IMRO: Stock lending

In November 1997, IMRO issued Consultation Document 35 entitled "Stock Lending". This considered the issue of pooling risks, that is the risk that customers who have not consented to stock lending may be exposed to loss if their assets are registered or held in a pooled account, and either the lending or borrowing firm defaults.

Final confirmation of the Rules was delayed whilst SFA and IMRO consulted on this issue to ensure a consistency of approach.

IMRO announced that the new stock lending rules came into effect on 1st June 1998, and these rules were the same as those proposed in CD35, other than as follows:

• Pooling risk IMRO has amended its guidance in order to clarify what constitutes an "automatic lending programme". This means that separate registration is necessary where the custodian or depository has some discretion in lending beyond the control of the Regulated Firm.
• Intra-day settlement risk IMRO has been persuaded that in certain markets the provision of pre-settlement collateral is prohibitively expensive, and has therefore amended the rules to indicate that firms only need to consider the requirement for such collateralisation as part of their risk analysis (e.g. taking into account the creditworthiness of the counterparty), rather than making it a mandatory requirement.
• Capacity To make it clear that firms which act as agent and merely execute stock lending transactions to the order of a principal are not caught by the new rules, IMRO has clarified that the rules apply only to the party who is responsible for arranging the stock lending transaction, not the agent.