State Street Global Advisors has announced that from 13 July 2010, it has ceased its securities lending program in number of fixed income funds, and closed any remaining open positions. In a LSE stock exchange announcement, the Boston-based bank said, the Directors are of the view that the discontinuance of the securities lending programme is in the best interests of shareholders.
According to an SSgA spokesperson, redemption fees in the Irish UCITS fixed income funds – State Street Global Advisors Fixed Income Plc had been instituted back in March 2009 to protect the funds shareholders in light of significant market events impacting the securities lending programme of some of the funds. Once certain assets acquired with the cash collateral received from lending activities have been liquidated, the redemption fee will no longer be necessary to protect the interests of non-redeeming shareholders.
Earlier in July 2010, State Street paid a one-time $330 million cash contribution to a number of funds managed by SSgA, in order to remove redemption restrictions.
State Street also identified potential inconsistencies with its implementation of those redemption restrictions applicable to certain agency lending collateral pools.
These inconsistencies arose in October 2009, when The Public School Retirement System of Missouri and The Public education Employees Retirement System sued State Street for violating duties of an investment fiduciary and the Securities Lending Authorization Agreement, after the bank demanded $4.2 billion be re-placed into a securities lending account, after the funds withdrew $8 billion between October 2008 to June 2009.
A State Street spokesperson said that, as a result of the litigation, State Street would be taking a look at redemption activity across the board, and measuring whether redemptions impacted other investors in the lending pools. State Street has set up a reserve fund of $75 million to address these issues.
Joseph L. Hooley, State Streets president and chief executive officer, said, “[the] announcement demonstrates our commitment to resolving the challenges resulting from the market turmoil over the past several years.
Additionally, State Street accrued $9 million of related costs, due to the restructuring of portfolios.
State Street has suffered a number of difficulties with its securities lending program. Craig Starble, a former head of securities lending, recently founded a rival third-party agent lender, prompting a walkout of securities financing staff, including the present head of securities lending, Peter Economou.
State Street recently saw a lawsuit against its securities lending program dismissed. New Orleans based law firm Fishman Haygood Phelps Walmsley Willis & Swanson sued State Street for a breach of fiduciary duty regarding the law firms defined contribution plan. Despite the court victory, the Securities and Exchange Commission is continuing an investigation into State Streets securities lending program.