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Blass Calls for Industry Views on Derivatives Proposal, Affiliated Securities Lending

In a recent speech, the director of the SEC’s Division of Investment Management tallied the  agency’s many achievements in the last year, including IM’s board outreach initiative, the ETF rulemaking, and recent re-proposal of derivatives regulation. Director Dalia Blass asked industry participants to engage with the Division on the proposed derivatives regulation in a number of ways, including commenting on the appropriateness of the board’s role in overseeing the derivatives risk management program. Blass also drew attention to zero-fee products and raised concerns about asset managers’ revenue sources, asking whether further disclosures are necessary in that area. She acknowledged that while cost reductions are good news for investors, there remain important questions such as whether cuts in one place are being made up in another and whether current fee disclosures adequately reflect the mechanics and reality of zero-fee products. Blass also focused on affiliated securities lending and the practice of advisers using revenue from securities lending arrangements to “boost returns or to reduce the impact of expenses.” She suggested that IM is working on closing the gap between funds that have attained exemptive relief that permits them to share securities lending revenue with their affiliated lending agent and funds that do not have that relief. Blass asked for industry input on securities lending matters generally, including how advisers and boards can consider the appropriateness of a securities lending program on a fund-by-fund, asset class, and complex-wide basis; best practices on conflict assessment and management; and whether advisers and boards have access to independent information about the performance of their securities lending agent.

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