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  • Writer's pictureSEDA Experts

Pension Funds to Collect Nearly $500 Million in Compensation for Depressed Earnings on Stock Lending

Richard Marin was retained at the early stages of this dispute to consult with plaintiffs on the merits of the case.

The Case

Pensions funds and other institutional investors hold considerable equity positions with custodian banks. To earn additional returns, those institutions direct their custodians to make their securities holdings available to the stock lending market. Loans of stock are similar to repurchase agreements for bonds, enabling dealers to settle trades and short-sellers to obtain shares of companies they do not own.

The market for stock lending is dominated by a handful of large banks with extensive prime brokerage business. Prime brokers connect loans of stock from custodians to short-seller borrowers. The difference between the “borrow fee” paid by the short-seller and the fee received by the custodian generates spread revenue for the prime broker. For the largest prime brokers, spreads on stock lending are a multi-billion dollar business.

A class of pension funds alleged that the largest prime brokers conspired through a joint venture called Equilend to keep securities lending inefficient and protect their profits. In particular, plaintiffs pointed toward efforts by prime brokers to resist entry by financial technology companies AQS and SL-x, as well as the data provider Data Explorers. Equilend would eventually acquire AQS and SL-x, but did not subsequently adopt any of their technology. Data Explorers were acquired by Markit, another joint venture among the major banks, but its data products were never offered to Markit customers.

At the end of August, Goldman Sachs, Morgan Stanley, JPMorgan, UBS, and Equilend entered a preliminary settlement agreement with a class of pension funds in which they will pay $499 million and agree to injunctive relief to resolve allegations that they conspired to monopolize the market for securities lending. Including the $81 million paid previously by Credit Suisse, a total of $580 million has been paid to plaintiffs. Bank of America did not participate in the settlement and remains as the sole defendant in the case.

SEDA Expert's Role

Richard Marin was retained at the early stages of this dispute to consult with plaintiffs on the merits of the case.

"I was retained at the early stages of this matter. I was tasked to provide my views and share my knowledge and experience onthe ways in which prime brokers minimize their regulatory capital costs and the ways in which they would have been able to minimize these costs even more if they were merely acting as sponsoring members to a CCP; (ii) the minimal operational costs that would have been associated with using a multilateral stock lending platform such as AQS; and (iii) Defendants’ experts incorrect assertions about the importance and prominence of recall and rerate protection, locate services and additional ancillary bundled services to stock lending." My contribution was based on my extensive experience in the fields of investment banking, investment management, asset and custody management, alternative funds management, securities lending and the operation and management of these activities in the financial services business, all of which have involved varying types and degrees of extensive work in and around the activities of hedge fund management, institutional asset management and custody, securities lending and borrowing (including, specifically the Quadriserv and AQS platform offerings), short selling, prime brokerage, agent lending of securities and the investors who represent the beneficial owner community at large."


The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.



Richard A. Marin

Richard Marin, as a former finance senior executive with over 40 years of industry experience, and as a former clinical professor at Cornell University is a world-class testifying expert in asset management, alternative investments, private equity investments, securities lending, retirement and pensions, and real estate/project financing.

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