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The Securities and Exchange Commission (SEC) has now adopted Rule 10c-1a, which requires lenders of securities to report the material terms of securities lending transactions to a registered national securities association (RNSA).
This Exchange Act Rule 10c-1 upholds a Congressional mandate in the Dodd-Frank Act to promote transparency around securities lending transactions. This requires that market participants, financial supervisors and the public have access to fair, accurate and timely information relating to loan transactions.
SFT provided a detailed two-part appraisal of the proposal objectives and content of Rule 10c-1 when this was first advanced by the SEC for public consultation in November 2021, with the market initially given just 30-days to provide its feedback.
As one senior industry figure told SFT at the time, the 30-day consultation window for 10c-1 was significantly shorter than its standard consultation timeframe, prompting concerns that the SEC would not take full account of the industry’s recommendations in moving the Proposed Rule through to implementation.
Perhaps moved by the weight of industry feeling about the unanswered questions in the original proposal and this extremely tight consultation window, falling over the final weeks of the calendar year, the SEC opted to reopen public consultation at the start of March 2022, providing respondents with an additional one month to share their views.
Almost 18 months after the close of this second round of consultation, the SEC has now released final rules for 10c-1a implementation.
Potentially the most noteworthy amendment in the 10c-1a final rules has been the removal of the 15-minute reporting window for new and modified trades that appeared in the original proposal.
Instead, the final rule requires lenders to report loan data to an RNSA by the end of each trading day.
FINRA, which is currently the only RNSA that is approved to receive this trade reporting, will maintain this information confidentially and will release only a subset of this information for public viewing on the next business day.
This information released on T+1 will include details of the time of the loan transactions, the collateral used and pricing information such as the loan’s rate. FINRA will also release aggregated data for the previous day’s loan activity, broken down by security.
However, FINRA will not disclose details of the loan amount on T+1. Rather, this information will remain confidential for a further 20 days.
The final rule will become effective 60 days after details are published in the Federal Register. This will give RNSAs — specifically FINRA — four months to finalise their rule sets and 12 months for these RNSA rule sets to be implemented.
Reporting parties covered under Rule 10c-1 will be expected to start reporting securities lending trades to FINRA 24 months after this effective date.
RNSAs will be given a further 90 days from this point to make 10c-1a information publicly available.
Commenting on the adoption of Rule 10c-1, SEC chair Gary Gensler contends that “securities lending played a role in the 2008 financial crisis, and, currently, the securities lending market is opaque.”
“Such transparency gets to the heart of the SEC’s mission,” adds Gensler. “It promotes competition. It promotes fair, orderly, and efficient markets. In fulfilling Congress’s mandate, today’s adoption will promote greater transparency in the securities lending markets both to regulators and the public.”
In a public statement, securities finance trading, post-trade and data specialist EquiLend indicates that it understands the importance of providing regulators and market participants with increased transparency into securities lending transactions and is pleased to have actively participated in industry working groups providing feedback to the SEC during the rulemaking and public commentary process.
“Since 2021, EquiLend has analysed scenarios and options to support our clients and their compliance with Rule 10c-1’s reporting and associated data requirements,” it says. The company aims to provide a forthcoming information programme addressing the Rule 10c-1 requirements and solutions available to clients to meet this reporting requirement.
Pierre Khemdoudi, head of regulatory solutions at S&P Global Market Intelligence, states: “It is imperative for market participants to have well-defined rules to follow when it comes to regularity requirements and this final rule on SEC 10c-1 now gives the industry that guidance on scope and timing of the reporting requirements for their securities lending transactions.”
The company indicates that it is pleased to see the SEC incorporate industry feedback from the proposals and adjust the final rules to factor in the operational and practical aspects of compliance, particularly around the end of day reporting requirements. These amendments will also enable third-parties to assist firms with reporting and will delay the timing of when FINRA needs to publish transaction level reporting details to the public.
“S&P Global Market Intelligence Cappitech will assist the securities finance industry with their SEC 10c-1 reporting obligations, leveraging on existing Securities Financing Transactions Regulation (SFTR) integrations and reporting pedigree to enable its customers and their counterparts to meet the necessary requirements in a cost-efficient way,” says Khemdoudi.
