Abstract
Equity investors, whether hedge funds or retail investors, must trade stocks through broker-dealers, and when these investors are not actively trading, their securities and uninvested cash remain with their broker-dealer. What broker-dealers do with these “idle” customer assets is a vast and largely unexamined business that is a key source of revenue for broker-dealers. This Note provides the first comprehensive examination of the trade-offs in regulating broker-dealer use of idle customer assets through case studies of broker-dealer sweeps of uninvested customer cash, broker dealer lending of customer margin securities, and the effect of securities lending on customers’ shareholder votes. On one hand, broker-dealer use of idle customer assets potentially increases agency costs and systemic risk by increasing broker-dealer interconnectedness and allowing broker-dealers to profit off customer assets. On the other hand, proper use of idle assets can generate positive outcomes for customers through higher returns and positive social benefits for the general market. This Note proposes and examines potential reforms like increased disclosure and scholars to frame parallel exclusion as a form of monopolization.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
