The Securities and Exchange Commission has proposed rule changes designed to increase transparency of securities lending and borrowing transactions.
Under proposed Exchange Act Rule 10c-1, the US securities markets regulator will require lenders to report the terms of a securities lending transaction to a registered national securities association such as the Financial Industry Regulatory Authority.
This registered national securities association will then make the terms of this lending transaction available to the public.
This step, the SEC claims, will be important to ensure that market participants, the public and regulators have access to timely and comprehensive information about the market for securities lending.
Lenders will be required to complete this trade reporting obligation to a registered national securities association within 15 minutes. Also, they will be required at the end of each trading day to report the number of shares they have lent in each security and the number of shares available to borrow.
Commenting on the proposed rule changes, SEC chair Gary Gensler says: “Securities lending and borrowing is an important part of our market structure. Currently though the securities lending market is opaque.
“In today’s fast-moving financial markets, it’s important that market participants have access to fair, accurate and timely information. I believe this proposal would bring securities lending out of the dark. We have put out this proposal for comment, and I look forward to hearing feedback from the public.”
The SEC indicates that the proposed rule aligns with Congress’s mandate in the Dodd-Frank Act which encourages the regulator to improve transparency of securities lending and borrowing for brokers, dealers and investors.
SEC chief economist Jessica Wachter says: “The rule will bring much needed transparency into the securities lending market giving the market information that is both comprehensive and timely.”
David Saltiel, Division of Trading and Markets acting director, says: “The proposal focuses on the need for transparency in the securities lending market and further satisfies the Commission’s Congressional mandate to promulgate rules that are designed to provide such transparency in this market.”
The public consultation period will extend for 30 days, dating from when the proposal is published in the Federal Register.
