The Office of General Counsel issued the following informal opinion on August 19, 2002 representing the position of the New York State Insurance Department.

Re: Securities Leasing/Lending


Is the practice of securities leasing or lending allowed by the Department?


The leasing (or lending) of securities by insurers is a permitted practice, subject to the restrictions described below.


The inquiry was general in nature and did not set forth any specific facts.


Securities lending involves the temporary exchange of securities, usually for other securities or cash of an equivalent value (or occasionally a mix of cash and securities) with an obligation to redeliver a like quantity of the same securities at a future date. The practice of securities lending was first approved by the Department in an Opinion of General Counsel that was published in the Department’s Monthly Bulletin in December 1975.1   That Opinion provided, in pertinent part, as follows:

It is now the position of the Department that such leasing agreements do not per se result in the securities being "beyond the control of the company’s board of directors" and "withheld from sale" and thus contrary to [N.Y. Ins. Law] Section 78(2), provided that the borrowers (the securities brokers) are obligated to return the identical securities (or their equivalent) at the termination of the loan, and the insurers have the right to terminate their loans and receive the securities on short notice (no longer than six days). In addition, the borrower must post collateral in the form of cash or government securities. The Department has approved loan agreements wherein such collateral would equal 102 percent to 110 percent of the current market value of the leased securities. The insurer must have the right to retain the collateral or use same to purchase equivalent securities in the market should the borrower fail to return the securities as required.

New York State Department of Insurance, Monthly Bulletin, p. 3 (December, 1975).

The Department has consistently affirmed the position, including the limits and restrictions, as set forth in the above-cited Opinion. See, e.g., Office of General Counsel Opinion 88-106 (December 15, 1988) and Office of General Counsel Opinion 89-29 (June 22, 1989), copies of which are enclosed.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

1 Prior to that ruling, the position of the Department was that such transactions were prohibited by (former) N. Y. Ins. Law § 78(2) (McKinney Supp 1983-84).