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On October 13, 2023, the SEC adopted new Rule 10c-1a under the Securities Exchange Act of 1934, which will&nbsp;require the reporting of certain details regarding securities&nbsp;lending transactions to a registered national securities&nbsp;association (RNSA). Currently, FINRA is the only RNSA.

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New Rule 10c-1a will require any “covered person” to&nbsp;provide specified information about “covered securities&nbsp;loans” to an RNSA within a certain time period and in&nbsp;accordance with the format and manner required by rules&nbsp;that the RNSA will adopt. The new rule will also require&nbsp;the RNSA to make publicly available certain information it&nbsp;receives about securities loans and to keep confidential&nbsp;certain other information it receives. Reportable&nbsp;information to be made public will include identifying&nbsp;information about the security subject to the loan and&nbsp;its issuer; the date and time of the loan; the name of the&nbsp;platform or venue where the loan is affected; the amount&nbsp;of securities on loan; the type of collateral used to secure&nbsp;the loan; rates, fees, charges and rebates for the loan; the loan’s termination date; and the type of entity that is the&nbsp;borrower of the security (i.e., if the borrower is a broker,&nbsp;dealer, customer, clearing agency, bank, custodian or&nbsp;other person). Reportable information that the RNSA&nbsp;must keep confidential will include the legal names of the&nbsp;parties to the covered securities loan; if the lender is a&nbsp;broker or dealer and the borrower is its customer, whether&nbsp;the security on loan came from the lender’s inventory;&nbsp;and if known, whether the loan will be used to close out&nbsp;a fail to deliver under Regulation SHO or to close out a&nbsp;fail to deliver outside of Regulation SHO. The rule will&nbsp;also require covered persons to report certain information&nbsp;to RNSAs about modifications to outstanding covered&nbsp;securities loans.

For purposes of the new reporting requirements, Rule 10c-1a defines a covered person as (1) any person that agrees&nbsp;to a covered securities loan on behalf of a lender (i.e., an&nbsp;intermediary), other than a clearing agency; (2) any person&nbsp;that agrees to a covered securities loan as the lender when&nbsp;an intermediary is not used; or (3) a broker or dealer when&nbsp;borrowing fully paid or excess margin securities. The rule&nbsp;defines a covered securities loan as any transaction in which&nbsp;one person, either on that person’s own behalf or on behalf&nbsp;of one or more other persons, lends a “reportable security”&nbsp;to another person. The rule excludes from the definition of&nbsp;covered securities loans positions at a registered clearing&nbsp;agency resulting from central counterparty services or&nbsp;central depository services and the use of margin securities&nbsp;by a broker or dealer unless the broker or dealer lends the&nbsp;securities to another person. Finally, to identify whether a<br>particular securities loan is a covered securities loan, Rule&nbsp;10c-1a defines a reportable security as any security for&nbsp;which information is reported or required to be reported&nbsp;to the consolidated audit trail in accordance with existing&nbsp;reporting regimes such as the Consolidated Audit Trail&nbsp;National Market System Plan, FINRA’s TRACE reporting&nbsp;system or the Municipal Securities Rulemaking Board’s&nbsp;Real-Time Transaction Reporting System.

Rule 10c-1a will require that a covered person provide the&nbsp;requisite information about a covered securities loan to&nbsp;an RNSA by the end of the day on which the loan is made&nbsp;or modified, and that the RNSA assign a unique identifier&nbsp;to each covered securities loan and make the requisite&nbsp;information about the loan public no later than the morning&nbsp;of the next business day.&nbsp;

Rule 10c-1a will become effective on January 2, 2024.&nbsp;The adopting release for the rule specifies that (1) RNSAs&nbsp;must propose rules to implement Rule 10c-1a within four&nbsp;months of the effective date of Rule 10c-1a; (2) those RNSA&nbsp;rules must be effective no later than 12 months after the&nbsp;effective date of Rule 10c-1a; (3) covered persons must&nbsp;begin reporting information required by Rule 10c-1a to&nbsp;RNSAs starting on the first business day 24 months after&nbsp;the effective date of Rule 10c-1a (i.e., the reporting date);&nbsp;and (4) RNSAs must begin publicly reporting required&nbsp;information about covered securities loans within 90 calendar days of the reporting date.

The SEC’s adopting release is available <a href="https://www.sec.gov/files/rules/final/2023/34-98737.pdf" target="_blank" rel="noreferrer noopener">here</a>, a related fact sheet is available <a href="https://www.sec.gov/files/34-98737-fact-sheet.pdf" target="_blank" rel="noreferrer noopener">here</a>, and a related press release is available <a href="https://www.sec.gov/news/press-release/2023-220" target="_blank" rel="noreferrer noopener">here</a>.

SEC Adopts Securities Lending Disclosure Requirement

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