Strategic Planning For a Stock ? Secured Loan Business | Finance ...

I. Legal constraints in the Private Placement Stock Secured Loan Planning

Our business offers loans collateralized by free-trading stock. It Operates under the margin loan provisions of Regulation U of the FRB banking code:

Regulation sets out U Certain requirements for lenders, brokers and dealers other than securities, who extend credit secured by margin stock. Margin stock includes any equity security registered on a national securities exchange, seeking as the New York Stock Exchange or the American Stock Exchange, any over-the-counter (OTC) security trading in the Nasdaq Stock Market?s National Market, any debt security convertible into a margin stock; and most mutual funds. The regulation covers entities that are not brokers or dealers, including commercial banks, savings and loan associations, federal savings banks, credit unions, production credit associations, insurance companies, and companies that have employee stock option plan.

My company, founded back in 1999, Operates under Reg U, providing a non-purpose credit loan against viable margin stock. This regulation Allows U.S. to operate provided that the borrower does not use the proceeds for the purchase of any securities margin viable.

In recent years there have been cases of stock loan fast and loose with operators playing the law, making claims that were not justified or allowed. The Internal Revenue Service stepped in not long ago to put at end to stock loan firms touting their loans as ?tax exempt?, for example. These loans are excellent for many uses, but certainly not for avoidance of taxes. When strategizing for a stock-secured loan company, we must look out not just for the obvious compliance requirements but also for those that might be inadvertently crossed. Originally, brokers permitted to take our loans ?on the road? to market them. We found, however, were in their zeal to close the loan, that statements were being made that not true, and so we were forced to close down those avenues, except for foreign transactions where language was a barrier. Control over broker agents is a serious issue in a litigious industry like ours Relatively. This then required a serious system of lead developments. Since our industry is a ?people? industry, Requiring face-to-face discussion of our stock loan product, how it works, and what its benefits are, we put those duties in our HQ, and turned our focus to lead development through selected partnerships. Search partnerships present far less legal liability, but less demand from the agent. II Environmental constraints on a Stock-Secured Loan Business

Thanks Largely to a number of fly-by-night ?loan stock? operators with little more than a website, the stock loan industry has in recent years in some places come to resemble the cheesy and cheap aspects of the mortgage lending industry. Particularly the sub-prime mortgage industry. Individuals who with get-rich-quick visions dancing in their heads put up websites with URLs like ?real stock loan? or ?stockholder loan? or ?capital asset loan? with no loan-to-speak of put up hyperbole-filled nonsense that includes blessings from government agencies (the ?SEC, FRB, UCC compliant!? screams one) or fake testimonials (?Best I ever had stock loan.-B. Smith?) says on pay-per-click operator. And these ARE fly-by-night operators. They have no experience. They have no programs. They see their job as to lure their victims in the way a spider lures in a moth, by whatever means or whatever lies are Necessary, before spinning them off to a real calendar.

In this environment, my company has had to face down the polluting effects of the stock-lender ?wannabees? who know very little about their product and inadvertently create an atmosphere of suspicion in an industry that should not have to deal with that. We combat these environmental factors through our ?Borrower Beware? page and through personal explanations of how these sub-par operations function. ?I put ?stock loan? into Google and they came up on top? one of them said about one firm. We point out that all they had to do was pay for the keyword. Google makes no investigation into the quality of the company, its legal background, the legitimacy of its products. It simply Allows the individual to buy Sun space they can appear as if they are a top ranking URL ? when in fact, they do not appear ANYWHERE in the natural rankings

Only companies that appear high in natural! rankings can be said to be truly legitimate. This is for several reasons. One is that only sites with high ?trust rank? ? the ones that have been listed on Google with no problems for a long time ? are given top ten positioning. The very best of them appear at the top of the natural rankings. Illegitimate companies, or companies that are new, own Thurs not appear high in the natural Google rankings and their rankings Therefore must buy on their.

We work hard to consolidate brokers in the industry. The greediest, most foolhardy among them are often shut down through a combination of lawsuits or state / federal disciplinary action, but many still exist Thurs thanks to the deceptive statements and bought pay-per-click ads on Google. We try to ?out? such sites by bringing them to the attention of regulators, or offer to bring them ?into the fold? with us, where they are required to follow very strict compliance guidelines. Efforts thesis, we hope, will serve to reduce the ?I want to be a stock lender? type organizations. Looking up ahead, it is important to hold the strongest funding system with the best organization and track record because there are two parts to the private placement stock loan business: the ?hub? ? the center where all deals flow in and flow out information and documents, and the ?spokes? ? the funders who feed quality management into the stock loan funding stroke. We operate as the hub as it were, with the very most experienced stock loan operations feeding the system small-time brokers or funders with no history can not succeed in this market space without either joining the hub as a funder, or becoming a part of the Hub?s network development as a lead broker. Either way, they must adhere to strict state legal compliance, both federal and. In this way, my firm works to mold both the environment, and carry out the self-regulation that the regulatory agencies want the stock loan industry to under take. We support law enforcement and securities regulatory actions, to the extent they apply, in our industry and where they do not exist, we seek to implement common sense policies that help protect our borrowers. Education : The Function Key to a Successful Stock Loan

Finally there is the core matter of education. Our stock loan product is by its nature to many people used to unusual mortgages, online banking, and e-trade-type investing. One of our key goals at more Effectively and personally to convey just what our stock loan program entails. We must deal both with law and the environment. We must make it clear that we are not some outfit with no credentials. We must show that the process is secure, and compliant with applicable regulation. We must make sure that they understand the benefits of of our stock loan financing as opposed to a conventional sale or holding their shares, yet encouraging Thurs so with out any buy or sell activity. We must open the Possibility of more tax-wise flexibility, without making any specific statements on how that might apply to their case as we guide them to their tax attorney or CPA. Most of all, we must lift the comfort level of our clients, making it clear that we will not abandon them at any point.

From a strategic perspective, a private placement stock-secured loan company must take education many steps beyond the typical salesman?s view of ?education?. A solid vision of the future can not be had without working with the normal anxiety that comes from proposing to move one?s stocks into a completely new account. We must work to show that the account is safe, that the precedent is there, that they get a solid track record of compliance going back many years. That means that a good company would need to stock up on intelligent, people-oriented staff and the same for lead generators. This is a product people, and and a people business. One can not hide behind the glare of market their computer screen and expect to win in this. Only by looking a prospective client in the eye, answering his questions with authority, and understanding their needs the stock loan can a conclusion take place. Those who know how to educate make the best stock loan purveyors. Ex-teachers are perfect, in fact. IV Conclusion

A company in the stock-ecue must constantly keep an eye on the law and regulation, the environment created by amateur ?brokers? who muddle the industry and must be battled or made compliant, and the importance of education in the process of bringing loans to conclusion. This requires a strategy that remains attentive to legal and environmental change, increasing those skills that will Necessary to convey and close loans. These challenges are ever more intense in times of economic downturn, when more ?wannabee? stock loan operators throw up nets and unsuspecting clients fall into them. At a time when client should be trusting only long-standing firms, we must redouble our market Efforts to educate our.

id=?article-resource?> Daniel W. Stafford, president of Hedge Lender LLC

dstafford@hedgelender.com
http://www.hedgelender.com
877-345-0008 X4

p> Formerly with the master?s degree, International Business, University of Chicago ?85

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