Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 15a-11 -- Exemption from the Definitions of "Broker" and "Dealer" for Banks Engaging in Securities Lending Transactions

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1. A bank is exempt from the definitions of the terms "broker" and "dealer" under sections 3(a)(4) and 3(a)(5) of the Act, to the extent that, as a conduit lender, or as an agent, it engages in or effects securities lending transactions, and any securities lending services in connection with such transactions, with or on behalf of a person the bank reasonably believes to be:
   
   
   1. A qualified investor as defined in section 3(a)(54)(A) of the Act; or
      
      
   2. Any employee benefit plan that owns and invests on a discretionary basis, not less than $ 25,000,000 in investments.
      
      
2. Securities lending transaction means a transaction in which the owner of a security lends the security temporarily to another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such securities, and has the right to terminate the transaction and to recall the loaned securities on terms agreed by the parties.
   
   
3. Securities lending services means:
   
   
   1. Selecting and negotiating with a borrower and executing, or directing the execution of the loan with the borrower;
      
      
   2. Receiving, delivering, or directing the receipt or delivery of loaned securities;
      
      
   3. Receiving, delivering, or directing the receipt or delivery of collateral;
      
      
   4. Providing mark-to-market, corporate action, recordkeeping or other services incidental to the administration of the securities lending transaction;
      
      
   5. Investing, or directing the investment of, cash collateral; or
      
      
   6. Indemnifying the lender of securities with respect to various matters.
      
      
4. For the purposes of this section, the term conduit lender means a bank that borrows or loans securities, as principal, for its own account, and contemporaneously loans or borrows the same securities, as principal, for its own account. A bank that qualifies under this definition as a conduit lender at the commencement of a transaction will continue to qualify, notwithstanding whether:
   
   
   1. The lending or borrowing transaction terminates and so long as the transaction is replaced within one business day by another lending or borrowing transaction involving the same securities; and
      
      
   2. Any substitutions of collateral occur.
      
      

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