SEC Alert! Reporting of Securities Loans Final Rule to be published in Federal Register 11/3/23 and effective 60 days after publishing (1/2/24).

Wut Mean?

SEC Adopts Rule to Increase Transparency in the Securities Lending Market

• Rule 10c-1a will require any “covered person” who agrees to a “covered securities loan” to provide specified information to an RNSA.

A covered person refers to:

• Any person that agrees to a covered securities loan on behalf of the lender (intermediary) other than a clearing agency when providing only the functions of a central counterparty or a central securities depository.
• Any person that agrees to a covered securities loan as the lender when an intermediary is not used.
• The broker or dealer when borrowing fully paid or excess margin securities.

A covered securities loan refers to:

• A transaction in which one person – either on that person’s own behalf or on behalf of one or more other persons – lends a “reportable security” to another person, with exclusions for:
• positions at a registered clearing agency that result from central counterparty services or central depository services.
• the use of margin securities by a broker or dealer unless such broker or dealer lends such securities to another person.

Rule 10c-1a will require covered persons to provide certain terms of the covered securities loans to an RNSA, if applicable, including the:

• 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; and
• Borrower type, e.g., broker, dealer, bank, customer, bank, clearing agency, custodian. Additional loan terms that will be provided to the RNSA but will not be made public include:
• The legal names of the parties to the loan;
• When the lender is a broker-dealer, whether the security loaned to its customer is loaned from the broker-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.
• Effective 1/2/24.
• Gary Gensler: "as relates to the reporting to regulators, the final rule will require lenders to report loan data to a registered national securities association—i.e., FINRA—by the end of each trading day."
• Hester Peirce: "While providing transparency regarding securities lending is a worthy & statutorily mandated objective, the approach we are voting on today is not the right way to achieve that objective. Accordingly, I cannot support this recommendation."
• Mark Uyeda "when these changes from the proposal are taken together, to what extent can the resulting information be used to estimate particular short selling positions & is that acceptable?"

TLDRS:

• The SEC is publishing Rule to Increase Transparency in the Securities Lending Market in the Federal Register 11/3/23.
• Rule 10c-1a will require any “covered person” who agrees to a “covered securities loan” to provide specified information to an RNSA.
• Effective 1/2/24.

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