On November 18, 2021, the SEC published proposed Rule 10c-1 under the Securities Exchange Act of 1934, which, if adopted, would require lenders of securities to report the material terms of their securities lending transactions to a registered national securities association (RNSA), such as FINRA, which would in turn make public certain information about each securities lending transaction as well as aggregated information about securities on loan and available for loan. The proposed rule is intended to provide investors and other market participants with timely access to pricing and other material information about securities lending transactions and to provide regulators with information to assist in market oversight. The rule was proposed in furtherance of the SEC’s mandate under the Dodd-Frank Act to increase transparency in the securities lending market.

Key points from the SEC’s proposal include:

• New Reporting Requirements Would Be Applicable Only to Lenders and Lending Agents. The reporting requirements under the proposed rule would apply only to lenders of securities. The SEC stated that requiring only one side of the transaction to report would avoid potential double counting of transactions, and that it believes lenders are in a better position than borrowers to provide material information about securities lending transactions. If a lender uses an intermediary such as a bank, clearing agency or broker-dealer for securities lending transactions, the intermediary as lending agent would assume the reporting obligation on behalf of the lender under the proposed rule. The proposed rule also would allow a lender or lending agent to enter into a written agreement with a broker-dealer to serve as its reporting agent.

•  RNSAs and Reporting Agent Requirements. The proposed rule would require that lenders report the material terms of securities lending transactions to an RNSA in the format and manner required by the RNSA’s rules. FINRA currently is the only RNSA, and in the proposing release, the SEC noted that the majority of securities lending transactions are effected through broker-dealers that are members of FINRA. As noted above, the proposed rule would allow a lender (which may not be a member of FINRA) to contract with a broker-dealer (which would be a member of FINRA) to serve as its reporting agent to fulfill its reporting obligations, provided that the reporting agent is provided timely access to the required information. To the extent a lender of securities uses a reporting agent, the proposed rule would require that the reporting agent (1) adopt written policies and procedures to provide the required information to an RNSA consistent with the proposed rule, (2) enter into a written agreement with the RNSA to permit the reporting agent to provide the required information to the RNSA on behalf of the lender, (3) provide the RNSA with a list of the lenders and lending agents for which it serves as reporting agent and update the list on any day the list changes and (4) comply with certain recordkeeping requirements.

• Required Information and Publication by RNSAs. The proposed rule would apply to lending activity involving all types of securities (i.e., both equity and non-equity securities). For each securities loan, certain loan-level data would be required to be provided to an RNSA within 15 minutes after a loan is effected or modified, as applicable. This loan-level data would include, among other things, the identity of the securities on loan, the date and time of the loan, the economic terms of the transaction, the collateral provided for the loan, the termination date, if any, and the borrower type, as well as information about certain modifications to the terms of an outstanding loan. The RNSA would then make this information public as soon as practicable. In addition, lenders and lending agents would be required to report to an RNSA certain information about the amount of securities they have available to lend and the total amount of each such security on loan by the end of each business day. The RNSA would make this information available to the public only on an aggregated basis. Lastly, the proposed rule would require certain additional information to be reported to the RNSA along with the loan-level data for purposes of regulatory oversight, such as the legal names of the parties to securities loans and their roles in the transaction, which would be kept confidential.

• Requirements Applicable to RNSAs. Under the proposed rule, the RNSA would be charged with implementing rules regarding the format and manner of collecting and, as applicable, distributing the required information. These rules would, among other things, require the RNSA to retain collected information in a usable standard electronic data format and to make the information available on its website free of charge and without use restrictions for at least five years, and require the RNSA to adopt written policies and procedures to maintain the security and confidentiality of the confidential information it collects. The RNSA would also be able to establish and collect reasonable

The SEC’s proposing release is available here. The public comment period ended on January 7, 2022.