SEC Grilling Stock Brokers Over Questionable Trading with Borrowers

Jack Humphrey, Regulatory journalist
March 01, 2011 /

Stock brokers State Street (NYSE: STT) will have to sustain the severity of whatever that the SEC’s probe into its trading system with borrowers may cause into its securities lending operations, the bank’s report stated.

The US Securities and Exchange Commission is said to have proceeded with its investigation into the stock brokers‘ lending systems, without certainty of any formal administrative actions to be made in the later development of the inquiry, according to State Street’s report.

State Street is a financial services holding company based in Boston. Its sister company State Street Global Advisors (SSgA), one of the leading investment advisors in USA, is also under SEC’s scrutiny in addition to the stock brokers’ questionable stock lending program.

The SEC raises doubts over the disclosures of SSgA regarding the statements it made to participants in the brokerage.

In particular, the SEC is looking into the collateral pools disclosures of the stock brokers when their value in the public market had declined. Further, the stock brokers’ available redemption process for lenders is being questioned by the SEC.

The stock brokers had been facing complaints recently from lenders claiming losses from its cash collateral reinvestment, but the SEC’s investigation may have more drastic impact.

State Street feared that any consequences of the investigation favoring the SEC may drastically pose undesirable effects to its stock lending operations and the trading of its stock brokers.


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