ISLA Americas Publishes New Opportunities for Fully-Paid Borrow: Equity-for-Equity Securities Loans Whitepaper

Following a multi-year regulatory engagement effort led by ISLA Americas and SIFMA, we are pleased to announce an important new development for the U.S. securities lending market. On March 30, 2026 the Securities and Exchange Commission (SEC) provided regulatory relief from the custody rules for registered broker-dealers to permit such broker-dealers to pledge baskets of Russell 1000 and/or S&P 500 equity securities, including ETFs based on these indices, as collateral when borrowing equities from qualified institutional clients (“equity-for-equity fully-paid borrow” or “E4E”).

This E4E relief reduces the need for broker-dealers to employ a “two-transaction model” for facilitating customer short sales. Under that model, broker-dealers repo or pledge customer equities and receive cash to help fund long purchases while posting cash collateral to the same counterparty to borrow equities used to facilitate short sales or other customer transactions. By streamlining the borrowing of equities against equities into a single transaction, this regulatory action is anticipated to significantly reduce operational complexity and counterparty exposures during times of market volatility.

This expansion of permitted broker-dealer activity comes in the form of relief from various restrictions imposed by Rule 15c3-3 (the “Customer Protection Rule”) under the Securities and Exchange Act of 1934 (the “Exchange Act”). The relief is provided through two parts: an exemptive order issued on March 30, 2026 in SEC Release No. 34-105108 (the “E4E Order”) and a No-Action Letter issued on the same day.1 The E4E Order sets out the basic terms of permitted E4E transactions, including permitted counterparties and security types, while the No-Action Letter allows broker-dealer to take deductions in their equity cash reserve calculations for the delivery of equity collateral provided they satisfy certain enhanced operational requirements.

This development represents a carefully structured evolution in the U.S. securities lending framework. The SEC’s action does not introduce a new economic activity but rather permits a more efficient and transparent structure for equity borrowing that has historically been achieved through multiple transactions.

Participation in equity-for-equity transactions is entirely optional and subject to bilateral agreement, internal risk approval, and existing fiduciary and regulatory constraints.

To support members in understanding and implementing the SEC position, ISLA Americas has published a detailed whitepaper outlining the background to the request, the regulatory framework, and key considerations for firms across legal, operational, risk, and balance sheet functions. Written with counsel support from Debevoise & Plimpton, the paper is intended to promote consistent application of these rules across the market.

This paper provides an initial overview of these rule changes, including details of the specific conditions for participation, and some factors your firm needs to consider to potentially take advantage of these new opportunities.