compiles into a single location prior no-action letters that the staff has issued regarding securities lending by open-end and closed-end investment companies.

The publication of the Staff Guidance serves as a reminder of the important legal obligations that arise in connection with securities lending programs. Funds, fund boards, and fund chief compliance officers should be aware of these obligations, and funds should conduct their securities lending activities accordingly. Among other things, the following should occur:

  • Boards must approve and oversee securities lending programs. This includes initial review and approval of written policies and procedures, as well as ongoing reporting and review of performance, compliance, and implementation.
  • Boards should adopt policies outlining when securities on loan should be recalled to permit proxy voting.
  • Loans must be appropriately collateralized and are subject to Investment Company Act of 1940 leverage restrictions.
  • Fund disclosure documents should describe the lending program and key risks.

In addition, the Staff Guidance includes a reminder that affiliated transaction restrictions apply to securities lending and, specifically, that SEC exemptive relief may be required where a fund seeks to lend its portfolio securities to affiliated borrowers or to compensate an affiliated lending agent with a share of revenues from the lending program.

[1]. View the Staff Guidance here.

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About this Author

Richard F. Morris, Investment Management Lawyer, Securities Industry Attorney, Morgan Lewis, Law firm

Richard F. Morris is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Morris's practice focuses on representing exchange-traded funds (ETFs), mutual funds, and investment advisers. He has more than 20 years of experience as an asset management lawyer and has been at the forefront of ETF representation since 2000, when he helped launch the iShares family of ETFs.

Mr. Morris counsels clients on the full range of legal, regulatory, and compliance issues applicable to ETFs, investment companies, and registered investment advisers. He has experience...

Zachary E. Vonnegut-Gabovitch investment company legal specialist Morgan Lewis

Zachary E. Vonnegut-Gabovitch focuses his practice on representing investment companies and their advisers in a variety of domestic and international regulatory, transactional, compliance, and corporate governance matters. Zachary also counsels broker-dealer clients with respect to transactions in exchange-traded funds and has experience in swap reporting, swap clearing, and SEF and SDR registration.

Zachary is on a team of lawyers that helps investment companies, broker-dealers, investment advisers, futures clearing merchants, CTAs, swap dealers, and security-based swap dealers with regulatory issues. Securities, futures, and swap exchanges; crossing platforms; clearinghouses; and private funds also turn to them for guidance in the ever- changing industry.


We provide a full range of legal services to clients in the financial services industry in the United States and abroad. Our investment management clients include nine of the ten largest money managers listed by Institutional Investor, over 500 mutual funds, venture capital, private equity, and hedge funds, the largest business development company in the U.S., banks and trust companies, insurance companies, public and private pension funds, fiduciaries and consultants, transfer agents, fund administrators, and other businesses in the investment management industry...