SEC Probing Repos and Securities Lending
The SEC’s Division of Corporation Finance has sent a request letter to several public companies seeking information about their use of repurchase agreements, securities lending transactions, and “other transactions involving the transfer of financial assets.” CorpFin has asked for information about whether the companies treated transactions as sales versus collateralized financings, whether transactions were concentrated with certain counterparties, and additional disclosure about the amounts categorized as financings. CorpFin also queries whether the MD&A in the 10-K should contain additional disclosure.
OUR TAKE: As mutual funds are significant participants in the repo and securities lending markets, we suspect any additional disclosure obligations would ultimately be imposed on funds. Firms should consider disclosure about concentrations with particular counterparties and MD&A disclosure in shareholder reports.