SEC Order Permitting Broker-Dealers to Use Russell 1000/S&P 500 Equity Securities as Collateral When Borrowing Customer Securities
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The U.S. Securities and Exchange Commission issued Release No. 34-105108 on March 30, 2026, creating a new exemption under Section 36 of the Securities Exchange Act of 1934. The order allows broker-dealers to pledge a diversified basket of Russell 1000 and/or S&P 500 equity securities — designated as 'Eligible Equity Collateral' — when borrowing fully-paid or excess margin equity securities from qualified institutional investors. Previously, permissible collateral under Rule 15c3-3(b)(3) was limited to cash, U.S. Treasury bills and notes, irrevocable bank letters of credit, or other Commission-designated instruments. To qualify, the lending institution must be a 'Qualified Institutional Securities Lender' (QISL), defined as a QIB under Rule 144A, an entity managing at least $100 million in non-affiliated securities, or a principal lender represented by an agent bank with at least $100 million in outstanding securities loans. Broker-dealers may rely on lender representations to confirm QISL status, with a 5-business-day cure window if a lender subsequently fails to qualify. Key safeguards include mandatory over-collateralization: 101% for securities denominated in EUR, GBP, CHF, CAD, or JPY, and 105% for all other currencies. Collateral must be held at a bank or broker-dealer, marked to market daily, and subject to agreed concentration and diversification standards. ETFs composed of unleveraged long S&P 500 or Russell 1000 securities also qualify as Eligible Equity Collateral. The Commission determined the exemption is in the public interest because Russell 1000 and S&P 500 securities are highly liquid, have deep markets, are issued by large-cap U.S. companies with extensive public disclosures, and are already classified as securities with a 'ready market' under the net capital rule. The order is expected to add liquidity to securities lending markets and reduce operational risk.
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Key Changes
- Broker-dealers may now pledge Russell 1000 and/or S&P 500 equity securities (including qualifying unleveraged ETFs) as collateral under Rule 15c3-3(b)(3) when borrowing customer securities — a new category previously unavailable
- Collateral must exceed the 100% minimum by 1% (101%) for securities denominated in EUR, GBP, CHF, CAD, or JPY, and by 5% (105%) for all other non-listed currencies
- Lenders must qualify as a 'Qualified Institutional Securities Lender': a QIB under Rule 144A, an entity with ≥$100M in non-affiliated securities, or a principal lender via a bank agent with ≥$100M in outstanding loans
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Obligations
What this law requires
Broker-dealers must maintain over-collateralization at 101% for securities denominated in EUR, GBP, CHF, CAD, or JPY when pledging Eligible Equity Collateral
Broker-dealers must maintain over-collateralization at 105% for Eligible Equity Collateral denominated in all other currencies
Broker-dealers must mark Eligible Equity Collateral to market daily and hold it at a bank or broker-dealer
Broker-dealers must ensure Eligible Equity Collateral is subject to agreed concentration and diversification standards with the lender
If a lender ceases to qualify as a Qualified Institutional Securities Lender, broker-dealers must substitute compliant collateral or return borrowed securities within five business days