Executive Summary
On October 13, 2023, the U.S. Securities and Exchange Commission adopted a final rule that will require "covered persons" who agree to a "covered securities loan" to provide certain loan-related information to FINRA by the end of the day that the loan is effect or modified.
Covered persons include: (i) 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, (ii) any person that agrees to a covered securities loan as the lender when an intermediary is not used, or (iii) the broker or dealer when borrowing fully paid or excess margin securities.
A covered securities loan refers to a transactions in which one person - either on that person's own behalf or on behalf of someone else - lends a reportable security to another person, with some exceptions. A reportable security is a security for which information is already reported or required to be reported under existing reporting regime.
The terms covered persons would be required to report to FINRA that would be made public 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/venue, if one is used;
- amount of securities loans;
- 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; and
- borrwer type (e.g., broker, dealer, customer, bank, clearing agency, custodian).
Loan terms also required to be reported to FINRA, but would not be made public, include:
- the legal names of the parties to the loan;
- when the leader 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 Reg SHO or whether the loan is being used to close out a fail outside of Reg SHO.
AIMA's enhanced summary of Rule 10c-1 can be accessed here.
Please contact Adam Jacobs-Dean or Daniel Austin with any questions regarding this proposal.
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Adam Jacobs-Dean
Managing Director, Global Head of Markets, Governance and Innovation
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Daniel Austin
Head of U.S. Markets Policy and Regulation
Practical Implications
If these changes are adopted as proposed, they will present the following practical implications:
- Advisers should consider that a loan used to effect a short sale will be reported to FINRA.
- Although the parties to the loan will not be disclosed to the public, other granular details about the loan will be available. Advisers should consider the potential consequences of this loan-level data being made public in some form.
Timeline
AIMA has categorized this proposal as Medium Priority/Medium Impact and it is therefore represented in mid-dark blue in the AIMA Regulatory Horizon Scan gantt chart.
Public Reporting to Begin | April 2, 2026 | **New** |
Compliance Date: Reporting to FINRA to Begin | January 2, 2026 | **New** |
AIMA enhanced summary of Rule 10c-1 published | March 8, 2024 | **New** |
Effective Date | January 2, 2024 | **New** |
Publication Date | October 13, 2023 | |
AIMA letter on aggregate impact | August 11, 2023 | |
Comment deadline for re-opened proposal | April 1, 2022 | |
AIMA response to re-opened proposal filed | April 1, 2022 | |
Re-opened proposal published by SEC | February 25, 2022 | |
AIMA response to proposal filed | January 7, 2022 | |
Proposal published by the SEC | November 18, 2021 |