On October 13th, the SEC announced that it voted to adopt Rule 10c-1a under the Securities Exchange Act of 1934 to increase transparency requirements and improve the efficacy of the securities lending market. The rule requires certain persons to report information about securities loans to a registered national securities association (RNSA). Currently, the Financial Industry Regulatory Authority (FINRA) is the only RNSA.
The new rule would require:
- covered persons to report information about securities loans to an RNSA within specified time periods
- certain confidential information to be reported to an RNSA to enhance an RNSA’s oversight and enforcement functions
- an RNSA to make available to the public data related to daily information about the aggregate transaction activity and distribution of loan rates for each reportable security
- an RNSA to adhere to recordkeeping and data availability requirements and to make publicly available certain information it receives, within specified time periods, and to keep confidential certain information it receives
- an RNSA retain the collected Rule 10c-1a information in a convenient and usable standard electronic data format that is machine readable and text searchable without any manual intervention for a period of five years
Under the current regulatory framework, parties to securities lending transactions currently are not required to report the material terms of these transactions. Due to lack of public information as well as data gaps, inefficiencies form within the securities lending market, making it difficult for borrowers and lenders to discern market conditions and to know whether the terms of their loans are consistent with those market conditions. The new rule will not only provide market participants with timely access to pricing and other material information regarding securities lending transactions, it will also will provide regulators with information for their market oversight functions. Further, the rule permits an RNSA to establish and collect reasonable fees.
The compliance dates for Rule 10c-1a are based on the following requirements:
- an RNSA is required to propose rules within four months of the effective date
- an RNSA is required to publicly report information within 90 calendar days of the reporting date
- the proposed RNSA rules are required to be effective no later than 12 months following the effective date
- covered persons are required to report information required by the rule to an RNSA starting on the first business day 24 months after the effective date
Additionally, under the new rule, there are loan terms that will be provided to the RNSA but will not be made public, including legal names of parties to the loan as well as the following instances:
- when the lender is a broker-dealer, whether the security loaned to its customer is loaned from the broaker-dealer’s inventory, and
- whether the loan will be used to close out a fail to deliver pursuant to Rule 204 of Regulation SHO or whether the loan is being used to close out a fail to deliver outside of Regulation SHO.
The new rule requires covered persons to provide certain terms of the covered securities loans to an RNSA, including:
- legal name of the issuer of the securities to be borrowed
- ticker symbol of those securities
- time and date of the covered securities loan
- name of the platform or venue, if one is used
- amount of reportable securities loaned
- rates, fees, charges, and rebates for the loan
- type of collateral provided for the covered securities loan and the percentage of the collateral to the value of the reportable securities loaned
- termination date of the covered securities loan
- borrower type (broker, dealer, bank, customer, bank, clearing agency, custodian, etc.)
Rule 10c-1a will become effective 60 days following the date of publication in the Federal Register.
For further details on the adopted rules, see the SEC’s Reporting of Securities Loans final rule.
Source:
SEC Adopts Rule to Increase Transparency in the Securities Lending Market (sec.gov)
