From Collateral Enforcement to Non-Liquidative Deleveraging: A Macroprudential Ownership-Conversion Protocol for Concentrated Equity Lending

Abstract

This paper proposes an ownership-conversion protocol for equity-collateralized lendingunder concentrated ownership. It does not present appropriation, foreclosure, title transfer,or debt-for-equity conversion as new legal devices. Those elements are already present incollateral law and market practice. The proposed contribution is functional and institutional:to the author’s knowledge, based on publicly available sources, public margin-lendingdocumentation does not appear to standardize a protocol in which ownership conversionis predetermined as a margin-restoration path for systemically relevant loans againstconcentrated equity stakes. The proposed architecture has five linked features: deterministicactivation, independence from the borrower’s ability to raise liquidity elsewhere, gradualconversion by tranche, an exposure cap, and a macroprudential objective of suppressingforced-selling order flow.The paper distinguishes legal availability from contractual default and frommacroprudential effectiveness. In the European Union, the Financial Collateral Directivepermits appropriation subject to agreement and valuation terms. In the United States,Article 9 permits post-default acceptance of collateral, but its after-default consent andredemption structure makes a direct ex ante automatic analogue materially harder underordinary secured-transactions mechanics. Public SEC exhibits show that actual margin-loancontracts already use LTV triggers, collateral top-up rights, mandatory prepayments, controlagreements, and broad remedial discretion, yet still privilege cash cures, additional collateral,or discretionary enforcement. The unresolved problem is therefore not the absence ofremedies, but the absence of a standardized non-liquidative deleveraging path that changesincentives before stress materializes.