SEC Rule 10c-1a – Enhanced Transparency in Securities Lending Market

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In SEC Chair Gary Gensler’s own words – “Securities lending played a role in the 2008 financial crisis, and, currently, the securities lending market is opaque”. To enhance the transparency in the functioning of securities-lending market, SEC has adopted a new Rule 10c-1a in a 3-2 vote on October 13, 2023, which will mandate the persons entering into securities loans to report the specific terms of the loan to a Registered National Securities Association (RNSA) by end of the day (as opposed to the 15 minute deadline in the initial proposal) whenever the loan is executed or amended. It is worth noting that Financial Industry Regulatory Authority (FINRA) is currently the only RNSA.

Who is Impacted by This New Rule?

Broker-dealers, custody banks acting as agent lenders, investment advisers and funds dealing in securities loans, and clearing agencies will naturally be required to assess the operational and compliance obligations imposed by this new rule. This includes all transactions when a covered person effects, accepts, or facilitates (in whole or in part) in the U.S. a lending or borrowing transaction.

Who is a Covered Person?

  • Lending agent – 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.
  • Lender – any person that agrees to a covered securities loan as the lender when an intermediary is not used.
  • Broker / dealer when borrowing full paid or excess margin securities.
  • Third-party reporting agent such as broker, dealer or clearing agency or 3rd party technology provider undertaking the reporting obligations to FINRA.

What Needs to be Reported?

  • Reportable Security – Includes loans of equity securities i.e., listed and OTC, debt securities subjected to TRACE reporting, digital asset securities.
  • New Loan executed to be reported by end of the day including:
    • Security issuer name i.e., legal names of the parties to the loan.
    • Ticker symbol
    • ISIN or CUSIP
    • Amount of securities loaned.
    • Date and time of loan.
    • Borrower type i.e., broker, dealer, bank, customer, bank, clearing agency, custodian.
    • Venue or platform where loan was executed (if applicable).
    • Collateral details i.e., collateral type, % of collateral to securities loan value etc.).
    • Fee information, loan rebate information whether collateralized by cash, lending rate or other fee loans not collateralized by cash.
    • Termination date of the covered securities loan.
  • Amended Loan data – Any modifications to material loan terms.
  • Excludes broker-dealers use of margin securities used for rehypothecation.
  • Confidential Data
    • Of the associated person i.e., lender, borrower or lender
      • Market participant identifier
      • LEI of each party to the loan
      • Investment advisory registration depository number
      • Central registration depository number
    • Is the loan coming out from the broker-dealer’s inventory?
    • Purpose of the loan i.e., used to close out a failure under Rule 204 of Regulation SHO or outside of Regulation SHO

 Implementation Timings

  • Nov 2023 – The final rule is expected to be published in the Federal Register within one month of finalizing the rule.
  • Jan 2024 – The final rule will become effective 60 days after publication in the Federal Register.
  • April 2024 – RNSA is required to propose rules within four months of the effective date.
  • Jan 2025 – The proposed RNSA rules are required to be effective no later than 12 months after the effective date.
  • Jan 2026 – 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.
  • RNSAs – required to publicly report information within 90 calendar days of the reporting date.
Securities Lending Reporting Obligations – Global Regulatory Landscape Overview (Illustrative)
Reporting Obligation SEC 10c-1 SFTR EMIR Asia Pacific
UTI Required Yes Yes Yes Yes
Total Number of Reporting Fields 12 + additional EOD fields 165 129 129
Who to report to? RNSA (FINRA) Trade Repository Trade Repository Trade Repository
Delegated Reporting Allowed? Yes Yes Yes No
Reporting deadline End of day T+1 T+1 T+1
Lifecycle reporting Yes Yes Yes Yes
Daily Reval No Yes Yes Yes
Reporting Fields Legal name of the issuer LEI of the issuer
Ticker symbol Security Identifier
Time & Date of the covered securities loan Execution timestamp
Borrower type – broker, dealer, clearing agency, custodian, bank, customer No equivalent
Termination date Maturity Date
Rates, fees, charges, loan rebates Rebate rate (fixed, floating), lending fee, spread of the rebate rate
Platform or venue name Trading venue

How Treliant Can Help?

Treliant assists firms in designing and implementing the target operating model to fulfill the securities-lending reporting obligations. Additionally, Treliant can help firms carry out a detailed regulatory rule gap assessment, assess build vs. buy decisions, and implement data and technological enhancements and operational governance framework on reporting obligations.

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Tom Ciulla

Tom Ciulla is a Managing Director in Treliant’s Capital Markets Solutions practice. Tom is a senior executive with extensive business, operations, and IT experience as a Big 4 partner serving sell-side, buy-side, and industry utility clients across global financial markets. He specializes in developing financial services solutions, while growing and…