SEC Adopts new Rule 10c-1a to Increase Transparency in the Securities Lending Market

On October 13, 2023, the Securities and Exchange Commission (the “SEC“) adopted new Rule 10c-1a, which will require certain persons to report information about securities loans to a registered national securities association (RNSA) and require RNSAs to make publicly available certain information that they receive regarding those lending transactions. The rule is intended to increase the transparency and efficiency of the securities lending market.

Rule 10c-1a will require certain confidential information to be reported to an RNSA to enhance the RNSA’s oversight and enforcement functions. Further, the new rule requires that an RNSA make certain information it receives, along with daily information pertaining to the aggregate transaction activity and distribution of loan rates for each reportable security, available to the public. The Financial Industry Regulatory Authority (FINRA) is currently the only RNSA.

According to the SEC Fact Sheet about the adoption of Rule 10c-1a, 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.

To track the securities lending transaction, Rule 10c-1a will require an RNSA to assign each loan a unique identifier. In general, Rule 10c-1a requires that a covered person provide information to an RNSA by the end of the day that the loan is effected or modified and that an RNSA make certain information public not later than the morning of the next business day. However, the publication of the amount of an individual loan will be published on a delayed basis. An RNSA will publish information pertaining to aggregate transaction activity and distribution of loan rates for each security.

What’s next?

Rule 10c-1a will become effective 60 days following the date of publication of the adopting release in the Federal Register. The compliance dates for the new rule will be as follows: (1) an RNSA is required to propose rules within four months of the effective date; (2) the proposed RNSA rules are required to be effective no later than 12 months after the effective date; (3) 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; and (4) RNSAs are required to publicly report information within 90 calendar days of the reporting date.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
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