On November 18th, the SEC announced that it is proposing Rule 10c-1, in accordance with the Congressional mandate in the Dodd-Frank Act that the SEC enhance efficacy and transparency pertaining to the loan or borrowing of securities for brokers, dealers, and investors. Consistent with the SEC’s goals, the proposed rule helps to ensure that market participants, the public, and regulators have access to timely and comprehensive information about the market for securities lending.
Proposed Rule 10c-1 will satisfy the order by making it mandatory for lenders of securities to submit the pricing and other material terms of securities lending transactions to a registered national securities association (RNSA), such as the Financial Industry Regulatory Authority.
The SEC expects the proposed rule will address the issues of limited information available to US market participants and regulators about securities lending and that market data being incomplete, decentralized, and inaccessible to the general public. Problems such as these: (1) create inefficiencies in the securities lending market and make it difficult for borrowers and lenders to know whether the terms of their loans are consistent with market conditions, and (2) affect the ability of the SEC, RNSAs, other self-regulatory organizations, and other Federal financial regulators to oversee transactions that are vital to fair, orderly, and efficient markets.
In particular, the terms to be provided to the RNSA and made accessible to the public by the RNSA include:
Legal name of the issuer of the securities to be borrowed
Ticker symbol of those securities
Time and date of the loan
Name of the platform or venue, if one is used
Amount of securities loaned
Rates, fees, charges and rebates for the loan as applicable
Type of collateral provided for the loan and the percentage of the collateral provided to the value of the loaned securities
Termination date of the loan if applicable
Borrower type (for example, broker, dealer, bank, customer, clearing agency, or custodian)
The following loan terms would be provided to an RNSA but would not be made public:
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
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 follow the securities lending transaction, the proposed rule would make it mandatory for RNSAs to assign a unique transaction identifier to each securities lending transaction. If the modifications to the loan involved any of the loan terms mentioned above, loan modifications would be provided to the RNSA. The terms of the loan modification would be publicly available.
Under proposed Rule 10c-1, information concerning securities on loan or available to loan must be provided to the RNSA by the end of each business day. This information would be made accessible to the public by the RNSA on an aggregated basis.
The public is invited to respond to proposed Rule 10c-1 during the comment period, which will remain open for 30 days following publication in the Federal Register. Instructions for submitting feedback are detailed in the Reporting of Securities Loans proposed rule on sec.gov.
For more information, contact Theresa Hajost, Special Counsel, Samuel Litz, Special Counsel, John Guidroz, Branch Chief, Josephine Tao, Assistant Director, Office of Trading Practices, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549, at (202) 551-5777.